Orocobre Rating Change

Orocobre Limited, developing the Olaroz lithium deposit in Argentina, has been classified as a Phase II company and rated ‘3+’ (formerly ‘4’) on the five point PortfolioDirect rating scale where a ‘5’ is the highest rating on the risk adjusted quality scale. Orocobre has forecast a continuing but slowed ramp-up in lithium carbonate production (ASX 22 January 2016). It is now targeting nameplate capacity production in September 2016 (previously late 2015). Delays in reaching targeted production rates have raised the capital requirements with a negative impact on valuation. The company has raised an additional A$85 million. The lower valuation and heightened uncertainty about the timing of the production lift have contributed a reduced PortfolioDirect rating. The company retains potential as a long term core portfolio holding due to its prospectively high profit margins, long operating life and unusually prolonged positive value momentum. The disappointingly long production ramp-up means more time will be needed in which to demonstrate the longer term production capability of the company to support judgements by investors about its sustainable sales and earnings potential.