The lithium brine producer has scrapped its guidance for the current financial year due to operational conditions and uncertain future demand, however, it has already contracted around half of planned production for financial 2021 and has no expectation it will stop producing at its flagship Olaroz plant.
It may need to reduce output further, managing director Martin Perez de Solay said today.
"We are managing production rate to match demand and maximise recovery rates at the plant, so we can increase once market improves," he said.
Orocobre lost 21 days of production due to a combination of planned maintenance and quarantine restrictions during the March quarter.
Despite the plant being offline for 23% of the quarter production was only off 11% to 2732 tonnes.
The real impacts were felt on the demand side. Sales cratered almost 30% quarter-on-quarter to 2518t, dragging revenue down 32% to US$12.1 million based on a realised average price falling to $4810/t.
Despite that the company managed to reduce the cash cost of sales by 3% to $3972t.
Even with additional export taxes of $181 million and care and maintenance costs of $255/t during the shutdown, Orocobre remains profitable, with margins of $838/t, down 84% year-on-year.
De Solay said sales costs had fallen below $4000/t for the first time, and the company continued to examine ways of driving down costs "every month" and maintain its advantage as a lost cost producer but "obviously if there is no market we cannot sell".
Even prior to COVID-19 the lithium sector was challenging, and there is no sign that will change in the near future.
While China is starting to ramp back up, demand for batteries there is expected to remain sluggish, and European battery plants could be closed for months, and will take even longer to ramp back up when they restart.
With low oil prices there is likely to be a further softening on demand for electric vehicles, which will even further impact the growth of EVs in Europe and the US.
Orocobre expects the tough market conditions will continue until 2021, but retains its long-term optimism given China has extended EV subsidies, while Europe's long-term fundamentals are underpinned by "unwavering carbon emissions penalties", global government EV targets and downstream expansion plans that may have been delayed, but not reduced.
"It's hard to make decisions in this turmoil, but we will look to protect balance sheet and slow the pace of production to match demand," de Solay said.
The company can operate Olaroz at much lower output levels, and has the space to build inventories as required.
Work continues at the Naraha lithium hydroxide plant in Japan, which is about 50% complete, but COVID-19 restrictions are starting to impact the schedule.
While Olaroz stage two expansion has been granted approvals to resume work within the government-imposed limitations, de Solay admitted "the schedule is no longer there".
Orocobre ended the quarter with net cash of $88 million, down from $115 million at the start of the year.
The company also completed the acquisition of Advantage Lithium, and will take a $6 million non-cash impairment as a result.
Shares in the lithium producer eased 3% to A$1.99 in early trade, valuing it at $522 million.
