Orocobre Limited (ASX: ORE, TSX: ORL): First New Lithium Brine Producer in Twenty Years, Interview with Andrew Barber, Investor Relations Manager
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By Dr. Allen Alper, PhD Economic Geology and Petrology, Columbia University, NYC, US
on 1/5/2018
Orocobre Limited (ASX: ORE, TSX: ORL) is a dynamic global lithium carbonate
supplier and an established producer of boron. Orocobre’s operations include its
Olaroz Lithium Facility in Borax in Northern Argentina, an established Argentine boron
minerals and refined chemicals producer and a 33% interest in Advantage Lithium. We
learned from Andrew Barber, investor relations manager of Orocobre, that due to the
rising lithium prices the company's main focus is on their highly profitable Olaroz-
lithium joint venture with Toyota Motor Group and JEMSE. In 2018, Orocobre plans to
produce around 14,000 tons of lithium at Olaroz and continue moving towards their full
capacity of 17 and a half thousand tons. According to Mr. Barber, Orocobre currently
accounts for 5 to 6% of global, low-cost lithium production. Also, they expect, in
early 2018, they will be in a position to give the go-ahead on an expansion of their
operations to double production and to commit to building a lithium-hydroxide plant in
Japan.
Orocobre Plant
Dr. Allen Alper: This is Dr. Allen Alper, Editor-in-Chief of Metals News,
interviewing Andrew Barber, Investor Relations Manager of Orocobre Limited. Could you
give our readers/investors an overview of your company?
Mr. Andrew Barber: The best way to think about Orocobre is that it's an
Argentine chemicals company. There are two parts to our business, Borax Argentina that
produces a number of borax products for sale into the South American market for the
most part. There are some small amounts of exports at various times. However, the main
part of our business has very quickly become the Olaroz-lithium operations in
northwestern Argentina. They're based in the Puna region which is at an altitude of
about 4,000 meters. The Olaroz Lithium Facility is located in Jujuy Province in
northern Argentina, approximately 230 kilometres northwest of the capital city of
Jujuy. That operation has become the focus for Orocobre because over the last 2-3
years the lithium price has more than doubled. Obviously, it's a highly profitability
business now and our key focus.
The actual asset itself is held in a joint venture of which Orocobre owns
66.5%. The other joint venture partners are a subsidiary of Toyota Motor group that
owns 25% of that asset and then JEMSE which is the investment arm of the local
provincial government which owns 8.5% of the asset. We started exploring the Olaroz-
lithium salar in 2007 and really got started developing this asset in 2010, when
Toyota came in as a joint venture partner. We commenced construction in 2012 and had
our first commercial production in April 2015. From that point forward we've been de-
bottle necking and commissioning our plant to the point now where we're running pretty
close to our full rate. We're starting to think about expanding and developing the
very large resource that we have at the Olaroz facility.
Dr. Allen Alper: Could you tell us a bit more about the Olaroz Salar?
Mr. Andrew Barber: The Olaroz Salar is a sedimentary basin. It is filled
with sediments of varying coarseness, but with good porosity and permeability. The
sediments are saturated with a hypersaline brine which also has a very high lithium
content. Our resource is 6.4 million tons of lithium-carbonate equivalent and we're
extracting that to process through our plant that has a capacity of 17 and a half
thousand tons per annum. Obviously we have a very long resource life and the ultimate
question is about expanding that operation and building it out to a size that is a
suitable rate of extraction to maximize the value of our resource. The actual process
starts with the extraction of the brine from the salt lake. This is done with a series
of 23 bores that supply the first stage of our plant.
They extract brine from a maximum depth of about 200 meters at this point,
which is the depth to which the resource has been defined. We know from some of our
drilling that the resource does extend down to at least 400 meters and the geophysics
indicates it could be at least 600 meters deep. There's definitely potential for
expanding out the resource we've defined. We also haven't fully tested the resource
laterally so we will at some point do some step out drilling to further define that.
After the brine is extracted from the 23 bores, it then goes through a gathering
system and ultimately ends up in the solar evaporation ponds. That is the start of the
concentrating process for the lithium. Over a period of nine months or so the lithium
content is increased tenfold.
It goes from about 700 ppm lithium to about 7,000 ppm lithium as the brine
makes its way through a series of 18 solar evaporation ponds. It's effectively a
linear process. Brine goes in at one end of one pond and works its way through the
pond system and ultimately ends up at 7,000 ppm lithium concentration. From there the
brine is pumped into the first part of our processing plant. The processing plant we
have on-site is best described in three key parts. There's the primary circuit at the
front end of the plant, there is a purification circuit in the middle. Then we have a
dry and bag circuit that we use for actually preparing the two different products that
we produce for customers. The primary circuit produces our primary product which is a
99.0% lithium carbonate.
