Orocobre share price remained flat yesterday despite difficult quarter

The Orocobre Limited (ASX: ORE) share price closed yesterday’s trade flat, despite the lithium miner revealing the impact of COVID-19 on its operations in the quarter ended June 2020.

COVID-19 restrictions meant the miner’s Olaroz lithium facility was closed for several weeks from late March. Upon reopening, operating rates were lower, partly due to the company’s bio-security protocol. Production for the quarter of 2,511 tonnes was down 27% on the prior corresponding period. 

Despite COVID-19 disruptions, Orocobre managed to achieve its lowest cash cost of sales for 3 years at US$3,920 a tonne in the quarter. But sales volumes were impacted by COVID-19, falling 36% quarter-on-quarter to 1,601 tonnes. Sales revenue fell even further, down 48% from the previous quarter to US$6.3 million.

Orocobre reported a realised average price of US$3,913 a tonne for the quarter.

Projects pushed back 

Orocobre’s expansion of the Olaroz facility was also significantly impacted by COVID-19, with construction ceasing for approximately a month. Site works continue to be limited and construction has only progressed slightly since March to approximately 40% of completion.

Construction of the Naraha Lithium Hydroxide Plant continued throughout the period, however deliveries are expected to be delayed due to COVID-19. Orocobre reports that this will likely push back completion by approximately 2 months. 

Market outlook

Orocobre reported that in China, demand for electric vehicles (the majority of which run on lithium batteries) has been largely subdued despite the extension of the country’s subsidy program. Weak global demand and a build up of product inventory saw aggressive sales prices by some producers that were seeking to maintain cash flow, minimise unit costs, or grow market share. Higher-cost Chinese conversion plants began to idle facilities or moderate production. 

The miner also noted that widespread delays in lithium expansion projects from a number of producers were announced during the quarter. This reflected a combination of market conditions, limitations on workforce availability, and lower plant and equipment availability. 

Electric vehicle (EV) manufacturers were buoyed by signals the European Union would use “green” industries as the platform for economic recovery, post-COVID. Two of the largest automobile markets in Europe, Germany and France, have increased EV subsidies by 50% and 17%, respectively. This brings some EV sale prices in line with internal combustion engine equivalents. Sales in both markets grew 100% year-on-year in May reflecting the impact of these subsidies on consumer appetite. 

Foolish takeaway

While the lithium market suffered a setback due to COVID-19, Orocobre says the long-term outlook remains positive and continues to be reinforced by increased government regulation and funding.

The Orocobre share price is currently sitting at $3.08 per share, which is 9.6% up, year to date, and a 9.22% gain on this time last year.

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Motley Fool contributor Kate O’Brien has no position in any of the stocks mentioned. 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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