Pilbara Minerals poised for cashflow surge on rising prices and ballooning demand for spodumene

Plus, our whisper last week on Rumble proved well-founded but don’t forget Zenith, Beament begins his goodbyes at Northern Star, Sovereign prepares for maiden rutile resource and Biswas has a crack at cryptos
23rd April 2021
Barry Fitzgerald

The turnaround in the lithium market has been remarkable stuff, with the key battery material swept up in the global “green” investment boom in the decarbonisation of transport and energy.

The resultant surge in lithium prices in the opening months of 2021 has seen last year’s beaten-up lithium stocks recapture their darling status.

Pilbara (PLS) tells the tale. In the depth of despair over COVID-19 a year ago, Pilbara could be bought for 18c. It has since climbed to $1.11.

It got sold off in Thursday’s market along with the other lithium stocks, including the $4 billion merging pair of Orocobre (ORE) and Galaxy (GXY), on some profit-taking.

But the thematic that lithium prices have to continue to rise to meet the coming tsunami of demand, and that the established producers are best placed to respond, remains intact.

Macquarie forecasts prices for the lithium precursor spodumene, which Pilbara produces, will steadily rise from $US458/t in the 2021FY to as much as $US730/t in the 2025FY.

It is happening now, and then some, with Pilbara reporting in its March quarter report that prices were in the $US550-$US700t range towards the end of the period.

Unit cash costs for Pilbara in the quarter were $US383/t, and the company’s target to get to $320-$350t range remains intact, with more levers to pull thanks to the acquisition of the adjoining Altura operation in January for a knockdown price of $US175m.

From all that it can be said that spodumene production is again a cash margin business, and a growing one at that, particularly when $US700t prices are plugged in.

Like the rest of the industry, Pilbara is reworking a lot of things to take advantage of lithium’s turnaround, and the strong demand in growth. The Altura acquisition, and the likelihood of a downstream move into lithium hydroxide in a joint venture in South Korea with POSCO, means it has a lot of levers to pull.

But the basic theme is that Pilbara is well-poised to capitalise on lithium’s return as a commodity to be in through major expansions, and the move downstream to capture the value-add.

Macquarie, which has a $1.50 a share price target on the stock following the quarterly, reckons that come 2025, Pilbara’s annual spodumene production will have grown from a forecast 273,000t this financial year at an AISC of $US364/t to 660,000t at an AISC of $US369/t.

As the margin grows with higher prices, the 2025 production effort would be good for EBITDA of $413m. It was negative last financial year.

RUMBLE & ZENITH:

From the update file comes the news that the excitement in Perth mining circles reported here last week about what Rumble (RTR) was on to at its Earaheedy zinc-lead prospect proved to be well-founded.

So much so that Rumble shares have since rocketed 183% from 18c to 52c.

Results like 14m grading 5.02% zinc and 2.02% lead from 76m gave weight to Rumble’s comment that the Chinook prospect at Earaheedy had the potential to become a “very large (Tier 1) zinc-lead system.’’

Reports from brokers during the week that much of the buying for the stock was coming from exploration professionals suggests there is agreement on that point, subject to further confirming drilling along the 45km strike of prospective rocks.

Having said that, it was remiss in last week’s flagging of the Earaheedy buzz to note that Zenith Minerals (ZNC) has a 25% free-carried interest up to the bankable feasibility study stage.

Others knew that and have since driven Zenith from 13c last Friday to 25c for a market cap of $70m. On a look-through basis, Zenith’s share price gain has been underdone. Compared with Rumble, its market cap should be up by some $58m or 20c a share.

It’s actually up by $32m or 11c a share. The implied discount for its share of the Earaheedy discovery is common stuff for junior partners generally, and may or may not be unwound as time passes.

What’s more certain is that like Rumble too, Zenith is more than Earaheedy. It is active on three 100% owned exploration projects, the most interesting of which at this stage is the high-grade Red Mountain gold/silver project in Queensland.

