SEPTEMBER QUARTER 2019 KEY
HIGHLIGHTS1
OLAROZ LITHIUM FACILITY (ORE 66.5%)2
- Q1 FY20 production was 3,093 tonnes, up 35% on the previous
corresponding period (PCP) and the highest ever recorded in a
September quarter following a strategy of managing brine quality,
new pond preparation and tailoring production to seasonal
conditions. Record production was achieved despite extended
maintenance activity during August which saw a full plant shutdown
for five days and one of the two reactor units offline for the
month
- Quarterly sales revenue was US$22.1 million, down 21% QoQ with
a realised average price achieved of US$7,111/tonne on a free on
board basis (FOB)3. September quarter product pricing was below
that of the June quarter due to current market softness. Sales
volume for the quarter was down 8% QoQ to 3,108 tonnes
- Gross cash margins (excluding export tax) of US$2,226/tonne
were down 40% QoQ mainly due to the lower average price received
and this represents 31% of revenue
- Cash costs for the quarter (on cost of goods sold basis)4 were
US$4,885/tonne, up 9% on QoQ excluding the export tax of US$420/t
applicable since September 2018.
LITHIUM GROWTH PROJECTS
- During the quarter Orocobre Managing Director and CEO Mr.
Martín Pérez de Solay, Toyota Tsusho Corporation (TTC) and Toyotsu
Lithium Corporation (TLC) representatives hosted a groundbreaking
ceremony to signify the commencement of construction at the Naraha
Lithium Hydroxide Plant (Naraha Plant)
- Project finance documentation was executed for a US$180 million
debt facility that will be used for the Stage 2 Expansion of the
Olaroz operations
- Construction of key items for the Stage 2 Expansion of the
Olaroz Lithium Facility such as ponds, secondary liming plant,
roads and camp upgrades continue to advance.
BORAX ARGENTINA
- Overall sales volume for the September quarter was 12,480
tonnes, up 6% QoQ and up 33% PCP
- Sales revenue was the same QoQ, with average price received
down 6% QoQ due to the product mix.
CORPORATE
- As at 30 September 2019, Orocobre corporate had available cash
of US$223.5 million after expenditure mainly related to funding
Olaroz expansion activities, corporate costs and Cauchari JV
expenditure. Including Sales de Jujuy S.A. (SDJ) and Borax
Argentina S.A. (Borax) cash, project debt and working capital
facilities, net group cash at 30 September 2019 was US$151.2
million.
CAUCHARI JOINT VENTURE
(ADVANTAGE LITHIUM OPERATOR 75% / OROCOBRE
25%)
- During the quarter Orocobre participated in a Private Placement
by Advantage Lithium Corp. (Advantage) contributing C$1,536,025 at
a price of C$0.41 per Common Share.
OLAROZ LITHIUM FACILITY
Click here for more information on Olaroz
SAFETY
An incident occurred at Olaroz during the quarter resulting in a
Lost Time Injury (LTI). As at 30 September, operations had achieved
47 days without an LTI.
During the quarter SDJ completed a large-scale plant maintenance
shutdown, with over 300 people working simultaneously on the
facilities with the common objective of executing 125 scheduled
tasks. The complexity of the work was high, and it was successfully
completed without incident. This was achieved through comprehensive
collaboration across all departments, a commitment to the shared
objective and ample programming and compliance.
DuPont’s safety improvement plan continues to address key risks
and priorities. Improvement initiatives conducted during the
quarter included the elimination of plant-based risk factors and
the provision of additional support for middle management to master
the hazard and risk identification process.
The reporting of incidents and observations is now being managed
entirely through Intelex (a cloud based environmental, health,
safety and quality management system), which enables timely and
dynamic management of performance afforded by Intelex’s mobile
incident reporting capabilities.
Meetings and initiatives continue through the central safety
committee and five subcommittees (training, operational discipline,
audit, risk management and incidents investigations) with the focus
currently on follow-up action and minimising delivery times.
PRODUCTION, SALES AND OPERATIONAL UPDATE
PRODUCTION AND SALES
Production for the September quarter was 3,093 tonnes up from
2,293 tonnes on PCP despite the previously mentioned maintenance
shut in August. Product sales were 3,108 tonnes of lithium
carbonate with an average price of US$7,111/tonne on an FOB basis
and total sales revenue of US$22.1 million. The average price
received during the quarter was down 13% QoQ.
