Orocobre : Quarterly Activities Report - December 2018 Orocobre_ASX Announcement_Qtrly Activities Report_Dec 18_FINAL1.pdf

DECEMBER QUARTER 2018 KEY HIGHLIGHTS1

OLAROZ LITHIUM FACILITY (ORE 66.5%)2

December quarter

• • Production was up 65% quarter on quarter (QoQ) to 3,782 tonnes of lithium carbonate, the second best quarter of production at Olaroz achieved to date with sales up 41% to 3,019 tonnes. Quarterly sales revenue was US$32 million, down 20% on the previous corresponding period (PCP) with a realised average price achieved of US$10,587/tonne on a free on board basis (FOB)3

• • Cash costs for the quarter (on cost of goods sold basis)4 were US$3,974/tonne, down 14% QoQ and marginally up on PCP excluding the recently announced export tax of US$882/t

• • Gross cash margins (excluding export tax) of US$6,613/tonne were down 34% QoQ and down 13% on PCP due to the lower average price received

• • Orocobre signed three pivotal agreements with joint venture partner Toyota Tsusho Corporation (TTC) - a new Olaroz Shareholders Agreement, Sales and Marketing Agreement and Orocobre Management Agreement (for management of the Olaroz Joint Venture).

LITHIUM GROWTH PROJECTS

• • Orocobre, TTC and JV boards have given approval to the Final Investment Decision (FID) for the Stage 2 Expansion of the Olaroz Lithium Facility. The Stage 2 Expansion will increase lithium carbonate production capacity by approximately 25,000 tonnes per annum (tpa) bringing total Olaroz production capacity to approximately 42,500 tpa. Stage 2 will produce technical grade (>99.0% Li2CO3) lithium carbonate, part of which will be utilised as feedstock for the proposed Naraha Lithium Hydroxide Plant to be built in Japan

• • Construction of key items for the Stage 2 Expansion such as ponds, roads and camp upgrades commenced in Q4 FY18 and is advancing

• • Negotiations on the EPC contract for the proposed Naraha Lithium Hydroxide Plant are advancing rapidly between TTC as operator and Veolia the preferred EPC contractor. Several key issues remain outstanding including capital expenditure revision, operation cost revision, final construction schedule and final EPC terms. The EPC contract and FID is expected to be finalised during this quarter with commissioning of the plant expected in 2H CY20.

BORAX ARGENTINA

• • Overall sales volume in the December quarter was up 14% on the September quarter to 10,741 tonnes with sales revenue up by a slightly lower amount as the average price per tonne achieved was marginally below the September quarter due to a change in sales/product mix

• • Market conditions have not changed significantly over the quarter

• • The Tincalayu Expansion Project feasibility study is under internal review.

• 1 All figures presented in this report are unaudited

• 2 All figures 100% Olaroz Project basis

• 3 Orocobre report price as "FOB" (Free On Board) which excludes additional insurance and freight charges included in "CIF" (Cost, Insurance and Freight or delivered to destination port) pricing. The key difference between an FOB and CIF agreement is the point at which responsibility and liability transfer from seller to buyer. The Company's pricing is also net of TTC commissions but excludes export taxes. FOB prices are used by the company to provide clarity on the sales revenue that flows back to SDJ, the joint venture company in Argentina

• 4 Excludes royalties, export tax and corporate costs

• 5 September 2018 quarter export taxes are calculated only over the period for which the tax applied

CORPORATE

• • Orocobre corporate had available cash of US$284 million after expenditure mainly related to expansion activities, Naraha Lithium Hydroxide Plant basic engineering, corporate expenses and Cauchari JV expenditure being partially offset by interest income. Including SDJ and Borax cash and project debt, net group cash is US$216.7 million

• • Mr Martín Pérez de Solay will formally commence his duties as Managing Director and Chief Executive Officer (CEO) on 18 January 2018 following the retirement of Richard Seville from the position. Richard Seville will continue with Orocobre as a non-executive Director

• • The Orocobre 2018 Annual General Meeting was held on Friday 23 November with all resolutions successfully passed as ordinary resolutions following a poll at the meeting.

Orocobre Limited 2018 Annual General Meeting

CAUCHARI JOINT VENTURE

(ADVANTAGE LITHIUM OPERATOR 75% / OROCOBRE 25%)

• • During the December quarter the joint venture partners released a Phase 3 drilling program update regarding the completion of brine sampling of diamond core holes CAU28, CAU29 in the NW Sector and CAU19, CAU22, CAU25 and CAU27 in the SE Sector of the Cauchari JV property. The Phase 3 infill drilling and resource conversion program aims to deliver an estimate of Measured and Indicated Resources during this quarter

• • GHD was selected as the successful engineering firm to undertake a Feasibility Study for all aspects of the Cauchari project. The Feasibility Study will provide an appropriate engineering design to produce a Class 3 cost estimate consistent with American Association of Cost Engineers (AACE) principles to build a standalone lithium plant producing 20 thousand tonnes per annum (ktpa) of Lithium Carbonate Equivalent

• • The Feasibility Study is planned for completion in Q2 CY19.

OLAROZ LITHIUM FACILITY

Click here for more information on Olaroz

The Olaroz Lithium Facility is located in the Jujuy province of Argentina. Together with partners, TTC and Jujuy Energia y Mineria Sociedad del Estado (JEMSE), Orocobre is now operating the first large scale brine-based lithium chemicals facility to be commissioned in approximately 20 years.

Olaroz produces high quality lithium carbonate chemicals for both the battery and industrial markets. It is the only brine-based operation in the world with an integrated purification circuit.

The Olaroz Lithium Facility joint venture is operated through Argentine subsidiary Sales de Jujuy S.A. (SDJ). The effective equity interests are: Orocobre 66.5%, TTC 25.0% and JEMSE 8.5%.

