The article about the recent changes in ORE price target published by The Australian yesterday:
Orocobre still ‘a buy’ despite new Argentina tax hitting shares
Orocobre is the biggest Australian lithium producer in Argentina.
Shares in Argentina-focused lithium producer Orocobre have fallen for a second day after the South American nation introduced a surprise export tax to strengthen its ailing economy, despite brokers advising investors to buy in at these levels.
But this time the fall was part of a broader slide in ASX lithium companies as Chinese prices continued to slide.
Shares of Orocobre, the biggest Australian lithium producer in Argentina, fell 13 per cent on Wednesday after an effective 8 per cent export tariff was flagged to regain investor confidence and attract financial aid.
- Yesterday, Orocobre shares fell another 20c, or 5.5 per cent, to a one-year low of $3.42.
The stock is now trading at less than half the $7.44 high it reached in January.
While Argentina has said the tax will last only until 2020, the market sees the possibility of this being extended.
JPMorgan analyst Matthew Hocking said the “broader concern is incoming country risk, with this policy change being unexpected from a largely pro-business government”.
“The peso is yet to stabilise, which suggests markets are not convinced these measures will resolve the fiscal deficit.”
Mr Hocking cut his target price on Orocobre from $8 to $6.
Macquarie analysts said there was still value in the stock, even after assuming the tax would be permanent. “Operating in Argentina always has its risks, and the announcement of temporary export tariffs is a prime example,” Macquarie said in a note to clients. “Even though we have adopted a scorched-earth forecast of no foreign exchange cost offsets and a permanent tax, we still see value.”
The assumption the tax would be permanent led Macquarie to cut its target price from $5 to $4.40.
Credit Suisse assumed the tax would end in 2020 and cut its target price from $5.70 to $5.50.
Chinese lithium carbonate prices were $US13,000 a tonne in August, according mining.com, which cites the latest price from Benchmark Mineral Intelligence. That is down 47 per cent since the first quarter and the lowest since 2015.
Yesterday, Pilbara Minerals, which is ramping up production at its Pilangoora project in Western Australia, fell 7c, or 9 per cent, to an 11-month low of 70.5c.
Galaxy Resources, which has interests in WA and Argentina, fell 12c, or 4.7 per cent, to a one-year low of $2.41. Pilbara-focused Kidman Resources fell 4.5c to an 11-month low of 94.5c.
