In position for a lithium comeback

Pilbara Minerals has reduced its production temporarily to prevent against excessive stockpiles. Image: Pilbara Minerals

Pilbara Minerals, AVZ Minerals and Core Lithium have all adjusted their plans due to COVID-19 and the challenging market for lithium. Vanessa Zhou looks at what’s in store for the trio.

Downward pressure on lithium prices has not killed the resolve of Australian mining companies to ride out the market conditions in a strong position.

Around three years ago, Western Australia was a hot spot for the burgeoning lithium sector.

The momentum was, however, slowed by falling lithium prices and then COVID-19’s impact on commodity demand and the electric vehicles (EV) market this year.

Weak demand for lithium, which has lasted for more than 12 months, has pushed Pilbara Minerals to take a disciplined approach to managing the challenges.

During this period, the company has curtailed its production to prevent excessive stockpiling, but also dedicated attention to improving plant performance.

Pilbara Minerals managing director Ken Brinsden describes it as a difficult decision but nonetheless the right one to slow production at the Pilgangoora operation in Western Australia.

The company has successfully managed to achieve improved lithium recovery levels, even when the plant operates at lower capacity, since introducing the strategy.

“That’s arguably been helpful because in the period of time the plant has been down, we’ve been able to continuously work on it to improve its performance,” he tells Australian Mining.

“There were key changes that contributed to the improvements in our lithium recovery levels and in the time we’ve been running the plant, we’ve learned a lot about how to manage its performance and achieve the design criteria that led to material improvements in recovery.”

This is a tremendous achievement as lithium recovery levels are a key contributor to Pilbara Minerals’ cost of production.

With production costs now reduced, the company’s been able to absorb the costs involved in drilling and blasting, excavation, and crushing and screening, which all point to the recovery it is targeting.

Pilbara Minerals’ attempt to reduce costs accompanied a $US110 million ($153.3 million) financing agreement that the company secured with BNP Paribas and Clean Energy Finance Corporation in July.

“The good news that comes out of the financing is it materially lowers our cost of financing (and) pushes out the term of the loan for another five years,” Brinsden says.

“The cost of funding attached to our (previous) Nordic bond was 12 per cent and now we have an average interest rate of around 5 per cent, so it’s a big, big step down.”

Brinsden says this, coupled with the plant optimisation, helped Pilbara Minerals weather the storm raging in the lithium markets.

The managing director sees a positive light at the end of the tunnel and believes the industry has potentially seen the worst of the lithium demand conditions.

“For the most part, we’ve probably seen the worst of the demand conditions. They’re now behind us. I am expecting demand conditions to continue to improve,” Brinsden says.

“What’s happening in lithium raw materials market has the potential to surprise (us more) to the upside than the downside.

“We’ve been guiding to more demand and more production, and that helps to lower our costs. We genuinely have a sustainable business in the short to medium term.”

Brinsden is confident that new energy vehicle sales will accelerate in Europe, which he says has surpassed China to become the largest EV market.

This doesn’t undermine the role of Chinese sales for Pilbara Minerals, with the majority of its spodumene currently consumed in the Asian nation.

He anticipates plenty of spodumene from Western Australia to make its way to China as the country retains its dominant position in the chemicals and battery raw materials world.

Some of these will ultimately make their way to Europe where many battery material plants are being built, Brinsden says.

“This dynamic is supportive of the spodumene demand and ultimately its price. It’s just a matter of time of when prices will respond,” he adds.

Hartleys head of research Trent Barnett agrees that the lithium industry is heading towards a recovery.

“We do know that current (lithium) prices are too low to stimulate supply, which is a very good sign prices are near the bottom. There is a lot of interest in lithium, so some argue it could have big rallies,” he says.

“However, it seems more likely that as the price increases, there will be rolling restarts to mothballed production, which increases supply, and hence we think that prices will rise gradually in the medium term rather than a big spike.

“Once the market demands new projects (rather than mothballed restarts), we expect the price will need to increase meaningfully to incentivise new builds.”

AVZ Minerals is one such company starting a new operation with the Manono lithium-tin project in the Democratic Republic of Congo (DRC). The ASX-listed firm is working to start construction after the challenges of the COVID-19 pandemic subsides.

