Lithium market conditions add more than half a billion to Pilbara’s bank balance

The company today reported a 54% quarter-on-quarter increase in June quarter spodumene production to 123,000-127,000 dry metric tonnes.

The result means full-year production will come in at 373,000-377,000t, at the upper end of guidance of 340,000-380,000t.

Full-year sales are expected to be 355,000-360,000t, a 26% rise on FY21, with June quarter shipments expected to have doubled to 127,000-132,000t.

Unit costs, free-on-board Port Hedland excluding royalties, are expected to be A$650-680 per tonne, up from $632/t in the March quarter and much higher than guidance of $490-530/t.

Costs were impacted by a substantial investment in mining activities and people to support the planned expansions, inflationary pressures, including a 40% increase in net diesel fuel prices and 50% reduction in the fuel tax rebate, and higher reagent costs (including related logistics), and COVID-19 absenteeism.

Pilbara also implemented bonus structures to attract and retain workers, leading to an increase in labour costs.

Unit costs were also impacted by the absence of tantalum production during the quarter, as mining deliberately targeted ore feed from the South Pit to maximise lithia units to take full advantage of favourable market conditions.

Price increases during the quarter have more than offset a rise in costs, with Pilbara recently reporting a spot market auction of 5.5% spodumene which attracted a winning bid of US$6350/t free-on-board Port Hedland, which equates to a price of $7017/t on a 6% lithia cost and freight China basis.

Pilbara is targeting its next auction for the second week of July.

The increase in sales and lithium prices is expected to lead to a A$565 million boost to Pilbara’s bank balance.

The company expects to finish the quarter with cash of $850-855 million, including about $269 million of irrevocable bank letters of credit and after payment of capital, finance and corporate costs.

The company’s position of strength has given it the confidence to approve the P680 expansion at Pilgangoora.

The recent upgrades at the Pilgan plant has lifted capacity from 330,000t per annum to 360,000-380,000tpa, while the restarted Ngungaju plant is expected to achieve nameplate capacity of 180,000-200,000tpa during the September quarter.

The combined production capacity of the entire Pilgangoora operation is expected to reach 540,000-580,000tpa by the end of the September quarter.

The P680 expansion will add another 100,000tpa of capacity from late 2023 following the construction of a $103 million primary rejection heavy media separation circuit to enable the rejection of low-grade waste material.

The company will spend a further $194.5 million on the construction of an integrated crushing and ore sorting facility capable of processing up to 5 million tonnes per annum of ore.

The total capital cost of $297.5 million includes $50 million of pre-investment capital towards the P1000 project, which could see spodumene production increased to 1Mtpa.

The company is aiming to make a final investment decision for the P1000 project by the end of the year but said the pre-investment of capital should mitigate significant cost escalations associated with retrofitting expansion capacity for both the primary rejection and crushing and ore sorting circuits.

The pre-investment will also assist in avoiding future operational interruptions associated with infrastructure duplication and brownfield interactions.

The P680 project capital investment will be funded from existing cashflow and debt facilities, with the company considering a broader restructure of its existing debt facilities.

Pilbara will self-manage delivery of the project to help mitigate cost and schedule overruns, with key long-lead procurement to be undertaken prior to the award of key construction contracts.

The company said the expansion would support the chemical conversion facility currently under development in South Korea under a downstream joint venture with POSCO.

It will also support Pilbara’s decarbonisation strategy by rejecting more waste at the front end of the processing circuit, reducing overall energy intensity and carbon per spodumene concentrate tonne.

Incoming Pilbara managing director and CEO Dale Henderson said the approval of P680 was an exciting milestone for the company.

“It reinforces the exceptional scale and quality of our Pilgangoora project, which is one of the few hard rock lithium production operations globally that has both the resource size and existing operating platform to enable a rapid scale-up of production to meet our customers’ long-term requirements,” he said.

“From the outset, our long-term growth strategy has been to develop each stage with a focus on tailoring production to meet demand, while also planning for future expansion opportunities.

“The increase in production from the Pilgangoora project will coincide with the expected commissioning and ramp-up in production from the downstream chemical conversion plant being constructed under our joint venture with POSCO, which will see Pilbara Minerals become a fully integrated lithium raw materials company.”