Orocobre Limited Quarterly Report of Operations for the Period Ended 30 September 2017

• As at 30 September 2017, Orocobre Group had US$46.6 million of available cash after providing funding for a working capital build at Borax Argentina
• The Company executed agreements with Lithium X Energy Corp. for the sale of Diablillos tenements for cash and shares with a value of approximately US$2m and a 1% net revenue based royalty on future production.   The shares have been issued and the cash component will be received in this quarter

OLAROZ LITHIUM FACILITY

For more information on Olaroz please click here

The Olaroz Lithium Facility is located in the Jujuy province of Argentina. Together with partners, Toyota Tsusho Corporation (TTC) and Jujuy Energia y Mineria Sociedad del Estado (JEMSE), Orocobre is now operating the first large scale lithium chemicals brine based facility to be commissioned in approximately 20 years.

Olaroz produces high quality lithium carbonate chemicals for both the battery and industrial markets.  It is the only operation in the world with an integrated purification circuit that permits it to produce, if desired, 100% battery grade lithium carbonate (+99.5%) on site.

The Olaroz Lithium Facility joint venture is operated through Argentine subsidiary Sales de Jujuy S.A. The effective equity interests are: Orocobre 66.5%, TTC 25.0% and JEMSE 8.5%.

PRODUCTION, SALES AND OPERATIONAL UPDATE

PRODUCTION AND SALES

Production for the quarter was 2,135 tonnes.  As in the previous quarter, operations continued to be impacted by slow evaporation rates related to winter weather conditions and the finalisation of the pond rebalancing process previously disclosed.  Since early September, evaporation rates have increased significantly resulting in increased brine concentration, increased harvest pond inventory and increasing production rates as feed brine concentration has risen. This trend has continued into October as discussed later in the report.

Sales revenue for the quarter was US$23.2 million on total sales of 2,072 tonnes with average sales prices up 5% to US$11,190/tonne³.  Operating costs (on a cost of goods sold basis) were US$4,987/tonne, up 17% QoQ due to lower production levels and the impact of higher soda ash unit costs. As reported on 22 June 2017, bad weather in NW Argentina resulted in Olaroz procuring alternative sources of soda ash during June and July at significantly higher than normal cost.  The soda ash costs resulted in higher inventory unit costs being carried forward into July which combined with lower production months of July and August resulted in higher costs for the September quarter.  Lower unit costs from higher production rates in the month of September are carried forward with inventory into October.

Five days of plant planned maintenance was brought forward to this quarter to minimise the impact later in the year when daily production rates are expected to be higher. Costs are expected to decrease to <US$4,000/tonne in the December quarter as brine concentration and production increases.

Gross cash margins for the quarter remained strong at US$6,203/tonne with the increase in sales prices partially offsetting the increase in costs.  Overall gross operating margins remain strong at 55%. SDJ remains strongly operating cashflow positive.

OPERATIONAL UPDATE

During the quarter the Olaroz operations recorded the production of a cumulative 20,000 tonnes of lithium carbonate since operations commenced in 2015.  This milestone is testament to the operational team at Olaroz who have relentlessly pursued operational excellence in developing the first new brine operation in 20 years.  These development and operating skills provide an on-going competitive advantage for Orocobre in the multi-phase development of Olaroz.

Over the September quarter the focus has remained on pond management both from the perspective of inter-pond brine transfer and operational controls and monitoring.  The design and upgrade for the improved transfer and pumping system required the installation of six new pumps, remote monitoring systems and additional water cleaning lines for a revised capital cost of US$2.7m.  This program is mostly complete and the final two pumps are expected to be installed in the first weeks of November in time for increased evaporation rates which will necessitate increased inter-pond brine transfers. 

As noted in February, the process of re-establishing the correct inventory profile (volume and concentration) would take approximately six months, this is now complete and concentrations across the entire pond system are now approaching steady state conditions.  With increasing brine concentration, the production rate and recovery have risen, and reagent consumption rate has decreased.  Production during October is on track to deliver the budget of 1,220 tonnes for the month the same as produced in July and August combined.  In the last seven days production has averaged 46 tonnes per day (96% of design) and record production is expected for the December quarter.  The Company reiterates guidance for the full year of 14,000 tonnes with production split approximately 45/55 between the first and second halves of the financial year.   

The chart below shows the seasonality of average evaporation rates and the historical and forecast harvest pond inventory profile.  The harvest pond inventory continues to increase generally in line with expectations and is approaching maximum historical levels.  The deviation through October was due to one harvest pond being taken out of circuit for maintenance works to recover brine storage capacity which had been reduced by the secondary liming process which occurs on the brine feed to that pond.  Last week the pond was brought back into circuit and it is now being re-filled.  The primary and intermediate ponds are showing very good correlation to modelling. The Company is encouraged that the measured data across the pond system is much as predicted from the pond evaporation and production model.   

Bathymetric surveys are complete and data is being analysed.  The Company does not expect any significant changes to inventory levels or production guidance from this work, as such brine inventory levels will be reported at half and full year results.

