Increased battery density to support hard rock lithium

Just a month separated two conference calls hosted by Australian lithium miner Pilbara Minerals, or PLS, one for the second quarter of its financial year at the end of January, and one for the first half in late February. But the attitude of its CEO Dale Henderson towards his firm’s hard rock lithium mining methods compared to brine extraction was notably different, suggesting increased confidence in customer demand for his product.

In January, he remained relatively defensive. “We have always taken the view that [on] the left-hand side of the cost curve sits the best assets, which is inclusive of the best brine assets and the best hard rock assets,” he told analysts. “Where we are heading with our asset and our processing capability, we are comfortable about directionally where that takes us.”

He acknowledged “the enthusiasm around some of the brines” but issued a cautionary note. “Major brine producers can attest to this: a bit like hard rock, producing low-cost brine is not easy,” he warned.

“I think the cost curve in that space — with some of these new brines — there is plenty to play out there in time would be my suggestion.”

Evolving battery demand

Come late February and Henderson was in a noticeably more bullish mood, buoyed in particular by what he sees as increasing commitment by battery producers like China’s BYD and Catl to bringing solid-state batteries to market in just a few years. “We are seeing some really great evidence of high-density batteries,” Henderson says.

“The good news there is that requires a hydroxide feedstock.” And, for that, “hard rocks, and specifically spodumene concentrate, is what our customers tell us [is] a preferred feedstock for hydroxide pathway”, the PLS chief adds.

“Why that is, is, firstly, high lithium content in terms of spodumene concentrate. And, secondly, it is a very clean source of lithium units, which therefore better enables the chemical processor to achieve those very strict standards required for hydroxide manufacturing,” Henderson says. “So, if the trend is to more higher-density… where the hydroxide demand increases, I think we are incredibly well placed.”

But he cautions that a material shift to high-density batteries is still not a given. “We watch with interest because there is a war amongst the battery chemistries at different price points, and there is a lot yet to play out.”

Benchmark pricing review

Any changes to the demand profile for Pilbara’s output may also signal a review in the pricing mechanisms that govern its long-term offtake agreements, which are currently “all weighted to spodumene PRAs at this moment in time”. “Importantly, I would stress that a key foundational principle across all of our offtakes is that the pricing mechanism will realise the underlying value for the spodumene concentrate,” Henderson says.

“If that means, to achieve that aim, we have to review and evolve those pricing mechanisms — potentially swinging back to chemical references or other references — that is contemplated. Historically that is what we have done as we have seen dislocations emerge between the different headline references,” he explains.

PLS is also hopeful of seeing imminent price recovery in the lithium market. But, while reports of certain recent transactions in the spot market give it cause for optimism — and it is prepared to call the bottom of the market — it is not yet predicting a rapid short-term rebound.

“It is obviously always really hard to understand the supply-demand, balance. We do think that that has tightened,” Henderson said at the end of January. “The lithium market has been rebalancing following the highs of calendar year ’20 and ’21.

“Following recent supply curtailments over the past year across the industry, we note that spodumene concentrate pricing has lifted off the lows of $750/t that we saw in October last year and now moving into a range between mid-$850s/t to low $900s/t.”

It was a similar narrative late last month. “Narrowing the focus to the recent market movements. I can confirm that we have seen price support around current levels,” the PLS chief says. “When we look backward, there has been an approximate 7pc improvement in spodumene pricing over the past three months.”

Longer-term, he expects prices to go up, but he is not calling when exactly. “Of course, we are a long way off the consensus long-run average expectations, which we believe will be fulfilled in time,” he says.

And there is a chance of a “rapid price rise”, to which PLS would respond by bringing back online the Ngungaju spodumene concentrate plant it placed into care and maintenance in December. But there is also a scenario of a “more muted” price recovery, where PLS would “probably continue with the current operating platform”.

Green shoots of price recovery

Two reports give Henderson cause for optimism of short-term price movement closer to the former shape than the latter. One is of Chilean miner SQM selling spot for $900/t.

While he stresses that he has “no particular insight” into the SQM deal, he pronounces himself unsurprised about the premium reportedly achieved on a spot basis. “It does obviously signal a potential tightening in the market,” Henderson posits.

The second is Catl bringing back online a shuttered Lepidolite mine. Again, the PLS chief stresses that, on the motivation, “we do not have the answer, only Catl does”.

And he highlights that economics can be different for an integrated battery maker compared to an upstream firm. “What we have seen with some of these integrated producers historically is a desire to run these operations and service other parts of their supply chain,” he cautions.

But he suggests that it is nonetheless “a positive sign overall”. “As pricing declined from 2022, it was a natural expectation that there would be curtailments, and we saw at least eight that we recognised during the course of last calendar year in terms of supply coming out of the system,” Henderson adds.

“Supply coming back on, I think, is an indicator of potentially a narrowing or a shortage of inventory and/or expectation of pricing rising. So, when this came out, I took this as a positive. And to me, I think it supports the thinking around potential price appreciation, but only time will tell,” he concludes.