Lithium: Developer PILBARA MINERALS LTD (PLS) PLS.asx Buy. Big (and getting bigger) lithium project

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1 Lithium: Developer Pilbara Minerals Ltd (PLS) PILBARA MINERALS LTD (PLS) Big (and getting bigger) lithium project Pilbara Minerals is developing the very large Pilgangoora spodumene (Lithium ore) deposit in northern WA. The Company has a reserve of 29.5Mt at 1.31% Li2O. The Company plans to begin construction later this year. We expect spodumene sales ~330ktpa, which in LCE equivalent terms is ~44ktpa (~22% of current demand). Based on consensus demand forecasts, the market is not large enough to take all supply of potential lithium mines. Hence it is important to be at an advanced stage, be technically robust, and have long mine life (for off-take agreements). PLS fits this profile well. If electric vehicle take-up is stronger than expected, demand could be far stronger than anticipated. The large orebody at Pilgangoora suggest PLS can quickly expand into such a growing market. Economics are compelling. DFS due in August. The PFS (completed by Como Engineering) estimates capex of A$184m for a 2Mtpa processing plant generating 330ktpa of chemical grade spodumene and 274klbpa of tantalite. The PFS estimates life-of-mine EBITDA of A$103m pa with higher profits in early years given the lower strip ratio. We use higher spodumene prices and expect life-of-mine EBITDA of ~$156m pa, despite assuming less tantalite than the PFS. The PFS assumes a 15 year mine life, but that should be increased (exploration target implies >70years). Tantalite a good credit, but not important to the economics The tantalite grade is only 128ppm, the Company assumes recoveries of 47%. We are more conservative and assume there are modest tantalite sales, partly because the mine is optimised for lithium, and hence tantalite sales could be volatile given the tantalite will not be evenly distributed with the lithium. Our estimates could be assumed to be a worst case result. Note, in the PFS, tantalite sales reduce operating costs by ~A$65/t (US$40/t) or ~A$22m (US$16m) pa. Given the strong selling prices for spodumene, the margins for PLS are significant even without the tantalite. We assume operating costs of ~$A360/t, in line with Company estimates excluding tantalite credits. Off-take agreements Historically the lithium market has been small, and concentrated amongst a few players. The additional supply that PLS is planning to bring to the market is significant (~44ktpa LCE) and will need to find customers. The Company has no offtake agreement, but has MOUs with 8 potential customers and aims have significant proportion signed around August. GAM has a first right of refusal for all spodumene and tantalum produced at Pilgangoora. The Company does not believe that the GAM right will be exercised and hence is limited risk. We only note the right for the outside chance it becomes an issue. Initiate with Buy PLS is a very exciting and large project. The recent shareprice retracement means it now trades at a large discount to our valuation. We assume a 20 year mine life, which is longer than the PFS, but lower than the inferred resource, and lower than implied by the Mt resource exploration target (upgrade due in July). We initiate with a Buy recommendation. On our estimates, which are more conservative on capex and tantalite sales, PLS trades on 4.6x year one EBITDA. Note, on spot prices (we assume US$750/t), our multiple estimate falls to 4.0x year one EBITDA. Share Price PLS.asx Buy Valuation $0.77 Price Target (12 month) $0.92 Brief Business Description: Very large spodumene development in WA Hartleys Brief Investment Conclusion Very large deposit that looks highly economic. Chairman & MD Tony Kiernan (Non-exec Chair.) Ken Brinsden (MD) Major Shareholders Company Address 130 Stirling Hwy, North Fremantle, WA, 6159 Issued Capital m - fully diluted Market Cap - fully diluted Cash (30 Jun 16e) Debt (30 Jun 16e) Hartleys Limited ABN (AFSL ) 141 Page St Georges 1 of 21 Terrace, Perth, Western Australia, 6000 Hartleys does and seeks to do business with companies covered in its research reports. As a result, investors should be aware that the firm may have a conflict of interest that could affect the objectivity of this report. Investors should consider this report as only a single factor in making their investment decision. Further information concerning Hartleys regulatory disclosures can be found on Hartleys website EV EV/Resource Spod. EV/Reserve Spod. A$100.0m A$0.0m Prelim. (A$m) FY19e FY20e FY21e Prod (Li Spod. eq) Op Cash Flw Norm NPAT CF/Share (cps) EPS (cps) P/E Mt Li2O Spod. Resources (Li2O) % 16.8 Reserve (Li2O) % Trent Barnett Head of Research Ph: Jun 2016 $ m A$706.1m A$765.4m A$606.1m A$36.1/t A$94.1/t A$ 0.50 M Jul-15 Pilbara Min Ltd Nov-15 Mar-16. Jun-16 E: trent_barnett@hartleys.com.au Hartleys has assisted in the completion of part of a capital raising in the past 12 months for Pilbara Mines Limited Volume - RHS Source: IRESS PLS Shareprice - LHS Sector (S&P/ASX SMALL RESOURCES) - LHS 5.

