Orocobre Limited ("the Company") is pleased to announce the commencement of construction at its fully-funded Olaroz Lithium Project in northwest Argentina. A groundbreaking celebration was held to celebrate the event. On completion of construction of the US$229 million lithium project in early 2014, it will be the world's first large-scale, low cost "greenfield" brine lithium operation to have been built in nearly 20 years and will have a first-phase design production rate of 17,500 tonnes per annum of battery grade lithium carbonate.
The start of construction marks the completion of the various corporate structuring aspects of the Toyota Tsusho Corporation ("TTC") joint venture, TTC's subscription for its 25% equity in the joint venture, and the issue of an 8.5% equity interest in the project to Jujuy Energia y Mineria Sociedad del Estado ("JEMSE"). Following the previously announced completion of the detailed engineering and governmental approvals process, the project now moves into full-scale construction.
Over the next few weeks, in the normal course of post equity completion, Orocobre expects that the final project debt financing documentation will be executed by the partners on the same attractive terms as previously reported.
Background on Funding
On 17 October, 2012 the Company announced the formation of a joint venture, with TTC becoming a 25% equity participant having facilitated Mizuho Corporate Bank and JOGMEC to provide a comprehensive debt and equity funding package for construction of the Olaroz project. The cornerstones of the financing are an equity investment by TTC of approximately US$55 million and up to US$192 million of low-cost project debt. As part of this process, Orocobre entered into an agreement with JEMSE, the mining investment company owned by the provincial Government of Jujuy, whereby JEMSE holds an 8.5% equity interest in the project.
To fund an approximate US$12 million equity shortfall, and to provide a strong balance sheet to fund its Borax Argentina initiatives and working capital, on 5 November, 2012, Orocobre completed an oversubscribed A$21 million institutional placement through the issuance of 12.35 million ordinary shares to investors in Australia, Hong Kong, the United Kingdom and the United States at an issue price of A$1.70 per share. In addition, in order to provide its existing non-institutional investors an opportunity to participate in the share offering on the same terms, the Company is undertaking a Shareholder Purchase Plan capped at A$5.0 million.
With the subscription for equity by TTC and the issue of shares to JEMSE, the project construction can commence in earnest. Over the last year, detailed engineering has been completed and the procurement process is well advanced with most construction contracts tendered. The project will be implemented using an EPCM methodology with a high degree of local content.
The first stage of construction involves establishment of water supply, camp construction and associated infrastructure plus production bores, brine pipeline and evaporation ponds. The company will keep shareholders regularly updated as construction progresses.
Managing Director and CEO, Richard Seville commented: "I'm very pleased that we have commenced full-scale construction activity at Olaroz. In an environment where so many projects are facing difficulties, reaching the fully funded construction stage is a major achievement that puts Orocobre on its way to establishing itself as a significant and low operating cost battery grade lithium carbonate supplier to the world. Our commitment to the people and environment of Jujuy will strengthen the community and provide important long-term benefits. Our joint venture partners, Toyota Tsusho and JEMSE, have been instrumental in helping Orocobre reach this important milestone."
Mr. Seville added, "Thanks to our team's advanced preparations, we are able to immediately commence construction. We now turn our full attention to the methodical execution of the construction and commissioning of our operations."
Orocobre's Chairman, James D. Calaway, stated: "The start of construction activity is a major accomplishment for everyone involved with the project. Our valued relationship with Toyota Tsusho began in early 2010, and since then we have worked as genuine partners to ensure that we meet our commitments to the people of Jujuy and to construct a long-term sustainable operation. To be at a point where we are now under construction is very satisfying to all project stakeholders."