Toyota Tsusho Corporation, a sister company to Toyota Motor Corporation, has entered into a joint venture with Orocobre, Ltd. for a new lithium development project in Argentina.
The deal is aimed at providing Toyota Motor Corporation with the resources it needs to maintain its position as the world’s largest producer of gas-electric hybrid vehicles. Toyota currently employs nickel-metal-hydride batteries to power its popular Prius hybrid models but has acknowledged that the future of electric automobiles lies in lithium-ion battery technology.
Despite its higher production costs associated with lithium-ion batteries, they offer greater efficiency than nickel-metal-hydride batteries which translates into lighter batteries that offer longer operating times between recharging.
Kazaka Securities’ chief analyst, Yoshihiko Tabei says, "When it comes to mass production of hybrids, the main hurdle has been a shortage of batteries. Toyota is taking a step on its own to secure the materials it needs to ensure stable production."
Shares of Australian-listed Orocobre rose by as much as 47% on the announcement to a record high of $1.87 per share before closing up 32% at $1.85.
While shares of Toyota Motors closed down 0.9%, the per-share price of Toyota Tsusho stock rose a full 6%. The drop in the price of Toyota Motors shares was in line with other auto shares.
The new Salar de Olaroz lithium mining project is projected to cost between $80 million and $100 million. Orocobre spokesman, Paul Ryan, said the final cost estimate will be announced pending a feasibility study which is expected to be completed by the end of September.
In a statement Orocobre said, "As environmentally friendly electric-car demand continues to grow, Toyota Motor Corporation will have the opportunity to become a cornerstone off take customer."
Orocobre took the company public in December 2007 and currently has a market capitalization approaching $137 million. The company’s managing director, Richard Seville, said the market for lithium experienced about a 7% growth rate between 1997 and 2007 largely on increased demand from the consumer electronics market.
Seville said, "That growth will continue, but on top of that we have the step change in demand with a new application which is in large-format batteries for use in electrical vehicles."
Toyota has announced that it intends to double its production of gas-electric hybrid models to 1 million units annually by 2011.
Under the terms of the agreement, Toyota Tsusho will take a 25% equity interest in the Salar de Olaroz joint venture with Orocobre retaining a 75% interest as well as operational control. At this point, the terms of the venture are subject to finalization.
Japan Oil, Gas and Metals National Corporation, a government-affiliated organization, has expressed an interest in acquiring a portion of Toyota Tsuho’s 25% stake in the project as rare metals become increasingly important to national security.
Hiroshi Kuwayama, a deputy director for Japan’s Agency for Natural Resources and Energy, said, "Rare metals are essential not just for the high-tech sector but for Japan’s manufacturing industry overall.” He added, "With other countries, such as China, investing in mines around the world, we want to be more aggressive to support the private sector in securing stable supplies."
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