2 Pilbara Min Ltd Share Price 30 June 2016 PLS $0.615 Buy Key Market Information Directors Company Information Share Price $0.615 Tony Kiernan (Non-exec Chair.) 130 Stirling Hwy, Market Capitalisation - ordinary A$765m Ken Brinsden (MD) North Fremantle, WA, 6159 Net cash A$100m Neil Biddle (Non-exec) Ph Market Capitalisation - fully diluted A$765m Robert Adamson (Non-exec) Fax EV A$665m John Young (Non-exec., Technical) Issued Capital m Brian Lynn (CFO) #REF! Options 96.4 Top Shareholders Ordinary Ord Issued Capital (diluted for options) m m sh. % Issued Capital (diluted inc. options and new capital) m 12month price target $ Reserves & Resources Mt Li % Ta2O5 P&L Unit 30 Jun Jun Jun Jun Jun 21 4 Pilgangoora M+I % n/a Net Revenue A$m Pilgangoora Inf % n/a Total Costs A$m Pilgangoora Total % n/a EBITDA A$m margin - 63% 63% 58% 51% 8 Pilgangoora Reserve % 134 Depreciation/Amort A$m EBIT A$m Global Total % n/a Net Interest A$m Global Reserve % 134 Pre-Tax Profit A$m Production Summary Unit Jun 17 Jun 18 Jun 19 Jun 20 Jun 21 Tax Expense A$m Normalised NPAT A$m Processed Mill Throughput Mt Abnormal Items A$m Mined grade Li % 1.3% 1.3% 1.3% Reported Profit A$m Produced Spodumene - Technical Mt Minority A$m Produced Spodumene - Battery Mt Profit Attrib A$m Produced Tantalite Mlb pa Produced Spodumene - Battery Eq Mt Balance Sheet Unit 30 Jun Jun Jun Jun Jun 21 LCE equiv (0.135x Spod) ktpa Cash A$m Mine Life yr Other Current Assets A$m Assumed Mining Inventory Mt Total Current Assets A$m Assumed Mining Inventory - Li grade % 1.34% 1.34% 1.34% 1.34% Property, Plant & Equip. A$m Assumed Mining Inventory - Tant grade % 0.0% 0.0% 0.0% 0.0% Exploration A$m Capex Investments/other A$m Costs Unit Jun 17 Jun 18 Jun 19 Jun 20 Jun 21 Tot Non-Curr. Assets A$m Cost per milled tonne $A/t Total Assets A$m EBITDA / tonne milled ore $A/t Total cost per milled tonne Short Term Borrowings A$m Total Cash Costs $A/t Spod. Batt. eq Other A$m C1: Operating Cash Cost = (a) $A/t Spod. Batt. eq Total Curr. Liabilities A$m (a) + Royalty = (b) $A/t Spod. Batt. eq Long Term Borrowings A$m C2: (a) + depreciation & amortisation = (c) $A/t Spod. Batt. eq Other A$m (a) + actual cash for development = (d) $A/t Spod. Batt. eq Total Non-Curr. Liabil. A$m AISC: (c) + Royalty $A/t Spod. Batt. eq Total Liabilities A$m (d) + Royalty $A/t Spod. Batt. eq Net Assets A$m Price Assumptions Unit Jun 17 Jun 18 Jun 19 Jun 20 Jun 21 Net Debt A$m AUDUSD US$/A$ Spodumene - Chemical (ie Battery) US$/t Cashflow Unit 30 Jun Jun Jun Jun Jun 21 Tantalite US$/t Operating Cashflow A$m Income Tax Paid A$m Hedging Unit Jun 17 Jun 18 Jun 19 Jun 20 Jun 21 Interest & Other A$m none Operating Activities A$m Sensitivity Analysis Property, Plant & Equip. A$m Base Case Valuation FY21 NPAT Exploration and Devel. A$m Spot Prices 0.95 (24.4%) (61.0%) Other A$m Spot USD/AUD 0.74, Chemical Spod $750/t,Tant. $60/lb. Investment Activities A$m AUDUSD +/--10% 0.68 / 0.88 (-11.8% / 14.4%) 59.2 / 90.8 (-19.4% / 23.7%) Spodumene - Technical +/--10% 0.77 / 0.77 (0.0% / 0.0%) 73.4 / 73.4 (0.0% / 0.0%) Borrowings A$m Spodumene - Chemical +/--10% 0.86 / 0.67 (12.6% / -12.6%) 88.6 / 58.2 (20.7% / -20.7%) Equity or "tbc capital" A$m Tantalite +/--10% 0.77 / 0.76 (0.3% / -0.3%) 73.8 / 73.0 (0.6% / -0.6%) Dividends Paid A$m Production +/--10% 0.86 / 0.67 (12.4% / -12.4%) 88.3 / 58.5 (20.3% / -20.3%) Financing Activities A$m Operating Costs +/--10% 0.73 / 0.80 (-4.8% / 4.8%) 67.1 / 79.8 (-8.6% / 8.6%) Unpaid Capital Net Cashflow A$m Year Expires No. (m) $m Avg price % ord 30-Jun % Shares Unit 30 Jun Jun Jun Jun Jun Jun % Ordinary Shares - End m Jun % Ordinary Shares - W'ted m Jun % Diluted Shares - W'ted m Jun % TOTAL % Ratio Analysis Unit 30 Jun Jun Jun Jun Jun 21 Valuation $m $/shr Cashflow Per Share A$ cps % Pilgangoora (pre-tax NAV at disc. rate of 12%) Cashflow Multiple x Other Assets/Exploration Earnings Per Share A$ cps Forwards Price to Earnings Ratio x Corporate Overheads Dividends Per Share AUD Net Cash (Debt) Dividend Yield % 0.0% 0.0% 0.0% 0.0% 0.0% Net Debt / Net Debt + Equity% 25% 3% -43% -94% -144% Tax (NPV future liability) Interest Cover X na na Options & Other Equity Return on Equity % na 40% 30% 19% 12% Total Analyst: Trent Barnett "tbc capital" could be equity or debt. Our valuation is risk-adjusted for how this may be obtained. Sources: IRESS, Company Information, Hartleys Research 30 Jun 16 Page 2 of 21

