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
 
Significant reduction in losses: For FY17, Pilbara Minerals Ltd.’s (ASX: PLS) revenues increased to $2.1 million from $4000 in FY16 while net loss decreased to $26 million (2016 loss: $55.6 million). Revenue growth was led by an increase in demand for the Company's products due to favourable market conditions and lower net loss was led by decline in share based payment expense to $12.4M (expense) and no impairment charges. The operating loss of $13.4 million includes exploration, evaluation and feasibility costs expensed of $9.7 million (2016: $10.6 million) associated mainly with the Pilgangoora Project. On the other hand, excluding the non-cash items, the consolidated entity achieved an unaudited operating loss of $13.4 million (2016 loss: $15.9 million).


Consolidated statement of profit or loss; (Source: Company reports)

Significant progress at Pilgangoora Lithium-Tantalum Project: During the year, the Company completed the Pilgangoora Lithium-Tantalum Project Definitive Feasibility Study (DFS) which confirmed the technical and financial viability of a standalone 2 Mtpa mining and on-site processing operation. The Company also completed a 4 Mtpa Prefeasibility Study (PFS) to assess the option for a future expansion of the Pilgangoora Project. In addition, the Company successfully secured funding commitments comprising both debt in the form of a conditional senior secured bond facility (US$100 million) and equity ($95 million) to ensure that the Pilgangoora Project was fully funded. 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 Lithium - Tantalum Project; (Source: Company reports)

Substantial increase in proved and probable ore reserves: The Company witnessed a substantial increase in proved and probable JORC ore reserves at the Pilgangoora Lithium-Tantalite Project following various drilling programs. Notably, this further strengthened its ability to increase production beyond the 2 Mtpa Stage 1. The expanded Ore Reserve of 80.3 Mt @ 1.27% Li2O, 123 ppm Ta2O5 and 1.08% Fe2O3 is based on the upgraded Mineral Resource announced in January 2017 of 156.3 Mt @ 1.25% Li2O containing an estimated 1.95 Mt of Li2O. The upgraded Ore Reserve represents an approximate 15% increase on the Ore Reserve announced in the previous financial year. Further, following completion of the DFS, the Company swiftly moved the Project to pre-execution activities. The Company made an FID (Final Investment Decision) in June 2017, paving the way for the continued development of the Project during the 2018 financial year.


Pilgangoora Lithium- Ore Reserve as at June 2017; (Source: Company reports)

Acquisitions and Joint ventures:  In August 2017, the Company completed settlement of the Novo Litio (formerly Dakota Minerals Limited) Lynas acquisition following the grant and transfer of the four remaining tenements to Pilbara Minerals. Total consideration of $3 million was paid via the issue of 7,577,671 fully ordinary shares in the Company at a share price of 39.59 cents. Further, in March 2017 quarter, the Company entered into a binding farm-out and joint venture agreement with Atlas Iron Limited to acquire an initial 51% interest in the Mt Francisco Lithium-Tantalum Project for $2.3 million. According to the agreement, Pilbara Minerals may spend a further $1 million on exploration in the first 12 months to increase its interest in the project to 70%, following which the Company may earn an additional 10% upon completion of a definitive feasibility study and decision to mine. The Mt Francisco tenement is located 50 kilometres southwest of the Company’s flagship Pilgangoora Lithium-Tantalum Project, and hosts the last remaining large occurrence of outcropping pegmatites located near Port Hedland. On the other hand, the Company agreed to sell the processing plant assets associated with the Tabba Tabba Tantalum Project to Tungsten Mining NL. The carrying value of the Tabba Tabba processing plant assets at 30 June 2017 was $370,000 and consideration for the sale includes $300,000 in cash and $300,000 in shares of Tungsten Mining NL.

Massive expansion of Lithium ion battery making capacity: Lithium raw materials are the vital ingredient for lithium battery technology and sourced predominantly from hard-rock mining of spodumene deposits. Australia is the world’s largest producer of spodumene concentrate with three mines in production and the Pilgangoora deposit is one of the world’s largest lithium-tantalum resources. Further, it is noteworthy that Spodumene ore is processed into a spodumene concentrate (6% Li2O) and then converted into a lithium carbonate or lithium hydroxide to be utilized in lithium battery components. Approximately 7.5t of 6% Li2O spodumene concentrate is required to produce 1t of lithium carbonate (at 90% recovery to lithium carbonate). Based on the foregoing, significant expansion is expected through entire lithium-ion supply chain, including a major chemical conversion capacity expansion (spodumene to Carbonate & Hydroxide) over the coming five years.


Battery Supply Chain; (Source: Company reports)
 
Evaluating joint venture opportunities outside of China: PLS has signed a six-year offtake agreement with General Lithium Corporation of China to supply 140,000 tpa of 6% chemical-grade spodumene concentrate. Further, General Lithium has the option to extend the offtake agreement for additional four years with committed annual tonnages. Importantly, in addition to the offtake commitments, General Lithium agreed to invest $17.7 million into Pilbara Minerals via an equity placement for 35.5 million fully paid Pilbara Minerals shares at an issue price of 50 cents per share. Importantly, the offtake agreement includes a binding commitment with General Lithium to evaluate joint venture opportunities outside of China to establish downstream processing plants to produce lithium carbonate and/or lithium hydroxide to enable the Group to potentially move up the lithium value chain by diversifying and enhancing its product offerings. A further 2% equity placement is required to be offered to General Lithium in the event a formal investment decision is made to proceed with the development of lithium chemicals facility.


Global Lithium demand; (Source: Company reports)

Robust industrial relationships with offtake partners: The Company also inked a 10-year offtake agreement for 6% chemical grade spodumene with China’s largest integrated lithium producer, Ganfeng Lithium including the completion of a US$20 million equity placement to Ganfeng Lithium, which has been completed in June 2017. The agreement is for the supply of 160,000 tpa of 6% chemical grade spodumene concentrate (with agreed specifications) with the ability for Ganfeng Lithium to extend the agreement for a further 10 years through two five-year options. In addition, to develop the expanded 4 Mtpa Stage 2 case at Pilgangoora Project, Pilbara Minerals and Ganfeng Lithium agreed to enter into an additional offtake agreement to supply Ganfeng Lithium with at least 25% of the expanded Stage 2 production of chemical grade spodumene concentrate and up to 50% of additional production. Moreover, the contingent on a funding commitment of not less than $65 million for Stage 2 is being provided by Ganfeng Lithium (total of up to 150,000 tpa of Stage 2 expanded production).


Pilgangoora project delivery schedule; (Source: Company reports)
 
Stock Recommendation: Despite the ongoing progress and positive results on production commencement, the stock declined by about 21.4% over last six months (as on September 05, 2017) owing to concerns over mining approvals and financing discussions. Given the off-take agreements in place with Ganfeng Lithium and General Lithium Corporation coupled with increasing demand for lithium and PLS' efforts on other developments, we expect a significant upside in stock price. The stock has been up 6.9% in last five days (as at September 05, 2017). We give a “Buy” recommendation on the stock at the current market price of $0.39


PLS Daily Chart (Source: Thomson Reuters)
 

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