Pilbara Minerals will mothball one of its processing plants and pause the construction of a mid-stream project as it tightens its belt amid languish lithium market conditions.
Pilbara Minerals will mothball one of its processing plants and pause the construction of a mid-stream project as it tightens its belt amid languish lithium market conditions.
The ASX-listed lithium producer’s Ngungaju processing plant- described as the smaller and higher cost of the two- will be placed on care and maintenance from December.
Also in response to weak prices for the key battery material, the miner will defer construction of its mid-stream demonstration plant project, which is 60 per cent completed.
The project, in partnership with Calix Limited, will remain on ice until market conditions improve or further government support is secured. It already has $20 million in government backing.
Chief executive Dale Henerson said the Ngungaju plant would be capable of being fully ramped up within four months when market conditions improve, with an eye to capitalise on higher prices, although he couldn’t be drawn on a predicted timeline.
Mr Henderson said the worst-case scenario for Pilbara Minerals was a situation where prices rally quickly, and the team had to scramble to bring the operation back online.
But he said in the meantime, the Pilgan operation- the larger of the two processing plants- would “no doubt be making very good returns” in that scenario.
Pilbara Minerals expects to cut production volumes by 100,000 tonnes, or by 12 per cent, as it transitions to what it’s now calling its P850 operating model.
Its shaved back its 2025 financial year production guidance to between 700,000 and 740,000dmt, from 800,000 to 840,000dmt previously, while lowering its unit costs forecasts.
About 50 employees tied to the Ngungaju plant will be redeployed internally under the P1000 expansion project while 50 jobs will be cut.
It has a total workforce of more than 900 employees across the operation.
Pilbara's move to tighten its belt is expected to realise $200 million in cost savings, with the aim to preserve product for a future price rebound.
In the September quarter, Pilbara fetched a diminished realised price of US$682 per tonne of spodumene concentrate, down 19 per cent from $US840/t in the June period.
As a result, revenue slid to $210 million, down 31 per cent, from $305 million in the prior quarter, while unit operating costs increased slightly to $AU606/t.
Mr Henderson said they could wait out a much longer lithium winter if needed, pointing to its balance sheet and today’s decision.
The miner weathered the last storm in 2019 when prices sunk below $US500/t and the state government stepped in with royalty relief.
Prices then rallied to a record high in late 2022 before the subsequent downturn, with spodumene concentrate fetching about US$750/t today.
On an investor call, Mr Henderson was asked whether royalty relief was needed at this point in the cycle, and whether it would have influenced today’s decision.
He responded that they’d happily take the help, but that royalty relief wouldn’t move the dial.
“As a producer, we're happy for all the help…we’ll gladly take it all,” Mr Henderson said.
“As it relates to others asking for royalty relief, if anything was to be done there, it needs to be industry wide and for all and not selected for a project.
“Would it be of assistance? Yes. But does it actually move the dial, and does it actually change our decision? The answer is no.”
It comes after fellow battery metal miners, including newly minted producer Liontown Resources, have called on the state government to lend a hand to the industry.
M&A
During the quarter Pilbara announced its $560 million deal to acquire hard rock lithium developer Latin Resources, owner of the Salinas project in Brazil.
Pilbara described the acquisition- still subject to approval early next year- as a counter-cyclical move following a period of extensive project assessment globally.
The pre-final investment decision project won’t be brought online until market conditions improve; Mr Henderson reiterated today.
Mining heavyweight Rio Tinto also made a counter-cyclical splash in the lithium M&A scene, after spending $9.9 billion on acquiring Arcadium Lithium.
The major transaction has been described as a long-term bet on the future of the key battery ingredient at a time when smaller players locally are scaling back operations.
Mr Henderson said Rio’s deal was a fantastic endorsement of the industry, and that it was great to see the major miner taking a larger position in lithium.
In terms of the Latin transaction, he said Rio’s deal did not change their thinking and they were “very happy with that transaction”.
“It's a counter-cyclical transaction, acquiring what's a fantastic asset in a fantastic region, and ultimately, we're going to bring that to market when that makes sense,” Mr Henderson said.
“Rio’s move into the space, doesn't change that at all.
“I like to think that they're following in our footsteps.”
Pilbara Minerals’ shares last changed hands at $2.90, up 1.75 per cent at 12.30PM AWST.