One of the worst performers on the S&P/ASX 200 (Index: ^AXJO) (ASX: XJO) today has been lithium miner Orocobre Limited (ASX: ORE).
Its shares sank as much as 6% in morning trade following the release of a disappointing quarterly update.
Although the update revealed that December quarterly production at Olaroz hit its guidance and increased an impressive 17% over the previous quarter to 3,529 tonnes, overall sales were restricted to just 2,995 tonnes due to a strike at the Antofagasta Port and delays in customs clearance over the Christmas period.
This led to a 19% quarter on quarter drop in sales revenue to US$27 million, bringing half-year sales revenue to US$60.5 million.
Furthermore, whilst management was able to reduce the cost of production down 1% to US$3,530 a tonne, the average price received fell 4% quarter on quarter to US$9,007 a tonne.
This resulted in a gross cash margin of US$5,477 a tonne, down 5% on the previous quarter.
It isn't all bad news though. Management expects demand from China to remain strong in the short to medium term thanks to the Chinese government's electric vehicle target.
It is targeting 5 million electric vehicles on the road by 2020, compared to just an estimated 500,000 on the road today.
As lithium goes into the batteries that power these vehicles, I expect the strong demand to cause prices to remain at these high levels for longer.
This should be a boost to the bottom lines of Orocobre and its lithium mining peers such as Galaxy Resources Limited (ASX: GXY), Neometals Ltd (ASX: NMT) and Pilbara Minerals Ltd (ASX: PLS).
Whilst it is a risky part of the market to invest in, I would suggest investors that wish to gain exposure to the industry choose to do it through an investment in Galaxy Resources.
Its high-quality mine, strong management team, and low costs make it a stand out in the industry as far as I'm concerned.
