On April 9th, Piedmont Lithium announced that North American Lithium (NAL) will ramp up production as planned. Recently, the project's process recovery rate has exceeded internal targets, and it set multiple daily production records in March 2024. The company also expects to complete critical investments to drive production optimization in the second quarter of 2024, which will significantly reduce operating costs.
NAL is jointly owned by Piedmont Lithium (25% equity) and Sayona Mining (75% equity). In March 2023, NAL successfully commenced mining operations. In early 2024, due to the lithium market downturn, Sayona Mining announced an operational review of NAL to optimize the cost structure, and Piedmont Lithium also subsequently laid off 27% of its workforce.
Piedmont's announcement this week is not surprising, as the executives had already communicated the company's strategic direction during the financial results conference call at the end of February. Nevertheless, Piedmont's expansion move against the market trend is particularly notable, compared to most of its peers in North America and Australia who have adjusted production expectations and reduced capital expenditures.
During the call, the executives revealed two supporting reasons for the capacity increase: first, the company is trying to transition to long-term off-take pricing, and second, it will reduce production costs through technological upgrades.
Firstly, Piedmont Lithium aims to mitigate lithium price volatility by changing the pricing mechanism. In 2023, a substantial portion of NAL's shipment volume was still contributed by the spot market. Currently, according to CEO Keith Phillips, Piedmont is having "constructive dialogues with existing and potential customers on pricing and potential floor price arrangements," indicating the company is shifting towards long-term agreements to achieve more predictable pricing and a more stable revenue stream.
The company will also reduce unit operating costs and improve NAL's production efficiency through a series of optimization activities, including completing the crushing storage dome, expanding the tailings storage facility, and other infrastructure. When asked about the specific cost reduction amount, referring to the actual average price of $920/ton and actual cost of $789/ton in fiscal year 2023, Chief Operating Officer Patrick Brindle stated, "We expect a reduction of $400-500 CAD (approximately $290-365 USD) per ton in cash costs."
Ultimately, in the current challenging market environment, the company stated that it still expects and to some extent needs to rely on rising lithium prices. A long-term evaluation is required to assess the timing and effectiveness of the production expansion at this juncture.
