Charting the Pilbara Minerals story from a lithium minnow to an ASX 50 company.
Pilbara Minerals is one of the best performing resources stocks in recent years, with its share price more than 1500 per cent higher than three years ago.
Sure, Pilbara was ready to capitalise on a reviving lithium market when stimulus returned in 2020, but the company had to weather a brittle downturn prior to that.
When Dale Henderson joined Pilbara Minerals in 2017 as its chief operating officer, the lithium outlook was strong amid a strengthening electric vehicle (EV) narrative.
For Henderson, “the sky looked bright, (and) I believed the story”.
“We were seeing the first uptick in lithium,” Henderson, who became Pilbara Minerals’ chief executive officer and managing director in June 2022, said at a recent Melbourne Mining Club luncheon. “New highs in lithium chemical pricing were struck in early 2018.”
But things quickly changed, and prices progressively cooled throughout the remainder of 2018 and into 2019, coinciding with reduced demand from China – the world’s largest lithium-consuming nation.
“What happened there (with declining lithium prices) was demand retreating in China, because between the years of 2018 through to 2020, the global consumption was very much China and that … consumption was very much EV-subsidy-fuelled,” Henderson said.
“But in early 2018, the Chinese Government started to pull back those subsidies and what played out from that point was this decline in pricing which was incredibly tough for the industry, and as pricing continued to decline, it turned out to be a fight for survival.”
The market began to turn in mid-2020, and this revival wasn’t just sparked by returning demand from China, but from other emerging jurisdictions.
In fact, several European nations introduced EV incentives in 2020, including likes of Germany, France, Spain and the UK.
“As a response to the economic impacts from COVID-19 across the globe, a lot of governments were looking to stimulate their economy and one of the levers they chose to pull was to pour funding into new industries of which EVs and EV subsidies were key beneficiaries,” Henderson said.
“Around about mid-2020, much of Europe started to deploy EV subsidies and shortly thereafter, Europe pound-for-pound was consuming more lithium than China, and then shortly thereafter (that), the US and North American subsets started to pick up, particularly following the appointment of the Biden Administration.
“What’s followed, particularly over the last 18 months, is increased demand translating to increased pricing.”
Henderson said not only are we seeing the emergence of new industries utilising lithium-ion technology, but we are also seeing the entrance of new jurisdictions outside of China.
“It (the lithium market) has moved from a China-based consumption model to a global consumption model,” he said.
“For the investors out there who worry, ‘Will 2019 or 2020 happen again?’, I can’t say no, I can’t say never, but … it’s a completely different world now.”
According to the International Energy Agency (IEA), EV sales accounted for 9 per cent of the global car market in 2021 – four times more than 2019 – and while China rose to 3.3 million EV sales in 2021, Europe increased by more than 65 per cent year-on-year to 2.3 million EV sales in 2021.
Now that we’re aware of the lithium story over the past few years, how did this translate to Pilbara Minerals’ performance, and how did the company weather the storm to be where it is today?
As early as 2013 – when Pilgangoora was an exploration project – its founding geologists, John Young and Neil Biddle, were initially on the hunt for tantalite.
This changed when Young attended the World Lithium Conference in 2015 and came to understand lithium’s growing importance in the renewable energy sector.
When Pilbara Minerals had to resort to raising financing on the Nordic bond market in 2016, it highlighted Australia’s indifferent perception of lithium at the time.
Henderson joined the team in 2017, and the Pilgangoora mine was constructed just in time for the lithium downturn in 2018, or as Henderson calls it, “the lithium winter”.
“We went straight into this chapter of what we phrase, ‘the lithium winter’, and it was cold, bitter and it just kept going,” Henderson said. “It was a fight for survival, and for us it was all about balance sheet defence and being able to preserve the company as long as we could so that we could see through the winter and be on the other side.
“We had to save costs in every corner. What that looked like was two rounds of redundancies, standing down our mining contractor … for five months, who were fantastic in cooperating with what we needed to do, refinancing a senior debt facility, and the deployment of a moderated production strategy whereby we turned on the processing plant whenever we received a customer order.
“A lot of tough decisions had to be made and a big credit to the board of Pilbara Minerals for having the fortitude to make those tough decisions and having the conviction to follow through and see it through to the other side.”
Henderson said Pilbara Minerals only operated for 30 per cent of the 2019–20 financial year (FY20), finished FY20 with a $100 million cash loss and still had the Nordic debt facility to pay off.
The company was hurting but soon enough, the tide would change.
“We managed to survive the storm and come late-2020, the ice was thawing, there were some signs of spring, and we were starting to have some confidence in the outlook,” Henderson said.
“Coincident with that time, the neighbouring operation, Altura, ran out of rope with their lenders so we acquired it. We had to max the credit card and the overdraft, but we got the deal done.
“Shortly thereafter, the market really began to turn, so from 2020, 2021, and onwards, we’ve been in this ramp-up mode effectively.”
As it targets 1 million tonnes per annum (Mtpa) of spodumene concentrate production, Pilbara Minerals continues to incrementally scale-up production at Pilgangoora. The company produced 162,151 tonnes of spodumene in the December quarter of 2022 (a 10 per cent increase on the quarter before) which is in line with 580,000tpa of spodumene production.
The company sold spodumene at $US5668 per tonne in the December quarter, a 33 per cent jump from the three months before. This enabled Pilbara Minerals to add $851.1 million to its cash balance, rising from $1.38 billion to $2.23 billion.
Pilbara Minerals is currently advancing its P680 expansion project, which will see it add another 100,000tpa of spodumene production to take its total production to 680,000tpa. The company recently awarded the P680 construction contract to Primero, which will involve the construction of primary rejection and crushing and ore sorting facilities to support this production uplift.
A final investment decision was made on the P1000 project in late March, which will enable Pilbara Minerals to achieve its 1Mtpa production goal.
Pilbara Minerals is a story of patience and persistence. As other companies folded amid the lithium downturn, Pilbara Minerals fought its way through and is now benefiting from its resolve.
Now an ASX 50 company, and with the world’s largest independent hard-rock lithium operation at its disposal, and further growth ahead, Pilbara Minerals is an inspiration for other lithium aspirants to follow.
Lithium has become a global industry and there is plenty of scope for other producers to join the party.
This feature appeared in the April–May edition of Australian Resources & Investment.