Drilling at the Roche Dure pegmatite at the Manono project. Image: AVZ Minerals

 

Pre-site works have commenced while the company aims to reach a final investment decision by the end of the year, before starting project construction in early 2021.

“The risk that everybody talks about is the political risk of the DRC,” AVZ managing director Nigel Ferguson says.

“We believe the country itself is on the cusp of a turn with regards to being in a much better place for direct foreign investment

“You wouldn’t see the likes of First Quantum Minerals or Glencore going into the country and investing so much money in their project if they didn’t have a faith in the country and political system to operate businesses profitably and securely.

“Yes, the DRC has a bad reputation from warring tribes, conflict minerals and corruption, but I’d have to say from a geological point of view we’ve got no risk at all because it’s got one of the largest sources for a world-class project over the last 15 years.”

The appeal of the Manono project lies in its “unmatchable” product quality.

Ferguson says it is only comparable to that of the massive Greenbushes mine in Western Australia.

Its saleable products will include 547,000 tonnes a year of 6 per cent lithium product and 45,700 tonnes a year primary lithium sulphate.

There will also be additional by-products of tin, tantalum and niobium.

The operation has a projected life of 20 years with a potential to extend, and a steady state throughput of 4.5 million tonnes a year that will be ramped up over 1.5 years.

Ferguson is also confident that AVZ has the potential to become one of the lowest-cost lithium producers in the world.

“If you take the transport costs out of the cost base scenario, we’re probably one of the lowest cost producers in the world. If you put them back in, we’re still at the bottom quartile,” he says.

“Being involved in a world-class project is truly a once in a lifetime opportunity for a geologist.

“We’ve managed to get to a stage where we’ve got a full-time team working in the project to bring it into production.”

Ferguson says around 150 people have been employed to get the Manono project up to speed.

AVZ also plans to develop a training facility where its workers in the region will receive upskilling opportunities, providing them with long-term career benefits.

The company expects project construction to take around 18 months from the final investment decision that it plans to make this year.

AVZ is also not alone in having its project timeline impacted by COVID-19 – Core Lithium has also adjusted its project outlook in response to the impact of the pandemic at the Finniss project in the Northern Territory. 

The project is expected to generate 200 to 250 new jobs in the Northern Territory during the construction stage. 

Core Lithium managing director Stephen Biggins expects the project to be ready for a final investment decision by early next year.

Core Lithium has doubled its projected mine life at the Finniss project to at least seven years. Image: Core Lithium

 

In the meantime, the company is working to optimise the operation, including increasing the Finniss resource, which has already risen by as much as 50 per cent in recent months.

“We don’t believe there is a finite resource over the life of mine of the project currently,” Biggins says.

“The area was mined for a hundred years so historically there are hundreds more rich lithium pegmatites that make up the Finniss project.

“From Core’s perspective, we’re getting the operation ready for the lithium market post-COVID-19. We’ve received approval from, and even been offered a finance facility by the Northern Territory Government, and we’re continuing to work with offtakers in addition to our binding offtakes with Yahua.

“Our goal is to present the project to the financing market in the first half of next year and be ready to build the project in 2021.”

Although recognising Core Lithium’s need to see an incentive price in starting up the project, Biggins anticipates a significant increase in lithium prices in the near future. 

He believes this will be accompanied by an increase in strategic investment upstream as car manufacturers ensure there will be enough supply coming into the market to meet their EV sales goals. Government commitment to increase EV targets has also improved the medium-term demand outlook for lithium, according to Hartley’s Barnett.

“The stock market valuation of EV manufacturers versus ICE (internal combustion engine) manufacturers suggests more capital should be allocated to building EVs. If this happens, it (will mean) more lithium demand,” he says.

Biggins holds big ambitions for the Finniss project and considers the Northern Territory’s “excellent” lithium concentrate conducive in the future to establishing northern Australia’s first lithium chemical manufacturing facility.

“Both the Northern Territory and federal governments can see a great opportunity to leverage the state’s critical minerals and grow a new sector in the territory. This is certainly a great growth opportunity for both the Finniss project, as well as the Northern Territory’s economy,” he concludes.

This article will appear in the November edition of Australian Mining.

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