Pilbara Minerals, Liontown Resources and Sayona Mining pull trigger on $950m worth of planned projects
Australian gold companies are putting off expansion projects amid rising construction costs, but bullish lithium miners are looking to defy the risk of project blowouts.
The dramatic cost inflation hitting the mining sector has not dimmed the hopes of Australian lithium majors, with three key projects worth almost $1bn given the green light despite a wave of project deferments and cancellations elsewhere in the industry.
In a clear sign the scramble for secure supplies of critical minerals has not been slowed by the turmoil in global commodities markets, Pilbara Minerals, Liontown Resources and Sayona Mining all pulled the trigger on $950m worth of planned projects on Wednesday.
Collectively, they will add about 726,000 tonnes of lithium concentrate to global markets over the next few years.
The decisions come despite a wave of project deferrals this month in the Australian gold sector, led by St Barbara and Evolution Mining – who both cited rapidly escalating costs for pushing back plans to expand their respective operations in Papua New Guinea and Western Australia.
Pilbara Minerals on Wednesday said it had given the go-ahead to a $297.5m expansion of its processing facilities at the Pilgangoora mine in the Pilbara, aimed at lifting the mine’s nameplate capacity to about 680,000 tonnes of concentrate a year, a 100,000 tonne boost on its current capacity.
Sayona and 25 per cent partner Piedmont Lithium pulled the trigger on the restart on their jointly-owned lithium mine in Quebec, which will add another 226,000 tonnes of lithium concentrate to the North American market by early 2023, at a cost of about $C98m ($110m).
And the board of Liontown Resources ticked on the development of its 500,000 tonne year Kathleen Valley lithium mine after signing a debt-funding deal with Ford as part of an offtake deal to lock in lithium supply to the automotive giant.
The Ford deal, which comes with a discounted $300m debt facility from the car-making giant, locks in about 90 per cent of Liontown’s output, with the company already having signed supply deals with Tesla and LG Energy Solutions.
But despite the fact that lithium’s buoyant outlook has not slowed the wave of new projects seeking to enter the market, the sector faces the same cost escalation risks as the rest of the sector.
Liontown hiked the estimated costs of building Kathleen Valley by $72m, or 15 per cent, on Wednesday, citing scope changes to its processing facility and “general cost escalation” as the reasons for the lift.
Liontown raised $463m in December to fund its equity share of the construction, with the Ford debt deal – which carries a headline rate of the bank bill swap rate plus 1.5 per cent – closing out its funding requirements.
Pilbara Minerals also appears to have been hit by significant cost escalation at Pilgangoora. When the company first announced plans for the second stage of the mine in January 2019 – before the market meltdown later that year that up-ended the Australian lithium sector – the company tipped capital costs of $231m for a mill and mine expansion that would lift the Pilgangoora’s output to 850,000 tonnes of lithium concentrate a year.
Rising costs have also hit its ongoing operations, the company said, with June quarter unit costs likely to hit $650-$680 a tonne for the period – well above the $490-$530 a tonne guidance released in April.
Australian-listed miners are far from alone in pushing hard to meet rising demand lithium, however.
This week global lithium major Albemarle said on Monday it plans to build a US lithium hydroxide plant capable of producing 100,000 tonnes of refined chemicals for the battery market by the end of the decade, based on the lithium hydroxide plant it owns – with ASX-listed Mineral Resources – in WA.
Pilbara Minerals says it expects its additional capacity to enter the market in early 2024. Sayona says its expects first production from Quebec in 2023, with Liontown’s Kathleen Valley due to begin shipping concentrate by mid-2024.
All three are also banking that recent bearish predictions of a lithium downturn published by Goldman Sachs and Credit Suisse analysts are wrong.
A Goldman note tipping the end of the lithium boom sent ASX-listed lithium stocks tumbling late last month.
Goldman metals analysts Nicholas Snowdon and Aditi Rai said they current lithium chemical prices – then around $US54,000 a tonne – to plunge to levels closer to $US16,000 a tonne in 2023, as Chinese raw materials output ramped up, and planned Australian concentrate projects entered the market, causing a oversupply similar to that which hit lithium producers in late 2019.
Other industry analysts have since pushed back on the bearish predictions, however, with Benchmark Mineral Intelligence since arguing the market is likely to remains in “structural shortage” until 2025.
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