A couple of recent high profile lithium deals bode well for the battery metal in 2021.
Last week, IGO’s (ASX:IGO) agreement to buy a $1.4 billion stake in the big Greenbushes lithium mine and processing facility in WA from lithium giant Tianqi was a hit with investors.
Today, producer Pilbara Minerals (ASX:PLS) launched a $121m entitlement offer, part of a $240m equity raise to fund the acquisition of insolvent neighbour Altura Mining.
The offer price of 36c represented a small 7.7 per cent discount to Pilbara Minerals’ last traded price on 27 October, which was the signing date of the Implementation Deed.
The stock has been on a tear since then, closing at 88c per share on Friday December 11.
Places like Europe and China are ramping up electric vehicle production post COVID-19. Anecdotally, lithium producers are suggesting pricing has increased slightly in recent weeks and months, and demand from customers has stabilised and is increasing, says James Stewart, resources portfolio manager at Ausbil Investment Management.
“With delays in new project construction, we could see a market reminiscent of 2017, where EV and battery makers scramble for product as the market tightens, driving commodity and equity markets higher,” he says.
The additional production capacity and uncommitted offtake from Altura means Pilbara Minerals is “strongly placed to capitalise on improving lithium market conditions and the expected long-term industry growth trend”, says managing director Ken Brinsden.
“The acquisition of the Altura project on an unencumbered basis provides us with maximum flexibility to operate an enlarged Pilgangoora Operation once both projects have been integrated and consolidated.”
Pilbara Minerals reckons the acquisition means increased production capacity and at least $18 and $27 million of measurable cost savings per year.
It also allows the miner to rapidly increase production in response to a rising lithium market and to secure its position “as the leading ASX-listed pure-play lithium company”.