3 Pilbara Minerals is focussed on developing the very large Pilgangoora spodumene project. BUSINESS OVERVIEW Pilbara Minerals is focussed on developing the very large Pilgangoora spodumene project located in northern WA. The Company also has a JV for the Tabba Tabba tantalum project, but this is far less meaningful. The Company is aggressively proceeding with the study work for Pilgangoora in order to enter the market quickly and then subsequently expand (economics permitting). Fig. 1: Pilgangoora located near Port Hedland Page 3 of 21

4 Pilbara's Pilgangorra is the biggest new hardrock lithium ore (spodumene) deposits in the world, with another update due in July. PILGANGOORA Pilbara's Pilgangorra is the biggest new hardrock lithium ore (spodumene) deposits in the world. The deposit contains an Indicated and Inferred Resource of 80.2 Mt grading 1.26% Li2O (spodumene). Within the total resource of 80.2 Mt, using a cut-off of 1% Li2O the resource is % Li2O. The Company is currently completing a resource update with an exploration target of % Li2O3 and ppm Ta2O3. The new resource is expected in July. The flow sheet assumes crushing, feed preparation, dense media separation, gravity separation, grinding, flotation, magnetic separation and dewatering. The project is well located in the Pilbara which means it has strong access to infrastructure (road & port) and suppliers (skilled labour, logistics, etc). The Company has shown that metallurgical work to date suggests ~270ktpa of chemical grade product (6% Li2O) and 50ktpa of Technical Grade Spodumene Concentrate (+6% Li2O) can be produced, however it is assumed (by the PFS and in our valuation) that all product is sold as chemical grade given the difficulty in placing technical grade into the market. Flotation test work to date suggests the spodumene product will be concentrate grading 5.7% Li2O (lithium oxide) and 0.37% Fe2O3 (iron oxide). Magnetic separation after flotation reduced the iron oxide content of the spodumene concentrate to 0.11% Fe2O3. This should be a desirable product, in our view. Fig. 2: Resource and Reserve resource update expected in July, DFS reserve August Page 4 of 21

