Orocobre Limited shares slump on half-year results release

In late morning trade the Orocobre Limited (ASX: ORE) share price is down 3% to $6.46 following the release of its first-half result.

For the six months ended December 31, the lithium miner posted a profit after tax of US$8.2 million, up 10.8% from US$7.4 million in the prior corresponding period. A rise in the lithium price played a key role in this increase. Orocobre advised that the average price received during the half was US$11,415/tonne, up from US$9,186/tonne a year earlier.

The company finished the period with a gross operating margin of 62%, with lithium production costs at US$4,336/tonne (excluding royalties and corporate costs). Although the dollar cost per tonne rose significantly from US$3,525/tonne, gross operating margins stayed the same thanks to the improved pricing. Although this means that the Olaroz operation remains one of the lowest cost producers of lithium in the world, I suspect investors were a little disappointed with the rising costs and the company’s failure to leverage the improved prices.

Shareholders will no doubt be hoping that costs stop rising in the second-half, allowing the company to benefit from further rises in lithium prices. Management advised that it expects lithium prices to be up 25% in the second-half compared to the first. This means prices per tonne of approximately US$14,268.

Full-year production is expected to be 14,000 tonnes at Olaroz Lithium Facility and 35,000 to 40,000 tonnes at Borax Argentina.

Should you invest?

Whilst I think the cashed-up Orocobre is one of the better options in the lithium industry following its mega deal with Toyota, my first preference remains Galaxy Resources Limited (ASX: GXY) and is closely followed by Mineral Resources Limited (ASX: MIN).

Though, it is worth remembering that all three of these companies are high on the risk scale and amongst the more volatile on the market. I think that this makes them largely unsuitable for the majority of retail investors.

So if the lithium miners are too risky for your liking, but you want big returns, then look no further than these explosive growth shares.

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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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