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Why the Pilbara Minerals Ltd share price has gone gangbusters today

One of the biggest movers on the market this morning has been the Pilbara Minerals Ltd (ASX: PLS) share price.

In early trade its shares rocketed as much as 31% to 44.5 cents. At the time of writing the lithium miner’s shares sit higher by 22% to 41 cents.

Why did it rocket?

As I mentioned a couple of weeks ago, while Pilbara had announced strong results from its bulk sampling, investors appeared to be concerned by the lack of progress made with its offtake and financing discussions.

These concerns ultimately led to its share price tumbling to a 52-week low and short interest rising.

But this morning these concerns were finally quashed when the company announced a long-term off-take and financing agreement with leading integrated Chinese lithium producer Jiangxi Ganfeng Lithium.

According to the release, the stage one off-take agreement comprises 160,000tpa of chemical grade spodumene concentrate over an initial 10-year term. After which there are two five-year options to extend the agreement for a further 10 years.

Furthermore, Ganfeng Lithium will contribute no less than US$20 million as an investor in Pilbara’s remaining financing to complete stage one activities at the Pilgangoora lithium-tantalum project in Western Australia.

In addition to this Ganfeng Lithium has committed to the provision of debt funding or off-take pre-payment to support the development of Pilbara’s stage two expansion.

What’s next?

This is undoubtedly great news for the company and puts it in a great position to push forward with its plans. But it’s not quite signed, sealed, and delivered just yet.

The company is still awaiting its mining license and also the remaining funding for its stage one activities. Whilst I feel it is unlikely the company will have any issues on both accounts, it is definitely something to consider.

Once again, while my preference in this high risk industry remains Galaxy Resources Limited (ASX: GXY), Pilbara certainly looks attractive as a long-term play.

Especially with the lithium supply and demand balance expected to remain very tight until at least 2020. I believe this should help keep prices higher for longer.

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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.

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