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
One of the world’s leading low cost lithium development projects setting to commence production:Pilbara Minerals Ltd (ASX: PLS), the emerging lithium and tantalum producer, has recently reported for various updates with regards to the development of its Pilgangoora lithium-tantalum project. Pilgangoora has been confirmed as one of the largest spodumene (lithium pyroxene) and tantalite project in the world and is set to be developed into one of the world’s largest lithium mines. 2015/16 has been a year of transition for the company as it invested in the project and positioned for future growth. In September 2016, the company completed a Definitive Feasibility Study (DFS) on a 2Mtpa operation incorporating detailed reports on the Project’s development including geology and resources, mining and mine design, metallurgical test work, economic feasibility and environmental considerations. In the month of March 2017, the company received the first of two environmental approvals for its project, and this included grant of its native vegetation clearing permit. In about last 12 months, the company has advanced and derisked the project through resource drill out, feasibility and environmental approvals nearing completion, and is setting itself to deliver its first product in early next year.
 


Resources and Reserves_January 2017 Upgrade (Source: Company Reports)
 
The grade and scale of the Pilgangoora deposit, coupled with the presence of a substantial tantalum by-product will further offset production costs and the company is expected to be considered a low-cost producer of spodumene concentrates for many decades to come. Importantly, Pilgangoora spodumene concentrates meet the industry specifications of the entire range of lithium products and it has binding offtake agreements or MOUs in place accounting for more than 100% of the projected lithium oxide production. The size, quality and anticipated low operating cost of production at the Pilgangoora Project further provide with an exceptional opportunity to pursue growth opportunities in downstream lithium markets.
 
Successful drilling and 22 % increase in total resource tonnage at Pilgangoora: In January 2017, company discovered further increase in the Mineral Resource at its flagship Pilgangoora Lithium-Tantalum Project to 156 million tonnes, marking the great outcome of its extensive resource drilling programs over the past two years and reinforcing its position as one of the world’s premier lithium development projects. The updated resource, which represents a 22% increase in total resource tonnage compared with the resource upgrade announced in July 2016, now comprises a total of 156.3 million tonnes grading 1.25% Li₂O (spodumene) and 128ppm Ta₂O₅, containing 1.95 million tonnes of lithium oxide and 44.2 million pounds of Ta₂O₅. By using the benchmark Lithium Carbonate Equivalent (LCE) measure, the resource contains 4.83 million tonnes of LCE, featuring Pilgangoora’s status as a globally significant lithium project.
 
Final approval for the Mining Proposal expected in the near term: As stated above, Pilbara Minerals has received the first of two key environmental approvals for its Pilgangoora Lithium-Tantalum Project. The company is advancing well with its Mining Proposal submission and had responded to queries from the WA Department of Mines and Petroleum (DMP) as the final approval of the Pilgangoora Mining Proposal is expected in the near term.  Notably, it is expected to commence production by the end of 2017/ beginning next year, and to capitalise on the widely-anticipated shortfall of lithium in global markets over the next decade. 

Global lithium demand forecast by usage (t LCE) (Source: Company Reports)
 
Outstanding results on bulk sampling grades: Latest bulk samplingofoutcroppingpegmatitesfromtheproposedinitialminingareas,andtheproposed DSO(DirectShippingOre)pitswascompleted. Tenpegmatitesamplesofapproximatelyone-tonneeachwerecollectedfromdifferentoutcropsforassessinggrade,further metallurgical testwork demonstrated outstanding results with an average grade of 2.11% Li₂O (in spodumene). To date, a total of 123 holes for 4,139 metres at an average depth of 33m have been completed within the central footwall pegmatite area for the pre-mining grade control program while the mine camp commissioning is expected to start in next two weeks. Further, progress on the completion of financing (including final offtake) advanced towards a final investment decision. In addition, PLS continues to work with its customers to finalize its regulatory approvals in China to close the conditions precedent to the commencement of offtake. While the ROM ore project is a unique opportunity to potentially provide early cashflow from operations, Pilbara’s Stage 1 - 2 Mtpa processing project is not dependent on the progress of these ROM ore sales and the project financing for the 2Mtpa project. Diamond drilling program for additional geotechnical and metallurgical data is also currently underway at Lynas Find, Eastern, Central and Far East Domains. This included 5 PQ drill holes for 225m at Lynas, 5 HQ drill holes for a total of 468m at Central and Eastern Domains and the program is nearing completion with 2 PQ drill holes remaining at the Far East Domain.
 

