Keep the faith, Brinsden tells Pilbara shareholders: a new wave of lithium demand is coming

Pilbara Minerals (ASX: PLS) shareholders should feel confident their company is in the “right sub-set” of the lithium industry and is well placed to benefit from the “inevitable” improvement in the market
18th October 2019
Resources Rising Stars

Pilbara Minerals (ASX: PLS) shareholders should feel confident their company is in the “right sub-set” of the lithium industry and is well placed to benefit from the “inevitable” improvement in the market when it comes, senior company executives told shareholders in Perth this week.

At an EGM called to approve key aspects of a $55 million investment by Chinese battery giant CATL – part of a broader $112 million capital raising – Pilbara CEO Ken Brinsden said he was adopting a “glass half full” view of the outlook for the battery-making raw material. 

After reiterating Pilbara Minerals’ highly successful journey from junior explorer to new mid-tier miner in under four years, Brinsden outlined a compelling case to shareholders as to why there were better times ahead for the lithium sector following a horror six months or so which has seen prices crash back to earth.

“The next wave of mass market EV’s is coming, and they’re coming a lot faster than most people expect or realise,” he told a packed room of around 150 shareholders. 

Brinsden explained that the crux of the “market impasse” which has slammed prices for lithium raw materials this year has been a painful adjustment in the subsidy regime for so-called “New Energy Vehicles” or NEV’s in China.

In essence, subsidies have been removed from NEV’s with shorter range, resulting in a short-term shift in production focus towards cars using cheaper lithium-ion phosphate or LFP batteries.

The Chinese Government’s moves, which have had significant fallout across the lithium sector, are actually designed to encourage a shift in the longer-term towards the high-nickel cathode chemistries including Nickel-Cobalt-Alumina or NCA batteries and Nickel-Cobalt-Manganese or NCM batteries, which are a high-energy density option far more suited to long-range electric vehicles.

“The Government is favouring a switch towards the high-nickel chemistries – they want to see the industry move towards high-end battery technologies, but it simply takes time for the industry to adapt and adjust,” he said.

Brinsden said there was a significant investment currently going into more high-nickel battery plants and lithium hydroxide chemical conversion capacity – with the key point being that lithium hydroxide is the preferred lithium chemical feedstock for the high-nickel batteries.

In turn, spodumene concentrate produced from hard rock lithium mines such as those which dominate the West Australian lithium industry is the favoured feedstock for lithium hydroxide production.

By contrast, the supply chain for lithium carbonate production is based on upstream production from the large-scale lithium brine operations which form the backbone of South America’s lithium industry.

Brinsden said the key take-off point for the industry would come when mass market EV production – which is currently in advanced stages of planning by many of the world’s leading auto-makers including VW, BMW, Honda and Volvo – provided the catalyst for increasingly larger-scale production of high-nickel lithium-ion batteries, both in China and the west.

“It’s important to understand that lithium raw material demand is largely a Chinese story, consuming over two-thirds of the world’s lithium raw material supply. China is already the world’s biggest lithium-ion battery manufacturer, and it’s low-cost Chinese-made high-nickel lithium-ion batteries that ultimately will power the mass-production EV’s that are rapidly becoming a reality,” he said.

“The subsidy support regime in China is being restructured to underpin the rollout of high-energy, high-nickel lithium-ion batteries – and that is a very good thing long term for hard rock lithium producers such as Pilbara Minerals.”

Brinsden also said Pilbara Minerals had spent a considerable amount of time assembling Tier-1 relationships which now includes many of the key players in the global lithium-ion battery supply chain, including China’s biggest battery maker, CATL, Ganfeng Lithium, General Lithium, Great Wall and POSCO – with whom it is advancing a downstream processing joint venture in South Korea.

Earlier, Pilbara Minerals Chairman Tony Kiernan said the company had responded to tough market conditions by focusing on ensuring its balance sheet was in order, ensuring its operating plan was in order and “staying close” with its key customers.

“The company is in the best possible position it can be, in the light of the current market circumstances, by having made difficult decisions and getting on with it,” he told shareholders.

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