Lithium miner Pilbara Minerals has closed the book on partnering at its Pilgangoora lithium project, in Western Australia, announcing on Tuesday that it would undertake an incremental approach to the Stage 2 expansion.
The company in March this year appointed Macquarie Capital to assist in managing a partnering process for the Pilgangoora project, which considered a range of options, including the outright acquisition of between a 20% and 50% equity interest in the project, a long-term offtake agreement, the joint development of lithium hydroxide conversion facilities, and a product streaming financing proposal.
Pilbara on Tuesday said that the company had received a range of proposals from both domestic and global parties, however, none of the proposals represented an ‘appropriate valuation’ for the Pilgangoora project, prompting Pilbara to close the partnering process.
“We were pleased both with the level of strategic interest and strength of the counterparties arising from the partnering process. However, the board has decided not to pursue a transaction at this time because none of the proposals presented a compelling valuation for the world-class Pilbangoora asset,” said Pilbara MD and CEO Ken Brinsden.
“We do not believe it is in shareholders’ best interest to sell part of the project at this time, effectively giving an incoming party access to mine-level equity and long-term, low-cost spodumene-tantalite supply at a substantial discount.”
Brinsden noted that the Pilgangoora project remained one of the premium hard rock lithium projects globally, as measured both by expected cost position, size of operation and exploration potential.
“While demand for spodumene concentrate is currently depressed as the Asian lithium chemicals plants work through their commissioning processes, we believe the long-term outlook and fundamentals for lithium remain very strong, underpinned by the global theme of electrification and energy storage.”
Brinsden said that with the conclusion of the partnering process, Pilbara’s attention was now focused on optimising the current Stage 1 operation and advancing the Stage 2 expansion in a "measured and sensible" manner.
The Stage 2 expansion will see an additional three-million-tonne-a-year processing circuit added to the existing Stage 1 operation, taking the project capacity to five-million tonnes a year.
In response to varying customer timelines, Pilbara will undertake the expansion by sub-dividing its development into an incremental and phased build-out, which will substantially reduce the upfront capital expenditure (capex).
The revised Stage 2 expansion being considered will require changes to the process plant only, with no changes required for power, crushing or logistics facilities.
The revised development will use latent capacity within the Stage 1 plant, while an alternative mass balance flow is being considered to enable the production of more concentrate from the heavy media separation (HMS) circuit.
Additional equipment will be included within the scope of the first phase of the revised expansion strategy to further improve the water quality supporting both the existing Stage 1 and Stage 2 circuits, which will aid in the operation and maintenance of the HMS circuit.
Pilbara is now conducting further technical studies for the revised Stage 2 development in the hopes of completing a feasibility study by December this year, positioning the company to make a final investment decision thereafter.
As part of any final decision into the expansion, Pilbara will re-evaluate its funding options to take account of the expected reduction in upfront capex for the first phase of the revised Stage 2 development, which is expected to cost between A$60-million and A$70-million.
The company told shareholders that the funding plans could include a combination of existing cash, future operating cash flows, revised customer pre-payments under existing Stage 2 offtake agreements, and an appropriate mix of debt and equity.
The proposed Stage 3 expansion of Pilgangoora will be placed on hold until market demand justifies the development.
Meanwhile, Pilbara on Tuesday also announced that it had signed a binding term sheet with South Korean major POSCO for the formation of a joint venture (JV) to build and operate a lithium hydroxide downstream chemical processing facility in South Korea.
“We are delighted to have executed binding terms for our JV with POSCO, cementing our long-standing relationship with a world-class strategic partner in the rapidly-growing South Korean lithium raw materials market,” said Brinsden.
“The JV will give Pilbara significant exposure to one of the world’s most dynamic and fastest growing markets for lithium chemicals, among tier 1 South Korean battery manufacturers.”
The new 40 000 t/y conversion facility will be supported by POSCO’s purification technology, along with an existing spodumene concentrate offtake agreement from Pilgangoora, of 315 000 t/y over the lesser of 20 years or the life of the Pilgangoora project.
Pilbara’s initial 21% participation in the JV will be largely funded through an existing A$79.6-million convertible bond agreement provided by POSCO. Funds from this convertible bond facility will become available on the formation of the JV and on the completion of other conditions precedent to the draw-down, which will be satisfied in the December quarter of this year.
Under the revised offtake terms, the JV will also provide Pilbara with a second ranking secured $25-million pre-payment, which will be used to partly fund the Stage 2 expansion at Pilgangoora.
Pilbara will have the opportunity to gain a further 9% interest in the JV by subscribing for additional shares in the JV at any time up to six months after the start of commercial production at the chemical conversion plant.
