Wednesday, November 11, 2015

Here is my speculative lithium play

The other day I wrote about the emergence of lithium as the new energy metal. I do see a potential opportunity for lithium as there is near to middle term window where there will be insufficient supply for the emerging demand. The lithium market is dominated by three large companies; FMC, Chile based Sociedad Quimica, and Albermarle. These are large companies and are not pure lithium plays. They should do well as lithium prices move higher but we want a pure play for the full exposure to the lithium market.

There are quire a few junior mining companies that are focusing on lithium but that always happens when a segment of the resource market becomes popular. Many of these new lithium companies have no prospects and will never mine an ounce of lithium. However the promoters behind these companies create them not to mine lithium but to mine investors wallets via share issuances and hype.

I have found a pure play lithium producer that just went into production and is currently ramping up its operations. The company is having a few startup issues but is in the middle of debottlenecking their operation and is projecting an increase in production levels to break even quantities by February 2016.

The name of the company is Orocobre (ORL.T). It is based in Australia with its operations in Argentina. The Salar de Olaroz facility is currently ramping up to full scale operation. The company had some issues during startup and had to do some debottlenecking. This is currently happening and the company recently said that production has increased for the third month in a row. The company was able to achieve 300 tons of production in October. Based on current prices the company needs to get up to 650 tons per month in order for the operation to achieve breakeven. Management expects this to happen by February 2016.

Here is a link to the company's most recent presentation. This is definitely a speculative stock that has its future tied to getting the bottlenecks worked out so production can increase. This stock traded around $3 per share earlier this year and is currently in the $1.70 range. Do your own due diligence.

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