Metric |
September quarter 2019 |
June quarter 2019 |
Change QoQ (%) |
PCP (Sept
FY19) |
Change PCP (%) |
Production
(tonnes) |
3,093 |
3,455 |
-10% |
2,293 |
35% |
Sales
(tonnes) |
3,108 |
3,387 |
-8% |
2,144 |
45% |
Average price
received (US$/tonne) 3 |
7,111 |
8,220 |
-13% |
14,699 |
-52% |
Cost of sales
(US$/tonne)4 |
4,885 |
4,493 |
9% |
4,640 |
5% |
Revenue
(US$M) |
22.1 |
27.8 |
-21% |
31.5 |
-30% |
Gross cash
margin (US$/tonne) |
2,226 |
3,727 |
-40% |
10,059 |
-78% |
Gross cash
margin (%) |
31% |
45% |
-31% |
68% |
-54% |
Export tax
(US$/tonne) |
420 |
572 |
-27% |
987 |
-57% |
Gross cash margins for the quarter (excluding export tax) were
31% or US$2,226/tonne, down 40% QoQ and 78% on PCP. Operating costs
(on a cost of goods sold basis, excluding export tax) were
US$4,885/tonne up 9% QoQ and 5% on PCP. Costs were negatively
impacted by higher cost carry forward inventory (from Q4 FY19) sold
in Q1 FY20, lower production and sales volume.
OPERATIONAL UPDATE
The operational strategy continues to focus on safety, quality
and productivity.
The scheduled plant maintenance shutdown at Olaroz during August
was successfully completed without any LTIs or environmental
incidents. The program was completed under budget and saw a full
shutdown of production for five days and one of the two reactor
vessels out of operation for the remainder of the month. As a
result, August production was approximately 400 tonnes below that
of both July and September.
Operational improvements were undertaken to enhance soda ash
dosing in the plant’s reactors, resulting in lower soda ash
consumption rates. Lime consumption was also reduced after upgrades
to the liming plant’s ball mill and the implementation of better
controls across key operative processes.
Salt harvesting activities have been completed with all eight
Stage 1 harvest ponds now cleared. 4,363 tonnes of Lithium
Carbonate Equivalent (LCE) was collected during the salt harvesting
process, equivalent to 132% of forecast recoveries. With the
increase in pond area from the Stage 2 Expansion, future salt
harvesting will become a continuous process where ponds are
harvested on a rotational basis over a three-year cycle.
FUTURE GUIDANCE
Orocobre expects that full-year production for FY20 will be at
least 5% higher than FY19. Discussions with customers for December
quarter sales remain incomplete, however initial indications are
that the average sales price in the December quarter will be
approximately US$6,200 - US$6,500/tonne.
STAGE 2 EXPANSION AT OLAROZ
During the quarter Orocobre announced the finalisation of the
finance facility for the Olaroz Lithium Facility Stage 2 Expansion.
Comprehensive project finance documentation between Orocobre, TTC,
SDJ, Jujuy Energia y Minera Sociedad del Estado (JEMSE), Mizuho
Bank Ltd and Japan Oil, Gas and Metals National Corporation
(JOGMEC) has been executed for a US$180 million debt facility (the
Facility) that will be used for the Stage 2 Expansion. Principal
repayments will be made biannually, commencing 10 September
2022.
Under the terms of the January 2018 Share Subscription Agreement
between TTC and Orocobre the parties agreed to provide non
cash-backed guarantees for the Facility. Orocobre also agreed to
hold US$135 million of cash in a separate reserve account. The cash
will be held in an interest-bearing term deposit by Orocobre and
may be utilised to meet any Stage 2 Expansion cost overruns and
other defined events should they occur.
Upon completion of Stage 2 Expansion 82.35% of the Orocobre/TTC
guarantee will be replaced by a guarantee from JOGMEC and that
proportion of the US$135 million cash will then be available for
Orocobre corporate purposes. The remaining capital that is required
for the Stage 2 Expansion will be provided through shareholders
loans from Orocobre (75%) and TTC (25%).
PROGRESS TO DATE
Construction of key items for the Stage 2 Expansion such as
ponds, secondary liming plant, roads and camp upgrades continued to
advance during Q1 FY20.
As at 30 September, approximately US$62.2 million has been spent
on the first phase of expansion activities including the
construction of new roads, vegetation clearing, construction of new
evaporation and harvest ponds, secondary liming plant and 15 new
production wells.
