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Why the Orocobre Limited (ASX:ORE) share price has been smashed today

One of the worst performers on the local market today has been the Orocobre Limited (ASX: ORE) share price. When the lithium miner’s shares returned to trade from their trading halt this afternoon they immediately sank 17% to $3.45.

While its shares have recovered some of these declines now, they still sit almost 11% lower at $3.71 at the time of writing.

Why are Orocobre’s shares being crushed?

This afternoon Orocobre’s shares returned to trade after the company released an update on the recent changes to export taxes in Argentina.

For those that are unaware, on Monday Argentina’s struggling government announced plans to place a temporary tax on exports in an effort to reduce its deficit. The temporary export tax is expected to commence as soon as next week and run until December 2020.

As Orocobre’s Sales de Jujuy and Borax Argentina operations are based in the country, they will be impacted by this new tax.

According to today’s release, based on current exchange rates, the plans equate to a duty of approximately 8% on export sales revenue from Sales de Jujuy and Borax Argentina. Though, the ongoing rate of this special export duty may vary depending on the currency exchange rate between AR$ and US$.

While management believes that the positive effect of the devaluation of the Argentine Peso on its operating costs will to some extent counterbalance the increase on export duties, judging by the selloff, the market doesn’t appear to believe this will be the case or had already factored lower operating costs into its valuation.

Management also advised that it remains committed to its previously announced plans for the Argentina-based Olaroz Stage 2 expansion and the Japan-based Naraha Lithium Project.

I feel this issue demonstrates why it can be better to invest in miners that have operations on home soil such as Galaxy Resources Limited (ASX: GXY) and Kidman Resources Ltd (ASX: KDR).

Should you buy the dip?

While this selloff may potentially be a buying opportunity for investors with a high tolerance for risk, I wouldn’t be in a rush to invest in any of the lithium miners until there are signs of improvement in lithium prices. Until that happens I suspect that negative investor sentiment will weigh heavily on their 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 Scott Phillips.

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