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.
