ORE 1.83% $3.22 orocobre limited

Consolidation Ahead?

  1. 536 Posts.
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    I posted the below in a Canadian Mining forum about the potential merger of ORE.ASX and LAC.TO:

    All you need is one look at this NR. In particular figure 6 on page 10.  

    Orocobre hit a new, deeper horizon of brine in wells P301 and P302 with greater porosity, thus improved flow rates.  This is very good news as Orocobre will be able to expand capacity at lower than anticipated costs.  

    "The deeper sand unit has the characteristics to support high volume brine production, with
    lithium concentrations and chemistry comparable to other operating wells. This will

    significantly reduce the capital cost for additional brine supply and pipeline systems which will be needed for the first expansion at Olaroz."

    The area outlined in green represents this prospective horizon and runs into LAC's property, adjacent to Orocobre's southern borefield.  

    At LAC's current market cap, it would make a whole lot of sense to consolidate this area to maximize profitability.


    For those too lazy to pull the NR:

    The South East portion of Olaroz is owned by LAC.

    The area of interest, outlined in green, should extend into LAC's property.  This area of interest, beneath the defined reserves, is believed to host a deeper horizon of highly porous brine... meaning high flow wells won't need to be sunk far away... they can stay close to the evaporation pond, saving on CAPEX for pipelines and wells... the wells simply need to be sunk deeper.  

    Orocobre owns 66% project equity on their portion of Olaroz.  LAC owns ~91% of their portion, leading to wider margins and faster profits.  This also means faster payback of debt and CAPEX, something JOGMEC certainly wouldn't be opposed to given that they have guaranteed the majority of debt.  

    To me, the most compelling exit strategy remains a takeover by Orocobre.

    The pre-tax Net Present Value of LAC's reserves were valued at $700mm+.  Orocobre has an opportunity to substantially increase their reserves at a fraction of the costs.  They might not have the cash to takeout LAC, but shares are currency, too.  And ORL shares are a much stronger currency relative to LAC.  ORL can issues shares and take out LAC at a 100% premium and it would still be hugely accretive to ORL.  Because of the added value of the merged assets and the capable management team at ORL, I would think that LAC shareholders would be very happy to receive ORL shares in a takeover.


    Given the recent capital raise, they have share currency and cash to consolidate and develop the Olaroz/Cauchari/Salinas Grandes projects into an exciting and emerging district.

    As someone stated earlier, it could also be expansion capital for their Borax Argentina unit.

    However, this note from the same NR referenced above has me leaning toward a takeover of LAC:

    "Electrical geophysics (a Magneto Telluric survey) and drilling by Lithium Americas Corporation to 450m depth on adjacent properties strongly suggested that brine continues below the base of the current Olaroz resource. Of particular interest, was the potential for sand units intersected below 200m in the narrow Cauchari basin to extend north into the much wider Olaroz basin."
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