Allkem Ltd T.ORL

GMP Securities: Buy rating & A$3.14 target for Orocobre Ltd.

[shakerman640]

According to GMP Securities:

https://personal.crocodoc.com/jtfs72k

Orocobre Ltd.

BUY

ORE-ASX

Last: A$2.61

▼ Target: A$3.14

February 6, 2015

Cash flow pushed out 6 months, $50m raise

Olaroz Lithium Project in commercial production

Commissioning of the final purification and micronizing circuits at Olaroz is now complete and the plant has moved into commercial ramp-up stage as of this week, materially on budget (US$229m capex outlay). Salar de Olaroz is now the first Greenfield lithium brine project to come on line in 20 years. The plant will be in ramp-up over the course of 2015 and is expected to reach nameplate production of 1,450 tonnes per month (annualised 17.5kt) in Q4. Project partner TTC has finalised a number of offtake contracts for 2015, with the first firm order already received. Prevailing market conditions continue to be positive for lithium carbonate and ORE is only looking to lock in offtake for the ’15 calendar year.

Production delays push out free cash flow ~6 months

ORE has been forced to tap the market as delays in the production start up have pushed out positive free cash roughly six months on our numbers. The delays are attributed to longer-than-expected wait time for import approvals from the Argentinean government and contractor performance during the latter stages of construction. ORE now expects to be into positive cash flow from Q2 2016 (from Q4 2015).

A$50m capital raise at A$2.55/sh

Given the delay in production ramp-up, a delay in receipt of owing VAT, and OREs requirements to provide working capital to its subsidiary and Olaroz Project operator, Sales de Jujuy, ORE has tapped the market for a A$40m placement and A$10m SPP at A$2.55/sh, a 13% discount to the prior ASX close and a 11.3% discount to the VWAP for the prior 5 trading days.

Maintain BUY rating and decrease price target to A$3.14/sh

Pushing out expected cash flow by ~6 months has lowered our price target to A$3.14, offset slightly by our lower AUDUSD price deck. Our price target is based on 1.0xNAV for OREs share of Salar de Olaroz and Borax operations using long-term price forecasts of US$6,250/t for LiCO3, US$1,200/t boric acid, US$525/t potash and long-term 0.85 AUDUSD. We also include A$35m or A27cps for its exploration projects including Cauchari (85% ORE), Salinas Grandes (85% ORE) and Guayatoyoc (85% ORE).