Orocobre (ASX:ORE) share price slips amid merger success and FY21 results

Orocobre is positioning itself as a top 5 global lithium chemicals company following its successful merger with Galaxy Resources.

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The Orocobre Ltd (ASX: ORE) share price is down slightly this morning after the company announced its FY21 full-year results and successful merger with Galaxy Resources Ltd (ASX: GXY).

At the time of writing, the Orocobre share price is trading 0.98% lower at $9.09.

Orocobre share price dips despite bullish lithium outlook

FY21 was a breakthrough year for Orocobre, underpinned by a strong recovery in lithium spot prices and demand. Key highlights from its FY21 results include:

  • Revenue up 9.9% to US$84.8 million
  • Net loss after tax of US$89.5 million impacted by US$74.9 million of Argentine tax rate changes
  • Sales of 13,319 tonnes of lithium carbonate (FY20: 10,514 tonnes)
  • Average free-on-board (FOB) sales price of US$4,983/tonne (FY20: US$5,520/t)
  • Average realised prices of US$8,476/t in the June quarter
  • Average production costs down 12% to US$3,860/t

What happened to Orocobre in FY21?

The Orocobre share price has rallied 104% year-to-date and surged 228% in the past 12-months thanks to the hype around lithium.

The company delivered a strong financial and operational performance from its flagship Olaroz lithium facility, located in northern Argentina.

The project achieved strong cash flow and pricing momentum in the June quarter, despite the overall decline in FOB sale prices in the full year FY21. The average realised price for its lithium carbonate in the June quarter was US$8,476/tonne, up 45% quarter-on-quarter and 117% on the prior corresponding period (pcp).

Looking ahead

The company said Olaroz’s budgeted FY22 production was fully contracted and substantially subject to variable pricing with exposure to continued price increases. Despite the potential variance in price, management retained its previous guidance of US$9,000/tonne for the first half of FY22.

Orocobre is targeting the completion of an Olaroz Stage 2 expansion in FY22, which is expected to deliver a significant reduction in cash costs and step up in volumes.

Construction is currently underway at Olaroz to produce an additional 25ktpa of lithium carbonate. The company expects the production of primary grade lithium carbonate to ramp up over 2 years to full capacity.

In addition to its FY21 results, Orocobre advised that it has obtained all necessary approvals to complete its merger with Galaxy Resources, effective from today.

The results described the merger as one that “has the potential to be a Top 5 global lithium chemicals company with a highly complementary portfolio of assets delivering geographical and product diversification across brine, hard rock and vertical integration across the supply chain”.

Management commentary

Commenting on the results, Orocobre managing director and CEO Martin Perez de Solay said:

Orocobre has continued to deliver positive operating margins, despite COVID-19 and weaker market conditions throughout the first half of the financial year. This has been achieved through strong sales performance and a focus on costs and operating excellence.

Solay welcomed the new Galaxy shareholders and revealed the company’s plans to rebrand.

I would like to welcome Galaxy shareholders, employees and other stakeholders to Orocobre which subject to shareholder approval we will be rebranding to Allkem Limited and changing the ASX ticker to AKE.

The name Allkem recognises that together we can deliver more for stakeholders. With the merger, we will go further in our commitment to delivering the lithium chemicals that the world increasingly needs to mitigate climate change and carbon emissions.

What’s next for Orocobre?

The bullish outlook for lithium has helped the Orocobre share price break above its 2018 highs.

Looking ahead, the company cited robust demand for lithium in China, “[continuing] to push up global prices with weighted average prices of lithium carbonate and lithium hydroxide up YTD by 64% and 46% respectively according to Benchmark Minerals Intelligence.”

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