Mr. David Hall reports

OROCOBRE LIMITED QUARTERLY ACTIVITIES AND CASH FLOW REPORT -- JUNE, 2015

Orocobre Ltd. has provided the company's quarterly report of operations and cash flow for the period ended June 30, 2015.

Highlights:

Olaroz lithium facility:

• Samples and sales orders have been supplied to a total of 32 customers, comprising 19 battery market customers and 13 industrial market customers.
• One hundred twenty-six tonnes of lithium carbonate product were produced during the quarter. The median values achieved for all the lithium carbonate production in May and June were 99.98 per cent to 99.99 per cent lithium carbonate.
• Rectification works to address the cooling issue bottleneck in the purification circuit to be completed within three months, in line with previous guidance.

Borax Argentina:

• Challenging market conditions in Brazil have resulted in decreased volumes, increased competition and price pressure.
• A new initiative to produce boric acid from hydroboracite has been successful, with estimated future savings of $200 (U.S.) per tonne and an estimated reduction in maintenance costs. The current plant capacity is 9,000 tonnes per annum, and engineering studies are advancing on increasing production capacity by 20 per cent.
• The relocated Tincalyu borax plant has been operating at nameplate capacity and has built some excess inventory. With the softer sales environment in Brazil, maintenance programs will be scheduled at Tincalayu in July with a resulting reduction in costs.

Corporate:

• Capital raising of $32.3-million (Australian) to institutional and sophisticated investors completed;
• Orocobre subsidiary, Sales de Jujuy S.A., received ISO accreditation for the Olaroz lithium facility.

Olaroz lithium facility

The Olaroz lithium facility is Orocobre's flagship project located in the Jujuy province of Argentina. Together with partners, Toyota Tsusho Corp. and Jujuy Energia y Mineria Sociedad del Estado, Orocobre is now operating the first large-scale lithium brine plant commissioned in approximately 20 years. Although not containing components of inherent risk, the Olaroz lithium carbonate facility is a globally unique facility operating at high altitude, which has its own set of project specific challenges.

The Olaroz lithium facility joint venture is operated through Argentine subsidiary Sales de Jujuy. The effective equity interests are: Orocobre 66.5 per cent, TTC 25.0 per cent and JEMSE 8.5 per cent.

Production update

One hundred twenty-six tonnes of lithium carbonate product were produced during the June quarter. Production for the current third quarter calendar year 2015 is now anticipated to be 1,100 tonnes, slightly below the previous forecast of 1,200 tonnes. The completion of the debottlenecking work, the increasing quantities of concentrated brine from September (the start of peak evaporation season) and the development of good operating practice are expected to facilitate a rapid increase in production volumes in the fourth quarter.

It is expected that by October, 2015, there will be sufficient quantities of concentrated brine to supply the plant at full capacity. At the end of the quarter, there was estimated to be approximately 30,000 tonnes (allowing for survey method measurement accuracy tolerances) of lithium carbonate equivalent at various stages of concentration, recoverable from the Olaroz pond system with the overall process recoveries expected to be approximately 75 per cent with good operating practice. This inventory is expected to allow rapid ramp-up of production once the final plant issues have been rectified.

Nameplate monthly production run rate at the Olaroz lithium facility of 1,450 tonnes per month is expected to be reached during the fourth quarter of 2015.

The production ramp-up has been slower than anticipated with 26 tonnes of saleable lithium carbonate produced in April, 44 tonnes produced in May and 56 tonnes produced in June. The shortfall in June production from the previously announced target of 100 tonnes was due to the decision to stop the plant in the latter part of the month to investigate lithium losses to both the ponds and the atmosphere. This included the emptying of all tanks and the undertaking of an inventory check of lithium in the circuit. A number of areas were identified and have since been ameliorated by improved operating practices, some minor engineering and, in particular, work to improve sealing of the Bepex drying and micronizing/compacting circuits, where significant losses of finished product were noted both to the floor areas and especially to the exhaust systems.