During Q4 FY19 an invitation to tender was sent out for the
design, construction and related earthworks for a number of new
buildings required for the Stage 2 Expansion. All tenders are now
under final review allowing for construction of the main buildings
to begin before the next wet season.
International construction company Worley has been awarded the
Engineering, Procurement, Management and Construction (EPCM)
contract for the Stage 2 Expansion. Worley has commenced defining
the projects safety execution plan. Detailed engineering for the
carbonate plant is underway and due for completion in Q2 FY20.
Two new evaporation ponds (20A & 22B) were completed during
the quarter. Vegetation clearing and construction of six additional
evaporation ponds (21A, 11A, 12B, 14B, 20B & 12A) continues.
Brine transfer duct construction continues.
NARAHA LITHIUM HYDROXIDE PLANT
PROGRESS TO DATE
During the quarter Orocobre Managing Director and CEO Mr. Martín
Pérez de Solay, TTC and TLC representatives hosted a groundbreaking
ceremony to signify the commencement of construction at the Naraha
Plant.
The Naraha Plant, the first of its kind to be built in Japan, is
designed to convert industrial grade lithium carbonate feedstock
into purified battery grade lithium hydroxide. Feedstock for the
10,000 tonne per annum (tpa) Naraha Plant will be sourced from the
Olaroz Lithium Facility’s Stage 2 Expansion that will produce
industrial grade (>99.0% Li2CO3) lithium carbonate.
Sales of the lithium hydroxide will be managed by TTC as
exclusive sales agent under a similar joint marketing arrangement
to that operating for lithium carbonate from the Olaroz Lithium
Facility. The majority of production is expected to be delivered to
the Japanese battery industry. A cathode manufacturing plant is
already in operation in the immediate vicinity and plans have been
announced to develop a battery manufacturing facility nearby.
As at 30 September, approximately US$35 million has been spent
on the first phase of engineering and civil works at the Naraha
Plant. Further detailed engineering has seen expected total capital
expenditure revised to JPY9.5 billion (US$90 million, US$1 =
JPY105) which remains within previously announced funding
availability. Total US$ expenditure has been negatively affected by
approximately US$4 million due to weakening of the US$/JPY exchange
rate.
Progress to date has seen the issuing of the project’s safety
management plan and manual, Veolia Water Technologies and TTC
project staff attend safety training and procurement commencing for
key Naraha Plant components including agitators, polishing filters,
hydrocyclones, pumps and a filter press.
SHARED VALUE PROGRAM AND COMMUNITY
SDJ’s community engagement and investment initiatives during the
September quarter continued in accordance with the Company’s Shared
Value approach.
EDUCATION
A total of 20 community employees and contractors are currently
participating in formal secondary school studies via the Orocobre
supported education program. Students attend classes Tuesdays,
Wednesdays and Thursdays every week during the semester. In
addition to courses, a series of infrastructure projects were
completed during the September quarter which provide improved
facilities for community-based education and development. These
include teaching rooms in Puesto Sey, multi-use facilities in San
Juan and extensions to community halls in both Pastos Chicos and
Huáncar.
TRANSPARENCY AND
EMPOWERMENT
Our participatory environmental monitoring program continued
with ten participants from seven communities undertaking quarterly
monitoring activities, with no concerns or observations raised.
Stage one of the capacity building program with lime transport
companies from the local communities was completed by Consultoria
Logistec. Stage two of the program is now underway. Investment in
local community suppliers has continued, with supply contracts to
local communities injecting on average US$1.2 million per month
into the local economy.
PRODUCTION AND NATURAL RESOURCES
During the month of August, the traditional ‘Pachamama Festival’
was held, providing an opportunity for local communities to give
thanks to Mother Earth. The Shared Value team actively participated
in the celebrations across all local communities. The largest
celebration was held at the Olaroz Lithium Facility with
representatives attending from the local and provincial
governments.
The Vicuña Shearing Project has progressed, with analysis and
census of vicuña numbers from the Olaroz Chico community now
completed and the final report being delivered to the provincial
government authorities in order to obtain the necessary permit.
Once the permit has been granted the planning of the project’s
second stage will commence. The project will directly benefit 16
families/llama producers, as the shearing infrastructure can be
used for both llamas and vicuñas.
