Company Overview - Pilbara Minerals Limited is a strategic metals producer. The Company is engaged in the exploration, development and mining of mineral resources. It owns the Pilgangoora Lithium-Tantalite Project, which is located in the Pilbara region of Western Australia. The Pilgangoora Lithium-Tantalite Project is located approximately 120 kilometers southeast of Port Hedland in Western Australia. The Pilgangoora Lithium-Tantalite Project is a spodumene (lithium-mineral) deposit. It has a farm-in and joint venture agreement over approximately six tenements comprising its West Pilbara project. The Pilgangoora Lithium-Tantalite Project has an Indicated and Inferred Resource of approximately 128.6 metric tons grading over 1.22% lithium oxide containing approximately 1.57 metric tons of lithium oxide and over 40 metric pounds of tantalum pentoxide. Its subsidiaries include Tabba Tabba Tantalum Pty Ltd, Sturt Resources Ltd, Sturt Resources PNG Ltd, Star 15 Limited and New Global Limited.
 

PLS Details 
Off-take agreement signed with Chinese Lithium group:Pilbara Minerals Ltd (ASX: PLS) has signed an off-take agreement with Chinese lithium carbonate (Li₂CO₃) producer Shandong Ruifu Lithium Co. Limited for the supply of crushed but unprocessed Direct Shipping Ore (DSO). The DSO is supplied, from either its 100%-owned Pilgangoora Lithium-Tantalum Project in Western Australia, or the adjoining higher grade Lynas Find Lithium Project (that is subject to the completion of its acquisition by the company). The agreement is for the supply of 1.9Mt of run-of-mine (ROM) 1.5% lithia ore over a 2-year term and first deliveries are being targeted from July 2017. Moreover, pre-payment of US$10 million by Shandong Ruifu is also included in the agreement. The off-take pricing is fixed at an attractive $US price per dry metric tonne of ore to Pilbara (1.5% Li₂O, CIF China basis) which indicates good operating margin, as final pricing outcomes are based on shipped grade (minimum specification, 1.4% Li₂O). Moreover, Shandong Ruifu produces lithium carbonate products in East China, while production of lithium hydroxide is planned in the near future. PLS is also negotiating a separate off-take agreement for the supply of spodumene concentrate to Shandong Ruifu that is expected to be finalized shortly. This is apart from the current off-take agreement with General Lithium Corporation for 140,000tpa of spodumene concentrate. Additionally, the ROM off-take agreement is due to a mutually beneficial outcome, and provides significant early stage project revenues for PLS.
 
Settled Agreement with Mineral Resources Limited: PLS has entered into a formal settlement deed with Mineral Resources Limited. According to this, the group would issue 104,166,667 shares to Mineral Resources which has right of first refusal and 2.5% royalty in relation to lithium under the Pilgangoora Asset Sale Agreement and Royalty Deed. Despite this, Mineral Resources reported their support to the group for the development and operation of its Pilgangoora Project, like offering mining and mine related services for safe, low?cost development and operation of the project. Both parties intend to join hands for exploring any potential synergies between Mineral Resources’ Wodgina and Pilbara Minerals Pilgangoora projects for mutual commercial benefit. Mineral Resources management is confident on the group’s Pilgangoora Project as Wodgina/Pilgangoora area is known as the best hard rock, lithium address in the world. PLS stock was placed on trading halt by the ASX ahead of this announcement and resumed trading on October 27, 2016.
 
Positive DFS at Pilgangoora Lithium-Tantalum Project: The Definitive Feasibility Study (DFS) got completed in the September quarter for base case 2Mtpa development of the Pilgangoora Lithium-Tantalum Project. The outcome of the DFS was positive wherein project has post-tax NPV at 10% of A$709M (March 2016 PFS indicated for A$407M), robust margins, the payback of 2.7 years and strong IRR of 38.1%. Moreover, the project has an average annual production of over 314ktpa of 6% spodumene concentrate (44ktpa LCE) and 321,000lbs pa of tantalite. The project has a forecast life-of-mine project revenue of A$9.23 billion and project EBITDA of A$4.22 billion over an estimated 36-year mine life. On the other hand, the group now estimates a slightly higher capital cost (A$214 million) as compared to the March PFS estimate of A$184 million. This increase in costs is mainly on the back of huge investment to facilitate future substantial project growth and support improved lithium and tantalum recoveries. Meanwhile, the group also finished the Pre-Feasibility Study on the project. The PFS assumed the processing capacity at the Pilgangoora Project to be doubled to 4Mtpa from year three of the project, with a commensurate increase in spodumene concentrate production. The PFS results from the 4Mtpa processing capacity indicates the complete potential of the Pilgangoora Project. The project promises huge scale, at competitive costs while ensuring product quality inclusive of both chemical and technical grade spodumene concentrate sales. The project is on track for construction in the fourth quarter of CY2016 while the commissioning could start by late 2017. In addition, the Cooperation Agreements have been signed with Altura Mining, for the development of both companies’ adjoining deposits. In addition, the new phase of sterilization and strategic development drilling are underway, while positive early results were received from the Far East and South End pegmatite zones. These results have updated Mineral Resource estimate targeted for the end of CY2016.
 