5 Fig. 3: Pilgangoora cross section. Shows potential for large reserve upgrade. Fig. 4: Pilgangoora flow sheet Page 5 of 21

6 Fig. 5: Pilgangoora study and Hartleys assumptions PFS Hartleys (base) Difference Mining inventory 29.5Mt 40Mt 35.6% - grade Li2O 1.31% 1.34% 2.2% - grade Ta2O % Potential Mining inventory % - grade Li2O 1.29% 1.34% 3.8% - grade Ta2O % Mine Life (yrs) 15.0yrs 20.0yrs 33.3% Capex - Total A$184m A$205.8m 11.8% Mined Ore + Waste (mt pa) 9.0mt pa 9.5mt pa 5.6% Waste (mt pa) 7.0mt pa 7.5mt pa 7.2% Strip Ratio (x) 3.5x 3.8x 7.2% - first five years 2.9x 2.9x 1.0% Mill Feed (mt pa) 2.0mt pa 2.0mt pa 0.0% Total Spodumene Mined Total Tantalite Mined Spodumene Recoveries 76.7% 75.0% -2.2% Tantalite Recoveries 47.0% 15.0% -68.1% Spudumene Sold 330.0ktpa 334.7ktpa 1.4% - LCE (0.135x) 44.6ktpa 45.2ktpa 1.4% Tantalite Sold 274klb pa 86klb pa -68.6% Construction date Dec-16 Dec % Commisioning date Dec-17 Dec % Revenue (US$) - LOM US$2,257m US$4,266m 89.0% - tantalite US$245m US$103m -57.9% Costs (US$) - LOM -US$1,099m -US$1,857m 69.1% - / tonne -US$ 222 /t -US$ 277 /t 25.0% EBITDA (US$) - LOM US$1,159m US$2,409m 107.9% EBITDA - A$ pa A$103m pa A$156.5m pa 51.9% - first 5 years A$120m pa A$188.5m pa 57.1% EV/EBITDA (year 1) 7.1x 4.6x -34.7% EV/EBITDA (lom) 8.2x 5.6x -32.5% Life of mine avg selling price (Spodumene) US$ fob US$ 456 /t US$ 637 /t 39.7% Life of mine avg selling price (Tantalite) US$ fob US$ 60 /t US$ 60 /t 0.0% Life of mine avg C1 cash costs pre credit A$ 339 /t A$ 360 /t 6.1% Life of mine avg C1 cash costs after credit A$ 273 /t A$ 340 /t 24.4% - US$ after credit US$ 205 /t US$ 262 /t 28.0% Life of mine avg C2 cash costs pre credit A$ 364 /t A$ 387 /t 6.1% after credit A$ 293 /t A$ 365 /t 24.4% fx US$/A$ % Page 6 of 21

7 TABBA TABBA, WESTERN AUSTRALIA (50%) Tabba Tabba is a tantalum development project, with an inferred resource of 950ppm Ta2O5. The Tabba Tabba Tantalite project is being developed under a five year (due to expire in 2018) exclusive mining and off-take agreement with Global Advanced Metals (Wodgina) Pty Ltd (GAM). Construction was completed in November 2015 but commissioning was underwhelming, and the operation was placed into care and maintenance in January We assume no explicit value in our PLS valuation. Fig. 6: Tabba Tabba resource Fig. 7: Tabba Tabba construction 2015 WEST PILBARA, WESTERN AUSTRALIA (20%) The West Pilbara Mineral Tenements cover approximately 800 square kilometres and are considered to be prospective for base metals, platinum group elements and/or gold mineralisation associated with concealed greenstone sequences or layered mafic - ultramafic intrusions. The tenements have been farmed out to Fox Resources Ltd. We assume no explicit value in our PLS valuation. Page 7 of 21

