Orocobre Still on Track for Near-term Lithium Production

Orocobre Still on Track for Near-term Lithium ProductionFor investors following Australia’s Orocobre (TSX:ORL,ASX:ORE), it isn’t a surprise that the industrial metals company still expects to complete construction of its Salar de Olaroz project on time and on budget.

Orocobre has been working hard to develop the Argentinian brine-based lithium project for some time now, and although its regular updates aren’t groundbreaking, they’ve certainly given confidence to shareholders.

Case in point: Orocobre is up 10 percent year-to-date on the Australian Stock Exchange, and has gained 15 percent on the Toronto Stock Exchange over the same period.

Near-term production

On Friday, the company released its latest quarterly activities report, reiterating that Olaroz is in the final stages of construction. When complete, the project will be the first large-scale, de-novo, brine-based lithium project in 20 years, according to the company’s website. Orocobre will then join three existing low-cost producers in Argentina’s “Lithium Triangle,” and will produce an anticipated 17,500 tonnes per year of battery-grade lithium carbonate during its first phase of operations.

Commissioning of the plant at Olaroz commenced in August, and the facility is anticipated to be in full first-phase operation in November. Brine inventories are already being built up in advance of production.

Additional supply

Furthermore, recent exploration work has better outlined a target below Orocobre’s current resource at Olaroz. The company announced on October 23 the intersection of a sand unit over 100 meters thick below the current resource area. It indicates “the potential for additional brine from 323m to the bottom of the basin,” which could be up to 600 meters deep. More work is needed to better define the unit, but the results provide some decent upside potential for Orocobre.

As the company notes, the deeper unit could be a boon for expansion costs, as it has the potential to “significantly reduce the capital cost for additional brine supply and pipeline systems which will be needed for the first expansion at Olaroz.”

Attracting attention

Certainly, Orocobre’s hard work has not escaped the attention of analysts and market watchers, with some seeing further positive developments for the company in the future.

Livio Filice of Seeking Alpha suggested recently that Orocobre could be a target for M&A activity. Specifically, he posits that the company may look attractive to battery manufacturers in countries such as Japan, Korea or China, as those countries use a lot of lithium, but are not significant lithium producers themselves. To support that hypothesis, he points out that Japan’s Toyota Tsusho (OTC:TYHOF) has already taken an interest, gaining a 25-percent stake in the project to become its first offtake partner.

Also writing for Seeking Alpha, the Investment Doctor suggests that the Olaroz project “has everything a lithium investor would be looking for,” including a low-cost production profile, an extremely long-term mine life, secure financing and production on the horizon.The author does note that Argentina has in the past been the site of some issues related to resource nationalism, but argues that a repeat in Orocobre’s case would be “out of the question” given the project’s importance to the local economy. Overall, he is “quite enthusiastic” about the company, and about the Olaroz project in particular.

Given the state of the commodities markets as of late, it’s encouraging to see a mining company doing well. No doubt more resource investors will be looking to the energy metals space, and those who do will be keeping an eye on Orocobre as the company moves into production.

 

Securities Disclosure: I, Teresa Matich, hold no direct investment interest in any company mentioned in this article.

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