The Pilbara Minerals Ltd (ASX: PLS) share price has dropped after announcing an agreement for a potential lithium downstream facility.
Pilbara Minerals is an ASX lithium share. It’s a miner with a goal of becoming more involved in the lithium supply chain.
Binding agreement signed
The ASX lithium share has signed a binding term sheet with a business from within Ganfeng Lithium Group. They are going to do a joint feasibility study for a potential downstream conversion facility to produce lithium chemicals. Ganfeng is one of the world’s leading lithium chemical converters.
This feasibility study will also assess the production of a potential intermediate lithium chemicals product in Australia to reduce transportation volumes and carbon footprint.
The study will look at the location, financial incentives, flowsheet, sustainability and economics. It is expected to be completed in the March 2025 quarter, with an option to progress to a final investment decision (FID) and formation of joint venture after that.
The agreement is based on a range of principles that the two businesses intend to follow through on if the joint venture happens, including 50:50 ownership and an offtake of 300kt per annum of spodumene concentrate (raw lithium) supplied by the ASX lithium share.
Costs are limited to the feasibility study and no capital investment is expected on the joint venture until FY26, and then only if the final investment decision is approved.
Why does Pilbara Minerals want to do this?
The business wants to be involved in the downstream because it has the potential to extract a greater proportion of value across the battery materials supply chain.
It can also benefit from the substantial increase in public and private investment planned to develop geographically diversified battery chemicals processing capability.
This move could further strengthen a customer relationship, while supporting Pilbara Minerals’ “core upstream business through a concomitant offtake agreement”.
Final thoughts on the Pilbara Minerals share price
The company is doing the right things to capture more of the profit margin in the lithium system. While it’s not confirmed it will go ahead, it’s a promising step that the two businesses are going to work together on this.
Pilbara Minerals’ success will be heavily influenced by what happens with the lithium price. Time will tell whether lithium prices can rise substantially from here.
