Orocobre: Gambling on Lithium

03/13/2014 10:00 am EST


We are recommending the speculative shares of a small Australian miner with big dreams; this company spans the globe, headquartered in Brisbane, partnered in Tokyo, and operating in Argentina, notes Frida Ghitis, contributing editor to Global Investing.

Orocobre (OROCF) (TSX:ORL) aims to be a big lithium producer of future green fuel lithium. The lithium market is on fire, as Elon Musk's electric car company Tesla (TSLA) is stepping on the accelerator and massively increasing production.

Orocobre is highly speculative and never made any money. But it has a seal of approval via its Japanese partner, Toyota Tsusho, a sub of the car maker. Toyota needs lithium supplies for batteries in its best-selling Prius hybrid and other electric cars.

In Argentina's Olaroz project, OROCF owns 66%, Toyota 25%, and the Jujuy Provincial government mining firm the rest.

Jujuy authorities demanded a stake to let a foreign firm exploit national resources at a time when President Cristina Fernandez was nationalizing foreign companies. For Jujuy, the result was the partnership deal.

Now Orocobre says it is finally getting close to production after investing more than $200 million developing lithium and potash mines. Olaroz is expected to produce large quantities at a low cost, giving OROCF a competitive advantage. I've watched construction updates drip in for years like a Chinese financial torture machine.

In late January, OROCF said Olaroz was “75% physically complete,” adding that the plant would soon be “fully commissioned.” Evaporation ponds were built ahead of schedule, and an electricity generator and natural gas pipelines were all but ready.

At the same time, OROCF bought Borax Argentina from Rio Tinto (RIO) and now produces boric acid in Jujuy and Salta provinces (northern Argentina). It also has other lithium projects, but Olaroz is the key. The Australian management says first production will start by the end of the first half of this year.

Lithium may be the oil of the future. Tesla is building the world’s largest lithium-ion battery factory and it has such a fantastic product, it can’t keep up with demand.

Consumer Reports called the all-electric Tesla the best car it tested ever, of any kind, or category. OROCF, still in the red, popped up c20% in the last week and 40% in the last 12 months. But it is still far lower than when it piqued our interest the last time.

This is a gamble. We caution that this stock must be considered extremely speculative. However, the market is hot for lithium and OROCF may bring product to market in a few months. It is time to jump in.

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