Bulk Sampling (Source: Company Reports)
 
Acquisition of Mt Francisco Project - Significant lithium-tantalum exploration asset: Pilbara Minerals Ltd has enhanced its dominant landholding in the Pilgangoora lithium district of WA by entering into a binding farm-out and joint venture agreement (Mt Francisco Agreement) with Atlas Iron Limited to acquire an initial 51% interest in the Mt Francisco Lithium-Tantalum Project. Pilbara will spend a further $1M on exploration in the first 12 months to increase its interest in the project to 70%, following which Pilbara may then earn an additional 10% upon completion of the DFS and mining. In addition, Pilbara also entered into a non-binding Memorandum of Understanding (MOU) with Atlas for a proposed Infrastructure Services Agreement, under which Atlas would provide access, processing, bulk handling and haulage services to Pilbara from the Pilgangoora project. Importantly, this would facilitate Pilbara to deliver the direct shipping ore in a relatively short timeframe which will further provide early cash flow and would enable the company to meet its scheduled delivery commitments. Mt Francisco is one of the highest-quality lithium-tantalum exploration assets in the Pilbara region. It is located within the established zone of lithium deposits and represents a highly attractive addition to the company’s world-class lithium portfolio, by offering the potential for significant resource scale in close proximity. PLS had also agreed to acquire and farm into Atlas Cisco lithium project.
 
Increasing demand for electric vehicles to drive demand: As per the company, Lithium demand has been forecasted to grow at >12% per annum and to accelerate further at the back of its widespread use in conventional industries such as ceramics, glass, batteries and pharmaceuticals getting overrun by growing consumption in rechargeable batteries for portable electronic devices and the electrification of the transport industry. As per industry reports, for every 1% rise in electric vehicle market share, lithium demand is expected to rise by 70,000 tonnes annually and lithium market could triple in size by 2025 led by electric vehicle demand. Significant new supply of lithium-ion batteries is scheduled for 2017 onwards as major auto companies such as Tesla Motors, LG Chem and Foxconn Technology Group are planning lithium-ion battery mega-factories. 

China Electric Vehicle Sales Estimates (Source: Company Reports)
 
Robust partnerships with global lithium players: A key to Pilbara’s future lies in the strength of the relationships and partnerships given a relatively complex and unique industry wherein PLS operates. The company partnered with General Lithium Corporation which is a leading Chinese producer of lithium carbonate and hydroxide products and a key supplier of lithium products to the fast-growing lithium-battery industry of China. The partnership comprises a binding offtake agreement, a proposed $17.75 million investment into Pilbara Minerals, and an agreement to evaluate a probable future joint venture for offshore downstream processing, which will deliver significant value into the company in the future. Further, PLS has signed an offtake deal with Chinese lithium carbonate producer Shandong Ruifu Lithium to supply unprocessed Direct Shipping Ore (DSO) from as early as July 2017. The Agreement also includes an upfront payment of $13.1m payable on commencement of major mine construction works.
 
Financial Performance: During H1 FY17, Pilbara Minerals’ other income increased to $77,000 year on year (yoy) from $4,000 in H1 FY16 while the company reported for a total comprehensive loss of $19.2m ($12m loss in H1 FY16). Revenue growth was driven by increase in demand for the company's products and services due to favorable market conditions. However, increased net loss was led by higher exploration costs from $3.1m to $6.8m. During the same period, General Lithium executed an equity subscription agreement to invest $17.75m in the company via a placement of 35,506,916 shares at 50c per share; with settlement to occur after the conditions precedent to the offtake agreement terms have been satisfied. The terms of agreements with General Lithium were subsequently consolidated into one offtake agreement.
 
Stock Performance: Despite the recent positive developments on mining/production activities, the stock tumbled about 11.5% on April 18, 2017 and about 6% post half day on April 19, 2017, on account of investors’ concerns over the expected mining and production timelines. The stock has fallen about 16% in last five days (as at April 18, 2017) partly owing to sector driven volatility. However, PLS looks to be on track to commence production as per the stipulated schedule and efforts in place, and achieve a turning point level in FY18. We recommend a “Buy” on the stock at the current price of $ 0.32
 

PLS Daily Chart (Source: Thomson Reuters)

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