Orocobre talks production and lithium market environment


Carolyn Herbert: Hello I’m Carolyn from the Finance News Network and joining me from Orocobre (ASX:ORE) to discuss the company’s progress is Managing Director and CEO Richard Seville. Richard, welcome to FNN.
Richard Seville: Pleasure, great to be with you.
Carolyn Herbert: Now before we get into the questions, can you perhaps introduce the company to us?
Richard Seville: Certainly. We had our IPO at the back-end of 2007. Olaroz was our focus then and it has remained that way ever since. We completed our feasibility study in 2011 on the development of the project, kicked off construction in the beginning of 2013 and produced our first purified tonne of lithium carbonate in early 2015 and since then we’ve been ramping up production.
The company is listed on the ASX and the TSX, we’re in the ASX300 and we’ve got a market cap of about $500 million.
Carolyn Herbert: Ok, now Richard to your progress at your Olaroz lithium facility, what have been the highlights there?
Richard Seville: Well, over recent times our focus has been about ramping up production. We had a number of bottlenecks left over from construction and so over the last 12 months we’ve been working through those. We hit breakeven in January with a production level of just less than 700 tonnes, increase that in February to 761 and should be at nameplate capacity in September that’s a bit over 1400 tonnes per month.
Our focus right now is all about improving operating practices, maintenance practices, and getting the efficiencies out of the plant that would be necessary for nameplate capacity.
Carolyn Herbert: Now moving to Argentina, can you talk about the recent change in government there, policy changes and what this means for the company?
Richard Seville: Look, the last few years weren’t easy operating in Argentina; everything was tight, importation controls, high inflation, but with the change in government life has become a lot easier. Inflation will work its way into the system and that’s the plan by government but from us directly we’ve had the dollar clamp removed which allows us access to foreign currency. Importation controls have been removed and export duties have also been removed. It’s moved back to what we’d all consider a normal environment; the kind of environment you’d operate in Australia, for example.
So, for us, it’s a major change; we did really well to keep things going at the right pace with the previous administration. With the current administration the shackles are off and we’re in a great position.
Carolyn Herbert: And a more general question now Richard, there’s a lot of interest in lithium given demand from electric carmakers and battery producers; what’s Orocbre’s approximate share of annual production and what’s your current view of the lithium market and market outlook?
Richard Seville: Well it’s a very exciting place to be at the moment, when we’re at capacity we will be producing less than 10 per cent of the world’s demand. We’re entering the market at a great time – supply is tight, there hasn’t been the increase in supply that people were expecting. In fact, we’re really the only new supplier that has come to fruition.
From all the other projects that were around some years ago, and demand is growing strongly, you mentioned carmakers, you mentioned battery producers. The battery sector is not only the portable electronics and electrical equipment but also stationary battery farms, power smoothing where they’re working on the grid, all that kind of stuff, you’ve seen Tesla’s power wall. There’s big demand then in applications in power and then of course the automotive sector which you referred to as well. So for us it’s a great time, prices are rising strongly, everybody’s seen the current spot prices in China. Contract pricing may not be achieving those levels of pricing but we’re achieving prices now that we would not have thought possible back a few years ago.
In terms of our customers, we are supplying to all three sectors; chemicals manufacture, technical greyed into industrial usage, and to the battery sector. And there are strong prices in all of those sectors. So, a very good time to get into the market for us.
Carolyn Herbert: And now to your recent capital raising, can you tell us a bit about that?
Richard Seville: Yes, we really wanted to make sure we would never have to raise money again. We raised $85 million. We have a very good support from existing shareholders, we also brought on board Australian, Asian, US and UK new institutions. The kind that have a profile of long only, sticky investors so they’re in it for the long haul. People who wanted to be in the sector and to be there for, let’s say, 3 to 5 years time frames, they’re a very good calibre of register we’ve built up. The $85 million basically covers principle interest paid for the project over the next 12 months and money to go in the debt service reserve account whne we have completed successfully our completion tests and then buffer.
So it’s about providing the balance sheet that takes us through for the long haul.
Carolyn Herbert:
And finally Richard, what are the key targets for the company in 2016?
Richard Seville: Really there is only one worth talking about and that’s achieving nameplate capacity in September or before September this year at Olaroz. That’s what the focus is on the year and we’re going to work very, very hard to achieve that.
Carolyn Herbert: Richard Seville, thank you for the update.
Richard Seville: That’s a pleasure, good to talk.