Pilbara Minerals: Emerging Low Cost Lithium Production in Australia

Undated handout picture of Pilbara Minerals Limited's Pilgangoora lithium mine under construction in the Pilbara region of Western Australia

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Pilbara Minerals Ltd. (AXS:PLS), an emerging strategic metals producer, is poised to capitalize on the surge in demand for lithium by developing its 100 percent-owned Pilgangoora project in Western Australia. Pilgangoora hosts the largest new hardrock lithium-tantalum deposit in the world.

Pilbara is aiming to fast track the project towards production in a bid to benefit from an anticipated supply shortfall that is being driven by growing consumption of rechargeable batteries, portable electronics and batteries and used in motors designed to drive electric and hybrid vehicles. The mine will also produce tantalite, a rare metal that is especially important in situations where metal fatigue must be avoided.

Following highly oversubscribed fundraising in April this year, the company is well funded with approximately $100 million on hand to drive the project through to production. As this exciting development story continues to unfold, Investing News Network wanted to catch up with Pilbara Managing Director and CEO Ken Brinsden, to find out more about the company and its plans for the future.

INN: Lithium is widely viewed as being one of the best performing commodities of the past year. Yet there are no shortage of skeptics saying that the lithium rush will be short lived. Are they right in saying this?

Ken: No they are incorrect. What we are seeing is a really significant change globally in the way that we use, distribute and ultimately store power. The lithium ion battery technology is really key to that change. Its characteristics are just so strong in their ability to support mobile applications, and the growth of the electric vehicle market where analysts foresee double digit growth in demand for lithium-ion batteries. These batteries are used to power everything from cars and buses to E-bikes. That scenario is really only starting to gain momentum and it’s got a long, long way to go. Lithium ion batteries are also going to become central to the expanded power storage model. For those reasons, we believe a lot more lithium is going to be required.

Now it is also true that only certain lithium projects will be capable of supporting that demand growth. Ultimately what you want is a low cost and a high grade project that produces quality products and we feel we’ve got that at Pilgangoora. The project is going to support the continued growth of the company and is a great platform to work from.

INN: I hear you. I want to elaborate on China and that new energy paradigm. How will lithium play a role in China’s push towards renewable energy and how does Pilgangoora plan to capitalize on that shift?

Ken: The central government’s push in the area of renewable energy is really important to China’s continued growth and the reduction of air pollution. I am taking that view based on my numerous trips to China and discussions with local people connected to the sector. By supporting the transition to new kinds of transport or electrification of transport, they are in a really good position to take advantage of clean technology. China is going to surprise everyone with respect to how quickly it builds out its lithium ion supply chain. I have no doubt that they are going to dominate the space. Due to its location in Western Australia, Pilbara is well placed to satisfy any future demand growth in China.

INN: Would you please tell us more about your partnership and off take agreements with General Lithium Corporation?

Ken: Well sure. General Lithium Corp. (a China-based lithium chemicals company) is the cornerstone offtaker in relation to the Pilgangoora project’s first phase of development. General Lithium is a really important partner and the relationship goes beyond just the offtake agreement. What we have with General Lithium is really a bilateral relationship. Firstly, it provides the opportunity to underwrite raw material supply to General Lithium’s existing business and their own growth initiatives, which is taking 140,000 tonnes of 6 percent chemical grade lithium concentrate over a 6-year period, starting in the first quarter of 2018. The deal also includes a share subscription agreement and binding memorandum of understanding to facilitate the development of a downstream processing joint venture.

Without our new spodumene supply, there’s no doubt that the situation would have being really tight for the likes of a General Lithium. In return, they are going to work with Pilbara to assist us in establishing new chemical processing facilities outside of China, to manufacture Lithium Carbonate and Lithium Hydroxide. I would argue that’s potentially the most important aspect of the relationship. General Lithium will provide the design technology, the operating expertise and the intellectual property to support expanded chemical facilities outside of China. And to that end we’ve signed a binding memorandum of understanding to establish a joint venture for those chemical facilities. We are working hard now with General Lithium to find the right location globally for that facility.

For Pilbara, this offers a shortcut to participation in downstream markets, and we think that’s really important for the continued growth of our company. We own a fantastic resource at Pilgangoora. It’s going to be very, very low cost. It’s going to offer high quality supply in which case we should leverage what is going to be also a long mine life into downstream markets by participating in the value add. To that end, we are looking forward to ultimately being a lithium carbonate and or lithium hydroxide supplier to global markets.

INN: Thank you. Now can you help us understand what sets Pilgangoora apart from any other projects now being marketed by the SSX and TSX listed companies, and what’s the basis for Pilbara’s claim that is the world’s leading lithium development project?

Ken: I have no doubt it is. It’s the world’s leading lithium development project because it has some fantastic characteristics that are almost unique. It has incredible scale. We’ve drilled out already a significant resource of close to 130 million tonnes. Our expectation is that it can continue to grow substantially, even from here. With that significant scale, it affords the opportunity to generate economies of scale that will contribute to a lower cost base. It also has some fantastic grades. Once you factor in the tantalum byproduct, you end up with a very high grade project in comparison to other hard rock projects around the world.

