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Why the Pilbara Minerals share price crashed 10% lower today

One of the worst performers on the All Ordinaries index on Monday has been the Pilbara Minerals Ltd (ASX: PLS) share price.

In morning trade the lithium miner’s shares have crashed almost 11% lower to 63 cents after providing an update on production and sales at its Pilgangoora Lithium-Tantalum Project in Western Australia.

What was in the update?

According to the release, the company’s focus on optimising production at Pilgangoora has continued, with record production of 22,375 dry metric tonnes (dmt) of spodumene concentrate achieved during May.

The release explains that plant throughput and utilisation have been in line with expectations, resulting in consistent production growth month-on-month year to date.

Product recovery rates have been largely in line with previous results and the company remains on target to achieve design lithia recovery (of ~75%) by the end of the calendar year following the completion of plant improvement works and progress with optimisations.

However, the month on month production growth trend may not last. Management expects spodumene concentrate production in the range of ~20-24kt in June. This is due to a nominal 6-day planned shut-down of the concentrator.

The company intends to utilise this plant shut down to continue to rectify prior works performed by the EPC contractor, while also continuing further plant improvement works.

Then in July Pilbara Minerals’ production looks likely to be impacted significantly by a further planned shut-down of the concentrator in the second half of the month. The concentrator is due to be shut down for two weeks to facilitate ongoing plant improvement works and RCR defect rectification.

It will also support the drawn-down of existing product stocks to meet ongoing sales requirements and help manage cash flows and working capital whilst the additional conversion capacity of Ganfeng, General Lithium, and other industry participants come online.

Sales update.

Whilst the production news is disappointing, it is likely to be the company’s sales update that has sent most investors to the exits today.

Although underlying demand for battery-ready lithium chemicals remains strong, delays in the construction, commissioning and build-out of its offtake customer chemical conversion capacity in China has resulted in June quarter sales of spodumene concentrate being constrained.

These delays have resulted in lower shipped tonnes during the June quarter, which are currently estimated to be in the range of 23-45kt shipped on a dmt basis, pending the departure dates for the remaining vessels.

Furthermore, the company reported that spodumene concentrate pricing has also continued to soften and is currently in a range of approximately US$600-640/dmt CFR China.

News of weakening prices has weighed heavily on the rest of the lithium miners today. At the time of writing the Galaxy Resources Limited (ASX: GXY) share price is down 4% and the Orocobre Limited (ASX: ORE) share price has fallen 3.5%.

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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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