8 PLS is exposed to the spodumene price. Consequently, PLS is exposed to the lithium carbonate price. INDUSTRY EXPOSURE PLS is exposed to the spodumene price. Consequently, PLS is exposed to the lithium carbonate price. Current demand for LCE is ~200ktpa, which is satisfied by current supply. However, demand is expected to grow significantly. Forecasts depend largely on the take up of lithium battery cars, for which industry is uncertain. However, most forecasts assume ~100ktpa of additional LCE is required by 2020 (50% increase). The world has enough resources to satisfy the demand, and hence there is a short window to get into production. Those mines likely to enter production will be those that can sign offtakes. Offtake partners normally want high quality product (low impurities), low sovereign risks, long mine life and robust projects (basically security of supply). Fig. 8: Lithium Carbonate outlook We estimate that if electric vehicle market share is around 11% by 2025 (currently ~1.5%) then global LCE demand will be ~400kt, which seems to be close to consensus estimates for demand. However, if market share increases faster (~extra 100bp pa), such that penetration is 17% by 2025 then global LCE demand could be 500kt by If demand truly accelerated, and penetration reach ~45% by 2025, then LCE demand would be 900kt. If penetration rates are slower, then the point at which demand reaches 500kt pa may be deferred, but ultimately the structural demand for LCE is still very strong. Some expectations are for 100% market share by 2030, which could mean substantially higher LCE demand, although if autonomous vehicles market share is also very high then it is possible that global new car sales begin to decline. Note, the PFS assumes that PLS will not be selling technical grade spodumene, which is used in the ceramics and glass industry (which is driven by global consumer growth). Technical grade spodumene sells for a higher price, but market growth is much lower. The Company believes it is a potential product stream, but we are far more cautious because it probably is more competitive to displace incumbents given the slower growth profile. Page 8 of 21

9 Fig. 9: Hartleys simple LCE demand forecasts 2016 demand Electric Vehicle market share 11% of new car sales in 2025 LCE demand in 2025 market share 17% in 2025 market share 24% in 2025 market share 31% in 2025 market share 47% in 2025 Source: Hartleys Fig. 10: Tesla Giga Factory Source: GEOGRAPHIC EXPOSURE The project is located in northern Western Australia. Page 9 of 21

10 PEERS AND COMPETITORS Fig. 11: Selection of ASX listed lithium miners, developers and explorers Company Ticker Last Quot. Mkt CStatus ASX Listed 1. Mineral Resources Limited MIN ,560 Producer (Spod.) 2. Orocobre Limited ORE Producer (Brine) 3. Pilbara Minerals Limited PLS Developer (Spod.) 4. Galaxy Resources Limited GXY Producer (Spod.) & Developer (Brine) 5. Neometals Ltd NMT Producer (Spod.) 6. General Mining Corporation Limited GMM Producer (Spod.) 7. Altura Mining Limited AJM Developer (Spod.) 8. Lithium Australia NL LIT Explorer (Spod.) 9. Poseidon Nickel Limited POS Explorer (Spod.) 10. European Metals Holdings Limited EMH Developer (Spod.) 11. Birimian Gold Limited BGS Explorer (Spod.) 12. Global Geoscience Limited GSC Explorer (Clay / dried brine) 13. Kidman Resources Limited KDR Explorer (Spod.) 14. Crusader Resources Limited CAS Explorer (Spod.) 15. Pioneer Resources Limited PIO Explorer (Spod.) 16. Dakota Minerals Limited DKO Explorer (Spod.) 17. Platypus Minerals Ltd PLP Explorer (Spod.) 18. Metalicity Limited MCT Explorer (Spod.) 19. Prospect Resources Limited PSC Explorer (Spod.) 20. Ardiden Ltd ADV Explorer (Spod.) 21. Zenith Minerals Limited ZNC Explorer (Spod.) 22. Argosy Minerals Limited AGY Explorer (Spod.) 23. Sayona Mining Limited SYA Explorer (Spod.) 24. Hannans Ltd HNR Explorer (Spod.) 25. Plymouth Minerals Limited PLH Explorer / Developer (Muscovite) 26. Kairos Minerals Limited KAI Explorer (Spod.) 27. Liontown Resources Limited LTR Explorer (Spod.) 28. Peninsula Mines Limited PSM Explorer (Spod.) 29. Walkabout Resources Ltd WKT Explorer (Spod.) 30. Exterra Resources Limited EXC Explorer (Spod.) 31. Cazaly Resources Limited CAZ Explorer (Spod.) 32. Venture Minerals Limited VMS Explorer (Spod.) 33. Marindi Metals Limited MZN Explorer (Spod.) 34. Venus Metals Corporation Limited VMC Explorer (Spod.) 35. Argonaut Resources NL ARE Explorer (Brine) 36. Silver City Minerals Limited SCI Explorer (Spod.) 37. Core Exploration Limited CXO Explorer (Spod.) 38. Paynes Find Gold Limited PNE Developer (Spod.) 39. Kingston Resources Limited KSN Explorer (Spod.) 40. Cullen Resources Limited CUL Explorer (Spod.) 41. Maximus Resources Limited MXR Explorer (Spod.) 42. Traka Resources Limited TKL Explorer (Spod.) 43. Mithril Resources Limited MTH Explorer (Spod.) 44. Quantum Resources Limited QUR Explorer (Spod.) *Market cap is quoted ordinary shares from IRESS. It does not dilute for options, escrow shares, performance shares, convertible notes, recent placements etc. These can be meaningful adjustments that should be taken into account. Source: Hartleys, IRESS Page 10 of 21