The brine goes into that and comes out a 99.0% lithium carbonate. Then it is
either sent to the drying and bagging circuit for sale to customers or it's used as
feedstock for the purification circuit. The purification circuit we have on-site is
possibly the largest on-site purification circuit at a lithium resource. So when we're
running that, we're producing a battery-grade product that is at least a 99.5% and
typically a 99.9% lithium-carbonate product. That basically takes the primary lithium
product, increases the quality and decreases the impurities through an ion exchange
process. Obviously we receive a premium for doing that when we sell into the end
markets. At the end of the day we produce two different lithium carbonate chemicals
that are then sold to end customers and end markets.
Inside Plant
Dr. Allen Alper: What is the quantity you‘ve been producing and what do you
plan to produce in 2018?
Mr. Andrew Barber: If we look back to financial year, 2015, we had
minimal production in that year as we were starting up. When we moved into 2016 we
produced around 7,000 tons over that year. Over 2017 fiscal year we were producing
just under 12,000 tons and our expectation for fiscal year 2018 is we'll produce
around 14,000 tons. Whilst we haven't given a forecast for the following financial
year, 2019, we would expect that we continue moving towards our full nameplate
capacity of 17 and a half thousand tons.
Dr. Allen Alper: That sounds excellent. Could you tell our readers and viewers
a little bit about the market and why it's so important?
Mr. Andrew Barber: The market has been changing quite rapidly and we're
seeing that being reflected in pricing. What we have seen is that regulatory change is
really driving the demand for electric vehicles and battery storage systems.
Regulatory change is one key thing. We're also seeing a preference from consumers as
well wanting to adopt cleaner, renewable energies. Again, that is driving the
construction of additional battery manufacturing capacity.
And that all drives lithium demand. The majority of rechargeable batteries are based
on lithium-ion technology and so as the demand for electric vehicles and energy
storage systems increases it's increasing the demand for lithium carbonate and
hydroxide. We see a very strong market going forward, demand is probably the hardest
bit to predict out of the supply-demand equation because of the things that occur with
government and regulatory change.
As an example, some of the things that have come out of Europe over the last
12 months with bans on internal combustion engine vehicles in the UK and France and in
particular in Paris and London are really step changes in terms of the way this market
is going to be developed. The minute you start banning the internal combustion engine
from these cities it does start to impact how consumers are going to behave and where
the global market for electric vehicles ends up, and the growth that we see coming
through that. When we look at the supply side of the equation of the lithium market,
that's possibly a little bit easier to understand because you do have visibility of
new projects as they come through. There are the lithium brine operations, which are
typically bottom quartile, low-cost producers.
Then you have hard rock producers, using the two-step process of producing a
concentrate at a mine site and then the conversion process, which is typically
undertaken in China. That tends to be higher cost, but that said, we can see what
projects are in the wings, we can look at what projects are financed and permitted,
are under construction and so we have a good idea of what's actually coming through in
terms of new supply. In conclusion, the new supply does take longer than people
typically expect. We believe all the projects we see funded and coming on at the
moment are going to be needed because of the increase in demand from the global
market. We see the lithium market remaining very tight to under-supplied. It probably
remains under-capitalized because there hasn't been enough funding going into the
market or into new projects yet to deliver what is going to be needed on the demand
side. So we see pricing for lithium products remaining very strong.
Dr. Allen Alper: That sounds excellent. Could you tell me a little bit more
about your team, the management team, the board?
Mr. Andrew Barber: Our management team is led by our managing director,
Richard Seville. Richard has been with the company right from the very start, which is
a huge benefit to the business, having that longevity of a leader in the business.
Richard is a technical mining person, with a degree in mining geology and rock
engineering. He's actually a very hands-on managing director and understands how the
business operates very well. When you look at the rest of the team, we have our chief
financial officer, Neil Kaplan. Neil is a long-experienced financial person, he's
worked with groups like Glencore in the past, great experience. Our chief operations
officer, Alex Losada, is a highly-qualified geologist and has at various times worked
both in Argentina and Australia. Alex holds a Bachelor Degree (Honours) in Geological
Sciences from Universidad Nacional del Sur (Argentina) and a PhD in Economic Geology
and Geochemistry from Monash University (Australia) is a competent person as defined
under JORC and NI43-101 and is a member of the Australian Institute of Mining and
Metallurgy. It certainly makes it very easy for him to operate between the management
team and the Argentine operations. He has a lot of experience in undertaking studies
and research studies and technical studies into projects. That's been very, very
useful as we go through the process of considering expanding our operations.
When you look at the board we have our chairman, Rob Hubbard. Rob is a fantastic chair
and he has great experience, having been a partner at PWC and working with major
clients in the resources sector such as Rio Tinto. He's worked across a number of
geographies, including Africa and South America. The rest of our board are John
Gibson, Courtney Pratt, Federico Nicholson, Fernando Oris de Roa and Leanne Heywood,
so two of those are Argentine-based directors and we have two North Americans. They
have a mix of experience which rounds out the board very neatly.
