That’s a question most participants in the market for lithium exploration stocks are not asking, or are afraid to ask because the answer could be, no.

For share traders, lithium companies are casino chips and now is a wonderful time to have a seat at the lithium-powered roulette wheel.

Serious questioning of the business case underpinning (or not) hundreds of lithium-exposed explorers and a handful of miners is not welcome, which is probably why true believers in the lightweight metal got a shock earlier this week when one of the lithium world’s stars was downgraded by one of the world’s leading investment banks.

Citigroup Capital Markets took a chainsaw to Orocobre, an Australian-listed lithium producer which only a few weeks ago scaled the impressive height of A$1 billion (US$750 million) in stock-market value.

Under a headline “When do we see the cash”, Citi analysts worried about when Orocobre’s 66.5%-owned Olaroz brine concentrating project in Argentina would achieve a financial performance to justify its market value and a share price of A$4.85.

Citi was particularly concerned about modifications being made to the Olaroz processing facility and a push back in the production timetable, issues which caused it to rate Orocobre as “sell, high risk” with a target share price of A$2.22, a 54% drop of the latest market price.

Not everyone agrees with Citi which based its critical assessment on Orocobre’s June quarter activities and cash-flow report from what is a joint venture with Toyota Tshuho of Japan and the government of the Argentinean province of Jujuy, and ranks as one of the few lithium stocks to actually achieve production.

Deutsche Bank, for example, quite liked what Orocobre had to say in its June quarter report and, while it also noted delays to achieving nameplate capacity at Olaroz, it retained a ‘hold’ tip on the stock but gave it a 12-month price target of A$4.40, which is 9% below the A$4.85 market price on the day the report was released (July 19).

What caught the attention of both banks, but led to different interpretations of its importance, was a shortfall in expected lithium carbonate production in the June quarter.

Rather than achieve Deutsche Bank’s forecast of 3,150 tonnes, the Olaroz project, located high in the dry and windy Andes mountains of north-west Argentina, produced 2,971t, which doesn’t seem like a big miss.

But, what also seems to have worried both banks is the ramp-up delay and the need to install additional processing equipment.

To share traders, the criticism might sound like quibbling over the details of what has been a considerable achievement in developing a new business in a difficult part of the world, geographically and politically.

Unfortunately, the focus on financial detail is a price to pay for success in making the transition from discovery and development to production, which leads to questions about the business case.

In effect, Orocobre and the Olaroz project have come of age and hard-headed bean counters want to see a return on the investment and a profit which justifies a market-value of A$1 billion.

Other players in the lithium industry can expect the same treatment if they are able to make the shift from casino-chip to producer with success no longer measured in the amount of capital invested, or tonnes produced, but the value of sales and the k’ching of cash in the bank. 

Deutsche Bank headlined its assessment of the company’s June quarter: “Focus on delivery and cash flow from here”.

Like Citi, Deutsche is becoming more interested in the business side of lithium and while still a subscriber to the thematic that lithium will enjoy a bright future as a power source in electric cars and other battery-powered devices, it also notes that “the current deficit market is not going to last forever”.

Decoded, the clock is ticking on lithium hopefuls and Citi’s savage downgrading of Orocobre as an investment will sound alarm bells.

“The difficulty we face is in understanding cash flows at the joint venture level; the quarterly report suggests the operation requires an additional A$13 million in the September quarter, making us question the strength of operating cash flows,” Citi said.

One bank’s view will not be enough to convince lithium believers that the metal’s financial case is weaker than thought, with Deutsche Bank’s optimism offsetting Citi’s caution.

But, as if to bolster the case of the pessimists there was another interesting development in the lithium world yesterday when iron ore miner Fortescue Metals confirmed that it would not take up an opportunity to explore and develop lithium assets on its mineral tenements.

“We believe that these lithium opportunities will likely represent better value for others at this time,” Fortescue chief executive, Neville Power, told The Australian newspaper.

Lithium, it seems, is not hot for everyone.

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