Putting Pilbara into a Pragmatic Perspective


2019 was a pretty tough year for Pilbara Minerals. Since going into commercial production on their lithium mine last March, PLS has suffered from recovery issues with the plant and weak spodumene concentrate prices. CEO Ken Brinsden discusses the pragmatic approach he’s taken to solve the issues and position the company in a difficult market.


New-Energy Resources [NER]:

Can you recap what wasn't working as planned with the plant?


Ken Brinsden:

It was certainly a challenging period. There's no doubt it's taken us longer to get to designed capacity throughout the plant, whether it's recovery, the effective throughput or even product quality. The key changes that ultimately defined our success relate to the removal of free iron from the plant, typically generated by the plant itself. Eliminating that ensured we could maximize the effect of the flotation part of the circuit.

The second challenge is a critical balance of grind size. With grind size, you are aiming for a ‘Goldilocks’ zone for flotation. If the material is too small it will report as fines and be rejected by the plant; too big and it won't float. The Goldilocks zone is important both in its stability and continuity over time. That's been a key area of focus.

Finally, there's a question of control all the way through the plant. Making sure that the plant doesn't have surging capacity or variation in volume and/or tonnage throughput. Those are probably the three areas that have now defined success for us in achieving the designed recovery in the plant.

NER:

What are the actual methodologies you've used to raise the metallurgical recoveries?


Ken Brinsden:

In a flotation facility, stability is key. Lithium flotation is a particularly sensitive exercise: as not many people in Western Australia had experience of it. Historically, it had only been done at one other location, being the old warhorse, the Greenbush's mine.

So finding the right expertise and learning the key technical inputs has, honestly, proven harder than we originally assumed. However, I am extremely proud of what the team's achieved. We've constructed a very large-scale facility; integrated DMS in flotation with flotation at a serious scale and we've now mastered it. That's no mean feat.

It took us probably six months longer than we would have liked. I appreciate that's not only frustrating for people that are involved in Pilbara but it's also frustrating from the outside. But the good news is we're now, in essence, there, and we've achieved design capacity: it's a credit to the team.


NER:

You're referring to a recent release where you updated on the recovery numbers. Going forward, when you come back into full mining, what are the sustainable recoveries for this plant? What sort of impact does that have on your operating costs levels at full production compared to what you have reported?


Ken Brinsden:

It's crucially important. What we're after is between 72% through to about 78% recovery. This is dependent upon the particular ore type or blend of ore we're feeding into the plant. Roughly speaking, if we're getting 74% or 75% recovery, then we're on the money: we're now largely there. In our most recent campaign we achieved average recovery of 72% - significantly, within that average, we achieved a 72 hour period at 75%. So we've basically got the pitch right and the plant is now able to achieve the required design criteria.

What do we expect going forward? We expect basically more of the same now lessons have been learned and the technology and the equipment has proven itself. The recovery now is really second only to Greenbush's. We think Greenbush achieved recoveries in the range of about 75% plus, possibly even as high as 80%, but they're also feeding the plant a slightly higher grade.

What we designed and what we historically achieved in test work is now being achieved in the plant which will average something like about 74% to 75% over time.

NER:

You cut production at the back end of last year, given the weaker than expected concentrate demand. What rate are you mining at now and what does that do to your plan of production for financial year 2020 and the following year?


Ken Brinsden:

We haven't put any specific guidance out because the reality is there is still uncertainty in respect of the market direction. As you pointed out, we made the difficult but, nonetheless, the right decision, to back off production so that we weren't just churning out more stockpiles. That's not serving anyone's interest. Firstly, it's consuming our cash but, equally, it would make our stockpiles more visible to the customers downstream. The disciplined approach is to back off production.

The lithium world, and spodumene in particular, can't be compared to the likes of iron ore or coal: there isn’t a global liquid market where you can readily place a tonne. You need a customer who ultimately wants to take that tonne, consume it, and turn it into lithium chemicals. You must be disciplined and work with your customers. That's what we've chosen to do. I'd like to think that has been the right decision. It's had the effect of conserving our cash and is critical in a market like the one we're experiencing today. It should make us a stronger business as, inevitably, demand returns to the market.


NER:

You alluded to inventory levels. What's your understanding of the spodumene concentrate inventory levels in Western Australia but also, potentially, in China as well?


Ken Brinsden:

That’s a subject that receives a lot of deserved attention but I’m not sure the situation is quite the way people might imagine. There needs to be a distinction as to what constitutes usable product, or readily usable product, in the light of the market conditions.

I think, both within Western Australia and within China, roughly 300,000 tons of SC6 product would be readily available to a chemical converter participating in the current market. China annually consumes probably 1.7 million tonnes of spodumene concentrate. So does that really constitute a significant stockpile? I'm not sure it does. And more to the point, if and when the market turns, there will be many more buyers lined up.

So the relative position of the stocks being, for argument's sake, a maximum of probably three months worth of supply, would to me indicate that the situation could change in China quite quickly, especially when the domestic market returns. Whilst it's worth paying attention to and monitoring, I'm not convinced it's as large an issue as people assume.



NER:

So we're obviously in the middle of the Coronavirus pandemic now. What are your thoughts about demand in the near term? What are you hearing from industry contacts? Is China getting back to work and what sort of demand are you seeing for your concentrate products across the industry?


Ken Brinsden:

Spodumene supply was already in a go-slow mode before the COVID-19 impact. So the actual effect of the pandemic in China, at least to date, hasn't proved monumental. Certainly, plants were shut down but they were shut down anyway for two weeks for Chinese New Year, so perhaps COVID-19 added another four weeks to that shuttering. I'm not sure that’s made a huge difference.

