Monday, December 31, 2012

Orocobre Ltd. (OROCF) Looks at Lithium

Orocobre Ltd. (OROCF / ORL.TO) is a junior Australian company moving into lithium development.  Normally I think of kangaroos and Crocodile Dundee when I hear about Australia, so this means I need to broaden my perspective.

The company's page describing its leadership does not explicitly identify the CEO.  Maybe I missed something, but titles like "general manager" don't necessarily mean CEO.  Exactly who is in charge here?  Even their financial statements aren't clear on that one.

The Salar de Olaroz, Argentina project has MII resources and their Borax Argentina division is producing revenue.  They are also developing three other early-stage projects.  I have a difficult time understanding their quarterly financial statement dated March 31, 2012 because its format is unlike the U.S. and Canadian statements I usually read.  Since their business model is a mix of developmental and established projects, it's fair to consider their fundamentals from a value investing standpoint.

The bottom line on Orocobre is that their earnings and ROE are still negative, so the revenue from their borax operation contributes isn't enough to subsidize their ambitions for other properties.  That's why I'm not investing in this one.  The major lithium producers have more than enough capacity to satisfy world demand.  Junior explorers in lithium are redundant.

Full disclosure:  No position in Orocobre Ltd. at this time.