In a previous article, I discuss Orocobre's production based on a recent interview of its CEO with Morgans Financial. Some confusion has arisen as to the concept of design capacity utilized by Orocobre's CEO and the meaning of design production rate now explained in the company's reply to my commentary. Here, I react to a note of clarification and a Quarterly Report of Operations for the period ended 30th June, 2016 received today from Orocobre's Investor Relations Manager. None of these documents was available on the company's web site at the time of writing my original contribution. I commend Orocobre's willingness to clear up these topics, which only shows the company's interest in showing its shareholders the reality of operations in the company.
In what follows I transcribe Orocobre's reply in its entirety:
I read your recent article in Seeking Alpha and wanted to clarify Orocobre's production and forecasts, along with comments from Richard Seville. I have also included a copy of our June quarterly report that was released to the ASX on 19 July with updated information for Q2 2016.
Our Olaroz operations have been in ramp up throughout the year which has been reflected in our public statements and disclosed production figures which demonstrate a steady increase in production each quarter. I note that you have included the achieved production figures up to Q1 2016, this can now be extended to Q2 2016 that delivered an increase of 639 tonnes over Q1 2016 for total production of 2,971 tonnes in the quarter as detailed in the table below. The Company has provided guidance that the design production rate (equivalent to an annualised production rate of 17,500 tpa) is expected to be achieved in November 2016.
Source: Orocobre, personal communication
Considering production as a percentage of operating capacity you can see in the table below Q1 2016 production was 53% of design capacity, Q2 2016 production was 68% while our recent forecast for Q3 is in the range of 75-82%. This range of 75-82% was the basis for Richards' comment of 80% being achieved in Q3 2016.
Our expectation is that production performance will continue to increase in Q4 2016 with the expected achievement of the design production rate in November 2016.
Source: Orocobre, personal communication.
In general, Orocobre's reply confirms that notwithstanding the fact that the company will not be able to hit its annual target of producing 17,500 tons in 2016 (See again Orocobre's Presentation in May 2016), its production will most likely continue to grow steadily throughout the year to reach full design capacity (as defined by Orocobre) by November of this year. This essentially ratifies the main argument of my previous contribution published on Seeking Alpha a few days ago. Hence, shareholders can be confident that the company is on the right track to attaining an adequate level of performance this year and thereafter.
In addition, the ASX document received from Orocobre provides important information regarding application of Bateman Advanced Technologies (BAT), a subsidiary of Tenova S.p.A., with a view to double production in Phase 2 of the project, just as I argued in my above mentioned article.
In accordance with the Memorandum of Understanding (MoU) signed in November 2015, the two companies are working together "towards the development and ultimate commissioning of a large scale lithium hydroxide plant capable of producing between 15,000 to 25,000 tons per annum of lithium hydroxide monohydrate directly from brine (concentrated or otherwise) utilizing proprietary technology developed or enhanced by BAT."
In this context, the document also informs that a Mini Pilot Plant was implemented in Israel to refine some design parameters in preparation of a pilot plant to be located at the Orocobre facilities, and that during April 2016, Tenova-Bateman completed "a continuous run of the lithium solvent extraction test", as well as a membrane test work "to optimize operation parameters", and the electrolysis of the lithium sulfate solution from the LiSXTM process.
Lastly, it concludes that "a complete report including test work results, and order of magnitude OPEX and CAPEX will be delivered in July", after which the company "will make an assessment as to whether or not to proceed to the next stage under the MOU".
In sum, the above information highlights Orocobre's seriousness about moving towards using alternative extraction and processing technologies to achieve higher yields and efficiency with the objective of completing phase 2 of its production plan.
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I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.
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