Monsters of Rock: Pilbara Minerals lights up lithium market with another long-term deal, Rio files EPA docs for mega iron ore mine
Pilbara Minerals (ASX:PLS) gave much needed optimism to the beaten down lithium sector by announcing the second large offtake deal with a Chinese customer in less than a month.
The agreement will see PLS supply 85,000t of spodumene concentrate from its Pilgangoora mine this calendar year to Chengxin Lithium at market prices, before upping its sales to the integrated chemical producer to 150,000t in each of 2025 and 2026.
It comes as PLS maintains its $560m plan to up production from 620,000tpa last year to 1Mtpa from late 2025, with the BYD, LG, SK ON, CATL and Hyundai supplier joining lithium giant Ganfeng in upping volumes under long-term contracts with PLS.
That follows PLS MD Dale Henderson’s comments last week that it would maintain the scale of its expansions despite lithium prices tumbling from over US$8000/t for 6% Li2O lithium concentrate in early 2023 to US$850/t today due to an oversupply of material in China and weaker than expected EV growth.
“We are very pleased to be extending and expanding our relationship with Chengxin, a leading lithium chemical producer and supplier to customers such as BYD, LG Chemical, SK On, CATL and Hyundai,” Henderson said today.
“This amendment highlights the demand for Pilbara Minerals’ product and is a continuation of our strategy to expand our partnership with leading global lithium producers in the medium term while we progress the development of our long-term downstream partnership strategy.
“Both Pilbara Minerals and Chengxin are committed to the energy transition and are focused on extending our respective positions as high-quality, low-cost producers in the growing lithium battery materials market.”
PLS says it is still undertaking a separate strategic process on the placement of what has previously been disclosed to be around 300,000tpa of spodumene supply from the expansion project earmarked for use potentially in a downstream refining JV.
Its first lithium hydroxide project is currently undergoing commissioning in South Korea, where PLS holds an 18% stake with an option to up its ownership level to 30% in a Gwangyang plant run by POSCO.
Pilbara Minerals sold 159,900t of spodumene in the December quarter at an average grade of 5.2% Li2O and average realised price of US$1113/t, down 50% on the December quarter.
Its revenue fell 46% to $264m, but unit operating costs dropped 20% to $805/t (US$523/t), with PLS still making an operating cash margin of $176m as falling prices prompted cutbacks at marginal operations like Core Lithium’s (ASX:CXO) Finniss mine.
Former PLS boss Ken Brinsden’s Patriot Battery Metals (ASX:PMT) climbed 13.64% after announcing it had extended the strike of its CV5 resource at its Corvette property in Quebec, the largest spodumene deposit in North America.
Rio Tinto (ASX:RIO), which will report its full year results of February 21, has taken another step towards the approval of its next Pilbara mega mine, the Rhodes Ridge joint venture.
The project, to be developed in partnership with the descendants of WA prospecting pioneer and one-time Lang Hancock business partner Peter Wright, is regarded as the great hope for Rio’s iron ore division.
While Rio could lift output this year to levels not seen since its 2018 record, setting its guidance at 323-338Mt, it is facing the prospect of elevated tonnes of SP10 until it can bring Rhodes Ridge into production later this decade.
SP10 is its low grade fines and lump product, which are making up the gap of higher grade material in its product mix.
Once Rhodes Ridge, which contains 6.8Bt at 61.6% Fe and a higher grade component of 5.3Bt at 62.2% Fe, is developed, the Pilbara Blend will make up around 85% of its sales.
Pilbara Blend is the product closest linked to the 62% Fe benchmark price of iron ore, regarded as the Chinese steel industry’s baseload feed.
In December Rio approved a US$77m ($110m) pre-feasibility study on a 40Mtpa development at Rhodes Ridge, with $400m earmarked for exploration over the next five years.
Today, the management team between Rio and Wright Prospecting dropped the EPA approval referral on the project, located 40km north-west of Newman in the native title area of the Nyiyaparli and Ngarlawangga People.
They are seeking approval for a project with capacity to extract up 50Mtpa, with cumulative tailing capacity of 150Mt over a 25-year mine life and peak groundwater abstraction requirements of 80GL per annum.
The mine would involve the disturbance of 14,850 hectares within a 61,301ha development envelope.
Rio has previously announced plans to incrementally lift the scale of its new Gudai-Darri mine from 43Mtpa to 50Mtpa, avoiding a larger expansion, while it has planned a series of brownfields developments as it aims to match its mining capacity with its rail capacity to ship as much as 360Mtpa.
The materials sector rose 1.06%, with battery metals stocks the standout, strangely enough.