With the news that SQM - one of the three large lithium producers - has come to an accommodation with the Chilean government over the right to continue to operate and expand its Salar de Atacama lithium carbonate operation the share prices for the lithium sector players - producers and wannabees - have been hit across the board. The first point to note is that it will take over 3 years before this proposed expansion is likely to have any real effect on world production. We know that growth in demand is strong, and will remain strong. And when the price does come off, it will be the hard rock producers who'll put a floor under it. Our expectation is that this floor will be around US$10,000/t. We are modelling - that's a cute way of saying "we expect" - a price of US$13,750/t for 3 years, before the price retreats to US$10,000/t and stays there. And China Inc is tying up a lot of the future Australian production - just like the Japanese did for Metallurgical coal in the Bowen Basin back in the 1980s. ORE has Toyota as a JV partner in Olaroz, and now after the placement as a shareholder in ORE having invested at A$7.50/shre. Sure, they've got the marketing agreement for the expanded production, so you can argue they're getting something that the retail investor isn't getting at $7.50. And that's correct. But it's mainly security of supply, and the potential to build a lithium hydroxide plant in the midst of the Japanese battery manufacturers. The Argentinian government wouldn't be too happy with excessive marketing costs, so we don't expect the marketing will be anything other than commercial - although at the top of the range. Look how The Aussie Taxman's going after BHP's Singapore-based marketing arm. The fall in the ORE share price back to the level of the rights issue - A$6.55 - represents another (and unexpected, at least by me) buying opportunity.
ORE Price at posting:
$6.65 Sentiment: Buy Disclosure: Held
