After completion of construction and after satisfying operating performance tests, JOGMEC will provide guarantees for a maximum 82% of the project debt to a maximum of US$158 million.
The overall cost of the debt funding including JOGMEC guarantee is expected to be approximately 4.5% of the drawn amount and will be fixed for the term of the loan at the time of drawing on the debt facility.
The execution of this definitive Joint Venture Agreement and associated financing is the culmination of this two and a half year process, and is a vote of confidence in the project by TTC, Mizuho and JOGMEC. In a business where product quality is of paramount importance it is also an acknowledgment of the quality of the high purity battery grade product produced at the Olaroz Project over the last 18 months. The detailed engineering phase of the Olaroz Project has also been completed, resulting in two noteworthy changes to the scope of the project. First, the design capacity of the operation has been increased to 17,500 tonnes per annum ("tpa") of lithium carbonate from 16,400 tpa provided for in the Feasibility Study. This production improvement is due to an increase in the expected brine grade from 775mg/l in the Feasibility study to 825mg/l following the result of the 3D finite difference modeling under taken since the Feasibility Study (see Company's ASX/TSX Announcement dated 25 January, 2012). With changes to the flow sheet, expected potash recovery has also been increased to approximately 20,000 tpa compared to 10,000 tpa in the Feasibility Study. Potash credits and capital costs are not currently included in the first phase of the project development and are subject to a later investment decision.
Second, following completion of detailed engineering, and having tendered all material contracts with the exception of the contract for the construction of the lithium carbonate plant, the capital cost estimate has been revised to US$229 million from US$207 million in the Feasibility Study. The revised estimate includes US$22 million of contingency funds and US$16m of expenditure already made. The Olaroz Project Joint Venture is operated through Orocobre's Argentine subsidiary, Sales de Jujuy S.A. ("SDJ SA"). The effective Olaroz Project equity interest will be Orocobre 66.5%, TTC 25.0% and JEMSE 8.5%. (Details of the corporate structure are provided in the Company announcement of 17 October, 2012.
Under the terms of the Joint Venture Agreement, TTC and Orocobre will contribute project equity of US$82.8 million, equating to approximately 30% of maximum project funding if the project financing facility is fully drawn. Further information on the Olaroz Project joint venture agreement and associated financing agreements is available in the Company's announcements of 17 October 2012 and 7 December 2012.
Salar de Olaroz Construction Update
Construction of the Olaroz lithium project officially began on 21 November, 2012. Progress has been swift due in a large part to the preparation and planning that took place in the preceding year. Sinclair Knight Merz, with the assistance of INFA, a well-respected Argentine engineering group, completed detailed engineering for all areas of the operation, including brine extraction, transport and evaporation, the lithium carbonate plant and key areas of the re-purification and micronizing circuits. The procurement process was also well advanced with all main suppliers identified and with many construction and supply contracts at an advanced stage of negotiation or ready for awarding by the construction commencement date.
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