Monsters of Rock: Pilbara Minerals still bullish on downstream as Chinese giant wins strategic process and Genesis lauds gold outlook

Pilbara Minerals has selected Chinese customer Ganfeng as its proposed partner in a proposed 32,000tpa lithium chemical plant linked to an expansion of its Pilgangoora mine

Genesis Minerals says the gold forward curve is at its biggest contango in 20 years as it embarks on a major growth program

Perseus has OreCorp deal virtually wrapped up as Silvercorp fails to match its $270m cash bid

Pilbara Minerals (ASX:PLS) has not given up on the dream of becoming a downstream lithium supplier in its own right, announcing a feasibility study on a 32,000tpa conversion plant in a 50-50 JV with Chinese giant Ganfeng Lithium today.

Ganfeng, which ramped up its offtake from PLS earlier this year, will join Pilbara to take 300,000t of spodumene concentrate from its Pilgangoora expansion, a $560 million project to lift production capacity at the world-class mine from 680,000tpa to 1Mtpa by September next year.

But among the principles agreed are that Ganfeng consider a sell-down to make the product IRA compliant should it fall foul of US foreign entity of concern provisions.

Along with commentary about a desire to diversify PLS and Ganfeng’s businesses geographically, it appears the companies are looking to base the proposed plant outside of China, with Australia among a list of agreed locations to assess.

The proposed FEOC guidelines indicate material will not be IRA compliant if supplied by a company of which 25% or more is controlled by a Chinese State-owned enterprise, or 25% or more of its board seats are held by individuals who are current CCP members or senior political figures.

A feasibility study is due to be completed in the March quarter of next year, after which an FID will be taken, with no capital to be deployed until FY26, after the P1000 expansion is complete.

It comes alongside other tentative steps from PLS into downstream processing. It has an 18% non-operating stake in POSCO’s 43,000tpa Gwangyang plant in South Korea and can up its share to 30% after operations have begun if it likes the financial metrics.

PLS is also pioneering a mid-stream solution via a Canberra backed 3000tpa pilot project with electric kiln innovator Calix (ASX:CXL) to produce a lithium phosphate salt.

The product could, theoretically, be shipped overseas with a far lower carbon footprint than spodumene sales — without going all the way through to battery grade carbonate or hydroxide — by improving the lithia content from 5-6% to 18%.

PLS’ announcement comes after other lithium bigwigs criticised the benefits of heading downstream, a big dream of the Federal and WA Govermments who want to bring chemical and battery manufacturing jobs onshore.

Mineral Resources (ASX:MIN) boss Chris Ellison, as recently as the lithium and iron ore giant’s half year financial results in February, said conversion plants had a single digit return on invested capital and that if anyone is telling you they’re an expert on running one, “call bullshit”.

IGO (ASX:IGO) has suffered a string of ramp up failures at its Kwinana hydroxide JV with Greenbushes co-owner Tianqi Lithium, with Albemarle also needing to draft external experts in to get out the kinks at its Kemerton plant in Bunbury.

SQM and Wesfarmers’ (ASX:WES) Covalent Lithium JV is the next test case for the teething WA conversion industry, having just cut the ribbon at their Mt Holland mine.

But amid a recent price collapse for both lithium chemicals and concentrate following an oversupply crisis in the world’s largest electric vehicle market China that emerged late last year, the Association of Mining and Exploration Companies has called on Canberra to introduce a 10% tax credit as a subsidy to make Australian downstreaming more competitive with aggressive international jurisdictions like the US.

Pilbara Minerals (ASX:PLS) share price today

Genesis Minerals buoyed by golden outlook

Gold is already sitting around all time highs at ~US$2170/oz ($3330/oz). But gold miners are pointing to the potential for bullion to rise even higher.

Genesis Minerals (ASX:GMD) CFO Morgan Ball told analysts at the Raleigh Finlayson-led gold producer’s investor day in Sydney that contango for gold futures was sitting at 20-year records despite record high spot prices — which have some near term triggers in potential US rate cuts this year.

Contango is a situation when the forward curve is priced higher than spot. The opposite is called backwardation.

It comes with Genesis eyeing a debt package in order to pursue growth after a major equity raise backed by Kerry Stokes and AustralianSuper was used to bankroll its acquisition of St Barbara’s (ASX:SBM) Gwalia gold mine last year.

Ball said GMD will need to engage in some hedging to support the debt deal, but wants to keep as much exposure to spot prices as possible.

“Our partner banks may require us to take a prudent level of hedging out particularly this early in the capital investment period,” he said.

“That said, I do note that the gold forward curve has a contango that’s at a 20-year high. We view hedging as purely a risk management tool and the board’s price risk management policy will enable us to proactively react to the macro environment.”

Genesis is planning to produce 130,000-140,000oz at costs of $2300-2400/oz this financial year, but wants to get that to 325,000oz at ~$1600/oz by 2029 per a five-year strategy unveiled last week. Finlayson told analysts to grade Genesis against that promise, but indicated organic growth levers could be pulled to get the miner to 400,000ozpa and beyond.

The more than $600m deal with SBM included the exchange of $370m of cold hard cash and over 150 million shares, with extra change expended mopping up minorities in Mt Morgans gold mine owner Dacian Gold and picking up Kin Mining’s (ASX:KIN) Raeside and Bruno-Lewis deposits. It’s given Leonora-focused Genesis control of most of the key assets in the region, including the historic Gwalia mine — opened in the 1890s under the watch of globe-trotting mining engineer and future US President Herbert Hoover.

Is more M&A on the cards? Could Genesis, for instance, interject itself into the ‘merger of equals’ between its vanquished foe on the St Barbara deal Silver Lake Resources (ASX:SLR) and the owner of the King of the Hills mine Red 5 (ASX:RED). KoTH is now the largest standalone mine in the region, and one of the mines run by Finlayson’s uncles the Lalors before the collapse of their company Sons of Gwalia in the early 2000s.

No word on that, but Genesis is big-upping the redevelopment of the Tower Hill deposit to the north of Gwalia, which it considers one of the best open pit prospects in WA.

While Genesis noted something it called “The Wedge”, where gold miners were facing rising costs eating into the margin delivered by rising gold prices, he said strong production growth would help the company hit its $1600/oz medium term target.

Genesis Minerals (ASX:GMD) share price today

And on the market?

China’s real estate market may be in the potty, but a turnaround in the iron ore price late last week has steel complex stocks running higher.

BlueScope Steel (ASX:BSL) was up over 3%, with Fortescue (ASX:FMG) 2.76% higher and Whitehaven Coal (ASX:WHC) up 2.23% in morning trade.

That had materials up 0.74% before lunch and energy 0.9% higher.

West African Resources (ASX:WAF) led the mid-tier with a more than 6% gain for the West African goldie, but it was fellow West African digger Perseus (ASX:PRU) making the headlines.

Looks like it’s clear sailing in PRU’s $270m offer for OreCorp (ASX:ORR), with TSX-listed rival Silvercorp Metals failing to match its improved bid for the Tanzanian gold explorer.

Silvercorp’s offer, originally announced on the first morning of Diggers and Dealers last year, has now lapsed, with OreCorp terminating its bid implementation agreement as it announced its directors had unanimously backed the new 57.5c per share cash splash from Perseus.