Construction of a greenhouse built from recycled plastic bottles
was completed for the Primary School in Coranzuli. It was built in
collaboration with the Community Commission, parents, students,
teachers, and the broader municipality accompanied by SDJ’s Shared
Value team.
Further technical training was delivered by INTI (Argentine
National Institute of Technology) to women involved in the fibre
spinning business in Huáncar to improve their weaving techniques
and use of new machinery.
MARKET AND SALES
Industry-specific and broader macro-economic factors continue to
impact lithium chemical demand. However, Orocobre remains focused
on strong long-term demand fundamentals driven by continued growth
in the electric vehicle (EV) segment and a recovery in the energy
storage system (ESS) segment. As a result, Orocobre maintains
long-term demand forecasts in line with the consensus of other
major lithium producers of 17% to 20% CAGR between 2019 and
2025.
SUPPLY
During the September quarter lithium chemical prices in the
seaborne market remained in line with the Chinese domestic market
due to the involvement of large Chinese hard rock converters.
China’s battery market was adequately supplied by domestic sources
encouraging Chinese producers to continue supply to South Korean
and Japanese battery markets.
Established South American brine producers leveraged their cost
structure to marginalise independent hard rock suppliers that are
still in ramp-up and have limited opportunity to lower price. As a
result, Chinese imports of lithium chemicals grew at the expense of
new, independent hard rock supply.
Battery customers maintained a cautious approach to procuring
raw materials while glass, ceramics customers and small chemical
conversion plants reported adequate supply to meet near-term
requirements. Large chemical converters purchased opportunistically
resulting in an aggressive pricing environment.
DEMAND
Short-term demand remained subdued due to the same set of
factors as the previous quarter including slower Chinese EV market
growth, cathode/battery performance challenges, US/China trade war
and lower ESS demands following safety incidents. However, signs of
strong long-term fundamentals continued to build.
The European Union reiterated their focus on the reduction of
CO2 emissions which will result in more stringent penalties
implemented in 2021. Capacity commitments of battery manufacturers
continued to grow with ~2,026 GWh committed compared with ~292 GWh
in 2019. Furthermore, several partnerships were announced including
Toyota and CATL, Northvolt and VW, and LG Chem and Tesla
demonstrating a commitment to accelerate battery technology
development and EV adoption.
CONCLUSION
While weak market conditions have persisted longer than
expected, a recovery is expected when the battery supply chain
reaches more manageable inventory levels. A strong acceleration in
market demand growth is expected in the medium to long term as EV
manufacturing profitability improves, total cost of EV ownership
lowers and battery technology objectives within the EV and ESS
segments including energy density, range and safety are
achieved.
Outside of Europe and China, India’s government has introduced a
series of initiatives leveraging a significant budget of US$1.5
billion over three years to develop a battery supply chain.
Meanwhile the US and Australian governments remain in discussions
to develop battery supply chains domestically.
BORAX ARGENTINA S.A.
SAFETY
Two LTIs were recorded at the Tincalayu mine during the quarter.
As at 30 September, the Sijes mine had achieved 229 days without an
LTI, Tincalayu had achieved 74 days without an LTI and Campo
Quijano had achieved 182 days without an LTI.
PRODUCTION, SALES AND OPERATIONAL UPDATE
Borax continues to demonstrate improvement in sales performance.
Business development projects are being converted into sales growth
with new supply agreements being signed with world-class players in
the fertilizer and industrial sectors. Unit costs continue to be
controlled at, or near record lows.
The September quarter saw Borax deliver another good performance
with 12,480 tonnes sold (up 6% QoQ and up 33% PCP). Total sales
revenue was the same QoQ, with average price received down 6% QoQ
due to product mix.
COMBINED PRODUCT SALES VOLUME BY QUARTER
Previous Year Quarters |
Recent Quarters |
December 2017 |
8,341 |
December 2018 |
10,741 |
March 2018 |
9,079 |
March 2019 |
13,0415 |
June 2018 |
10,590 |
June 2019 |
11,758 |
September 2018 |
9,407 |
September 2019 |
12,480 |
TINCALAYU EXPANSION STUDY
The study on an expansion of the Tincalayu refined borates
operation remains under review. Approvals have been received for a
new gas pipeline to supply the expanded plant and initial cost
estimates are under review.
ADVANTAGE LITHIUM CORP.
Advantage Lithium Corp. (TSV:AAL) manages a portfolio of
high-quality assets in Argentina, including the Cauchari Joint
Venture in which Orocobre holds a 25% interest. Orocobre also holds
approximately 34.7% of Advantage’s common shares.
