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Orocobre Limited (ASX: ORE, TSX: ORL): First New Lithium Brine Producer in Twenty Years, Interview with Andrew Barber, Investor Relations Manager

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.

Andrew Barber
Investor Relations Manager
T: +61 7 3871 3985
M: +61 418 783 701

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