Ground Breakers: Pilbara Minerals boss Dale Henderson says this lithium market is ‘money for jam’ after record quarter
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Lithium miners remain extremely confident about the state of the battery metal’s market, with record high prices making an expansion of Pilbara Minerals’ (ASX:PLS) Pilgangoora plant “money for jam”.
Dale Henderson used those words to describe the company’s decision to add another 100,000t of capacity at its Pilgangoora project which will take its spodumene production potential to as much as 680,000t in a $291m project.
A further enhancement to 1Mtpa is being studied.
The company increased production by 56% quarter on quarter in the three months to June 30 to 127,236dmt, with shipments lifting 127% to 132,424t. Its annual production rose 34% to 377,902dmt, near the upper end of PLS’ guidance of 340-380,000t.
A further 200,000t of capacity has been commissioned with the start-up of the Ngangaju plant at Pilgangoora, but a hot market means there is plenty of potential for buyers to snap up more raw materials from Pilbara Minerals and elsewhere.
Average realised selling prices rose 61% to US$4,267/dmt, with a record sale of US$7017/t on a 6% Li2O equivalent basis in one of the company’s patented Battery Materials Exchange auctions.
“It’s great to have that capital project approved,” Henderson said. “The board has made it clear to us to drop the clutch and get on with the expansion.
“In this market it’s money for jam and we are positioned like none other to capitalise in this market.”
Henderson said current pricing (Platts assesses SC6 spodumene at US$6100/t while Fastmarkets says spot lithium concentrate is selling for US$6625/t) reflects the “gulf which exists between the existing conversion capacity and the shortage of raw material supply”.
PLS’ balance sheet has expanded like a lazy kid on school holidays, fattening up by $589.3m to $874.2m at the end of the quarter.
With the company raking in the cash and lenders coming around to the notion the lithium market will continue to run, they have suspended sweep provisions until the end of the year, clauses written into debt finance deals which ensure excess cash flow is swept up by the banks.
That will make PLS more flexible to fund things like expansions, dividends and buybacks.
“The plan is that we would be in a position to give the shareholders more information on this front by the end of the calendar year,” CFO Brian Lynn said.
“There are some restrictions right now in terms of how we can actually access the cash that’s been generated in a form that allows us to pay a dividend or even undertake a share buyback and there’s clearly also the question around franking credits.
“Up until very recently we’ve had a lot of tax losses … we are going to start paying tax early next calendar year.
“With that payment of tax we’ll start generating franking credits and clearly that gives us the opportunity to pay franked dividends.”
Lynn said that will be measured against funding requirements for its Pilgangoora expansions.
We’re looking alright, with materials up 0.6% and energy lifting 1.17% to end a week that’s been pretty kind on commodities.
Gold was good, rallying beyond US$1750/oz.
Some bearishness is setting in as the day rolls on however, with Singapore iron ore futures losing pretty much all of yesterday’s 5% gains.
Another, probably more damaging one, is the continuation of China’s Covid Zero policy after a politburo meeting Thursday where language also softened over China’s plans to hit an ambitious and increasingly unlikely 5.5% GDP growth target.