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Boost for Pilbara Minerals as offtake agreement with Chinese Giants expands in scale

Pilbara Minerals
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Pilbara Minerals Ltd (ASX: PLS) has successfully garnered a significant expansion on one of its existing spodumene offtake agreements with Chinese major Chengxin Lithium Group, boosting Australia’s global mineral export scenario.

Pilbara Minerals Pilgangoora Operation 

Fig 1. Pilbara Minerals Pilgangoora Operation 

An Extension on the existing offtake agreement

Pilbara Minerals, which had an existing agreement with Chengxin to supply 70,000 tonnes of spodumene concentrate in the financial year 2023-24, has now been amended to provide an extra 60,000 tonnes for 2024.

The lift in the agreement doesn’t end there as it extends to the period of FY25 and FY26 as well, by the end of which Pilbara Minerals have agreed to supply a further 3,00,000 tonnes of spodumene concentrate. 

Interim relief on the stocks?

The deal announced earlier today is widely deemed a promising and ambitious prospect for the company and the Australian mineral export market, especially with the recent downturn in Lithium prices. Only last week was a high-level government meeting held between Federal Minister for Resources Madeleine King and primary nickel and lithium producers to chart a roadmap of the industry’s challenges. 

To start with, Pilbara Minerals has had dwindling share prices since August 2023 — a result of both decreased lithium prices and production. Observers even noted Pilbara Minerals as one of the most shorted stocks on the Australian share market. 

But the amendment news today has instantly turned the tables. A 5.2% hike followed it in Pilbara Minerals Ltd (ASX: PLS) share price, and at the time of writing this article, it is seen at $3.57.

Heightened partnership?

This extended offtake agreement till the end of 2026 is deemed as progressive in the increased tonnages of spodumene to be shipped and in terms of its pricing. The deal has been inked on the terms that the spodumene concentrate will be sold at the prevalent market price at the time of export, allowing Pilbara Minerals to gain high if Lithium prices rise again.

Apart from the rise in quantities, this deal further shows an increase in goodwill by Chengxin Lithium Group, a leading Lithium chemical producer, and that it values its collaboration with the Australian mining industry. A press release from officials of Chengxin Lithium, namely from its chair, Mr Zhou Yi, projects that the amended deal with Pilbara Minerals can help supply high-quality lithium materials at competitive costs to its global consumers.

Ganfeng Lithium expansion repeated?

This latest news is a second wave of positive turns for Pilbara Minerals, as it was only in mid-January that the company announced another of its existing spodumene offtake agreements with Ganfeng Lithium Group expanded. Ganfeng is one of the world’s leading Lithium-ion supply chain players. 

Expanding a 2017 agreement of supplying 160,000 tonnes per annum, Pilbara Minerals has now agreed upon an extra supply of 150,000 tonnes over CY24 and an increase of  1,00,000t in both CY25 and CY26.

This expanded demand further poses the question of Pilbara Mineral’s capacity to meet this increased demand with its existing production capacity. According to the production report of Pilbara Minerals in the December quarter of 2023, they could churn out a 22% increased production of spodumene concentrate from its Pilgangoora operation (100% ownership). 

Thus, compared with the 144,200 tonnes produced in the third quarter, a production increase to 176,000 tonnes was seen in the last quarter. According to the report, this hike in output is further projected to spike over FY24 as they take into account the ongoing construction of their P680 and P1000 projects.

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