It also has useful metallurgical characteristics that contribute to higher recoveries and a higher quality product. In fact, even to the point where we can be a supplier to the glass and ceramic industry. With all those things combined, and close proximity to high quality downstream infrastructure, we will be a very, very low cost supplier to global markets as well as downstream chemical facilities. It’s for all those reasons that this project is almost unique.

INN: Excellent. Now you’ve published a positive prefeasibility study in March which confirmed the technical and financial viability of a two million tonnes per annum development at Pilgangoora. You are also currently working on a definitive feasibility study (DFS). Are you still on track to deliver that in August?

Ken: Yes it’s still on track. We will be delivering the DFS towards the end of August. It will reaffirm a lot of those outcomes that we predicted in the prefeasibility study, including the metallurgical characteristics and significant scale. We would expect to see a substantial increase in the reserves. We’re also looking forward to outline some of the incremental steps that can contribute to a larger mining position in the future. Whilst the project is expected to begin at a rate of 2 million per tonnes per annum, we’d like to show how we can continue to grow the mine’s production to match significant growth in demand in the coming years. For all of those reasons, we are very much looking forward to publishing the DFS.

INN: Alongside the DFS you have also been working to expand the current resource estimate at Pilgangoora. Would you be able to tell us more about the success of this year’s drill program, including the two new discoveries? I understand the results also have the potential to enhance the economics and increase the mine life. Could you elaborate?

Ken: Yes it’s gone really well. The drill program obviously has been key to all of the feasibility studies. Our crews worked very hard through that long hot summer in the Pilbara, and managed to get a lot of drill holes in the ground. They have completed something like 80,000 meters of drilling, in something like 750 holes. It’s like Swiss cheese at Pilgangoora now, and through all that effort we’ve demonstrated significant scale in the resource. That program will continue to drive a much larger reserve outcome; and again we are looking forward to publishing those results soon. Importantly, the new program improved the quality of the resource. It added a pretty significant number of tonnes in the measured category. That’s important as we think about the bankable feasibility study.

But we also did some exploration drilling. We did actually make some new discoveries as a result of those exploration initiatives. We anticipate strong growth in the new reserves once we take into account those additional discoveries which are very near to the central core of the project. As an interesting aside, we’ve continued with additional drilling that helps lay out the infrastructure footprint for the site, and we’ve been conducting a program to basically sterilize the infrastructure locations. The aim is to avoid the sterilization of valuable mineral resources by surface infrastructure development. A bit of a running joke here at Pilbara has been that the sterilization program is not going that well. Because as we’ve drilled sterilization holes we found new targets and new pegmatite’s and some of them are pretty reasonable in the grade response that we’ve seen. All of this recent drilling has confirmed that Pilgangoora is a massive geological system. All of that bodes well for our future growth in the region and ultimately will contribute to the value in the project. All of that I think just basically sends a really strong message about how important the Pilgangoora Project is in relation to future lithium supply to the world.

INN: After your definitive feasibility study is complete, what’s next for Pilbara? What catalysts can investors look forward to in the coming 12 to 18 months?

Ken: A really important initiative that we are working on is our objective to participate in downstream markets. The ultimate goal is to be selling lithium carbonate, and or lithium hydroxide. That is really important to the future growth of the company. The background to that is there’s an opportunity for the company to leverage the huge value that sits in the Pilgangoora resource to secure a greater footprint in downstream lithium markets. The relationship with General Lithium represents a shortcut in our ability to participate in downstream markets through their provision of technical and operating expertise. But we are also considering the potential for future technology solutions to support additional downstream facilities.

In keeping with that goal, we recently announced a relationship with Lithium Australia, an Australia stock exchange company which is engaged in the development of lithium extraction technologies. Under the agreement, we are working with them to develop a process (the Sileach process) which is designed to recover lithium from spodumene concentrates, potentially in facilities to be established in Port Hedland on Australia’s northern coast. (Spodumene is a mineral that contains lithium). Obviously we are going to continue to keep working on the key project elements at Pilgangoora. That’s the number one gain.

The Pilgangoora project is progressing well. So we’ve talked about the definitive feasibility study that will come out in late August. Meanwhile, we hope to have demonstrated the same progress with respect to the other key project milestones, including title agreements, the award of mining leases, the environmental approval process and ultimately the commencement of construction later this year. We are also working very hard on the contracting strategies. We will keep the market informed about all those elements. We look forward to demonstrating the many ways that we can realize the potential in that Pilgangoora resource.

INN: Thank you, and lastly the money question. How strong is your balance sheet, and how is your financial position in regards to moving this project towards construction?

Ken: Well we conducted a big fundraising earlier in the year, and it was incredibly well supported by the financial community, and by existing shareholders. I think that support demonstrates just how important this project is perceived to be by all investors. The recent fundraising marks a big line in the sand, one that underscores the value in the Pilgangoora resource and its importance in any future supply scenario. That helps us to strengthen the balance sheet. Now we are going to have to continue to fund the final development of the phase one project. But our expectation is no matter what markets we look to tap, whether it’s the customer base, or modest debt facilities, all of them will provide useful solutions to the final financing of the project. We are looking forward to solving that through the balance of this year as we think about commencing construction on the ground.

INN: Great well again, thank you very much for giving us insight as to what you are seeing in the lithium market, and helping us understand the shareholder value you have been creating. Thank you very much.

Ken: It was a pleasure, thank you.

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