At the time of writing, the Pilbara Minerals share price is down 3.02% to $1.50 per share, however, despite today’s losses, Pilbara shares have gained more than 12% across the past week.
Today’s price movement follows an update regarding a plant restart, production costs and June quarter shipments.
Ngungaju plant restart
Pilbara Minerals is looking to grow its lithium production through the restart of its Ngungaju plant.
The Ngungaju operation was formerly owned by Altura Mining Limited (ASX: AJM), which Pilbara Minerals acquired in October last year for $175 million. This was during a time where lithium spot prices had collapsed to multi-year lows, resulting in Altura falling into administration.
In today’s announcement, the board has approved the staged restart of the Ngungaju plant, with operations expected to recommence in the December quarter of 2021.
The company estimates the restart will cost approximately $39 million, consistent with its original forecast at the time of the acquisition.
Pilbara Minerals said costs will likely be funded by existing cash, however, will consider funding support via a potential restructure of its existing syndicated debt facility, if favourable terms and conditions can be achieved.
Production is expected to be ramped up to approximately 180,000 to 200,000 dry metric tonne (dmt) by mid calendar year 2022. The company advises this will make a significant contribution to the annual production of its overall Pilgangoora project, increasing from 560,000 to 580,000 dmt.
Shipments and costs update
In the same announcement, Pilbara Minerals expects a record June quarter spodumene concentrate shipment of approximately ~96,000 dmt.
In light of strong production figures, the company flagged the likely increase in unit cash operating costs in FY22. The higher costs were driven by factors including higher sea freight rates, costs associated with the Ngungaju plant restart, and a stronger Australian dollar to US dollar exchange rate.
Additionally, Pilbara Minerals said a higher mining strip ratio, the amount of waste material that must be removed to reach the ore, will be required over the 12–24 months to support higher plant output. The higher ratio will drag on operating costs.
According to the announcement, cash operating costs of the combined Pilgangoora operation for FY22 is expected to be in the range of A$525 to A$575/dmt (including cost, insurance and freight to China) or approximately US$395 to US$430/dmt at an AUD:USD exchange rate of 75 cents.
Beyond calendar year 2022, the company expects costs to trend lower, as it realises synergies and improved economies of scale from the ramp-up of Ngungaju operations and the normalisation of freight costs and strip ratios.
What did management say?
Pilbara Minerals’ managing director and CEO, Ken Brinsden welcomed the restart, saying:
The well-timed acquisition of the Altura Lithium Operations provides Pilbara Minerals with available spodumene concentrate at the same time the market is expected to grow rapidly to deal with the mass global adoption of lithium-ion battery technology for use in clean energy applications
Brinsden acknowledged higher costs in FY22 but remains confident in the company’s long-term trajectory:
While production costs will likely be slightly elevated during FY22, we remain confident in both Pilgangoora’s pre-eminent position as an important global lithium raw materials supply base and the trend towards lower cost in the coming years as the Ngungaju Plant restarts, normalises and production settles at a higher rate.
Head above the clouds for the Pilbara Minerals share price
The Pilbara Minerals share price has set a new record all-time high in each of its last four trading sessions.
It looks like its year-to-date returns are fast approaching triple digits, currently up about ~85% this year.
The Pilbara Minerals share price has benefited from factors including firmer lithium prices and a broader bullish performance of lithium-related shares.