Within the last decade, lithium-ion batteries have become essential for a myriad of applications, ranging from pocket-size electronics to cars and a new generation of commercial trucks hitting the roads now, explains Jimmy Mengel, editor of The Crow's Nest.
Lithium demand for battery manufacturers will continue to grow at a dizzying pace. But mining operations are capital intensive and take a long time to go from exploration to full-scale production.
The lagging supply side of the lithium equation creates a great opportunity for investors in large-scale miners that will enjoy either substantial price increases or substantial production increases at current prices.
That’s why we’re going to enter into the sector. And we have a good entry point with one of the relatively smaller companies with some interesting market advantages going forward. Orocobre Limited (Toronto: ORL; OTC: OROCF) is a relatively new company based out of Brisbane, Australia, with a focus on lithium and borax mining in Argentina.
The company currently has its wholly-owned Borax Argentina and the Salar de Olaroz joint venture (JV) with a local Argentinian company Sales de Jujuy.
In 2016, Orocobre entered into a joint venture with Advantage Lithium (Vancouver: AAL) on its Caucharí Project. Under the terms, Orocobre divested several of its exploration projects to Advantage Lithium for a 33.5% share of Advantage.
The transaction enabled these high-potential exploration assets to be developed and advanced without the need for any further input of capital or management time by Orocobre. The Caucharí JV project is now a 25% and 75% JV between Orocobre and Advantage Lithium.
Although this project has plenty of work left to do before meaningful production begins, it’s a win-win situation for both companies. The close proximity allows for lower costs through shared infrastructure, experience, permits, and government and community relations. The brine chemistry is similar, which allows for compatible processing at the Salar de Olaroz facility.
Orocobre is now able to start generating net cash while continuing to reduce overall debt. And that creates a positive feedback loop that should continue to improve earnings, revenue, and cash flow for years to come.
We’re betting on that improvement to continue and for Orocobre to capitalize on the incredible demand growth for lithium going forward.
The catalysts for the company to improve and generate a profit for us are clear: improving the balance sheet, improving margins, expanded revenue sources, and further expansion. And Orocobre shows all the signs of delivering across the board. We’re adding Orocobre Limited to the portfolio at or below $3.40
