Orocobre Secures Naraha Lithium Hydroxide Plant Approval; Updates On Costs And Financing

Orocobre Secures Naraha Lithium Hydroxide Plant Approval; Updates On Costs And Financing

Orocobre Limited (ASX: ORE) is a mineral exploration and production company which aims to develop Lithium/Potash resources in Argentina.

On 12 April 2019, Orocobre Limited announced that Orocobre, Toyota Tsusho Corporation (TTC) and Joint Venture (JV) boards had given a green signal on the Final Investment Decision (FID) for the Naraha Lithium Hydroxide Plant to be built in Japan. The company has 75% economic interest in the project, and Toyota Tsusho Corporation manages the operations.

The negotiations on EPC contract (Engineering – Procurement – Construction) which was going on with the TTC and the EPC contractor,Veolia is now finalized.

The construction of the Naraha Lithium Hydroxide Plant is expected to commence in the first half of the CY2019. The commissioning is scheduled to begin during the first half of CY2021. The Joint Technical Committee will supervise the Naraha Joint Venture during the construction as well as the commission phase. This Joint Technical Committee will consist of representatives from TTC and Orocobre.

For the Naraha Lithium Hydroxide Plant, the feedstock will be obtained from the Stage 2 Expansion of the Olaroz Lithium Facility that will produce primary grade of lithium carbonate (more than 99% Li2Co3). For producing 10,000 tpa battery grade lithium hydroxide at the Naraha Lithium Hydroxide Plant, there will a requirement of 9,500 tonnes per annum primary grade lithium carbonate.

In the process, the total cost incurred in detailed engineering studies, the inclusion of a calciner to recycle lime that will be used while processing and automation process, is expected to be approximately JPY8.6 billion. Further, the joint venture company associated with the process will be entitled to receive a Japanese government subsidy of JPY3 billion which will help in reducing the net capital costs to JPY5.6 billion. Exclusing the primary grade lithium carbonate feedstock, the operating cost for the Naraha Lithium Hydroxide Plant is expected to be around US$1,500 per tonne.

Based on the approval from the board regarding the Final Investment Decision (FID) for the Naraha Lithium Hydroxide Plant, Mr Martín Pérez, the Managing Director and CEO of Orocobre stated that the construction of the Naraha Lithium Hydroxide Plant will be strengthening the position of the company as a global lithium chemicals producer. This hydroxide plant in Japan will provide the company with product diversification that is suitable for various battery technologies. It will also provide the company, the potential for significant margin growth.

Financing:

In order to construct the Naraha Lithium Hydroxide Plant, the funding will be through the combination of JPY9.1 billion of term/bridging loans along with JPY1.0 billion of shareholder equity. In the construction process, JPY750 million will be provided by Orocobre and JPY250 million will be contributed by TTC.

The Japanese banks have provided a loan for two projects Subsidy Bridge Loan and Term Loan with less than 1% interest. Also, the subsidy of JPY3 billion from the Japanese government is expected to be received in the first half of CY2021, when the project will reach its mechanical completion.

The term loan will be for a period of 7 years, and the loan will be repaid from the operating cash flow of the company. The repayment of the Subsidy Bridge Loan will be after the receipt of Subsidy payments by the Japanese government and VAT Bridge Loan (JPY 0.8 billion) will be repaid from VAT refunds.

On 22 March 2019, ORE release its sustainability result for 2018.

The company earlier declared its 1H FY2019 results, where the company made a profit of US$24 million and had available cash worth US$284 million.

In the last six months, the ORE stock generated a negative return of 5.51%. However, it has generated a positive YTD return of 8.20%.

The shares of ORE closed the day’s trading at A$3.460 (12 April 2019), up by 0.875% as compared to its previous closing price. ORE holds a market capitalization of A$897.06 million with approximately 261.53 million outstanding shares and PE ratio of 37.36x.


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