Thoughts Following Pilbara’s Stage 2 DFS

August 6, 2018


Last Friday, Pilbara Minerals released the findings of their definitive feasibility study for stage 2 of their PIlgangoora Lithium Project.  Given that we follow the company and have published our thoughts on the stock, we wanted to take a second to update readers on the story following this event.

No surprises: The results for the most part were on par with what we’ve been hearing from the company. The expansion will allow PIlbara to produce between 800-850ktpa of spodumene concentrate at cash costs of US$263/t.  Given the expanded production the expected mine life for the project reduced from 41 years to 17. However, Capex was slightly higher than expected at A$231m.

Funding: The company is in a solid cash position with commitments of up to $100m from Ganfeng and Great Wall Motors, as well as equity funding from Posco of $80m that was received in April.  Given that the company is entering the production phase for stage 1, the remainder of the necessary funds should potentially come from operating cash flows.

Expected startup:  Lithium production has begun at Pilgangoora, and is expected to ramp up over the coming year until the production rate reaches its Stage 1 maximum of 2Mtpa ore processing plant feed.  The company expects to be able to start increasing to the Stage 2 rate of 5Mtpa of ore feed in Q4 2019. In terms of LCE, stage 1 would allow for production of ~43ktpa LCE, with that number reaching ~110ktpa after the stage 2 expansion.

Bottom line: With results coming in mostly as expected, this was more of a milestone event for the stock than a catalyst in our opinion.  Investors were well aware of the multi-stage plans for Pilbara, and the stock price mostly reflected that. Nonetheless, we believe it is still a positive step in the right direction for Pilbara as it looks to become a globally significant supplier of lithium chemicals.  As we’ve said in the past, the combination of a top tier asset, a strong management team, strong long term industry fundamentals, and a very favorable environment for existing producers all bode well for Pilbara Minerals stock. For those looking to catch up on our analysis of the company, here are a few of our pieces featuring the company and it’s Managing Director, Ken Brinsden:

As the story continues to unfold we will be posting updates of our views on the company. So stay tuned via twitter and email to get our analysis and updates as they hit the tape!

Disclaimer: We own shares of Pilbara Minerals.  This is not investment advice, readers should do their own research prior to investing.