The clinical display by the German soccer team in disposing of host nation Brazil was the result of meticulous planning. Investors as well must look to the future to sidestep losses and kick a majority of goals. It is timely then to look at a stock with operations in rival country Argentina, which is mining a product expected to be in high demand well into the future.
Outstanding returns:
Orocobre Limited (ASX: ORE) is a minerals exploration and production company with a focus on developing lithium and potash resources in Argentina. Over the last five years the stock price has risen 360% from 52 cents to $2.39.
The flagship Olaroz lithium project is approaching production later this year. The Borax Argentina operations, which were originally acquired from Rio Tinto Limited (ASX: RIO) in 2012, produces boron used in fertilisers, detergents and soaps along with sundry other applications. Many smaller companies have profited from buying smaller mines from the likes of BHP Billiton Limited (ASX: BHP). OZ Minerals Limited (ASX: OZL), formerly known as Oxiana, began thriving after acquiring its copper and gold operations in Laos from Rio Tinto.
Are Orocobre Limited's commodities in high demand?
Ideally a mining company would be producing a commodity that is in high demand and short supply on world markets. Continued growth in electric transport and thus demand for lithium batteries has massive potential demand.
According to Credit Suisse equity research, American region: "Demand growth is projected to grow 12% annually compounded looking out to the end of the decade. While there are a number of capacity projects planned to come up during this time frame, we believe a number of them will be delayed or potentially even cancelled….Should this play out, lithium pricing should see upward pressure….suggesting 2020 prices could be approximately 40% to 60% higher than today."
The demand growth outlook for boron products remains strong, both regionally and internationally.
There are also positive characteristics for the flagship lithium mine:
1. Construction is nearing completion and is projected to be on budget.
2. It is a high-margin and low-cost operation.
3. Large world class resource with significant expansion potential.
4. Battery grade lithium carbonate has been produced at the plant for over three years.
5. Establishment of key partnerships with companies like Toyota Tsusho Corporation.
Now What?
Mining companies are by definition high risk. However, I believe that such risks are lessened by both the demand and supply dynamics for lithium and boron and also the quality of the high-margin / low-cost aspects of Orocobre Limited's mines.
As such an appropriate allocation of funds depending on your risk profile could bear significant dividends. However, if fully franked dividends are more suitable for your investing style, another great growth stock is revealed in the following FREE research report.
