Orocobre

RGN speaks to the lithium triangle's first new brine producer in 20 years

 


 

Orocobre is the newest brine-based global lithium carbonate producer in over twenty years and is positioning itself to become a top global supplier of battery grade lithium ahead of the forthcoming EV boom. However, the company is not operating exclusively in the lithium space and is building a substantial industrial chemicals company with lithium, potash and boron assets based in Argentina – home to a major portion of the fabled ‘lithium triangle’. Orocobre operates under three separate entities in Argentina, with its flagship operation Salar de Olaroz set to receive a major boost to its production capacity after Japanese firm Toyota Tsusho purchased a 15% stake in the business and agreed to invest in expanding the facility. RGN’s editor interviews Orocobre’s managing director and CEO Richard P. Seville.

 

Jacob Ambrose Willson: Explain Orocobre’s company strategy with regards to entering into partnerships to advance lithium, boron and potash assets in Argentina?

 

Richard P. Seville: Orocobre has been operating in Argentina for over 10 years. Our flagship operation, Salar de Olaroz, in the Jujuy province of Northern Argentina has been developed over this period and is the newest brine-based lithium carbonate supplier to emerge in over 20 years. It would not have been possible to develop this world class resource without the strength of our strategic partnerships.

 

The Olaroz Lithium Facility began as a joint venture project built in partnership with Japanese trading giant Toyota Tsusho Corporation (TTC) and the mining investment company owned by the provincial government of Jujuy, Jujuy Energia y Mineria Sociedad del Estado (JEMSE).

 

The Olaroz Lithium Project Joint Venture is operated through Orocobre’s Argentine subsidiary, Sales de Jujuy S.A. (SDJ), the ownership of which is held in a Singaporean company, Sales de Jujuy Pte Ltd, that is the joint venture company with partner TTC and JEMSE.

 

The effective Olaroz project equity interest will be Orocobre 66.5%, TTC 25.0% and JEMSE 8.5%.

 

 JAW: Orocobre is currently engaged with several developments in all three of its operations – How does the company ensure progress is consistent across all three partnerships?

 

RS: Orocobre has been operating for more than a decade. We are not a new company and as such, we have carefully and methodically developed a corporate strategy and commensurate structure over this time that enables us to develop the world class lithium resources at Olaroz and boron chemicals at Borax Argentina. These are established operations that are both in production and expanding.

 

In addition, our strategy and structure enable us to also maintain an ‘exploration’ profile through our 35% interest in Advantage Lithium. In November 2016 Orocobre entered into a joint venture agreement with Advantage Lithium on its Cauchari Project and a number of exploration projects.

 

Having a well-established strategy and structure is critical to ensure that our resources maintain their focus on creating value from these projects.

 

JAW: How important is it for Orocobre to expand its Olaroz project so that it endures the mass demand growth expected from the lithium-ion battery market over the coming decades?

 

RS: In January this year, we announced a significant strategic initiative to accelerate our expansion plans at Olaroz through a larger Phase 2 expansion of the lithium facility. This strategic initiative involved a 15% placement to TTC, priced at a 17% premium to 30-day VWAP.

 

This initiative fully funds Orocobre’s expansion plans to bring Olaroz to a total annual production capacity of 42,500 tonnes lithium carbonate production.

 

But just as importantly, it continues to strengthen our longstanding strategic and joint venture partnership with TTC.

 

Our partnership with TTC does not preclude Orocobre from selling our product to a wide range of customers in the global industrial, technical and battery markets, which already number more than 70.

 

Additionally, Orocobre and TTC are finalising plans to jointly develop a 10,000 tonnes per annum lithium hydroxide treatment plant in Fukushima, Japan with expected operating costs of US$1,500/tonne. This will further develop our ability to deliver high purity battery grade product to the growing global lithium market.

 

JAW: The Olaroz facility has also been held up as one of the lowest cost producers of lithium carbonate in the world – What other factors, besides being a brine deposit, contribute to the low production costs?

 

RS: Orocobre’s cost of lithium chemical production is currently approximately $4,000 per tonne and we expect that to reduce further to $3000 per tonne once our expansion is complete.

 

Hard rock sourced lithium spodumene concentrate (not chemicals) is reportedly $800-900 per tonne of concentrate.  The concentrate must then be converted to lithium chemicals at a cost of $2,000 – $3,000 per tonne (which currently is almost all done in China) before it is ready for sale. It takes 8.5 tonnes of concentrate to produce just 1 tonne of lithium chemicals. Taking the mid points, hard rock sourced lithium costs around $10,000 per tonne {($850 *8.5) +$2,500 + freight = approx. $10,000/tonne}.

 

Orocobre’s Olaroz Lithium Facility is supported by favourable conditions in terms of both the operating environment and local infrastructure. Very limited rainfall combined with dry, windy conditions enhances our brine-evaporation process. Olaroz is also serviced by gas pipelines, high voltage electricity, and paved highways.

 

Three major seaports, Buenos Aires in Argentina and Antofagasta and Iquique in Chile are serviced by international carriers and are easily accessible by road and/or rail, all this coupled with onsite treatment facilities (that can produce up to 100% battery grade lithium carbonate) help keep our overall cost of production down.

 

 JAW: Orocobre posted half-year revenue of 63.1 million in Feb 2018 – How pleasing is this financial performance and what is your grand vision for the company? Can Orocobre break into the land of the giants with regards to global lithium producers (i.e. the Latin American oligopoly)?

 

RS: Our financial performance for the half year to 31 December 2017 was solid and we continue to consolidate our position as a mainstream, profitable, low cost producer of lithium carbonate.

 

The global market fundamentals for lithium remain intact with strong demand growth, tight supply and attractive pricing dynamics.

 

Orocobre is observing a very strong and sustainable lithium chemicals market driven by ongoing demand for electrification of transport and implementation of home and grid-based storage systems.

 

Orocobre and our strategic partner TTC are investing significantly in the world class Olaroz Lithium Facility as it is a low cost, high margin operation with a very large resource capable of sustaining multiple stages of expansion.

 

We believe, and our research shows that the long term growth opportunities for lithium producers remain intact and in fact, are continuing to strengthen. There remain significant headwinds for new production and supply additions we believe remain over-stated.

 

On the demand side, the end game is becoming clearer – for example:

 

    • The UK and France have banned the sale of internal combustion engine vehicles by 2040, China is heading in the same direction, and India to only sell EVs by 2030
    • Austria, China, Denmark, Germany, Ireland, Japan, the Netherlands, Portugal, Korea and Spain have all set official targets for electric car sales
    • For example, 750,000 EVs were sold last year, OPEC suggests that by 2040 the global vehicle fleet will include 266 million EVs, Bloomberg New Energy Finance suggests by 2040 there could be 530 million, or one third of all cars will be EVs

 

So, in terms of demand, the propensity to buy electric vehicles is rising, meaning lithium prices will remain higher for longer.

 

Orocobre is already competing in a global market against both established and emerging players. We are the first brine-based lithium producer to emerge in the past 20 years. Just as importantly, we are one of the lowest cost producers of lithium chemicals in the world with a lithium production cost of $4,336 per tonne for the half year to Dec 31, 2017 and a gross operating margin of 62%.

 

We believe that maintaining a low-cost production base will be a key competitive advantage for any lithium producers going forward.