Lithium developer Pilbara Minerals Ltd surges on China deal

The Pilbara Minerals Ltd (ASX:PLS) share price is up 15% today after announcing a binding off-take agreement and joint venture with an unnamed Chinese lithium chemicals company.

| More on:
a woman

You’re reading a free article with opinions that may differ from The Motley Fool’s Premium Investing Services. Become a Motley Fool member today to get instant access to our top analyst recommendations, in-depth research, investing resources, and more. Learn More

The shares of Pilbara Minerals Ltd (ASX: PLS) came out of a trading halt with a bang today, jumping around 15% higher following the announcement of binding off-take and downstream processing agreements.

According to the ASX release some agreements have been signed with a leading Chinese lithium chemicals company for the supply of 140,000 tonnes pa of 6% chemical grade spodumene concentrate over a six-year period from Q1 2018. The contract comes with the option to extend it for a further four years.

The unnamed Chinese lithium chemicals company is a leading producer of lithium carbonate and lithium hydroxide monohydrate. It is also a key supplier of lithium products and materials to China's rapidly growing lithium-battery industry.

It will be the Australian lithium developer's first major binding off-take agreement for its 100%-owned Pilgangoora Lithium-Tantalum Project in Western Australia and represents 40% of the project's estimated annual output.

Furthermore, a binding memorandum of understanding has been executed with the Chinese company to participate in the development of a future offshore spodumene conversion plant in order to process spodumene concentrates from the Pilgangoora project.

Management advised that Pilbara Minerals expects to have a 50% share of the equity in the proposed joint venture. Should the joint venture proceed it believes Pilbara Minerals will be positioned higher up the lithium value chain, making it a superior vertically integrated company in the high-growth global lithium industry.

The final part of the agreement sees the Chinese company invest $17.7 million into Pilbara Minerals through a 3% placement at 50 cents per share. This is due for settlement after all conditions of the off-take agreement terms have been satisfied. The Chinese company will be given the option to increase its stake to 5% once a formal investment decision has been made with regards to the development of the lithium chemicals facility.

I believe today's announcement is very positive and makes Pilbara one of the more attractive lithium investment options on the Australian Stock Exchange alongside peers Orocobre Limited (ASX: ORE) and Galaxy Resources Limited (ASX: GXY).

Many expect the lithium price to keep on climbing, with the increased use of lithium batteries in smart phones and cars expected to drive demand over the next decade. If this does in fact happen then Pilbara Minerals could be in a great position to make bumper profits.

Foolish takeaway

An investment in lithium developers is largely speculative, but I feel those that are looking at designating a small portion of their portfolio to the industry could do a lot worse than Pilbara Minerals.

Motley Fool contributor James Mickleboro has no position in any stocks mentioned. The Motley Fool Australia has no position in any of the stocks mentioned. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Bruce Jackson.

More on ⏸️ Investing

Close up of baby looking puzzled
Retail Shares

What has happened to the Baby Bunting (ASX:BBN) share price this year?

It's been a volatile year so far for the Aussie nursery retailer. We take a closer look

Read more »

woman holds sign saying 'we need change' at climate change protest
ETFs

3 ASX ETFs that invest in companies fighting climate change

If you want to shift some of your investments into more ethical companies, exchange-traded funds can offer a good option

Read more »

a jewellery store attendant stands at a cabinet displaying opulent necklaces and earrings featuring diamonds and precious stones.
⏸️ Investing

The Michael Hill (ASX: MHJ) share price poised for growth

Investors will be keeping an eye on the Michael Hill International Limited (ASX: MHJ) share price today. The keen interest…

Read more »

ASX shares buy unstoppable asx share price represented by man in superman cape pointing skyward
⏸️ Investing

The Atomos (ASX:AMS) share price is up 15% in a week

The Atomos (ASX: AMS) share price has surged 15% this week. Let's look at what's ahead as the company build…

Read more »

Two people in suits arm wrestle on a black and white chess board.
Retail Shares

How does the Temple & Webster (ASX:TPW) share price stack up against Nick Scali (ASX:NCK)?

How does the Temple & Webster (ASX: TPW) share price stack up against rival furniture retailer Nick Scali Limited (ASX:…

Read more »

A medical researcher works on a bichip, indicating share price movement in ASX tech companies
Healthcare Shares

The Aroa (ASX:ARX) share price has surged 60% since its IPO

The Aroa (ASX:ARX) share price has surged 60% since the Polynovo (ASX: PNV) competitor listed on the ASX in July.…

Read more »

asx investor daydreaming about US shares
⏸️ How to Invest

How to buy US shares from Australia right now

If you have been wondering how to buy US shares from Australia to gain exposure from the highly topical market,…

Read more »

⏸️ Investing

Why Fox (NASDAQ:FOX) might hurt News Corp (ASX:NWS) shareholders

News Corporation (ASX: NWS) might be facing some existential threats from its American cousins over the riots on 6 January

Read more »