Shares in Australian-Listed Company Orocobre (ASX: ORE) spiked an impressive 42c after the company reached an agreement to establish a joint venture with Toyota Group Company, Toyota Tsusho Corporation to develop its flagship Salar de Olaroz Lithium-Potash Project in Argentina.
News of the agreement, which sets outs the terms under which the parties will develop the Salar de Olaroz project, saw shares in the company spike 42c, or 30%, to finish the morning at $1.82.
As part of the deal, Toyota Tsusho will provide US$4.5million to fund the completion of the Definitive Feasibility Study and other associated pre-development activities.
This is expected to be completed in the third quarter of 2010.
Subject to the finalisation of the terms of a joint venture operating agreement on completion of the Definitive Feasibility Study, Toyota Tsusho will acquire a 25 percent equity interest in the joint venture at a cost based on the NPV estimated from the Definitive Feasibility Study.
Additionally Toyota Tsusho will be responsible for securing a Japanese government - guaranteed low-cost debt facility for at least 60 percent of the Project’s development costs.
This facility is expected to be secured through the Japan Oils, Gas and Metals National Corporation (JOGMEC), a state-owned entity that provides assistance to Japanese companies in securing supplies of mineral resources.
Orocobre will continue to own 75 percent of the Project after construction, and will operate the joint venture.
Orocobre Managing Director Richard Seville said the joint venture with Toyota Tsusho provided Orocobre with a clear path forward for the development of the Project and that on current financial modeling Orocobre will not need to source additional funding.
“During the Feasibility Study, Orocobre and Toyota Tsusho will work together to develop the marketing strategy for the Project’s production, with the objective of maximising value from the Project,” Mr Seville said.
“In addition, Toyota Tsusho will also have the opportunity to negotiate a lithium chemicals off-take agreement with Orocobre as part of the joint venture."
Mr Seville said Toyota Tsusho is the perfect fit as a development partner for the Olaroz Project.
“Toyota Tsusho becoming our strategic partner allows Olaroz direct access to Toyota Motor Corporation and its partners such as Panasonic and Sanyo," he said.
"These companies have significant expertise and understanding of supply requirements in large format lithium-ion batteries for the automotive industry and consumer sector, and that will add greatly to our understanding of end-user requirements and demand.
“As environmentally-friendly electric car demand continues to grow, Toyota Motor Corporation will have the opportunity to become a cornerstone offtake customer.”
Toyota Tsusho’s interest in the Project stems from the desire to increase its exposure to reliable and diversified lithium supplies as global demand for lithium batteries in the automotive sector continues to grow.
Toyota Tsusho says it has a strategy to invest in the Olaroz Lithium-Potash Project in order to secure access to competitive, low-cost lithium carbonate production in a timeframe closely aligned with worldwide lithium requirements for hybrid and electric vehicles.
Orocobre is the leading lithium-potash resource developer in the lithium and potash rich Puna Region of Argentina.
The company's Salar de Olaroz brine deposit is widely expected to be the next large scale, low cost lithium-potash brine resource to come into production. Orocobre expects to complete its Definitive Feasibility Study in the third quarter of 2010, and commence initial commercial production in 2012.