I have been wondering how this platform might work for the company to vertically integrate.
the company's current customers, and any that they would first look to bring into it would be purely interested in purchasing spodumene, so how do they take it to the next step and that being able to bring cathode producers into it.
Of course, we often hear about the need to qualify lithium chemicals produced for batteries which does somewhat complicate things a little, but as Paul Graves indicated, there are some customers that don't require that kind of certainty of the product they purchase.
Going back, I remember when Galaxy was planning to build their eBike battery factory there were I think 11 potential customers, at the time probably just small companies as this was around 2011/2012.
Sorry for bringing Galaxy a bit, it's just the only way I can tell my story the best.
The other thing that Galaxy are currently doing is looking into selling 1% ore, or perhaps upgrading their tailings to 2% to 4%. Anyone that has been in that forum will see the chairs, tables & spears being tossed about in relation to that plan ads its viability. It also includes selling landscaping material and road base.
Embarrassing, yes... I know.
Why did I bring those two up?
The first is about small customers downstream, the second is about unlocking value in what you have.
As simple as this platform might sound Pilbara has the potential to unlock significant amount of value by adding in small cathode/battery producers or lithium chemicals traders that would somewhat like to buy from the warehouse and producer of the raw materials.
An issue going back last time lithium boomed was that some suppliers were not willing to sell their product to you until they had secured replacement lithium chemicals... and they would charge their customer the price for that replacement as the price was rising exponentially. This would allow the customer to lock in a price with the raw materials producer and have through visibility to the mine, allowing confidence that they will have replacement product to sell by a particular time frame.
Remember we are not talking about large amounts, just unallocated & available spodumene concentrate.
Pilbara have an opportunity to operate it as a side business internally which they take an order, contact a converter that they know and have the spodumene supplied turned into lithium chemicals which they can sell to a few smaller customers, that over time will grow with Pilbara. And from there, Pilbara becomes a lithium chemicals producer and grows its customer base as well as margins.
I have always looked at things simply when it comes to investment, that being how much money can the company make, what is the potential.
Just quickly also, can I just point out that the ongoing discussion of Stage 2, I have not understood why it must happen so quickly. It seems to forget the value in the Altura transaction bringing a second asset into the fold and raising the potential supply of spodumene to 550,000 tonnes per annum. When I looked at what Stage 2 would do, I don't think it was that far off the additional 220,000 tonnes that Plant 2 brings with it.
The reason I brought that up is because the potential of 550,000 tonnes when the right encouragement to bring Plant 2 online was indicated at around U$600 - U$650 per tonne.
Of course, there will be variations to the pricing that customers will be receiving but simply put on the lower scale of that pricing at U$600 that would bring a revenue of A$426 million per annum.
Adding in a lithium chemicals product to the mix on a win/win tolling arrangement not only has potential to boost those figures, even on a smallish scale, but it then brings with it the label of a lithium chemicals producer which would raise increased attention as there is only one other company on the ASX that produces lithium chemicals and they from what I can tell are not in the ASX 200.
Depending on timing also, the company might also consider expanding outside of Australia and within hard rock, and move into lithium chemicals from brine... a market cap of ~$3 billion offers quite some weight when it comes to things such as aggressive take overs, especially when there are so many disenchanted investors in the target that peer over the fence and see stellar management moves made by Pilbara.
Pilbara management continues to bring value to their shareholders whilst the other continues to dither, and be unappreciative of the opportunities they are given.... treating the business like a family dynasty with shareholders just lucky to be provided the opportunity to invest in the dog's breakfast...
Not once have I ever heard Ken not say how appreciative he is for the company's shareholders' support. Absolutely all class and all round decent human being.
I have somewhat digressed here, but I am looking at the potential, and if the past is any reflection of the future, then who would have thought that this company being worth 0.1c per share as little as 6 years ago back around 2014 would be worth over $1 without a share consolidation and work near $3 billion with 2 assets.
Just some food for thought.
PLS Price at posting:
$1.09 Sentiment: None Disclosure: Held
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