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Lithium miner Orocobre Limited (ASX:ORE) surges higher on record profit result

It certainly was a positive day for the Orocobre Limited (ASX: ORE) share price. After a weak start the lithium miner’s shares pushed higher as the day went on before finishing it up almost 6% at $4.37.

Investors appear to have responded positively to its full year results release and record profits.

Here is how the company performed in comparison to a year earlier:

  • Total lithium carbonate production increased 5% to 12,470 tonnes.
  • Total sales revenue rose 24% to US$120.1 million.
  • Sales of 11,837 tonnes of lithium carbonate at an average price of US$12,578 a tonne.
  • Record underlying full year net profit after tax from continuing operations of US$25.7 million.
  • Statutory net profit of US$1.9 million.
  • Strong balance sheet with available cash of US$316.7 million.
  • Outlook: Stronger production and higher lithium prices year-to-date.

I felt this was a solid result from Orocobre and I’m not surprised to see its shares rise higher, especially after it advised that year-to-date it has seen the price commanded for its lithium rise to US$14,000 a tonne.

The biggest disappointment in FY 2018 was its production which fell short of its original guidance due to inclement weather. However, the company has learned from this and has designed its stage 2 production facility to help stabilise its production throughout similar weather cycles in the future.

But despite the lower production, management still finished the year as one of the lowest cost producers in the world. It ended the period with lithium production costs at US$4,194 a tonne excluding royalties and head office. This meant a gross operating margin of 67%.

Unsurprisingly, this led to a big increase in its operating cash flows, allowing management to reduce its Olaroz project debt down to US$122 million.

Should you invest?

If you’re looking for exposure to the lithium miners then I think Orocobre and Galaxy Resources Limited (ASX: GXY) are the ones to buy. However, they are high risk investments and their future success will depend largely on where lithium prices go from here.

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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 Scott Phillips.

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