It is a Mt Wright (about 1m oz) lookalike geologically speaking, and on results Zenith has been generating from its maiden drill program. Now that Earaheedy has come good in a big way, there is not much in the Zenith market cap for Red Mountain and its other prospects.

BILL BEAMENT:

Bill Beament hasn’t left the building just yet but he has done his last investor call for Northern Star as its executive chairman.

Like Elvis, who would say “thank you very much’’ and leave, Beament did not have a lot to say when wrapping up the company’s March quarter investor call on Wednesday.

“This is my last call so thanks so much for supporting the company and myself over the past 14 years.’’

That’s not a lot given Northern Star has grown from a $10m company to Australia’s second biggest gold producer with a market cap of $13 billion since Beament’s arrival in August 2007.

It has been a fascinating journey to watch, just as his next foray at the $174m market cap Venturex (VXR) will be.

Beament leaves Northern Star on July 1 to become executive director of the WA base metals developer in which he is also spearheading a major recapitalisation.

He has long had a soft spot for Venturex’s Sulphur Springs project copper-zinc which thanks to rocketing copper prices and a strong zinc price, has come in to its own as a likely producer.

Northern Star was a long-term supportive shareholder but not long after Beament’s Northern Star departure was announced, the 19.5% stake was flicked across to Chris Ellison’s Mineral Resources (MIN).

Will Sulphur Springs and its upside be enough for Beament, or Ellison for that matter? Not likely, ensuring that what unfolds at Venturex come July 1 under Beament will be just as fascinating as his last 14 years at Northern Star.

SOVEREIGN METALS: SVM

Sovereign Metals (SVM) has been travelling nicely since it was mentioned here back in June last year on market talk that its rutile project in Malawi was likely to be too big to ignore.

It was 19.5c at the time and has since moved onto 59c, with the company prepping the market for a maiden resource estimate before too long.

Don’t know what it will be but Sovereign managing director Julian Stephens has hit the airwaves of late to say the project will “probably eventually be the largest rutile deposit in the world’’.

The maiden resource estimate will lead in to scoping and feasibility studies, as well as stepped up marketing efforts to secure underpinning offtake agreements/partnerships.

So it will all be happening for the $252m company as 2021 unfolds, with the current market cap not challenging if the Malawi does in fact shape up as one of the biggest and highest grade rutile projects on the planet.

The world needs more sources of natural rutile (95% titanium dioxide, 90% of which goes into the pigment/paint market) like the Malawi project, as distinct from chloride ilmenite (50-55%) and sulphate ilmenite (45-50%).

There is a developing ESG imperative as natural rutile does not go through the energy intensive processes involved in upgrading ilmenite.

Pigment producers would like to have more natural rutile coming through - it currently accounts for only 26% of the titanium feedstock market - because like all other big industries, its carbon footprint is coming under increased scrutiny.

It is a thematic that Sovereign has latched on to with its release this week of a study by UK consultancy Minviro.

The study found using natural rutile in preference to upgraded ilmenite would deliver emission savings of 1.6-2.8kg of carbon dioxide equivalent per kilogram compared with titania slag and synthetic rutile respectively.

BISWAS ON CYRPTOCURRENCIES:

Newcrest CEO Sandeep Biswas went off topic in his address to the Melbourne Mining Club luncheon on Thursday.

His speech was all things ESG, as is expected it seems nowadays from CEO’s from the big end of town.

But Biswas did allow himself time to have a crack at cryptocurrencies, as might be expected from the head of Australia’s biggest listed gold producer. The exclamation marks in the following quote are his:

“To me cryptocurrencies are just that, currencies”, he said. “They do not replace the much broader set of attributes which gold has.

“There are a few fundamental and practical differences between the two.

"Gold has a long history dating back thousands of years. It is a physical store of value, easily divisible, and has practical uses in jewellery, electronics and medicines.

“Gold also has a lower price volatility than crypto.

“In fact, portfolios with cryptocurrencies may well benefit from higher allocations to gold!

"But in the end, when things get really uncertain in the world, we must all decide for ourselves what we want to be holding on to!!’’

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