Pilbara Minerals shares fall despite downstream deal with Ganfeng Lithium

This lithium giant may be making a big move downstream with a Chinese giant.

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Pilbara Minerals Ltd (ASX: PLS) shares are starting the week in the red.

In morning trade, the lithium miner's shares are down 1.5% to $3.85.

Why are Pilbara Minerals shares falling?

Investors have been seling the company's shares today after broad weakness in the lithium industry offset the release of an update on its downstream plans.

According to the release, Pilbara Minerals and Ganfeng Lithium have executed a binding term sheet to complete a joint feasibility study for a potential 32,000 tonnes per annum (tpa) downstream conversion facility to produce lithium chemicals.

Ganfeng Lithium is one of the world's leading lithium chemical converters.

The feasibility study will also assess production of a potential intermediate lithium chemicals product in Australia to reduce transportation volumes and carbon footprint.

The study is expected to be completed in the March quarter of 2025 with an option to progress to a final investment decision and formation of a joint venture soon after.

The release also explains that an agreement has been made on a range of principles which the parties intend to give effect to if the joint venture proceeds. This includes 50:50 ownership, offtake of 300,000 tpa of spodumene concentrate supplied by Pilbara Minerals, and willingness to explore Inflation Reduction Act (IRA) benefits through a project equity sell-down.

Location

Part of the study will be focused on assessing the location for the lithium chemical plant.

While Australia is an option, management advised that it will explore greater geographical diversification in the battery chemicals supply chain.

It notes that preliminary engagement with several countries has indicated strong interest in establishing lithium chemical production with potential economic, taxation, and funding incentives on offer, together with access to land and offers of assistance with permitting and approvals.

'Delighted'

Pilbara Minerals' managing director and CEO, Dale Henderson, was delighted with the news. He said:

We are delighted to have selected our long-standing customer, Ganfeng, to join us in taking the next step towards a major downstream facility for lithium battery chemicals production. This incremental move supports our strategic aim to capture greater value through the supply chain and realise the benefits of supply chain integration.

Ganfeng is a leader and major supplier of lithium chemicals globally. Over the course of its 24-year history, Ganfeng has grown extensive global supply chain relationships with many of the major operators in this emerging battery materials industry. Ganfeng has also distinguished itself for its strong R&D capability and operating performance, especially for producing low cost and high-quality lithium chemicals. These attributes, in combination with our strong alignment to maximise shareholder returns, provide a great match to extend our established relationship together.

Pilbara Minerals shares remain up 12% over the last 12 months.

Motley Fool contributor James Mickleboro has no position in any of the stocks mentioned. The Motley Fool Australia's parent company Motley Fool Holdings Inc. has no position in any of the stocks mentioned. The Motley Fool Australia has no position in any of the stocks mentioned. 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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