Prior to pond management issues and a constraint of feedstock, the purification circuit has achieved a maximum throughput rate of 43 tonnes per day (tpd) and run consistently at 35-40 tpd (73-83% of nameplate).  Hydrocyclones have been installed and are operational, these are expected to allow the purification circuit to achieve nameplate capacity of approximately 48 tonnes per day over the coming months.

The primary circuit runs consistently above nameplate capacity with a maximum achieved throughput of 66 tpd, some 35% above design rate of 48 tpd. 

Carbon dioxide recovery

Carbon dioxide is used at the Olaroz lithium facility in the production of battery grade lithium carbonate. It is currently sourced from near Buenos Aires, Cordoba and Mendoza and transported up to 1,800 kilometres by truck.  Consequently, it is a significant component of reagent costs and the Company is installing CO₂ recovery systems on various parts of the purification circuit to recover CO₂ from the production process.

Results from a engineering studies and a trial plant over the last year have demonstrated that recovery of up to 50% of total CO₂ is possible, and orders have now been placed for provision and installation of permanent equipment.  Capital expenditure on this project is expected to be less than US$2M.  The CO₂ plant is supplied as a package by a specialist manufacturer in Europe.

Installation and operation of the permanent CO₂ recovery equipment is expected in the June Quarter 2018.

Third party review of pond design

A review of the Olaroz pond system by a team of experts from the Chilean office of multinational engineering group GHD Pty Ltd who collectively have more than 75 years of pond design and management experience has been completed. The review concluded that there were no design faults that would prevent overall plant production of 17,500 tonnes per year. Since February the Company has spent US$2.7 million on the addition of pumps and monitoring systems, and considers this work is now effectively complete and has achieved the aim of adding robustness to the pond system. Misinformation and market commentary suggesting the need for substantial capital to rectify the pond system is incorrect.

MARKET AND SALES

Total volume of lithium carbonate sold in the September quarter was 2,072 tonnes.  Lithium carbonate prices increased 5% to US$11,190/tonne (FOB) for the quarter. The price achieved for the quarter is a result of higher pricing in short term contracts compared to last quarter.

Since operations commenced Olaroz has developed a strong customer base of >70 customers who have tested and accepted the high grade Purified and Prime products.  The Purified product regularly tests at 99.9% lithium carbonate and is sold to battery and cathode end users.  The Prime product regularly tests at 99% lithium carbonate and is sold to a variety of technical and industrial end users.  Neither of these products require any additional processing for their respective markets and uses.

LITHIUM MARKET

Analysis by Orocobre determined that demand for lithium continued to grow at a rate which supply struggled to meet.  Leading into the quarter, existing brine producers including SQM, Albemarle, and FMC confirmed ambitious expansions amounting to approximately 100kt LCE additional supply by 2020.  However, no significant new supply from the majors is thought to have entered the market during the quarter, resulting in sustained market tightness.

Australian hard rock projects continued to steadily ramp-up following what Chinese import data showed was a slow start to the year.  Supply of spodumene concentrate from Mt Marion & Mt Cattlin was quickly absorbed by Chinese conversion plants which otherwise rely on scarce domestic production and/or imported lithium carbonate.  Key downstream processors are slowly moving to meet growing market demand with expansions announced by Tianqi, Ganfeng, Albemarle, Yahua, Ruifu, General Lithium.  However, while those expansions would double the current installed conversion capacity it will require over US$2.5Bn⁵ capital (Company Announcements, Asian Metals).  Security of supply remains a concern with a number of capital guarantees and offtake agreements proposed to finance projects.

The shift toward partnerships between raw material suppliers and compounders/processors that occurred in 2016 appears to have stretched further downstream with battery and car manufacturers eager to secure future raw material supply needed to meet electric vehicle targets.  It seems likely that this form of disintermediation will continue with Volvo, Volkswagen, Jaguar Land Rover and BMW all announcing plans to have completely electrified vehicle fleets in the future. 

Car manufacturers have been encouraged to accelerate EV expansion plans with growing awareness of future raw material supply bottlenecks and the continued implementation of regulation requiring the switch to electric vehicles.  China continues to develop new policy with the recent proposition of a point system in July similar to that employed in California which penalizes internal combustion drivers and subsidises EV manufacturers and owners (Industrial Minerals).  The European Union has also announced plans to form a consortium that seeks to address the lack of battery cell manufacturing capacity which may impact the speed new EV's can come to market.  Currently cell manufacturing is dominated by Japanese firms like Panasonic and NEC, Korea's LG and Samsung and China's BYD and CATL.    

New and varied forms of collaboration between Government and industry provides greater certainty that short- and long-term demand for lithium can only grow and push EV penetration rates to over 5% p.a. by 2020.  It is the Company's expectation that any new lithium supply to enter the market during this time will be quickly absorbed, keeping prices above US$10,000 per tonne FOB in the short term. 

LITHIUM HYDROXIDE PLANT

UPDATE ON PROGRESS

Olaroz industrial grade lithium carbonate and locally sourced Japanese lime have been used as feedstock for testing of process design to produce lithium hydroxide by two specialised engineering firms. The test work demonstrated that a very high-quality lithium hydroxide could be produced from Olaroz lithium carbonate using a customised process.  The test work has also highlighted opportunities to reduce lithium losses during conversion from carbonate to hydroxide.

