Re-doing an old post for those that missed it the first time around:
FMC Minerals Spinout = Orocobre Revaluation
FMC's lithium and soda ash division accounts for 17% of EBITDA. Enterprise Value for the entire company is ~$9.0 bln. FMC's lithium and soda ash division should be valued close to $1.53 bln (17% of $9 bln EV = $1.53 bln) when it is spun out in early 2015.
FMC produces 22,000 tpa (max capacity) of Lithium carbonate at a cost of ~$3,000/tonne.
ORE will produce 17,500 tpa* of Lithium carbonate at a cost of less than $2,000/tonne (closer to $1,300/tonne with potash credits).
*important to note... 15% of resource over 40 years. Juniors do this to keep CAPEX in a finance-able range. Deeper pockets can easily double capacity. Read this construction updateand you know they are targetting production >20,000 tpa, which would make ORE a peer and direct competitor to FMC Minerals.
If FMC Minerals were spun out today and ORE was comparably revalued - $1.53 bln / 132mm shs out * 66% project equity = $7.65
FMC has stated intentions to grow via acquisitions. FMC and ORE share many synergies. The Borax Argentina refining plant was basically relocated and placed right on top of FMC's Hombre Muerto operations in the Tincalayu mining camp. hint hint? ORE's Olaroz project is the only turn-key asset sharing synergies with FMC's operations... so it makes sense that ORE's Olaroz is at the top of their short list of potential acquisitions.
FMC could commit up to half of their EV to acquiring Olaroz. They would be boosting production by 90% (from 22,000 tpa to 42,000+ tpa) and improving margins (~$2,200). Pro-forma, the company would compete directly with the world's largest producer, SQM (40,000 tpa @ cost of $2,000/tonne).
In an accretive acquisition where up to 50% of EV is risked... FMC would be paying around $750mm. $750mm/132mm shs out = up to $5.68 paid per ORE share in a take over.
The real question is, how can FMC afford to NOT acquire ORE? What would happen if SQM swooped in and acquired ORE? FMC and other higher cost lithium producers would essentially be priced out of the market.
Again, it's important for me to point out that the DFS was designed with intentions of keeping CAPEX within a finaceable range. As such, only 15% of the resource is modeled to be mined over a 40 year life. Thats pretty much like mining with a spoon instead of a shovel. What's more, throughput can be expanded at a 40% discount to initial CAPEX per tonne of added capacity.
Strong hands will be rewarded soon. FMC Minerals spin out in early 2015 is not by coincidence but by careful design. New (ostensibly business-friendly) political regime in 2015, ORE will have had ample time to work through any operational kinks, and Telsa unfolding gigafactory drama will capture the financial media's attention. Even after ORE get's taken over, there are still opportunities to continue making multiples... Salinas Grandes is an even bigger, higher grade project with better chemistry than Olaroz and my belief is that this will be spun out on any takeover of Olaroz. ORE will be a gift that keeps giving.
ORE Price at posting:
$2.67 Sentiment: Buy Disclosure: Held
