Kathleen Valley Project Discussion, page-60

Pilbara Minerals’ (PLS.ASX) has reduced its production levels at its 100%-owned Pilgangoora Spodumene Mine, located in Marble Bar, Western Australia. This reduction has been driven by delays in the construction, commissioning and build-out of its offtake partners’, General Lithium and Ganfeng, chemical conversion capacity in China.This is an important development not just for Pilbara but for all other juniors that plan to produce a spodumene concentrate. Pilbara has been one of the shinning lights of Australian lithium scene. With a market capitalisation close to A$1.5bn, before this announcement! The Company was one of the largest lithium juniors and a forerunner in the field, indeed it was a business that many smaller juniors chose to draw comparison with.These developments with its offtake partners are likely to have ramifications that will affect the whole concentrate producing industry and demonstrate to investors the true importance and value of having a reliable offtake partner.As there is no real spot market for spodumene concentrate, if an offtake partner is unable to take product from an operational mine, the mine is unlikely to find a buyer for that product in the near-term, and it will be almost impossible to sell the product without a discount to the market price. Ether way it will be bad news for the miner in question.It will be interesting to see how other junior’s digest these developments, perhaps we will see a push for take-or-pay offtake contracts in the future, which give the miner more security that it can sell its products.During June and July, Pilbara will be undertaking rectification of RCR defects and complete further improvement works to reduce stock levels, so the operation down time will not be wasted and the company may see an overall improvement in recovery as a result. This development is highly unlikely to be terminal for Pilbara, with the company expecting this setback to be temporary and production expected to resume at higher levels at the end of July.Another issue for investors to be aware of in the near-term is the further fall in concentrate prices, with Pilbara reporting prices between US$600/t and US$640/t (SC6), which is below what all concentrate projects are using in their economic studies (Exhibit 1). This could make funding conditions even harder for concentrate projects in the near-term.Exhibit 1: Prices used by Lithium Concentrate producers in their economic studies compared to current price seen by Pilbara Minerals