PRODUCTION, SALES AND OPERATIONAL UPDATE

PRODUCTION AND SALES

Production for the December quarter was the second highest achieved to date at 3,782 tonnes, up 65% from 2,293 tonnes in the September quarter. When compared to the same period in 2017, production is down 4% however this is principally due to restraining production to build up brine depths in the last three ponds in the system that provide feedstock to the plant. This will reduce exposure to rain events during the summer period.

Sales were 3,019 tonnes of lithium carbonate with a realised average price of US$10,587/tonne on a FOB basis and total sales revenue of US$32 million. Operating costs (on a cost of goods sold basis, excluding export tax) were US$3,974/tonne down 14% QoQ and marginally higher than the December 2017 quarter.

Costs were positively impacted with lower consumption rates of reagents and increased production rates which more than offset an increase in ARS denominated costs as the peso strengthened during the quarter.

December quarter product pricing was below that of the September quarter due to soft market conditions in China having a direct impact on shorter term contracts in China including lithium hydroxide manufacturers. There was also an indirect impact due to a number of customers outside China with downstream exposure to the Chinese market experiencing market/commercial pressure.

Under new joint marketing arrangements between TTC and Orocobre it is intended to increase the proportion of long-term contract arrangements. Market development activities in 2019 will focus on the supply to additional battery customers and high value industrial markets with the objective of minimising sales to lithium hydroxide manufacturers.

Gross cash margins (excluding export tax) of 62% for the quarter were US$6,613/tonne, down 34% QoQ and 13% PCP.

Metric	December	September	Change QoQ	PCP (Dec.	Change PCP
quarter 2018	quarter 2018	(%)	FY17)	(%)
Production (tonnes)	3,782	2,293	65%	3,937	-4%
Sales (tonnes)	3,019	2,144	41%	3,460	-13%
Average price received (US$/tonne) 3	10,587	14,699	-28%	11,550	-8%
Cost of sales (US$/tonne)4	3,974	4,640	-14%	3,946	1%
Revenue (US$M)	32	32	1%	40	-20%
Gross cash margin (US$/tonne)	6,613	10,059	-34%	7,604	-13%
Gross cash margin (%)	62%	68%	-9%	66%	-3%
Export tax (US$/tonne)5	882	89

OPERATIONAL UPDATE

Production in the December quarter increased with higher seasonal evaporation rates. Inventory build in harvest ponds continued with the construction of more harvest and evaporation ponds which will support production through lower evaporation rate periods during winter.

Salt harvesting from harvestable ponds (the final eight ponds in the system) continued during the December quarter. Five of the eight harvest ponds have now been cleared of harvestable salts, two are being harvested and one will be completed next winter. The construction of additional pond area negated any potential negative impact from the salt harvesting.

The harvesting process occurs approximately every three years and involves the removal of the majority of salt which has precipitated through the evaporation process.

CARBON DIOXIDE RECOVERY

Carbon dioxide is used at the Olaroz Lithium Facility in the production of battery grade lithium carbonate. It is currently sourced from near Buenos Aires, Cordoba and Mendoza (transported up to 1,800 kilometres by truck), making it a significant component of total reagent costs.

A carbon dioxide recovery circuit built by ASCO has now been installed and successfully commissioned. Total CO2 recovery is estimated at 55%, above initial study estimates of 50%. Capital expenditure on this project was less than US$2 million.

FUTURE PRODUCTION AND GUIDANCE

As previously stated(see ASX June Quarter Report dated 31 July 2018), Orocobre expects full year production (FY19) will be higher than that achieved in FY18.

FINAL INVESTMENT DECISION FOR GROWTH PROJECTS

Orocobre, TTC and JV boards have given approval to the FID for the Stage 2 Expansion of the Olaroz Lithium Facility. The Stage 2 Expansion will increase lithium carbonate production capacity by approximately 25,000 tpa bringing total Olaroz production capacity to approximately 42,500 tpa. Stage 2 will produce technical grade (>99.0% Li2CO3) lithium carbonate, part of which will be utilised as feedstock for the proposed Naraha Lithium Hydroxide Plant to be built in Japan.

Negotiations on the EPC contract for the proposed Naraha Lithium Hydroxide Plant are advancing rapidly between TTC as operator and Veolia the preferred EPC contractor. Several key issues remain outstanding including capital expenditure revision, operation cost revision, final construction schedule and final EPC terms. The EPC contract and FID is expected to be finalised during this quarter with commissioning of the plant expected in 2H CY20.

STAGE 2 EXPANSION AT OLAROZ

The Stage 2 Expansion of Olaroz is fully funded with cash and proposed debt funding arrangements.

PROGRESS TO DATE

During the December quarter Orocobre, TTC and JV boards gave approval to the Final Investment Decision for the Stage 2 Expansion of the Olaroz Lithium Facility. The Stage 2 Expansion will increase lithium carbonate production capacity by approximately 25,000 tpa bringing total Olaroz production capacity to approximately 42,500 tpa. Stage 2 will produce technical grade (>99.0% Li2CO3) lithium carbonate, part of which will be utilised as feedstock for the proposed Naraha Lithium Hydroxide Plant to be built in Japan

Construction of key items for the Stage 2 Expansion such as production boreholes, secondary liming plant, ponds, roads and camp upgrades commenced in Q4 FY18. The revised total capital expenditure for Stage 2 is expected to be US$295 million including a US$25 million contingency. This estimate excludes the proposed crystalliser/evaporator project which would operate for both Stage 1 and Stage 2 on which studies are currently being undertaken. The expected cost of this project is approximately US$15 million and will be subject to normal joint venture capital approval processes.