During the quarter Orocobre agreed to support a Private
Placement by Advantage. Orocobre’s investment in this capital raise
was C$1,536,025 and following completion of the placement, Orocobre
now holds 34.7% of Advantage’s Common Shares (56,564,909). The
Common Shares issued pursuant to the Private Placement are subject
to a four month hold period from the date of closing.
The funds will be used by Advantage for general working capital
and to fund continued development and exploration activities on its
lithium properties in Argentina.
Advantage are preparing a Pre-Feasibility Study (PFS) that will
examine all production and processing alternatives and recommend an
optimal development path. The PFS will include a range analysis for
up to 30,000 tonnes per annum final lithium product, including
lithium hydroxide.
CORPORATE AND ADMINISTRATION
FINANCE
CASH BALANCE
As at 30 September 2019, Orocobre corporate had available cash
of US$223.5 million of which US$11.1 million has been set aside as
a guarantee for the Naraha debt facility.
The US$24.3 million cash reduction from the prior quarter was
the result of a US$20.7 million shareholders loan made to the SDJ
Joint Venture to fund Olaroz expansion activities, US$2.8 million
in corporate costs, US$1.4 million Advantage investment payment,
US$0.2 million in Cauchari JV expenditure. This expenditure was
partially offset by US$0.8 million interest income.
Including SDJ and Borax cash and project debt, net group cash at
30 September 2019 was US$151.2 million, down from US$181.0 million
at 30 June 2019.
INFLATION VERSUS DEVALUATION
The AR$/US$ exchange rate exchange rate depreciated by 36%
during the quarter from AR$42.46/US$ at 30 June 2019 to AR$57.59 at
30 September 2019, whilst inflation for the same period was
approximately 14%. When looking at the accumulated 12-month period
from 1 October 2018 to 30 September 2019, devaluation of the AR$
against the US$ was 40% versus inflation of approximately 55%. Over
time, inflation and devaluation generally cancel each other
out.
OTHER MATTERS
NEW OROCOBRE
CHIEF OPERATING OFFICER
Orocobre has welcomed Mr. Hersen Porta into the role of Chief
Operating Officer (COO). Hersen will be responsible for overseeing
the operations of both the Olaroz Lithium Facility and Borax.
Hersen has significant experience in process engineering,
production, process control and quality performance and
additionally has been involved with commissioning of several new
chemical plants which will be invaluable experience as the Stage 2
Expansion is completed.
VISIT BY GOVERNOR MORALES
During the quarter SDJ, the local operating company of the
Olaroz Lithium Facility, conducted a site tour and press conference
together with the Governor of Jujuy, Gerardo Morales. The press
conference was held for local media and dignitaries to discuss the
Stage 2 Expansion project, employment of local Jujuy community
members and the promising future of lithium production in the Jujuy
region.
The event was attended by Minister of Infrastructure, Public
Services, Land and Housing, Mr. Jorge Rizzotti; the President of
the Board of Drinking Water of Jujuy, Mr. Víctor Galarza; the
Secretary of Mining and Hydrocarbons, Mr. Miguel Soler; the
Secretary of Indigenous Peoples, Ms. Alejandra Liquín; the
President of JEMSE, Mr. Carlos Oehler; Managing Director and CEO of
Orocobre, Mr. Martín Pérez de Solay; COO, Mr. Hersen Porta; SDJ
General Manager of Operations, Mr. Francisco Torres; together with
workers from SDJ.
FOR FURTHER INFORMATION PLEASE CONTACT:
Andrew BarberInvestor Relations
Manager
Orocobre
Limited
T: +61 7 3871
3985
M: +61 418 783 701
E: abarber@orocobre.com W:
www.orocobre.com.au
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1 All figures presented in this report are unaudited
2 All figures 100% Olaroz Project basis
3 Orocobre report price as “FOB” (Free On Board) which excludes
insurance and freight charges included in “CIF” (Cost, Insurance,
Freight) pricing.Therefore, the Company’s reported prices are net
of freight (shipping), insurance, sales commission and export
taxes. FOB prices are reported by the Company to provide clarity on
the sales revenue that is recognized by SDJ, the joint venture
company in Argentina
4 Excludes royalties, export tax and corporate costs
5 Includes 2,312 tonnes of low value mineral
product