After the December 2017 Quarter report and the announcements about the proposed expansion of Olaroz - from 17,500tpy to 42,500tpy, rather than to the 35,000tpy previously proposed - we've upgraded our Earnings Model and generate a Valuation of A$7.43 per share. Given the strengthening lithium carbonate price market, we believe there could be upside to our short term price of US$13,750/t, and have a Target Price of A$8.17ps. But the really important news is that Toyota Tsusho (a wholly owned Toyota company) which has a 25% direct interest in the Olaroz lithium project, will invest A$281M to take a 15% interest in Orocobre, and that ORE's proportion of the costs of the expansion and construction of a lithium hydroxide plant in Japan are now more than covered by equity. ORE is the only - repeat ONLY - ASX-listed company which produces Lithium Carbonate. It's not constrained by selling a concentrate to the folks who convert concentrate to lithium carbonate or lithium hydroxide, which is what the battery manufacturers use. That step requires a lot of energy, so the best place for a converter is somewhere where energy (and labour) is relatively cheap. China fits the bill. WA doesn't. As we know, Australia doesn't have the cheapest energy in the world. It should have, but don't mention that in South Australia or on the east coast. And lithium hydroxide is hygroscopic - it absorbs moisture from the atmosphere. Once you make it you need to get it to the end user without it becoming degraded. The closer you can get to the battery makers the better. That's why ORE and Toyota are building the hydroxide plant in Japan, near the Japanese battery makers. From Morgans the worst analyst in the game...But they got ORE right!
ORE Price at posting:
$7.17 Sentiment: Buy Disclosure: Held