As previously advised, production ramp-up since February was impacted by a number of bottlenecks caused by both physical/equipment limitations and the continuing development of effective operating practices. The majority of these bottlenecks has now been rectified with remaining issues expected to be resolved in the next three months. The main remaining area for rectification is the cooling system in the purification circuit. As previously advised, the cost of this rectification is expected to be approximately $2-million (U.S.).

Work has also focused on improving performance of the polishing filters that remove calcium and magnesium in the primary circuit, with Outotec, the equipment supplier, visiting the site recently to undertake tests. Modifications to PLC programming have resulted in significant operating improvements. Installation of additional piping and valves and further refinements to the PLC in the next two weeks will further enhance performance.

The Olaroz lithium facility is producing both battery-grade and technical-grade lithium carbonate to fulfill sample and customer order requirements. To date, samples for final approval and sales orders have been supplied to a total of 32 customers, including 19 battery market customers and 13 industrial market customers.

Commercial shipments of lithium carbonate have continued to be dispatched from the Olaroz lithium facility to Europe, Japan and the United States. Samples have also been sent to battery and industrial sector customers as the final stage of product qualification. The median specification values achieved for lithium carbonate (Li2O3) in the months of May and June were 99.98 per cent to 99.99 per cent.

All forecast production for calendar year 2015 has now been fully committed, and customers are awaiting delivery.

The main customer concern remains the long-term security of quality supply. Once in full production, the Olaroz lithium facility should substantially fulfill this need.

Market conditions

Lithium market conditions continue to be favourable. Market demand is being driven by the growing market for rechargeable lithium-ion batteries, both in the electric vehicle area and the emerging market for energy storage batteries, such as Tesla's Powerwall. Plans for new and expanded lithium battery factories have been announced by Tesla, Foxconn, Samsung, LG and BYD.

Demand for portable rechargeable devices remains strong, underpinned by the growth of emerging markets, and the traditional industrial markets for lithium have maintained annual growth in excess of 5 per cent.

Supply-side constraints, coupled with strong market demand, have resulted in upward pressure on market prices for lithium carbonate. Prices have been steadily increasing to now be over $6,000 (U.S.) per tonne with a noticeable shifting trend in the terms of commercial arrangements from annual periods to shorter six monthly and quarterly terms. The compound annual market growth rate projected by independent consultants for lithium carbonate is 10 per cent year on year for at least the next two to three years.

Borax Argentina

Borax Argentina has extensive operations and a 50-year production history, producing borax chemicals, boric acid and boron minerals. Production currently comes from three principal mines at Tincalayu, Sijes and Porvenir with concentrators at the first two locations and a chemicals plant at Campo Quijano producing refined products.

Borax Argentina has been experiencing some challenging market conditions as a result of soft economic conditions in Brazil, historically its largest market. The downturn in the Brazilian economy and in particular a poor agriculture season have resulted in increased competition and downward pressure on market prices for all borate products.

Borax Argentina is actively pursuing a continuing geographic and product diversification strategy to better insulate the business from localized economic and market cycles.

Borax Argentina has now produced boric acid at the Campo Quijano boric acid plant using hydroboracite in place of ulexite. The hydroboracite used was the tailings from the Sijes concentrator, grading approximately 28 to 30 per cent B2O3, which is a higher grade than the ulexite mined at Porvenir.

The objective of the trial was to confirm previous testwork and produce boric acid from hydroboracite without affecting kinetics and production rate. Hydroboracite has lower chloride levels than ulexite thus reducing the bleed of mother liquor from the plant while increasing recoveries and environmental benefits. The lower chloride levels in hydroboracite will also reduce plant maintenance. The cost of producing boric acid from ulexite is relatively high cost because the mining involves extraction of thin beds, with drying and screening taking place before transporting to the plant. To be able to use tailings in the future will result in significantly lower boric acid costs with savings of above $200 per tonne estimated. The plant is now running on 100-per-cent hydroboracite feed.

