The Pilbara Minerals Ltd (ASX: PLS) share price is down more than 3% after the ASX lithium share revealed it’s possible its production could rise to 2mt per annum.
Pilbara Minerals pre-feasibility study
The study showed that production capacity at the company’s 100%-owned Pilgangoora project could be expanded to more than 2 million tonnes per annum.
If that occurred, the company would expect the first ten years of annual production to average around 1.9mt per annum, with production of more than 2mt per annum over the first six years after ramp-up. The expansion project will be called the P2000 project.
The company’s existing Pilgangoora ore reserves “solely underpin” the P2000 production profile, with a revised life of mine of 23 years.
What are the benefits of a bigger project?
Pilbara Minerals said this would expand its position as the largest pure play lithium producer globally.
A new ore flotation plant would be required at a cost of around $1.2 billion, and this would “complement existing processing flowsheets used at the Pilgangoora operation.”
The expansion will “create significant shareholder value”, according to the company, with a P2000 incremental net present value (NPV) of $2.6 billion and an incremental internal rate of rate (IRR) of 55%.
This would deliver “significant additional spodumene concentrate annual production capacity for offtake and strategic partnership opportunities.”
The timing of project expansion is still subject to the successful outcome of the next level of the feasibility study, the project approvals and the market outlook at the time of the financial investment decision (FID).
The feasibility study for P2000 has started, with an outcome expected in the December quarter of the 2025 calendar year.
Pilbara Minerals will consider all available funding options, including the company’s cash balance ($1.8 billion at 31 March 2024), cashflows from existing production, new loan facilities or other sources.
Final thoughts on the Pilbara Minerals share price
The ASX lithium share is doing what it thinks can to grow value for shareholders. More production makes sense if strong lithium demand is there. At the moment, I wouldn’t say the lithium market is calling out for a huge amount of more production. The lithium price is not where it was in 2022.
If lithium is to stay as the main battery commodity, I don’t think the company needs to rush to mine too much of its limited resource out of Pilgangoora at a cheaper price.
There are other ASX growth shares I’d rather focus on which don’t face the same supply-demand challenges that lithium is facing right now.
