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
 
Long-term off-take agreement with Ganfeng Lithium provides visibility of earnings: Pilbara Minerals Limited (ASX: PLS) entered into a long-term supply arrangement for stage-1 (2Mtpa operation) of Pilbara’s flagship Pilgangoora Lithium-Tantalum project with Jiangxi Ganfeng Lithium Co Ltd. Ganfeng Lithium is one of the China’s largest integrated lithium producers, with a total capacityof around30,000tpaof LCE(lithiumcarbonequivalent), anda product suite includinglithiummetal, lithium hydroxide, lithium carbonate, lithium fluoride, and lithium chloride.The stage-1 off-take agreement comprises 160,000tpa (representing over 50% of the anticipated production from stage-1) of spodumene concentrate over an initial 10-year term, with two five-year options to extend for up to a further 10 years. With this off-take agreement, Pilbara’s stage-1 spodumene concentrate (SC6.0 basis) is fully sold to both General Lithium and Ganfeng Lithium, paving the way for the company to complete the balance of funding required for stage-1 of the Pilgangoora project. Further, with this agreement, Ganfeng Lithium will provide financing of more than US$20 million during stage-1. Importantly, off-take agreements include downside price protections to provide Pilbara with assurance that it can operate profitably above its expected operating cost base, as well as an attractive off-take pricing formula based on market reference data for battery grade lithium carbonate pricing. This is designed to ensure that Pilbara benefits from both the current and expected future demand for lithium carbonate in China. Pricing is based on CIF basis (cost plus insurance and freight) and is reset every six months by a pricing formula based on the price of lithium carbonate. Yet again, the price of lithium carbonate is defined by historical data for import and export pricing in China as determined by major cathode makers and for battery grade lithium carbonate.
 
Ganfeng Lithium to provide 50% of stage-2 project development costs: Currently, Pilbara is fully focussed on arranging the balance of the Pilgangoora project’s development funding andisexpected to announce a successful funding solution in the near-term.Moreover, post completion of a DFS (Definitive Feasibility Study) and a decision being made by Pilbara to proceed with stage-2 (4Mtpa) of the Pilgangoora Project, both parties will enter into a new off-take agreement for an additional 25% of the expanded production of stage-2. In addition, Ganfeng Lithium has agreed to offer a 50% of financing support for stage-2 project development costs in cash pre-payment or debt facility. It is further signifying the strength of demand for the company’s product.
 
Increased yields and recoveries at Pilgangoora:During Q3FY17, the company’s mining progress furtheradvanced atitsflagshipPilgangooraLithium-Tantalumproject,and PLS remainsfocussedtoramp upproduction from the Q1FY18. Importantly,resultsfromHeavyMediaSeparation(HMS)pilotplanttestworkhighlightedthereal potentialto improvetheeconomicsofthePilgangooraProject,withincreasedyieldsandrecoveriesforthe coarsespodumene concentrates rangingfrom51.9%to 67.7%(comparedto41.9%to44.6% usedintheDFS).The resultsfurtherdemonstratethesuperiorrecoveryandgradecharacteristicsofthePilgangooraresource.
 

HMS pilot plant concentrates (Source: Company Reports)
 
Final approval for the Mining Proposal expected in the near term: Pilbara Minerals has earlier announced about receiving 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.
 

Pilgangoora project delivery schedule (Source: Company Reports)
 
Robust partnerships with global lithium players in China: One of the keys to Pilbara’s future lies in the strength of the relationships and partnerships as it is a relatively complex and unique industry. At the back of this solid foundation, 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 in the future.
 

Lithium demand estimates for china electric vehicle battery(Source: Company Reports)
 
Further, PLS 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 included an upfront payment of $13.1m payable on commencement of major mine construction works.
 
22% increase in total resource tonnage with outstanding sample grades at Pilgangoora: In Jan-2017, company discovered further increase in the Mineral Resource at its flagship Pilgangoora Lithium-Tantalum Project to about 156 million tonnes, marking the culmination 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 128 ppm Ta₂O₅, containing 1.95 million tonnes of lithium oxide and 44.2 million pounds of Ta₂O₅. The overall Mineral Resource at Pilgangoora now comprises 1.95 million tonnes of contained lithium oxide and 44.2 million pounds of contained tantalite. 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.
 

Global Lithium market (Source: Company Reports)
 
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. Latest bulk sampling of outcropping pegmatites from the proposed initial mining areas, and the proposed DSO (Direct Shipping Ore) pits was completed. Ten pegmatite samples of approximately one-tonne each were collected from different outcrops for assessing grade, further metallurgical test work demonstrated outstanding results with an average grade of 2.11% Li₂O (in spodumene). To date, a total of 123 holes for 4,139 meters 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 soon.
 
InterestintheMtFranciscoLithium-TantalumProject:Apart from the developments for the world-classPilgangooraProject,thecompanyhas significantlyenhanceditsdominantland-holdingin the north Pilbaraduring Q3FY17and enteredinto abindingfarm-outand jointventure agreement with Atlas Iron (ASX:AGO)toacquireaninitial51%interestintheMtFranciscoLithium-TantalumProject,withtherighttoearn upto 80% in phases.
 
Stock Recommendation:During the Q3FY17, PLS invested $13.1 million on mining development, while cash flows from operating activities were impacted on account of increased expenses for mining feasibility studies and administrative costs. However, at the end of Q3FY17, company holds a cash and cash equivalents of $65.5 million. Despite the ongoing progress and optimistic outlook given by the company on production commencement, the stock declined by about 25% over last three months (as at May 02, 2017) owing to volatile market scenario. However, with the latest agreement in place with Ganfeng Lithium, PLS stock surged about 19% on May 02, 2017. In the long-term, catalysts such as increased yields for spodumene concentrates, better heavy media separation results, environmental approvals and other agreements falling in place, are expected to drive momentum. We give a “Buy” recommendation on the stock at the current market price of $ 0.40

 
PLS Daily Chart (Source: Thomson Reuters)

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