Producer “Forged in Fire” as Market Turnaround Looms

THE CONFERENCE CALLER: Just before speaking on the opening day of the Diggers & Dealers Mining Forum in Kalgoorlie-Boulder, Ken Brinsden’s company – Pilbara Minerals (ASX: PLS) – gave delegates a taste of what to expect via a release sent to the ASX earlier in the day. By Mark Fraser

The release was in the form of an operational update for the mid-tier miner’s wholly-owned Pilgangoora lithium-tantalum project in Western Australia’s north west, the document was reasonably upbeat, but nevertheless somewhat cautious, as it tried to impress upon investors Pilbara Minerals’ preparedness to fully embrace the market, “as demand conditions improve”.

Recent operational tweaks in its production of spodumene and tantalite concentrate, the WA-based producer indicated, positioned it, “well” to take advantage of the expected turnaround in the lithium market, “when that occurs”.

Despite a rise in sales during the September quarter, the company said, spodumene concentrate pricing remained weak, reflecting the sustained lower pricing and demand being experienced across the entire lithium raw materials and chemicals supply chain.

The news, however, was not all bad: “Production levels in the September quarter exceeded quarterly sales in preparation for delivering into contracted customer sales from early October 2020,” the announcement espoused.

During his Diggers & Dealers presentation, managing director and CEO Brinsden infused his narrative with a similar combination of optimism and caution, although there seemed to be a little more of the former in his telling of the story as he described how Pilbara Minerals was now at the back end of something of a horror run.

Over past 18 months, he explained, the “amazing tail wind in the lithium world” came to a sudden stop – primarily because of China.

Plus, there was the “combination” of cyclones, material changes in the industry’s dynamics, having to raise the right amount of money to see the project come to fruition and – “last, but not least” – a homicide (in the coastal mining town of Port Hedland earlier this year).

“I can assure you that was not something I expected to experience in my mining career,” Brinsden told his Kalgoorlie-Boulder audience.

“So, we’ve seen the lot.”

However, in a funny kind of way, it had been a genuine case of “being forged in the fire” for Pilbara Minerals.

Despite this turmoil, Brinsden noted, the company still managed to establish the next largest lithium raw materials operation outside of Greenbushes in WA’s south west – a project that was started 25 years ago and is now “universally recognised as the gold standard”.

“We’ve got that to design recovery, which I can assure you is no mean feat,” he said.

“We’ve got to the point now that when the plant is operating, we are really, really confident of its reliability and what it is going to deliver, which translates to a very low-cost base.”

As part of its operational update, Pilbara Minerals told the market there had been an increase in plant run-time and utilisation, which represented around 70-75 per cent utilisation across the September quarter (compared with just 40% during the previous three months).

Meanwhile, higher plant utilisation and continued high product recovery contributed to a lower average unit cash operating cost of US$355 per dry metric tonne (Cost, Insurance and Freight – China) for the quarter.

Lower mining costs during the moderated production period were now expected to be partly offset by the combination of strong product recoveries and increased plant run-time (through higher product demand), supporting unit cash operating costs trending towards the company’s targeted unit cost of US$320-350 per dry metric tonne (CIF China).

Overall, Brinsden said, this was a “pretty amazing outcome”.

Located around 100 kilometres due south of Port Hedland, Pilgangoora enjoys a current mine life of over 40 years.

Stage one of the operation, which kicked off commercial production during April 2009, has a nameplate capacity of around 330,000 tonnes per annum of combined concentrate, with this output set to increase to about 800-850,000tpa during stage two (which is currently the subject of a soon-to-completed phased expansion study).

Brinsden indicated Pilbara Minerals would not pursue the mooted nameplate production boost until phase one had been concluded.

“Out of all of that we are absolutely the horse to back in the lithium materials sphere because we have an amazing asset base, very low cost of production and the expectation that the demand conditions have already started to improve,” he added.