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Mining
Lithium prices suggest enthusiasm in the EV supply chain has dulled.
But Pilbara Minerals (ASX:PLS) is showing Chinese converters still want to hoover up long term sources of supply from our major producers.
The third major offtake deal to be announced by the Pilgangoora miner in the past three months, Chinese chemical producer Sichuan Yahua Industrial Group has joined fellow industry giants in Ganfeng and Chengxin Lithium in requesting stronger volumes from Dale Henderson and his team.
Yahua will take 20,000t in 2024, with Pilbara able to place another 60,000t at its own election if it chooses.
That will ramp up to 100,000t + 60,000t for each of 2025 and 2026. It means by next year PLS could place as much as 620,000t of spodumene concentrate with the three converters – equivalent to its entire production profile in FY2023.
Pilbara is currently upscaling its world class and long life Pilgangoora mine to produce 680,000tpa, with a further $560 million expansion to 1Mtpa due to be completed by the September quarter of 2025.
A process for a strategic partner to place around 300,000tpa of spodumene in a potential downstream JV or long term sale agreement remains ongoing. PLS has tentatively entered the chemical production space via an 18% minority stake in a 43,000tpa lithium hydroxide plant recently commissioned by Korean customer POSCO in Gwangyang, where PLS can up its share to 30% if it wants.
“This offtake builds-on an established relationship between our companies, having previously completed a number of sales together,” PLS MD Henderson said on the Yahua deal.
“The agreement enables Yahua to further expand its supply chain commitments with key global battery customers and builds-out Pilbara Minerals medium-term sales profile whilst preserving long-term optionality as we assess downstream opportunities in line with our growth strategy.”
Ramelius Resources (ASX:RMS) is in the news again for predictable reasons, said to be working hard on a deal to acquire C$830 million capped TSX gold miner Karora Resources.
Located in Ramelius’ West Australian backyard the proposed deal, mooted at a value of over $1 billion, would deliver an operation in WA’s Goldfields expected to produce 170,000-185,000oz in 2024.
That would bring a big uplift in ounces for Ramelius, which will produce 265,000-280,000oz in FY24 at costs of $1750-1850/oz from its Mt Magnet and Edna May mines.
Edna May has produced almost 58,000oz YTD, but only has ore supply scheduled through to FY2025 after inflationary pressures caused Ramelius to push pause on a cutback of the open pit last year.
The addition of Karora’s Beta Hunt and Higginsville operations, which come with the Higginsville and Lakewood gold plants, would solve that issue almost immediately.
It would also provide a longer runway to the potential development of the Rebecca and Lake Roe gold projects east of Kalgoorlie, acquired in takeovers of Apollo Consolidated and Breaker Resources in recent years.
But RMS has moved to sure up mine life concerns at its Mt Magnet operations, incorporating the Cue gold project picked up in a takeover of Musgrave Minerals last year.
Mark Zeptner and his team has laid out a decade-long plan to produce an average 150,000ozpa for the next 10 years.
The real cream will be taken off the top of the 1.5Moz mine plan in the early years, with costs of just $1250-1450/oz expected in the next 3.5 years.
That comes due to supply from the ultra high-grade Penny, which boasts an updated resource of 380,000t at 22g/t for 270,000oz.
It will deliver 194,000oz at 15.9g/t – well over 3x the grade of most WA underground mines – from July 1 this year.
Mining at Cue meanwhile, which includes the ~8g/t Break of Day deposit, incorporates a production target of 2.65Mt at 2.9g/t for 246,000oz from broader open pit resources of 10Mt at 2g/t for 660,000oz. Mining will begin in Q1 FY25 (September).
Around $100m of a $360-400m growth capital bill will be put also towards the development of the Eridanus and Bartus undergrounds at Mt Magnet, the former containing a resource of 18Mt at 1.3g/t for 730,000oz.
Eridanus will deliver underground production of 2.4-4Mt at 2-3g/t for 230,000-330,000oz. But an alternative production target which would include a cutback of the open pit at Eridanus could double output via a $2500/oz pit shell of 9-13Mt at 1.2-1.8g/t for 500-600,000oz.
Penny will be the largest source of supply for Mt Magnet in the next three years, with costs hitting a mid-range low of $1276/oz in FY26.
Production from Mt Magnet will peak in the next two financial years at 239,000oz and 220,000oz respectively, with Penny to deliver 96,000oz and 88,000oz in those years before running dry.
The Mt Magnet gold field has produced more than 6Moz since mining began in 1891, with RMS’ mine plan expected to boost that to over 8Moz, including ore trucked 160km and 40km respectively from Penny and Cue.
Gold prices have risen every day since the start of March, closing yesterday at a new record of over US$2180/oz according to the LBMA.
But stamina from gold equities has not been quite so impressive, with the ASX All Ords gold sub-index commonly falling on days when the gold price has shifted up.
Today the chakras for gold bulls aligned, with bullion backers piling into ASX gold miners (up 2.96% this morning) ahead of today’s US inflation print.
“Investors will be closely watching clues from the US inflation print today,” ANZ senior economist Adelaide Timbrell said.
“Higher than expected inflation could trigger profit booking after a sharp price rally. Tactical positions increased last week, but ETF outflows continue.”
The run in gold stocks, helped by positive news from RMS and Bellevue Gold (ASX:BGL), came with the broader materials sector hovering around breakeven.
Bellevue ran nearly 11% higher in the morning after announcing it was on track to meet guidance for the June half of FY24.
It delivered 13,364oz in February at a head grade of 5.2g/t, up from 10,475oz at 4g/t in the month of January.
If Bellevue hits its 75,000-85,000oz target for the second half, as planned, the miner expects to generate positive free cash flow, BGL MD Darren Stralow said.
RBC’s Alex Barkley said Bellevue’s production rate had run ahead of its quarterly estimate, with grade in line with its expectations for the March and June quarters of 4.9g/t and 5.2g/t respectively.
“Additionally, as stoping tonnes rise, and stockpile usage falls, the site appears on a trajectory to reach Reserve grade of 6.1g/t,” Barkley said.
“This would help allay some market concerns that DecQ grade (3.3g/t) was weak vs Reserve. We expect that as stoping tonnes increase, the throughput rate of 1.0Mtpa could also potentially increase.
“We forecast 1.2Mpta from Q1 FY25, a capacity which has already been achieved. We expect flattish cash in the MarQ to A$52m before meaningful positive FCF commences in the JunQ.”
RBC has a $1.80 price target on Bellevue and outperform rating, with Barkley noting the announcement would allay fears about further equity raisings ahead of commercial production.
“We expect this February monthly update should help demonstrate BGL’s sufficient balance sheet as the site ramps-up,” he said.
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