North American Lithium will ramp up production, defying market’s gravity

On 9 April, Piedmont Lithium announced that production at North American Lithium (NAL) would ramp up as planned, with process recoveries exceeding targets and multiple daily production records achieved in March 2024. The company also expects the completion of key capital initiatives in Q2 2024 to reduce operating costs significantly.

NAL is jointly owned by Piedmont Lithium (25%) and Sayona Mining (75%). In March 2023, NAL successfully commenced operations. In early 2024, Sayona Mining announced an operational review on NAL to optimize its cost structure because of lithium market downturn, and Piedmont Lithium also conducted 27% labor cuts shortly after.

This week's announcement by Piedmont did not come as unexpected, as executives had already communicated the company's strategic directions during the earnings call in late February. Still, Piedmont's market-defying ramp-up moves stand out compared to most of its peers in North America and Australia, who have adjusted production guidance and lowered capital expenditure.

The executives have communicated two underlying drivers that support the ramping up: transition to long-term offtake pricing and production costs reduction through technical upgrades.

Piedmont Lithium aims to mitigate the volatility of lithium prices by changing pricing mechanism. In 2023, a significant portion of its shipments was still under spot contracts. And now according to Keith Phillips the CEO, Piedmont is having “constructive conversations about pricing, potential floor pricing arrangements” with existing and prospective customers, which suggests the company’s transitioning to long-term agreements for more predictable price realizations, and therefore a more stable revenue stream.

The company is also optimistic about reducing per unit operational cost and increasing production efficiency at NAL through optimisation activities including completing a crushed ore storage dome, an expanded tailing storage facility, and other infrastructure. “We could expect to see as much as C$400 [US$290] - C$500 [US$365] per ton cash cost [reduction] from where we were in the second half of last year,” said Patrick Brindle, Piedmont’s COO, when asked about the specific amount of cost improvements. As a reference, the company reports the average realized price of US$920 per metric tonne and the cost of US$789 per metric tonne in FY2023.

While ultimately, the company is expecting and would partly need to rely on potential improvements in lithium prices in this challenging environment. To see the true efficacy and whether now is the right timing to ramp up, a long-term evaluation is needed.

Author: Hongqiu Su | Battery Metals Analyst Associate | London Office, Shanghai Metals Market
Email: lilysu@smm.cn