Argentina Lithium Tour
On an early November morning, buses full of research analysts, reporters, investors, executive teams, and paramedics departed San Salvador, Jujuy, Argentina on a journey through the Andean Mountains to tour the facilities and properties of Orocobre (OTCPK:OTCPK:OROCF), Lithium Americas (OTCQX:LACDF) and Advantage Lithium (OTCPK:OTCQX:AVLIF). The journey to the Olaroz-Cauchari basin took much longer than anyone had anticipated, but the breath-taking views of the Andean Mountains kept the visitor complaints to a minimum. The winding road through the mountain range of northwestern Argentina led the group through the heart of the world famous lithium triangle. From a climate standpoint, the region remains pretty dry year around, with less than 100mm of annual rainfall, while some regions are impacted by seasonal snowfall and ice buildup. Within the mountain range, micro-climates exist, but lithium companies operating in the Olaroz-Cauchari basin dismiss the climate as a non-issue. Proper pond and inventory management reduces risk from seasonal variabilities within these micro-climates.
Far in the Northwest pocket of Argentina, in a boutique hotel located in the mountain city of San Salvador, a group of lithium analysts, reporters and investors pack into a small room to listen to the management team of an emerging lithium company, Lithium Americas (OTCQX:LACDD). The following day, the group of visitors would travel to the Olaroz-Cauchari basin to visit Orocobre’s (OTCPK:OROCF) extraction and production facilities and Lithium Americas site where they will soon construct the world’s next lithium brine facility. David Sidoo, CEO of Advantage Lithium (OTCQX:AVLIF), stands in front of the crowd which quietly listens to his opening remarks. He starts off by listing the company’s achievements in 2017 and the current status of the company and project which include $12 million USD in the bank, large institutional and strategic investors in place with some of them under a lock-up agreement, and the ability of the company to attract local talent. Sidoo is sure to embark on the fact that 40% of the 135 million shares outstanding are locked up with Orocobre, management, directors and insiders. On a fully diluted basis, Orocobre holds 29% of the company with management at 25%. The company has also been able to attract large investors such as CIBC which are ranked as their largest institutional investor. Sidoo provides credit to the strong, local team on the ground in the province of Jujuy which has been instrumental in pulling permits and working with local communities. He dives deeper into the technical experts who sit in his tent to move the Cauchari project forward. In addition to touting the team, he makes it clear that the objective with Cauchari is to move quickly to bring material to market. At present, the company has 30 employees on staff.
On the long journey to the Olaroz facility, I spent time with Richard Seville, CEO of Orocobre (OTCPK:OROCF), who was able to summarize the current status of Orocobre and the entire lithium supply chain in a single statement,
“This was not the race to the finish, but the race to the start”.
The statement is true for the Asian battery manufacturers who are racing to increase global manufacturing capacity and automakers as they trample over each other to announce the electrification of their auto lineups. Each segment of the market, upstream to downstream, is moving to claim its position in the lithium race with the hopes to be the first to the starting line, not the finishing line.
For all industry stakeholders, including Orocobre shareholders, the race to the electrification of things has probably not even started. In reality, companies have simply announced that they will show up at the starting line. This is the view of the Orocobre management team, which is a clear signal that the company, although 10 years old, is still in an early stage with much accomplishments still to be had.
The current picture of success and share price growth at Orocobre is not a reflection of the past decade. The road to commercial success in Argentina has been long, dark, and winding. The company has overcome many obstacles such as building a commercial chemical plant in the remote mountain region of Argentina at 4,000m. Further, the company operated under a populist government for 7 years, who made it incredibility difficult to attract the necessary resources to develop the lithium assets. The company needed to develop creative strategies to assist with the movement of all forms of capital in and out of the country. In hindsight, the challenges presented to bring Olaroz to commercial production would have seemed too great for an Australian junior exploration company (See: Orocobre – The Road To Lithium Production In Argentina). Today, the Olaroz facility is scheduled to produce 14,000T LCE in FY2018 which is higher than 2017 deliverables but still shy of the nameplate capacity. Although the company has a clear head-start in the lithium triangle, the company will remain under extreme pressure to stay ahead of the pack.