Why Pilbara Minerals Ltd shares are surging higher

The Pilbara Minerals Ltd (ASX: PLS) share price has been a strong performer during trade on Tuesday.

In afternoon trade the lithium miner’s shares are up 5.5% to 84 cents.

Why are Pilbara Minerals’ shares on the rise?

This afternoon the company announced that it is on the verge of generating its first lithium revenue through direct shipping ore (DSO) sales at its Pilgangoora Lithium-Tantalum Project in Western Australia under the mine gate sale agreement with Atlas Iron Limited (ASX: AGO).

According to the release, all conditions precedent to the agreement with Atlas have been satisfied, including the receipt of the US$3 million pre-payment required to fund the establishment costs associated with the DSO program.

Management went on to advise that mining of DSO material at its Monster Pit is now well advanced, and ore deliveries have commenced. Atlas is expected to take its first delivery of DSO material from Pilgangoora this month.

What next?

This agreement will see Pilbara ultimately deliver a minimum of 1 million tonnes of unprocessed run-of-mine lithium-tantalum material from the Pilgangoora mine to Atlas on a mine gate sale basis.

This will allow Atlas to crush and then ship 100,000 tonnes of DSO per month to off-take customers in China through its Utah Port shipping facilities in Port Hedland.

Pilbara Minerals’ management team expects the agreement to deliver a healthy operating cash margin underpinned by an attractive fixed USD base price per wet metric tonne of mine gate material sold.

Should you invest?

With Pilbara Minerals now on the verge of generating meaningful revenues, it certainly is becoming a more attractive option for investors looking to gain exposure to the lithium space.

While my favourites in the industry are still Galaxy Resources Limited (ASX: GXY) and Kidman Resources Ltd (ASX: KDR), Pilbara Minerals wouldn’t be far behind.

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Motley Fool contributor James Mickleboro owns shares of Galaxy Resources Limited. 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 Scott Phillips.

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