Lithium consumers to fund Pilbara's $231m expansionhttps://www.copyright link/business...-fund-pilbaras-231m-expansion-20181112-h17sycRising adoption of electric vehicles and hybrids is driving demand for the lithium that Ken Brinsden's Pilbara Minerals produces. Philip Gostelow
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Peter KerOne of world's most significant new lithium exporters says customers will largely fund a $231 million expansion of its Australian mine, highlighting the negligible role that mainstream banks have played in Australia's most recent commodity boom.
The number of lithium mines in Australia has risen from one to seven in less than two years, as exporters try to satisfy surging demand from the manufacturers of modern lithium-ion batteries.
Pilbara Minerals began exporting lithium-rich spodumene concentrate from its Pilgangoora mine in Western Australia in October, and took a final investment decision on Monday to more than double its output from the mine at a cost of $231 million.
Pilbara chief executive Ken Brinsden said he hoped to finalise funding for the expansion, which would make Pilgangoora Australia's second-largest lithium mine, before the end of the year.Mr Brinsden said a range of financing options were being considered for the expansion, from pre-payments for future lithium deliveries to debt, but he said
the ultimate consumers of the lithium would be the likely providers of that finance.
"It is a customer-led financing," he said, in reference to the likes of
Chinese electric vehicle manufacturer Great Wall, which has signed up as a customer for Pilbara's lithium and also owns shares in the miner.
The small and opaque nature of the lithium market, combined with a lack of experience in lending to the sector, has prevented mainstream banks from playing a bigger role in the sector's extraordinary expansion over the past two years, with miners saying banks were reluctant to lend without having confidence over their ability to hedge in the opaque market.
The new wave of Australian lithium mines have subsequently relied heavily on equity, customer pre-payments and high-cost bonds, while the mainstream banks' caution has opened up opportunities for some specialist lenders to the small end of the resources sector such as Swiss private equity firm Pala Investments and
Australia's Tribeca Global Natural Resources Credit Fund.Mr Brinsden said banks were starting to warm to the sector, and he pointed to a $US15 million working capital facility his company struck with BNP Paribas in August as a sign that relations were starting to thaw.
It is understood that Westpac has also conducted two transactions with Australian lithium miners in the past 12 months. But Mr Brinsden said most banks would need longer to get comfortable with lending to the lithium sector, particularly for explorers and greenfield project developers.
"It is the case that banks are starting to take more interest in the lithium story, but they tend to take more interest once you are in production," he said,
"As banks get more and more comfortable with the sector those things will change in time.
"We are on a journey where the banks need more experience with the industry before they are ready to back it like they would a gold mine."
The Pilgangoora expansion is scheduled to increase the mine's output from 330,000 tonnes of spodumene concentrate per year to more than 800,000 tonnes per year by 2021, with 100 per cent of the mine's production sold under contract for the 17-year life of the expansion.
Pilbara shares traded as high as $1.22 in January, but the wave of new spodumene supply from Western Australia has helped to drag down prices for the highest profile type of lithium; lithium carbonate with 99.5 per cent purity delivered to China.
Sliding prices for lithium carbonate were a factor in Pilbara shares slumping as low as 70¢ in September, but the stock has recovered to be fetching 85.5¢ on Monday.
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