DFS & PFS outcomes (Source: Company Reports)
 
Placed order for two additional long-lead items to fast-track Pilgangoora Lithium-Tantalum Project: The group ordered for first long-lead items for their Pilgangoora Lithium-Tantalum Project to fast-track their project development. PLS orderedfor a High-Pressure Grinding Rolls (HPGR) crusher, which is a major component of the proposed processing flowsheet for the Pilgangoora treatment facility as per Pilgangoora Definitive Feasibility study, PLS even approved ordering two more long-lead items, including a Ball Mill and Spodumene Concentrate Filter for the Pilgangoora Processing Plant.
 

RC Drilling for Far East Pegmatite (Source: Company Reports)
 
Update on the Ore Reserve: PLS in the September quarter has posted a substantial increase in the Ore Reserves for the Pilgangoora Project to 69.8 million tonnes grading 1.26% Li₂O and 132ppm Ta₂O₅. Overall, the Pilgangoora Ore Reserve was updated to comprise 883,000 tonnes of contained lithium oxide and 20.3 million pounds of contained tantalite. This upgrade was mainly driven by the upgraded Mineral Resource of 128.6 million tonnes @ 1.22% Li₂O containing 1,572,000 tonnes of Li₂O as of July 2016. Therefore, the group has more than doubled the reserves now as compared to their March 2016 position of 29.5Mt at 1.3% Li₂O and 134ppm Ta₂O₅.
 

Pilgangoora Tantalum-Lithium Project JORC Ore Reserve Estimate (August 2016) (Source: Company Reports)
 
Ongoing expansion of assets via acquisitions: PLS has signed the Binding agreement with Roy Hill to acquire its Rail Camp 3 at a cost competitive price providing a significant capital saving for the Pilgangoora Project as compared to the current replacement costs. Moreover, PLS has entered with the binding agreement with Dakota Minerals to acquire 100% of the adjoining Lynas Find Lithium Project at A$4 million. An additional $1 million payment is to be made by PLS on the granting of a term extension on one of the core tenements. As per the agreement, PLS will acquire the core Lynas Find granted tenements package, which includes the maiden indicated and inferred mineral resource of 7.3Mt @ 1.25% Li₂O, 85ppm Ta₂O₅ and 0.99% Fe₂O₃. This will enhance the overall mineral resource of the company by increasing the tonnes readily accessible to the future processing facilities and will firmly consolidate the strategic position in the world-class lithium/tantalum district.
 
Management Changes: PLS’s Executive Director, Neil Biddle is moving to a Non-Executive role, and Alex Eastwood as General Counsel and Company Secretary has been appointed. On the other side, the group has appointed Project Management Consultancy, Engenium Pty Ltd to assist in the delivery of the Pilgangoora Lithium-Tantalum Project in Western Australia, by working as part of an Integrated Owner’s Project Management Team. The company has also recently changed its Registered office and principal place of Business.
 
Stock Performance:The shares of PLS stock recovered over 37% in the last four weeks alone (as of November 15, 2016) driven by the positive DFS of their core Pilgangoora Lithium-Tantalum Project. Recent agreement with Mineral resources coupled with updated mineral reserves also contributed to the bullish stock momentum. The group is ensuring to achieve their targets on the project with construction to commence in Q4 CY2016 and commissioning in late 2017. PLS also reported for a decent cash balance of $94.2M as of 30 September 2016. We give a “Buy” recommendation on the stock at the current price of – $ 0.55

 
PLS Daily Chart (Source: Thomson Reuters)

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