Pilbara’s lithium growth plans immune to price pressure
https://www.copyright link/companies/mining/pilbara-s-lithium-growth-plans-immune-to-price-pressure-20240621-p5jnmp
Peter KerResourcesreporter
Jun 21, 2024 – 12.54pm
Pilbara Minerals chiefexecutive Dale Henderson says weak lithium prices have not distracted him from “the long-term prize”, as he revealed a preliminary plan to triple lithium sales by the end of the decade.
The company said it couldexpand its Pilgangooramining hub in Western Australia to produce 2 million tonnes of lithium-rich spodumene concentrate per year at a cost that would be value accretive even if lithium prices remained anchored near current levels.
PilbaraMinerals chief executive DaleHenderson: “We will be thoughtful and disciplined about how we will triggerthese growth steps.”
While Pilbara has not taken afinal investment decision on the 2 million-tonne growth plan, the release ofFriday’s feasibility study was a signal to higher-cost lithium producers thatbig incumbents like Pilbara were determined to capture any future growth indemand for lithium, which is used in the batteries that power electric vehicles.
Pilbara Minerals is on track toproduce between 660,000 and 690,000 tonnes of saleable product in the year toJune 30, and has already invested in an expansion project to grow production toabout 1 million tonnes a year within three years.
The company said the resource at Pilgangoora waslarge enough to host a further expansion to more than 2 million tonnes per yearbetween 2030 and 2034 if the expansion were completed by 2028.
Averageannual production would be 1.9 million tonnes over the first decade of theproject.
The Pilgangoora hub is alreadyAustralia’s second-largest lithium producer and would match the scale of thenation’s biggest and best lithium mine at Greenbushes, also in WA, if the 2million tonne per year study was adopted.
Pilbara said it would need tospend about $1.2 billion to build the processing facilities, tailings dams andother infrastructure to support the expansion to 2 million tonnes per year.
That $1.2 billion price tagdoes not include the cost of building a new mine, and analysts believe theproject would cost closer to $1.5 billion once the mine was included.
Mr Henderson said the long-term outlook for lithium was very strong, despite the 80 per cent slump in prices over the past 18 months, and he vowed to focus thecompany on that long-term growth.
“Pilbara has always had its eyes trained on the long-term prize, whichis to be a scale operator in what is just an incredible growth market,” hetold AFR Weekend.
“That trajectory, in terms ofcompounding annual growth rates for lithium, it continues despite some of thenegative sentiment these last couple of weeks.”
Pilbara said the expansion would pay for itself in about three years ifbenchmark prices for spodumene concentrate with 6 per cent lithium contentaveraged $US1500 a tonne over the life of the project.
That price assumption washigher than this year’s peak in spodumene prices, which occurred early lastmonth at $US1240 a tonne. The price has been slipping towards $US1100 a tonneover the past month.
But Pilbara said the expansionto 2 million tonnes per year would still be value accretive on a net presentvalue basis if the benchmark price for spodumene with 6 per cent lithia contentwas $US1000 a tonne.
Macquarie analysts believesupply of lithium will exceed demand over the next two years, driving spodumeneprices down to an average of $US975 a tonne in 2025, before recovering to be$US1925 a tonne by 2028.
Goldman Sachs is morepessimistic, predicting prices will average between $US530 and $US610 a tonnein 2025 and 2026.
Mr Henderson said he would bemindful of thedelicate balance between supply and demand when taking a final investment decision on the 2 million tonne expansion in late 2025.
“We are at pains to reassureeveryone that we will be thoughtful and disciplined about how we will triggerthese growth steps as we have done in the past,” he said.
“This is not our first rodeo, we have been very thoughtful anddisciplined I think around the stages of incremental expansion we have donehistorically, and we will continue to do so.”
Expanding Pilgangoora toproduce 2 million tonnes of lithium per year would shorten the mine life to 23years; rather than the 34-year lifespan expected if the mine produced 1 milliontonnes per year.
Pilbara Minerals shares slumped3.9 per cent in early trading on Friday. The stock has lost 25 per cent of itsvalue over the past month, and was 38.7 per cent lower than a year ago onFriday.
Shares in rival lithiumexporter Mineral Resources were 6.5 per cent lower on Friday.
The recent slide in spodumeneprices has created a baptism of fire for Liontown Resources, which is due tostart production at its Kathleen Valley lithium mine within the next twomonths, and is likely to be cash-flow negative in its early months ofproduction until it can ramp up volumes and lower its unit costs.
Keep the faith everyone. We've been through similar sentiment/ smoke and mirrors. GLTAH
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