Stock of the Day - Orocobre (SELL)

Orocobre’s (ORE) recent announcement about official ceremony of the Olaroz Lithium Project on 03 December 2014 gained a lot of attention in the recent time.


Ribbon Cutting Ceremony at Olaroz (Source – Company Reports) 
The Company also announced that the Argentine mining magazine Panorama Minero and the Fundacion para el desarrollo de la Mineria Argentina named Orocobre Group’s subsidiary Sales de Jujuy SA as the ‘Mining Company of the Year 2014’.



Capital Structure (Source – Company Reports)
 
The commission of the auxiliary circuits has been completed and the focus over the past few weeks has been on the primary lithium carbonate circuit. With the commissioning of the belt filter, the plant was able to produce the first primary lithium carbonate on 21 November 2014. The commissioning process moved on to the purification and micronizing circuits which are expected to be completed shortly.

In line with the above and ORE’s November investor updates, the Company reported that the commissioning of the lithium carbonate plant commenced in August with the plant was expected to be operational by end of Novmeber. Further, the Company expected that the project will be completed on budget with stage 1 production of 17,500tpa (high margin/ low cost operation). In fact from sustainability standpoint, the fesibility study considered 40 years with only 15% resource extraction. The large world-class JORC/NI 43-101 resource enables significant expansion potential. The project is a low US$229.1m CAPEX capital efficient project which is fully funded through production. The exploration potential revealed that thick continous sand sequence is intersected by drilling to >300m. The project has been forecast to  have a bottom quartile unit cost of production at nameplate capacity.


Olaroz Project (Source – Company Reports)

Entering into an agreement with the provinicial government owned Jujuy Energia y Mineria Sociedad del Estado (JEMSE) and approval of the Olaroz project indicated strong partnerships with government entities.


Partnerships (Source – Company Reports)

With regards to the Borax Argentina Operations, ORE reported for sustainable JORC resource and historical estimates with long standing business undergoing rejuvenation and positive NPAT in FY14. The production of boron chemicals and mineral concentrates has been over 40,000tpa. The operations entail large asset base of 3 mines, 2 concentrate plants and a refinary operation with immense upside from existing assets. The proximity of Cauchari and Salinas Grandes brines to Olaroz is indicative of expansion potential and execution flexibility.


Borax Argentina Products & Markets (Source – Company Reports)

Further, the annual lithium market demand growth of about 10% forecast and growth in electric transport and lithium battery use reflect strong market potential. ORE expects to be the first developer of a large scale lithium brine mine in 20 years.


Current Lithium Supply by Company (Source – Company Reports)

The Company has also elucidated existence of depth in additional mines and projects. Particularly, Cauchari exploration revealed the Li, K, B property immedietly south of planned Olaroz plant with inferred resource of 470Kt LCE, 1.6Mt KCL & 122Kt B. Then Salinas Grandes/ Cangrejillos exploration revealed Li-K project drilling showing excellent grades and chemistry with inferred resource of 240,000t LCE, 1.0Mt KCL & 12Kt B. Guayatoyoc & others exploration revealed “K” discoveries.


Distribution of the Tincalayu Properties (Source – Company Reports)

As per the November 2014 updates, ORE declared that the Tincalayu resource estimate is much larger than expected with indicated and inferred resource of 6.5 million tonnes at 13.9% B₂O₃ estimated at the marginal cut-off of 5.6% B₂O₃ appropriate to the current production capacity of 30,000tpa borax decahydrate. At a marginal cut-off of 2.8% B₂O₃, appropriate for a possible expanded production rate of 100,000tpa borax decahydrate there is an indicated and inferred resource of 17.8 million tonnes at 11% B₂O₃. Further, Whittle 4D modelling reflects that there is a potential mining life in excess of 30 years based on optimum discounted cashflow criterion. ORE has initiated technical studies to examine expansion options. 


ORE Daily Chart (Source - Thomson Reuters)

Given the fact that it may take some time to reap any benefits out of the current ongoing projects and other developments by ORE, we put a SELL recommendation for this stock at the current price of  $2.76.


 
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