Dr. Allen Alper: That sounds excellent. Could you tell us what your
relationship is with Advantage Lithium?
Mr. Andrew Barber: Advantage Lithium, a great bunch of operators! We
selected Advantage Lithium, with whom to partner, for the development of our
exploration. Orocobre was very well-placed early on to obtain a number of permits in
Argentina. Obviously for the last eight or nine years our entire focus has been on the
Olaroz Salar. We had a number of other high-potential Salars in our portfolio. The
challenge for our team was to continue developing Olaroz and maximize the value of the
other exploration tenements that we had. The decision was made to vend most of our
tenements into Advantage Lithium. We took equity in that company as compensation for
that. Now we actually have 33% of Advantage Lithium-issued capital and we have
seconded our technical team into that business to work on the drilling and resource
definition of some of the tenements that we've put in there.
We also have two directors on the Advantage Lithium board to provide guidance
and support as they work through the process of defining a new resource and developing
it. The key resource Advantage is working on is the Salar in which our company retains
currently a 50% interest with Advantage retaining the other 50%. Ultimately it will
move to a 75% advantage, 25% Orocobre as they complete various milestones on that
project. Orocobre is able to provide a lot of support, and they're doing some great
work in defining new and larger resources at some of the other Salars that we
previously had within our portfolio.
Dr. Allen Alper: That sounds excellent. Could you tell us a bit about your
shares and capital structure?
Mr. Andrew Barber: We have about 210 million shares on issue. We're
listed on both the ASX and TSX Exchanges. When we consider the geographic split of our
shares we have 45% of our shares as Australian-owned. The rest are owned predominantly
in North America, Germany and other parts of Europe with a number of holders in Asia
as well. When we consider the nature of those holdings, somewhere in the order of 60
to 70% of those holdings are institutional holdings and the remainder are retail and
high-net-worth investors.
Dr. Allen Alper: That sounds excellent. Could you tell us a little bit about
your background Andrew?
Mr. Andrew Barber: I actually started my life as a geologist. I worked
for a number of years in Northwestern Queensland on a variety of operational and
exploration projects and a mix of commodities all the way through from copper and base
metals, gold and subsequently had experience in coal and, ultimately oil and gas
projects. I've also worked for over a decade in the funds management, pension industry
as a professional investor. Then more recently I returned to the corporate world in a
strategic communications, business development role to work with companies interacting
with the investment market.
Dr. Allen Alper: That sounds like a very excellent background Andrew. Where
would you say Orocobre stands in relation to your competition as far as resources,
cost, production, et cetera?
Mr. Andrew Barber: Orocobre currently accounts for probably 5-6% of
global production. We're one of only a handful of lithium brine producers. All of the
lithium-brine producers sit in the lowest quartile of the cost curve. The rest of the
industry is made up of hard rock supply, now mostly coming out of Australia. The
processing of that material is typically a little bit higher cost. There's obviously a
competitive advantage to being in brine production. That is unlikely to change. It's
the nature of the deposits that makes production much cheaper. We see our position in
the global share of market supply increasing over the next couple of years.
We expect, in early 2018, we will be in a position to give the go-ahead for
expansion of our operations to double production and to commit to building a lithium-
hydroxide plant in Japan. That will provide several opportunities in actual volume
growth and also diversification of products for Orocobre. We believe we have a bright
future ahead. After we complete our initial expansion to double production, our
resource is capable of sustaining multiple internally-funded expansions. It does
generate a lot of cash and we see that there will be opportunities to expand further
in the future.
Dr. Allen Alper: That sounds very good. Could you tell our high-net-worth
readers/investors why they should consider investing in Orocobre?
Mr. Andrew Barber: I think Orocobre offers an opportunity to invest in
the electrification of transport and the provision of energy storage systems. That is
unique to the industry in that we are very much the least expensive or most under-
valued of companies that are producing in this industry. We have high-growth
opportunities and we'll continue to add significant shareholder value. We have an
experienced team that understands how to operate, develop, build and commission new
projects. We have a great partner that has been a key enabler for us to be able to
deliver our production to date and will continue to be a key enabler, building out and
expanding our current operations. We're high-growth. We’re low-risk. We have access to
funding and capital and we have technical and operational capability and know-how.
Dr. Allen Alper: That sounds excellent. Is there anything else you'd like to
add Andrew?
Mr. Andrew Barber: No, I think you've covered it all for the time being
Al. That was very good, thank you very much.
Dr. Allen Alper: Well, I enjoy talking with you. You have a very impressive
company.
http://www.orocobre.com/
Andrew Barber
Investor Relations Manager
T: +61 7 3871 3985
M: +61 418 783 701
E: abarber@orocobre.com
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