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Orocobre Limited shares resume trade and sink lower

Stock market chart or graph in red falling downward bear market.

The Orocobre Limited (ASX: ORE) share price emerged from its trading halt today and sank straight into the red.

At one stage the lithium miner’s shares were down almost 8% to $6.61. They have since rebounded slightly and are down just 3.5% to $6.93.

What happened?

Orocobre’s shares have been in a trading halt whilst it raised money to fund its 25,000 tonne Phase 2 Olaroz expansion.

This expansion is greater than its original plan of 17,500 tonnes and will increase total production capacity to 42,500 tonnes per annum (tpa), positioning the company as one of the world’s largest and lowest cost lithium producers in the world.

In order to fund the expansion Orocobre has raised A$361 million (US$287 million) through a capital raising comprising a A$282 million strategic placement with Toyota subsidiary Toyota Tsusho priced at $7.50 per share and an underwritten A$79 million entitlement offer at $6.55 per share.

Whilst this is undoubtedly good news for the company, Orocobre’s increased production and lithium giant Sociedad Química y Minera’s recent expansion approval has many in the market concerned that the industry could suffer from an oversupply in the not so distant future.

While this is certainly something to be concerned about due to the high levels of growth built into their share prices, I don’t think supply and demand dynamics are going to change roo much any time soon.

I expect this should allow lithium miners such as Orocobre, Galaxy Resources Limited (ASX: GXY), and Pilbara Minerals Ltd (ASX: PLS) to continue benefiting from high prices for some time to come.

Though it may be prudent for investors to keep an eye out for any weakness in the average price realised by these miners in the coming quarters.

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Motley Fool contributor James Mickleboro owns shares of Galaxy Resources Limited. The Motley Fool Australia has no position in any of the stocks mentioned. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Bruce Jackson.

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