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Pilbara climbs the $1B value wallAltura moves on lithium expansion window of opportunity
A RENEWED rush of investor interest in the lithium sector has prompted the smallest of the new wave of Western Australian hard-rock lithium projects, Altura Mining’s Pilgangoora project in the Pilbara, to consider not being so small after all, writes Barry FitzGerald.
Barry Fitzgerald
11 Oct 2017
8:40
Construction at Altura Mining's Pilgangoora project.
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LithiumLithium 2017Altura Mining Canaccord Genuity Galaxy Resources Kidman Resources pilbara minerals SQMWestern Australia
Capitalising on the almost daily stoking of the thematic that even the most bullish of the lithium-ion battery boom forecasts are on the light side of things, Altura has pulled in A$26 million from a placement of shares at 19c each to fast-track expansion studies at its yet-to-produce start-up project.
What starts out next year with a rated annual capacity of 220,000 tonnes of spodumene concentrate after the expenditure of $140 million is now being thought of as a 450,000tpa project, probably at an additional cost of around $100 million.
Altura was known to have been exploring its expansion options ahead of achieving first production from its start-up project which gets going in the June quarter of next year.
That it is has raised $26 million to “rapidly progress’’ the expansion study goes to the growing acceptance by investors that the new wave of WA hard-rock lithium producers – Altura, Pilbara Minerals from its adjacent Pilgangoora project, and the Kidman/SQM Earl Grey joint venture near Southern Cross – can comfortably place their product.
And what’s more, the demand curve is there to get serious about their projects being much bigger than originally thought. Apart from Altura’s planning to double capacity, Pilbara is working on a stage two expansion to 800,000tpa from its initial start-up rate next year of 314,000tpa, and Kidman/SQM’s latest scoping study update has settled on a start-up rate in the 2019 FY of 288,000tpa which is at the upper end of an earlier range estimate of 200,000-300,000tpa.
Anyone would think that there is a race on to ensure each of the projects captures their full share of the growth in demand in the years before the market opportunity closes off sometime in the 2020s, with the hard-rock producers and the brine producers of lithium to eventually catch up with demand from the lithium-ion battery revolution. And there is.
Why else would there be all this talk about expansions at projects which have yet to produce any spodumene under their start-up production plans?
Working in favour of the lithium start-ups is that none of their expansion ambitions are resource constrained. In Altura’s case, current reserves at its Pilgangoora project are good for 20 years at the start-up production rate, with good reason to think there is untapped upside to the current reserve estimate.
Doubling production obviously eats in to mine life. But we’re talking about a window of opportunity here, one that delivers real benefits – a subject tackled by Canaccord analysts in a research note on Altura’s placement.
Canaccord’s preliminary modelling (it has an upgraded Altura share price target to 30c price compared with the current share price of 27c) indicated an expansion to 450,000tpa of spodumene concentrate would increase the base case project net present value by about 40% to $630m, and generate an internal rate of return of more than 50%.
But Canaccord added there were uncertainties around the expansion.
“We note that our assumed timing of any expansion (2019-2020) would coincide with our current expectations for a modest market surplus from 2019-2022.’’
Altura’s expanded Pilgangoora would account for 17% of Canaccord’s estimate of 2020 demand, so placing the additional output would come with its challenges in terms of tonnages and prices.
But that is something all of the existing and new (and expanding) projects face, and it could well be that the scale of the lithium-ion battery boom in electric vehicles and energy storage continues to be under estimated, making for a longer period of supply shortage in lithium and other battery ingredients.
On that score, it’s worth noting the longer term demand forecast put out this week by established WA lithium producer (and growing at overseas locations), Galaxy. It projects lithium demand to grow by four times from the historical rate of 200,000tpa of lithium carbonate (the end product which requires about 7.5 tonnes of spodumene concentrate for each tonne) to more than 800,000tpa by 2025.
“The lithium industry needs to bring online 600,000t of incremental (lithium carbonate) supply (equivalent to about 70,000tpa of growth) to meet demand balance,’’ Galaxy said.
While that sort of super charged growth out to 2025 would require 525,000tpa of additional spodumene, the hard-rock producers will face increasing face competition from the brine lithium producers. And there is no guarantee that the four-old increase in lithium carbonate demand by 2025 will come to pass.
What is more certain is that it will be the quality of the underpinning customer base in the lithium space that will be critical for the new wave of producers, both with their start-up production plans, and what expansion opportunities they secure.
On that score, Altura, as wells as the other new wave WA hard-rock producers Pilbara and Kidman, are well placed. In Altura’s case, it has secured two offtake agreements which pretty much cover its start-up capacity with Chinese battery manufacturer J & R Optimum, and Lionenergy, which is a building lithium carbonate plant in China to process concentrates from Altura.
It hasn’t been said if the pair are lining up for additional supplies from an expanded operation. But you would have to assume that their advice to Altura has been that the demand boom is real, and that the expanded production will find a home at good margin prices, if not with them, then somewhere else in China.
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