Ann: Orocobre Signs Agreement With Toyota Tsusho , page-46

I was lucky to sell at the top for $4.90. Lucky as I sold because I needed the money and I figured ORE was near its top and had the least up-side potential in my portfolio. However, meanwhile I have bought back on (what I thought to be the dip(s)) at $3.50, then at $3.05 and yesterday some more at $2.70. Why did I buy back in to ORE one may wonder. Well here I will try to explain why.

Firstly, clearly ORE has not done a great job at getting up and running and their communications about it leave a lot to be desired. So from that point of view one could, and should, hold management responsible. However, one also has to look at this from a general Lithium brine development perspective. What did ALB, FMC, and SQM achieve in the last 10 years!?

ALB La Negra 2!? Complete fail! Making a deal with NMX to buy its LCE!!?? WTF?
FMC, what did they do in the last decade. Mainly farming stuff! What are they currently doing in the Lithium space? Have not heard anything about them.
SQM is seemingly being kicked out of Chili. Why? Supposed to be "specialists", but are they? Why are they teaming up with others, why not buy and develop their own Lithium project? Why do they need others?

So although all the signs were there that Lithium demand was increasing and prices rising the big 3 did not accomplish anything, did not even prepare anything. Of course it would have been unwise to increase production before the prices actually started to rise. But they should have been (near) ready when the demand really went up. But it seems the are no-where. The only one who made the move was ORE and they got into production and are getting good prices.

Assuming that the big 3 (ALB, SQM, FMC) are no idiots the conclusion must be that developing, and even expanding, a brine lithium mine is pretty hard. And mind you, although they are called the "big 3" their Lithium production is really rather limited (about 20ktpa each of them). So what ORE is aiming at with its 35ktpa would make them bigger, in the Lithium space, than any of the big 3! Think about that!!

And this brings me to the point why I am buying into ORE at the current prices even if I know that the shorters may be able to push the SP even lower. ORE has been very consistent and persistent in its work. Yes, ORE has underperformed time and time again and have not openly communicated about that. But they are the only ones who have managed to develop a new brine based Lithium mine in the last decade and they are on their way to become the largest brine based Lithium producer!! And yes, I have no doubt what so ever that they will reach their nameplate production of 17.5ktpa and later also achieve the 35ktpa LCE. And whilst at it also build a plant that is capable of producing LiOH from the LCE.

I really have 0% doubt that the 35ktpa LCE production will be reached. And based on a $6000/t LCE price this gives a really good business case for ORE with a NPV of at least 1b$. Now their production costs may be a bit higher then what was assumed in the computation of that NPV but also the LCE prices are clearly well above the $6000/t for the foreseeable future. And as ORE is earning a lot of money it is pretty safe to assume that there will be no further dilution of the shares. So based on a very conservative NPV of 1b$ the corresponding SP of ORE is about $4.7. Compared to today's SP I can only conclude that ORE is a "screaming buy"!

The only questions is "when" they will reach the nameplate production level not "if". I have no doubts that these guys will manage! They should only be a bit more open and clear about the issues they have.


ps. I am really looking forward to see how all other that are planning to develop a brine based Lithium mine will do in the coming years. Especially curious about how the LAC-SQM-Ganfeng consortium will perform in developing its asset as well as Galaxy. One would expect that it can not be much worse then what ORE did but then again what did ALB, FMC, and SQM achieve in the last decade.... The fact that developing a brine based Lithium mine is difficult also explains (at least IMHO) why ORE sold some of its assets to AAL. They know they have no time to spend on that right now, they have to fully focus on Olaroz. But once Olaroz is done I guess they may buy up AAL or an other nearby Lithium asset. IMHO the only true Lithium experts in the world today are the ORE people! They know what it takes to build a Lithium brine producer. A lot of the required knowledge was lost over the last decade it seems....