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Blue-chip Melbourne stock-broker Baillieu Holst believes Pilbara Minerals (ASX: PLS) will be the next big Australian lithium producer, following hard on the heels of General Mining (ASX: GMM) and Neometals (ASX: NMM)/Galaxy Resources (ASX: GXY).
Describing the emerging Perth-based miner as “the next big thing at the starting blocks”, veteran Baillieu Holst analyst Warren Edney has initiated coverage with a buy recommendation and a 74c price target – a healthy premium to last night’s close of 49c.
The new report comes ahead of what’s expected to be a frenetic few weeks for Pilbara as it puts the finishing touches to the eagerly anticipated Definitive Feasibility Study for its flagship Pilgangoora lithium-tantalum project in the Pilbara region.
Pilbara has said the DFS will be finished by the end of this month, with other upcoming milestones expected to include an increase in Ore Reserves (following the recent extensive drilling program), further off-take announcements and other development and permitting milestones. Baillieu Holst says the imminent release of the updated Ore Reserves and DFS will allow the market to “more accurately quantify the economics for the Pilgangoora development” and will also be an “integral part of the project’s financing”.“The current resource base is sufficient for mine life of 15 years at a production rate of 330ktpa,” Edney said. “Recent drilling and the outline of additional mineralised domains indicates potential for an ultimate expansion of mining rates and production.
“The company’s estimates of a mine/process expansion from 2Mtpa to 4Mtpa and a mine life of up to 30 years do not appear to be over-exaggerated.”
The report goes on to note that the combination of $115 million raised in FY16 and the rapid advance of the company’s off-take deals has “potentially supplied the equity portion of the project finance”, leaving an estimated $60-80 million in debt funding to be arranged.
“Financing risk looks to be relatively low for a greenfield project particularly with off-take commitment, leaving the bulk of the risk with the processing and achieving the specified product quality.”Baillieu Holst’s model assumes a spodumene concentrate price of US$725/tonne in FY18, falling to US$610/tonne in FY19, with Pilgangoora forecast to generate EBIT of $180 million in FY19.Importantly, Pilgangoora’s operating costs are projected to settle in at around the A$280-290/tonne level, putting it at the bottom of the global cost curve.

Bring on the ore reserves!!