OROCOBRE LTD NPV (OTCMKTS:OROCF) Set To Make New Highs

OROCOBRE LTD NPV (OTCMKTS:OROCF), which runs lithium and borax mining operations in Argentina, exploded higher in August. From trading under $2.50, the share price increased to over $3.00 a share. In addition, more than 300,000 share changed hands some days. Have a look at the most recent share price action: 1 month chart for OROCFWhat happened?On August 30, 2017, the company released better than expected numbers. In this article, we will review this announcement, the company's growth plans, its strong financial situation, and how other relevant market participants are profiting from lithium fever by investing in this $653.35-million-market-cap play.Business and Industry OutlookOROCF operates a portfolio of lithium, potash, and boron projects and facilities in the Puna region of Northern Argentina. It is headquartered in Brisbane, Australia, and was formed on January 20, 2005. The company is listed on the Australia and Toronto Stock Exchanges.Before getting into the operating performance of this company, it's important to note the outlook of the lithium industry. Demand for lithium is expected to increase significantly over the next 10 years, as it is used to manufacture batteries. Many big players, such as Tesla Inc. (NASDAQ:TSLA) need lithium batteries to power its electric cars. Tesla is running a 1.9-million-square-foot Gigafactory in Reno, Nevada. We have discussed other interesting players on insiderfinancial.com, thus we encourage readers to have a look at other companies. It will help understand the rationale of OROCF.Recent DevelopmentsOn June 22, 2017, the market got to know that the company had several problems due to severe weather in the Puna Region of Argentina and Chile. According to the press release, work was suspended for three days:

"At the Olaroz Lithium Facility, production was briefly suspended for three days last week after on-site stocks of soda ash, a key process reagent, were depleted after heavy snowfall forced the closure of the Paso de Jama for over three weeks. The Paso de Jama is the main route across the Andes between Chile and northern Argentina and the route through which the majority of soda ash and lithium carbonate is transported to and from the Chilean ports." Source

In our opinion, the news made the share price decrease from $2.82 to $2.57 in only a few days. But, this was not the only news that had recently an impact on the share price. On August 21, 2017, Bloomberg released an article called "Supplying Lithium for the Electric Revolution Is Getting Harder", wherein it was noted that bad weather and pump glitches were affecting day-today operations.

"Bad weather and pump glitches meant production at the Olaroz facility in northern Argentina was 21 percent below Orocobre’s initial target in the year through June. While things are getting back on track, Chief Executive Officer Richard Seville says the company either underestimated the complexity or overestimated our capability.""Orocobre’s experience in Argentina shows the process isn’t without its challenges, especially for a newcomer. " Source: Bloomberg

According to the same article, these difficult conditions were affecting production. The company expected to produce 15,000 metric tons for the year, but it ended up producing only 11,862 tons. We believe that the article by Bloomberg also affected the share price of the company, which resulted in the decline some days later to $2.4 a share. Some days after this decline, the share price commenced to creep up slowly and jumped on August 31, 2017 when the company released record full year profits. The full year profit was $19.4 million. This includes the benefits of assets sales and impairment costs.Additionally, the company highlighted its solid cash position of $51.6 million, which increased by $23.9 million owing to the release of standby letters of credit. Furthermore, the total sales revenue for the full year was $120 million and EBITDAIX $71.2 million.Finally, the company provided production guidance of approximately 14,000 tonnes of lithium carbonate. Orocobre Managing Director and CEO, Richard Seville, highlighted the good financial performance. He commented the following:

"In 2017, Orocobre came to the fore as a mainstream, profitable, low cost producer of lithium carbonate. We continued to develop and expand our customer base as we produced 11,682 tonnes of lithium carbonate (~5-6% of global supply) from one of the lowest cost bases in our industry." Source

Solid Financial Position and holdersThe following is a full version of the balance sheet. Period Ending6/30/20166/30/20156/30/20146/30/2013Current Assets (All numbers in thousands)Cash And Cash Equivalents36,0007,00026,00011,000Short Term Investments----Net Receivables8,0007,0007,0006,000Inventory6,0009,0006,0008,000Other Current Assets----Total Current Assets50,00023,00040,00025,000Long Term Investments72,000115,00094,000138,000Property Plant and Equipment----Goodwill----Intangible Assets----Accumulated Amortization----Other Assets----Deferred Long Term Asset Charges2,0002,0001,0002,000Total Assets216,000194,000187,000214,000SourceIn addition, have a look at the liability side.Accounts Payable (All numbers in thousands)10,00012,0008,0007,000Short/Current Long Term Debt3,0003,0003,0004,000Other Current Liabilities-2,0001,0001,000Total Current Liabilities13,00017,00011,00011,000Long Term Debt1,0001,0001,0003,000Other Liabilities----Deferred Long Term Liability Charges----Minority Interest----Negative Goodwill----Total Liabilities26,00031,00028,00030,000SourceWe were obviously not the first to note the company's potential, its financial shape, and the outlook of the lithium industry. The following market participants own shares:HolderSharesDate Reported% OutValueBlackRock Global SmallCap Fund2,718,363Mar 30, 20171.29%5,844,480Vanguard International Stock Index-Total Intl Stock Indx2,152,357Oct 30, 20161.02%5,316,321Royce Smaller Companies Growth Fund2,150,000Mar 30, 20171.02%4,622,500Global X Fds-Global X Lithium ETF2,098,199May 30, 20171.00%5,791,029VanEck Vectors ETF Tr-Rare Earth/Strategic Metals ETF1,203,506May 30, 20170.57%3,321,676Vanguard Tax Managed Fund-Vanguard Developed Markets Index Fund825,185Mar 30, 20170.39%1,774,147iShares MSCI EAFE Small Cap ETF636,132May 30, 20170.30%1,755,724SourceConclusionThere are several things to like with OROCF. In our opinion, the most relevant is the current situation of the industry. Lithium is needed to manufacture the electric batteries necessary for electric vehicles as well as mobile phones and other electronic devices. Thus, demand is going increasing and the market is expecting that the price will go up as well. Additionally, OROCF seems very well equipped to profit from the situation. It is already producing 11,862 tons of mineral and expects to obtain 14,000 in 2018. Furthermore, its balance sheet has plenty of cash to finance future production and very little long term debt, which other market participants have already identified. To sum up, follow OROCF closely, as we expect the above factors to lead to further gains in the share price. We will be updating our subscribers as soon as we know more. For the latest updates on OROCF, sign up below!Image courtesy of Saud Al-Olayan via FlickrDisclosure: We have no position in OROCF and have not been compensated for this article.