Contract negotiations are continuing with the two engineering firms to determine the preferred contractor.  The selection criteria for choice of engineering contractor includes turn-key commissioning and personnel training with process, product quality and performance guarantees. 

Capital and operating costs have been supplied by one of the engineering firms during the September quarter. Information from the second firm is expected in November.

Discussions with TTC are well advanced to determine the optimal joint venture structure for ownership and operation of the hydroxide facility. 

Submissions have been made in September to Japanese National and Provincial governments for development permits and subsidies for capital costs and results from the submission are expected by the end of November.  If successful, the subsidy support could amount to up to 50% of total capital costs for construction of a lithium hydroxide plant.

Subject to joint venture approvals and finalisation of financing and permitting, construction is likely to commence in June quarter 2018 with commissioning 12 months later. Orocobre does not anticipate the need to raise equity capital for this project.

EXPANSION STUDY FOR OLAROZ

The Phase 2 expansion investment decision remains dependent on achieving Phase 1 design production rates and the expansion being funded without further equity capital (i.e. funded by project finance and Phase 1 operating cashflow).  Sustainable production rates are expected to be achieved during the current summer period (southern hemisphere) and construction is therefore likely to commence in the first half of 2018.

REVISED SCOPE OF PHASE 2 EXPANSION STUDIES 

On 15 December 2016, Orocobre announced the results of scoping studies into the expansion of Olaroz and the proposed doubling of production at a cost of US$190 million including US$25 million contingency.  Subsequently, these plans have been simplified to remove the purification circuit from the incremental production. The resultant product mix is 17,500 tonne per annum Battery Grade lithium carbonate (>99.5%) from the existing purification circuit and 17,500 tonne per annum Industrial Grade lithium carbonate (avg. 99.0%) which will provide feedstock for the planned lithium hydroxide plant in Japan.

This simplified strategy results in lower capital expenditure of approximately US$160 million including a US$25 million contingency and lower implementation risk as the project is based around a simple duplication of bores, ponds and primary circuit of Phase 1 at Olaroz. The full cost of the pond system contained within the total capital expenditure estimate for Phase 2 is US$75 million.

Multinational engineering firm, GHD has been appointed to oversee engineering design studies for the Olaroz Phase 2 expansion. 

Key permits have been received for water extraction, additional bores and new ponds from the Jujuy Provincial Government for the expansion.

Plant layout and pond design is being finalised and soil tests have been completed over the new pond area.  Flowsheets, mass balance, an equipment list and design criteria have also been completed. Six layout options for the Li2CO3 plant and three options for the liming plant are currently being considered and the preliminary design for the road, pump stations, piping and electricity lines to new extraction bore holes were completed.  

BORAX ARGENTINA

The current focus for Borax Argentina has been to restructure its business to deliver sustainable operational and financial performance. This is resulting in a change in product mix as described below and an improvement in average pricing. During these changes it has been necessary for Orocobre to provide financial support of US$2.4 million over the quarter for the build of working capital. 

OPERATIONS

Sales volumes in the September quarter 2017 were 8,543 tonnes of combined product, a reduction from the previous quarter following the strategic exit of a loss making, high volume mineral product line for the Agricultural market in Brazil. A decision was made to exit this business as it was no longer commercially attractive. Borax has been managing out of this supply arrangement during the quarter and a project is underway to develop a new product that delivers improved value to customers and the business.

During the quarter production rates of refined products continued to increase month on month (up 26% compared to the previous corresponding period) with record production achieved at Tincalayu and the Boric Acid plant at Campo Quijano. Costs are expected to decrease as these unit production benefits are realised.

E-Mail-Adresse

Bitte überprüfe deine die E-Mail-Adresse.

Benachrichtigungen von ARIVA.DE
(Mit der Bestellung akzeptierst du die Datenschutzhinweise)

-1

Vielen Dank, dass du dich für unseren Newsletter angemeldet hast. Du erhältst in Kürze eine E-Mail mit einem Aktivierungslink.

Hinweis: ARIVA.DE veröffentlicht in dieser Rubrik Analysen, Kolumnen und Nachrichten aus verschiedenen Quellen. Die ARIVA.DE AG ist nicht verantwortlich für Inhalte, die erkennbar von Dritten in den „News“-Bereich dieser Webseite eingestellt worden sind, und macht sich diese nicht zu Eigen. Diese Inhalte sind insbesondere durch eine entsprechende „von“-Kennzeichnung unterhalb der Artikelüberschrift und/oder durch den Link „Um den vollständigen Artikel zu lesen, klicken Sie bitte hier.“ erkennbar; verantwortlich für diese Inhalte ist allein der genannte Dritte.

Andere Nutzer interessierten sich auch für folgende News

02:00 - PR Newswire

Kasei Digital Assets Plc - Launch of New Interactive Investor Hub

24.04.24 - PR Newswire

Capital Gearing Trust Plc - Transaction in Own Shares

24.04.24 - PR Newswire

Oxford Instruments Plc - Holding(s) in Company