08
Jun

Lithium potential finally recognised by the market

OrocobreOne of the challenging issues in funds management is the discovery and processing of information. Portfolio managers and analysts are subject to  enormous flows of information and one of the  skills required to succeed in funds management is the ordering, processing and discarding of ideas.  Our view is that a great idea is rarely unique for more than a day. The information advantage can be as short as a few minutes.

So it is puzzling when you ponder an idea for weeks on end and wonder why few others seems interested. Then, all of a sudden, a confluence of events lead to a sudden dam bursting surge of interest in a stock despite there being little change to the business itself. This has been the case this year with our investment in Argentinian lithium carbonate producer Orecobre Limited.

Orecobre is currently commissioning the Olaruz lithium project in Argentina but it  has not all been smooth sailing. The company has come back to the market for more funds on a few occasions and our frustration with the development timeline  led to selling the position in 2015. Quest returned to support the last $85m raising in January 2016 given the commissioning had commenced, a number of process issues were being resolved, the lithium price was steadily rising and the demand for lithium was accelerating.

Orecobre raised in January at $2.10. The share price is now $4.60 so Orecobre has doubled in 5 months but a chunk of that rise has been in recent weeks. So why did the light bulb suddenly go on in May?

Despite all the talk of household batteries, electric cars and the expansion of Tesla, it has taken a long time for the roving spotlight of market interest to settle on one of the few listed opportunities to invest in lithium. The trigger seems to have been the simultaneous issuance of lithium research by three major brokers and a Las Vegas lithium conference. They all happened at once and the buyers have finally arrived to greet the faster moving sellers.

It seems sometimes the market triggers can be delayed. It does not happen that often.