By the time Ken Brinsden’s tour of duty at Pilbara Minerals (PLS) came to an end in 2022, the Pilgangoora lithium producer had grown in value from $200 million to more than $6 billion in the space of six years.
Pilbara’s value has gone on since to $8.8 billion notwithstanding the slump in lithium prices – something Brinsden had to navigate in an even worse cyclical low to get Pilgangoora’s first spodumene concentrate loaded on to a ship in September 2018.
There has been staged production increases at Pilgangoora from the initial annual capacity of 320,000tpa to the current rate of about 800,000tpa, with plans to push on to 1Mtpa a year and eventually 2Mtpa.
Funding the successive expansions has come from cash flow from operations, which before the latest cyclical downturn put the squeeze on cash flow, made funding expansions an absolute breeze given Pilgangoora’s low cost of production.
It’s well known that after a brief sabbatical on leaving Pilbara, the engineer in Brinsden got excited again about the chance to build the next Pilbara on the other side of the world in the James Bay region of Quebec.
To build another Pilbara, a Tier 1 orebody was the first requirement. Brinsden found one in the Corvette discovery by a Canadian junior, Patriot Battery Metals, which is now dual-listed on the ASX under the code PMT.
Brinsden was initially in the background at Patriot but with the recent retirement of the man who found Corvette, Blair Way, he has moved back into the spotlight as Patriot’s president and CEO.
And on Thursday he was able to give the market its first look at what a development of Corvette – now known as Shaakichiuwaanaan as a mark of respect to Cree Nation people – would look like with the release of a preliminary economic assessment (PEA).
It sketches out Brinsden’s plan to take Patriot on the same development and value creation pathway he achieved at Pilbara, in roughly the same timescale as well. It is worth noting then that Patriot is currently a $718 million company with cash of $111m.
Armed with his PEA, Brinsden had no hesitation in comparing what’s ahead for Patriot and Shaakichiuwaanaan with his journey at Pilbara and Pilgangoora. The PEA is really Pilgangoora’s, with a few twists and differences.
“If you are looking for an analogy here, I think the Pilbara Minerals/Pilgangoora analogy is not a bad one,” Brinsden said on the investor call for the release of the PEA.
“Pilgangoora was a staged development. It started at 320,000tpa (of spodumene concentrate) with the first ship heading offshore in September 2018.
“And here we are six years later, and it is in the range of 800,000-1Mtpa.
“That is a strong analogy for the purpose of what we are proposing to do in respect of Shaakichiuwaanaan. It is a big mine, it is long-lived and is expected to be at its full year production rate in year six after commencement of construction.”
The PEA outlines a two-stage development in 400,000tpa tranches with the full capacity of 800,000tpa bigger than the market had been expecting and enough on current understanding to make Shaakichiuwaanaan the fourth biggest hard rock lithium mine in the world.
Initial mine life was put at 24 years but with the PEA based on only the CV5 pegmatite, ongoing exploration at the CV13 pegmatite and elsewhere along the 45km of prospective ground points to a much longer lived operation.
Funding for stage 1 was put at $C869m, and $C503.8m for stage 2 for an all up $C1.37 billion before offsetting $C216m in the form of likely tax credits from the Quebec and Canadian governments’ critical minerals support packages.
The main twist and differences from Pilgangoora is that Shaakichiuwaanaan will include an underground operation in stage 2 to access the super high-grade Nova zone, and the project will employ lower cost dense media separation (DMS) without the need for flotation.
Brinsden said that relatively speaking, Shaakichiuwaanaan’s DMS processing route made it an “an easier development” than Pilgangoora’s combination of DMS and flotation.
“Clearly that is a key advantage and there are other examples globally where the ramp up has been relatively straight forward in respect of DMS only capacity.’’
He said capturing the competitive advantage of DMS-only processing was due to the special geology at the project with its universally larger crystal structure.
“That is what contributes to very high recoveries with just DMS. This is an important and a little bit unique characteristic in respect of the Shaakichiuwaanaan project,’’ Brinsden said.
Like Pilgangoora, cash flow from the stage 1 helps fund (or entirely funds, depending on lithium prices) stage 2, with the capital intensity of the full scale project amongst the industry’s best.
The PEA estimated annual EBITDA in the order of $C850m and annual free cash flow of $C515m at an assumed spodumene concentrate price of $US1,375/t for the planned SC5.5% lithia product.
Current prices are close to half that rate, but the general expectation is there will be recovery in prices towards the end of the decade to at least $US1,500/t for SC6.2% material which equates to the $US1,375/t plugged in to the PEA.
Commissiong of stage 1 is possible in the latter part of 2028.
That’s all well and good. But would the thing make money (AISC cost was estimated at $US593/t) if it were in operation now with prices at a cyclical low?
Absolutely on an EBITDA basis, Brinsden said.
“In fact, today, you would still be turning out pretty good cashflows,” he said.
“(But) nobody expects today’s price in the long run to be the price for spodumene concentrate,” he said.
“We think we have chosen a conservative estimate of long running pricing.”
Brinsden got support on that critical point from the futures markets where lithium prices have come off the bottom, and from his peer at Chile’s SQM, Ricardo Ramos, the world’s number two producer.
Ramos said earlier in the week that for the time being at least, SQM would continue to invest in production growth as it did not consider the current price environment reflective of long-term lithium prices.
“We are really clear the price will be different in the future. That’s why we have a clear investment plan in lithium,” he said.