The real concern and an area to watch now is what happens in respect to end use demand. By that I fundamentally mean the batteries themselves. Do they end up in a car, in a bus, in a truck, in a commercial van or even in energy storage? We’re intensely focused on that aspect to try and understand the direction of the market.

Car and EV sales have dropped away substantially in the first quarter, but there are also moves afoot in China to continue to support the industry. Give it another couple of months and everyone will have a clearer view.

In light of that, demand is not materially different today to perhaps as it was six or eight weeks ago. We've recently signed up a new off-take with Yibin Tianyi who are closely aligned with CATL. Their off-take will help, I believe, the Pilgangoora Project, but from an industry point of view, I think it's still nothing to get excited about.


NER:

One of the issues we hear a lot about with regards to the battery industry is qualification. There are different views as to what this means. As a producer, what does qualification entail?


Ken Brinsden:

As we set up for each new off-take position, there are a series of samples that grow in scale to assist the customer in understanding our spodumene concentrate and what will be delivered. Not just the grain but also the other elements stacked up in our concentrate. There is also a supply chain link to the next customer. If you're an average chemical converter in China and you're participating in the key supply chain of one of the battery or the Tier One cell manufacturers, you’re paying attention to where the spodumene concentrate is coming from.

Once you're embedded in someone's supply chain, you have a good chance of becoming a key link to the ultimate qualification of the product in a cathode material or a cathode mix with a Tier One supplier. The technical input is a step-by-step approach.


NER:

How far in advance of an off-take agreement, do you have to engage with regards to qualification?


Ken Brinsden:

There has been quite a variance in the off-take agreements that we've set up over the years. I would suggest it's the difference between around six months to a maximum of 12 months from the initial engagement and ultimately signing up an off-take agreement.


NER:

Is there ongoing monitoring of your product from a qualification point of view?


Ken Brinsden:

That's exactly what happens: every chemical converter cross-checks the raw material delivered to their facility. They might very well have multiple streams of spodumene concentrate going in. They're looking for consistency and continuity of supply.


NER:

In 2019, you released a number of expansion studies including the potential for a low Capex modular expansion. What would that entail and how quickly could you ramp up production when demand returns?


Ken Brinsden:

There are several parts to that question. So the first is, practically, what are you delivering? A lesson extracted from our stage one capacity was that if you're going to create a big chunk of spodumene concentrate capacity, you have to be careful to match that to the downstream chemical conversion capacity. There was a period before we started moderating the mine production where we might have been outstripping the capacity of the new chemical conversion capacity coming online from our customers.

That drove us down a path where we considered alternate engineering solutions to segment the expansion capacity, giving ourselves the ability to incrementally expand. Several benefits derive from that. The upfront capital requirement is minimised and the spend is staggered over time.

Our engineers at Pilbara came up with smart solutions that ultimately delivered that outcome. This is now subject to more feasibility study work which we'll have more to say about in the coming months.


NER:

Where you are with your balance sheet? How much cash do you have and what your current debt situation?


Managing Director, Ken Brinsden

Ken Brinsden:

As at the end of March, we had AU$108 million - that's a combination of cash and irrevocable letters of credit relating to shipments right at the end of March. From our perspective, that's a good result; possibly better than people expected. It was a combination of improved recoveries, lowering the unit cost of production and disciplined use of the stocks available in our system to match customer demand.

In terms of the debt outstanding, we have a US$100 million Nordic bond outstanding, payable on or before June 2022.


NER:

Given that we're probably in a situation where things are going to go sideways in the lithium market over the near term, what would you say are the main catalysts for Pilbara over the next six to 12 months?


Ken Brinsden:

Because we've come so far now in respect of recovery, that's no longer a key driver to cost. Historically it was. The key cost driver now to reduce costs is production volume. So what we are looking for, and one of the reasons why we're only too happy to sign up additional off-take, is to make more sales so that we can produce more.

In a perfect world, we would be producing at 100% of the plant's capacity, nominally 330,000 spodumene concentrate tonnes per annum. Our cost base would then be 320 to 350 US dollars per dry metric tonne delivered to China. We'd be receiving, at today's price for spodumene, 420 to 440 US dollars a tonne. And if so, we'd be making a reasonable operating margin.

In the meantime, whilst we're operating at reduced capacity, the target is somewhat more modest. Logic currently dictates that we operate the mine so that we're not losing operating cashflow. The opportunity for us is really more sales, translating to higher production, therefore reducing unit costs and opening up an operating margin.


NER:

To conclude, what do you think differentiates Pilbara from the other lithium producers and developers that the market's not really picking up on at the moment with your current evaluation?


Ken Brinsden:

I often hear people say, "Look, in the lithium game, there's just too much lithium in the ground." That misses a key dynamic that's probably equally true in several subsets of the resources industry.

Yes, it's true that there's lots of lithium in ground, but what is rare is the combination of clean spodumene in the ground that readily recovers to an SC6 product. It carries some serious scale, which ultimately drives economies of scale and therefore lower cost of operations. And is that resource close to existing infrastructure, ensuring you can deliver to either a chemical plant or international markets cost competitively? That is rare. And that's what people miss. That's why the Rios and the BHPs of the world can produce iron ore at 25 US dollars a tonne and sell it at 65 US dollars.

It's because there's no shortage of iron ore in the ground but there is a shortage of mines like Yandicoogina, Mining Area C. There are a handful of iron ore mines in the Pilbara that drive incredible cash margins.

I'm not suggesting for a second that iron ore is the same as spodumene concentrate. What I am suggesting is that there are very few mines that are ultimately going to deliver very low cost of operations…and Pilbara Minerals is lucky enough to own one of those rare mines.

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Publishers of New-Energy Resources Magazine

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