Orocobre is the Australian miner that is not really a miner, but if all goes well will be producing 10 per cent of the world’s lithium in a year.
As the big miners stress about iron ore and coal prices tumbling from the highs of recent years, lithium is set to explode in demand.
The game-changer will be people switching from petrol-guzzling to lithium battery-powered electric cars.
A few years ago lithium meant little to people.
It has since become the dominant product used in batteries due to its electrochemical potential, driving longer lasting and more powerful batteries in smart phones, tablets and electric cars.
Lithium is also widely used in ceramics and the thin-film transistor glass found on mobile phone screens and flatscreen technology.
Orocobre’s $230 million fully funded Olaroz project in the north of Argentina comprises a massive salt lake containing lithium, much of which is still to be explored.
To produce lithium you either mine it conventionally from hard rock or do what Orocobre is doing: the far cheaper method of extracting it from brine.
Orocobre managing director Richard Seville told AAP the company would be one of the lowest-cost producers, selling lithium for an estimated $6000 a tonne for only $600 a tonne in costs due to secondary earnings from potash.
That will generate $70 million in annual earnings before interest, tax, depreciation and amortisation through Orocobre’s 66 per cent stake, he said.
“If you look at all the other commodities – I don’t want to call us a commodity, we’re a fine chemical – they are either exposed to the industrialisation process or GDP growth,” Mr Seville said.
“When you look at lithium it’s got a 50 per cent more growth rate than its nearest competitor, there is very, very strong demand for that ore.”
Mr Seville rejects suggestions of a supply surplus emerging, saying the pipeline of planned projects still needed permits and financing and could be delayed in what is a fragmented industry with no BHP-style dominant players.
Patersons Securities analyst Andrew Harrington said Orocobre was well placed and would be a substantial producer.
He highlighted the company’s smart recent purchase of an established chemicals business, Borax Argentina, from Rio Tinto to complement its lithium plant.
Orocobre has an offtake and project financing agreement with Japan’s Toyota Tsusho, presumably involving electric cars, but that is not confirmed.
Mr Seville says that lithium in future could enable ordinary households to store energy in batteries, reducing the importance of a city’s peak-load capacity that is used “only one day a year”.
Analysts are generally bullish about the prospects of lithium and battery demand continuing to grow.
The major risks would appear to be too much supply emerging from new projects such as Orocobre’s and the consumer uptake of electrical vehicles not transpiring.
Currently electric cars are expensive and uptake is slow, but some countries including China have mandated or offered tax incentives to buy them.