The current boric acid plant at Campo Quijano has a production capacity of 9,000 tonnes per annum. Engineering studies are being conducted to see if it is possible to increase production by an estimated 20 per cent. This is subject to further study.

The relocated borax plant at Tincalyu has been operating at nameplate capacity and building inventory of borax decahydrate. With soft market conditions in Brazil, maintenance activities will be brought forward into July with a resulting reduction in operating costs.

Borax Argentina has received a loan approved of 29 million Argentine pesos (approximately $3-million (U.S.)) to finance productive asset improvements, including the expansion of the boric acid plant. Details of this and other production increases and cost reduction initiatives will be announced over the coming months.

Operations

Approximately 10,122 tonnes of combined products were sold during the quarter. This is approximately 6 per cent above the corresponding quarter last year and includes 2,061 tonnes of tincal ore sales.

     COMBINED PRODUCT SALES VOLUME BY QUARTER*

2013/2014 quarters           2014/2015 quarters

September, 2013   10,103     September, 2014   12,325
December, 2013    11,410      December, 2014   12,970
March, 2014        9,027         March, 2015    8,981
June, 2014         9,558          June, 2015   10,122

* Combined product sales volumes include borax 
chemicals, boric acid and boron minerals and 
include sales of tincal ore of 4,021 tonnes in 
the September, 2014, quarter, 4,225 tonnes in the 
December, 2014, quarter and 2,061 tonnes in the 
June, 2015, quarter.

Resource upgrades

Work continues on the upgrade to the Joint Ore Reserves Committee compliance program. Exploration at Sijes has identified a number of previously unknown outcropping beds of high-grade hydroboracite and colemanite, which could provide short-term supply at a low strip ratio.

Corporate and administration

Cash position and $32.3-million (Australian) capital raise

Unrestricted cash on hand (that is, cash not committed to a standby letter of credit) at the end of the quarter was $9.4-million (Australian) from a corporate perspective and $7.4-million (Australian) from a group perspective (taking into account a $2-million (Australian) Borax Argentina overdraft).

During the quarter, the company completed a $32.3-million (Australian) capital raise (before costs) by way of a placement to domestic and international institutional and sophisticated investors. Such funds were received after the quarter-end. The placement was completed at an issue price of $1.90 (Australian) per share, with the proceeds to be used primarily to finance working capital requirements for the Olaroz lithium facility during the production ramp-up stage.

The company received strong support with the capital raise being significantly oversubscribed, and heavily supported both from existing and new shareholders.

The lead manager and bookrunner for the placement was Canaccord Genuity (Australia) Ltd.

There are standby letters of credit (SBLCs) in place for SDJ S.A. An SBLC allows Orocobre to provide working capital to SDJ S.A. by depositing funds in U.S. dollars as security in a restricted term deposit. This allows an SBLC to be issued, which in turn allows SDJ S.A. to draw down funds in Argentina to the equivalent Argentine peso value.

The need for SBLCs to provide working capital for SDJ S.A. has arisen principally due to delays in the production start-up.

Once SDJ S.A. becomes cash flow positive, the funds drawn down will begin to be repaid, and the amount required to be held as security in the SBLC facility will also begin to reduce, resulting in cash flow in U.S. dollars back to Orocobre. The company expects this to commence in second quarter 2016. Therefore, the funds are restricted but recoverable and also earn a nominal rate of interest while held as security in the term deposit.

ISO certification received

Sales de Jujuy, the project company for the Olaroz lithium facility, received accreditation issued by Instituto Argentino de Normalizacion y Certificacion for the following business management standards:

• ISO 9001:2008 -- quality management;
• ISO 14001:2004 -- environmental management;
• OHSAS 18001:2007 -- safety and occupational health care management.

Receiving the ISO accreditation continues Orocobre's commitment toward creating a sustainable business capable of servicing the global market with consistent, high-quality lithium carbonate.