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Pilbara Minerals MD Ken Brinsden says the final investment decision is a "huge" milestone for the lithium company. Carla Gottgens
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by Tess Ingram
Pilbara Minerals' $234 million Pilgangoora lithium mine could be supplying the booming battery market in as little as a year after the junior developer's board gave the project the final green light for construction.
Just days after raising $80 million equity and settling a $US100 million secured bond issue, Pilbara said it would start the key construction work at the West Australian mine, which it expects to produce 44,000 tonnes "lithium carbonate equivalent" of the raw lithium ore spodumene from the second quarter of next year.
Citi analysts said in May that once it is running at full capacity in about 2020, Pilgangoora would represent about 12 per cent of global supply.
While there have been concerns the dramatic increase in demand for lithium - driven by its use in batteries for electric vehicles and energy storage systems - could be matched by a surge in supply and put new entrants like Pilbara at risk of falling prices, analysts have become more positive about Pilbara's position in the market as the development of Pilgangoora has advanced.
However shares in Pilbara have not reflected its progress, falling from about 50¢ at the beginning of January to 36¢, as investor enthusiasm for lithium juniors cooled. Related Quotes
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Canaccord Genuity mining analyst Reg Spencer said the market's view was short-sighted.
"This is likely be a very long bull market in battery materials but everyone seems to be fixated on short-term supply and demand imbalances in 2019 rather than what that picture will look like in 2025 when potentially a quarter of the world's car sales could be electric vehicles," Mr Spencer said.
"At that point I think the market could be under-supplied on the basis of capital not being readily available for new projects."
While Pilbara successfully secured the final funding needed to crank up work at Pilgangoora, Mr Spencer said new lithium projects appeared to have struggled to secure development financing, largely because of the perceived risks associated with the "opaque" lithium sector.
Pilbara Minerals managing director Ken Brinsden said the company had to work hard to "break new ground" with debt financiers.
"Lithium is still largely perceived to be a bit of a specialty market segment," Mr Brinsden said.
"It doesn't have the same price discovery or ability to hedge that a typical financier would look to protect their position and that is why you get a gold project for example being developed in the range of 7 to 9 per cent yield compared to our 12 per cent yield."
Mr Brinsden said he expected this would quickly change but agreed the time it would take for new lithium projects to get into production, compared to the comparatively quick construction time for chemical and battery facilities in China, could result in demand exceeding supply for longer than the market expected.
Pilbara is also working on a $128 million expansion at Pilgangoora which would increase annual production by 80 per cent. Sales agreements with key Chinese customers General Lithium and Ganfeng Lithium are in place for stage one and Mr Brinsden said Pilbara planned to progress offtake and funding negotiations for stage two as it constructs.
Citi analysts forecast Pilbara could generate strong enough free cash flow to be debt free by the end of fiscal 2022.
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