Monsters of Rock: After massive FY23, growth of all kinds is in Pilbara's eyes

MD Dale Henderson is positioning Pilbara Minerals for its next leg of growth after a stellar FY23
M&A and a long-awaited move into lithium refining are on the cards
Miners surge as China considers stimulus

FY23 was a watershed year for Pilbara Minerals (ASX:PLS), which turned over a record $4 billion, over three times its previous record haul in FY22 and now has $3.3 billion stashed away for safe keeping at the bank.

Much of that will go into a second dividend to shareholders who stuck by the now ~$15 billion miner during the dark days of the 2018-2020 lithium price depression.

Nowadays its CEO Dale Henderson thinks the prospect of the lithium market, powered by extraordinary projections for electric vehicle sales in the coming years, falling into a deep funk is hard to see.

A mainstream name to rival Sam Kerr for notoriety, lithium is now drawing investors from all corners of the market.

A bidding process to join with PLS and partner on a new lithium chemical refinery has drawn over 70 names on a long list including some completely new to the industry.

In the face of recent volatility in lithium prices, including a big drop in a Chinese lithium carbonate futures on Friday that tanked battery metals producers’ share prices, Henderson says he is focused on the long term outlook for both the market and PLS.

“I think the highest order parameter is to say, do we have long term belief in the market, which we do,” he said.

“As outlined in the call, there’s a structural deficit there and there seems to be strong consensus around that. So at the highest level that guides how we think about our capital deployment and our conviction in this space.

“But then stepping it down a level, the best thing we feel we can do is ensure that we’re a leading operator and that means about having a low cost base.

“And that means whatever cycles which ultimately emerge, we want to be able, by being a low-cost operator, to ensure that we prevail in all of those cycles.”

Move into M&A

With so much cash on the books and major developments like a part-owned hydroxide plant being constructed by POSCO in South Korea and approved expansion to 1Mtpa at its flagship Pilgangoora mine essentially funded, PLS is facing questions about its external growth plans.

They include long-held rumours that PLS will take a stab at Canadian lithium explorer Patriot Battery Metals (ASX:PMT).

After a number of large, high-grade drill hits, a resource is due soon for its Corvette discovery and former PLS MD Ken Brinsden is on board as the firm’s chair.

Henderson won’t be drawn on any specific plans, especially around Patriot. But he has indicated the company has a wide ambit when it comes to M&A, looking for growth options that could come from explorers, developers or existing operations in the hard rock space it already plays in.

“We’re still early the journey as to what the profile is we would pursue, but it wouldn’t surprise you that we’re got a strength in hard rock mineral processing for lithium,” Henderson said.

“So it makes sense to leverage that skill set for the right proposition, but it would have to be the right proposition and something we’ve been at pains to reassure our investors is to say we’re we’re not in any rush.

“The mining industry has unfortunately got some some history with groups moving too quickly on the wrong assets. We don’t want to join that history book.”

While PLS is planning to head downstream, with the strategic partner process to run until the end of the year, we have seen some hard rock lithium companies delay their refining plans.

Notably Mineral Resources (ASX:MIN) has ended a tolling arrangement for its concentrate from the Mt Marion mine and decided not to partake in two Chinese processing JVs with Albemarle, its partner in the Wodgina lithium mine, with the intention of studying a domestic development instead.

Henderson says they still see additional margin in the downstream processing of lithium.

“The MinRes developments haven’t given us any cause for concern. I think we take the view that there should be additional margin to be made if your chemicals are produced in the right part of the market, producing the highest spec battery grade product,” he told Stockhead.

“We think that holds. The observation I’d make is I think jurisdictional risk is a key factor. I’m not obviously acquainted with the details around what’s driven MinRes’ decisions, but there’s quite a few factors to consider around chemicals participation.

“There’s obviously the commercial return, there’s the jurisdiction elements around jurisdiction risk specifically plus government support and whether the business is eligible for government subsidies like the IRA, etc, taxes, export-import duties, all of those things, that all flows into the melting pot of is it a good business decision.

“This whole space is a bit more nuanced. It’s not a case of that’s a bad supply chain or a bad business decision, plus, the other thing to add, is it is all evolving quite rapidly, globally. So the jury’s not out as to what the ultimate supply chain solutions look like.”

Miners surge as more reports flow in

Pilbara Minerals (ASX:PLS) shares surged 5.23% to led the large caps, as the materials sector lifted 2.74% in a broad rally that also included gains in excess of 3% for all of BHP (ASX:BHP), Rio Tinto (ASX:RIO) and Fortescue Metals Group (ASX:FMG).

Chinese stimulus calls were to blame, especially the removal by the Politburo of a policy statement that previously said “housing is for living, not for speculation.”

It’s raised hopes of further support for property developers who mining investors hope could spur demand for iron ore by constructing stairways to nowhere and buildings for poltergeists.

On the production reporting front today West African Resources (ASX:WAF) was up 2.8% as it produced 56,701oz at costs of US$1166/oz in the June quarter, putting it on track to meet its 2023 guidance of 210,000-230,000oz at AISC of US$1175/oz or below.

WAF’s Sanbrado mine in Burkina Faso has delivered 113,009oz YTD at US$1169/oz.

Not so joyful at copper miner 29Metals (ASX:29M), which lowered its gold and silver guidance from 20,000-23,000oz and 950-1.05Moz to 15,000-17,000oz and 750-850,000oz.

29M produced 4200t of copper and 13,400t of zinc in the June quarter, up from 3200t and 8700t in March, but did so at far higher costs, up from US$1.91/lb in the March term to US$4.46/lb in June.

Its cash on hand fell from $163m at March 31 to $127m at June 30.

CEO Peter Albert said progress was made to position its Golden Grove and Capricorn assets for better rest of year performances, with Capricorn facing a restart process after it was shut due to flooding in the March quarter.