Ground Breakers: As lithium sentiment goes down, Pilbara's prices go up

Pilbara Minerals ramps up offtake prices for spodumene to over US$6000/t
Comes as it announces cost blowout at Pilgangoora’s expansion to 680,000tpa
OZ Minerals ups reserves ahead of BHP deal and miners prosper in strong trading day

The humble lithium investor, and many of them are the smaller retail types whose emergence in chat rooms and Twitter in recent years has changed the nature of investor relations, has had a rough month.

Negativity ranging from mild to overt from corners of the establishment investment banking community has sent shivers down the spines of those hitched to the battery metal’s wagon, which has run so far, so fast its momentum has inspired fears of a crash.

Those inside the industry, taking their own book though they are, remain bullish on the sector.

Global Lithium (ASX:GL1) boss Ron Mitchell, who weathered the dark days of the last lithium downturn as the sales director at Greenbushes owner Tianqi, insists this moment in time is different.

He says the supply challenge facing the EV sector is so big the risk of the flood of new raw materials sources that spurred the last boom is unlikely to tank the market this time around.

Rio Tinto (ASX:RIO) appears to agree.

And today, some news to soothe a lithium bag-holder’s soul just like that old time rock ‘n’ roll.

Its contract prices with major offtake customers are lifting to US$6300/t on a 6% Li2O basis, following upward moves in spot prices in part powered by its own BMX lithium auctions, where cargos of spodumene have gone for upwards of US$8000/t on a 6% benchmark.

In the September quarter, when PLS made a mind-blowing $8.5m a day, it achieved an average realised sale price of US$4266/dmt on a 5.3% basis or US$4813/dmt on a 6% basis, up from US$4267/dmt (6%) in the June term.

That means the new offtake price is almost 31% higher than the realised price in September.

$11.63 billion PLS is up 10.23% year to date to $3.87, but has sieved 18.66% of its value in the past month.

Today’s news should give some confidence there remains upside for lithium producers by inking offtake deals closer to spot prices, despite a slight pullback in chemical prices in China in recent weeks (still, though, around the US$80,000/t mark).

PLS is up a spare 0.26% today, but other battery metals stocks are in the green, including Allkem (ASX:AKE), IGO (ASX:IGO) and MinRes (ASX:MIN).

Costs soar for Pilgangoora expansion

The rise in pricing poured sugar over separate news the cost of delivering an expansion of the Pilgangoora project by 100,000tpa to 680,000tpa would rise more than $100m from $297.5m to $404m.

PLS attributed the changes to increase material and equipment costs, costs to maintain the delivery schedule and additional trade labour hours for construction in the current labour market and more work identified as a result of engineering being further progressed.

The Pilbara Minerals board has also approved pre-FID funding of $38.3m to maintain its execution schedule for a yet to be approved ramp up to 1Mtpa.

“The revised pricing outcomes with our major offtake customers represent a very positive outcome for our shareholders, reflecting the strong market for lithium raw materials supply and bringing our contracted pricing in alignment with the broader market,” PLS MD Dale Henderson said.

“The improved pricing outcomes are expected to further improve cash-flow generation from the Pilgangoora Project, helping the business to continue on its rapid growth trajectory into 2023 and beyond. Our strong balance sheet and the current cash generating capacity of the Pilgangoora Project enables the Company to continue the timely delivery of the P680 project, notwithstanding the capital escalation.

“In the meantime, the Board’s approval of the pre-FID funding for the P1000 Expansion Project enables us to progress delivery of the next expansion leg at Pilgangoora. The delivery of the P680 and P1000 expansion projects will cement Pilbara Minerals’ position as a major supplier of essential lithium raw materials required for the global energy transition.”

Pilbara Minerals (ASX:PLS) share price today:

OZ ups reserves ahead of BHP deal

It wasn’t the lithium stocks leading a hot commodities market today though, with iron ore miners in a jolly festive mood and gold equities ruling the roost.

Bullion rose after a Bank of Japan decision to increase the cap of long-term interest rates, sending the Yen up, the US dollar down and gold beyond US$1800/oz.

The materials sector was up 2.11% at 12.30 (AEDT) with Evolution (ASX:EVN), Newcrest (ASX:NCM) and Northern Star (ASX:NST) up 6.87%, 6/09% and 3.57% respectively.

Silver Lake (ASX:SLR), Capricorn Metals (ASX:CMM), West African Resources (ASX:WAF) and Gold Road Resources (ASX:GOR) were among the top mid-tiers.

Meanwhile OZ Minerals (ASX:OZL) has given itself one last boost as BHP (ASX:BHP) dots the Is and crosses the Ts on its $9.6 billion cash takeover.

A reserve upgrade has added two years to the mine life at the flagship Prominent Hill operation, with reserve tonnes up 23% to 59Mt at 1.4% copper equivalent.

Its Carrapateena ore reserve remains stabled at 190Mt at 1.1% copper for the “multi-generational mine”, while in WA the 7% increase in reserve tonnes at the new West Musgrave mine will ensure a 24-year mine life post its 2025 completion date.