11 Como Engineers have completed the PFS and are performing the DFS. KEY SUPPLIERS & CUSTOMERS Como Engineers have completed the PFS and are performing the DFS. The Company expects to export products to customers using Qube at Port Hedland. The Company expects to use contract mining and power supply. There is currently no offtake arrangement for the spodumene or tantalite but GAM have first right of refusal for both products. Securing an offtake is important, and could be complicated to negotiate given GAM s first right, although the Company believes it is unlikely, especially as customer offtakes could also include partnerships and hence could be difficult to match. If GAM does not exercise its right, then it receives a 2.5% NSR instead. Our NPV12 of the royalty to GAM is >A$40m. We note that MIN.asx recently purchased the GAM Wodgina assets (excluding Tantalum rights). We are unaware if the sale included the GAM royalty over PLS s project. Fig. 12: DFS consultants The Company recently announced that it has Eight product off-take MOU s signed with leading chemical and technical grade customers for 100% of forecast production. The Company expects to announce significant agreements around August. Fig. 13: Customers Page 11 of 21

12 Economic Exposure of Board and key management Directors MANAGEMENT, DIRECTORS AND MAJOR SHAREHOLDER Total Total Options Shares Economic # Exposure Position millions rank Tony Kiernan Non-Exec Chairman n/a n/a Ken Brinsden MD 15,000, ,565 15,869,565 3 Neil Biddle Non-Exec Director 8,000,000 39,271,930 47,271,930 1 Robert Adamson Non-Exec Director 4,000,000 3,937,851 7,937,851 4 John Young Technical (exploration) director 10,000,000 16,158,316 26,158,316 2 Director and management biographies are copied from the Company Tony Keirnan, Non-Executive Chairman Mr Kiernan is a highly experienced public company director and former solicitor well credentialed in the mining sector. He is currently Chairman of ASX-listed resource companies BC Iron (ASX: BCI), Chalice Gold Mines (ASX: CHN) and Venturex Resources (ASX: VXR) and a non-executive director of Danakali Limited (ASX: DNK). BC Iron of which Mr. Kiernan was founding Chairman, went from a market capitilisation on listing of $12.5m to over $700m and paying out over $100m in fully franked dividends over a 3 year period. Chalice Gold Mines successfully developed then sold a high grade gold project in Eritrea and Danakali recently completed a positive feasibility study on its large potassium sulphate project in Eritrea. Ken Brinsden, MD Mr Brinsden is a Mining Engineer with over 20 years experience in surface and underground mining operations, including roles in mine management, production, brown-fields and green-fields development roles, across multi-commodities. Most recently Mr Brinsden was Managing Director at Atlas Iron, contributing to the substantial growth of the Company from a junior explorer, to a significant Pilbara iron ore producer. Mr Brinsden joined Pilbara Minerals as CEO from January Neil Biddle, Executive Director, BAppSc (Geology), M AusIMM Mr Biddle is a geologist and Corporate Member of the Australasian Institute of Mining and Metallurgy. He has over 30 years professional and management experience in the exploration and mining industry and since 1987 has served on the Board of several ASX listed companies. Mr Biddle was Managing Director of TNG Ltd from , Border Gold NL from and Consolidated Victorian Mines Robert Adamson, Non-Executive Director & Consultant Geologist, BSc, MSc (Hons), MAusIMM, MMICA Mr Adamson has most recently served as the Company's consultant geologist and has been managing the exploration program for the Company's tenements in the West Pilbara, WA. Robert (Bob) Adamson's professional career spans some 43 years, (1966-present), The first 25 of which he was employed in a range of technical and managerial positions with international mining houses, and in managerial and board positions with several publically-listed exploration and mining companies. Bob has been operating as an independent mineral industry consultant since Page 12 of 21

13 Mr John Young, Technical Director, B.AppSc Geology; MAus.IMM Mr Young is a highly experienced geologist having been engaged on exploration and production projects encompassing gold, uranium and specialty metals. From 2002 to 2006 Mr Young was Exploration Manager for Haddington Resources Limited and was responsible for resource exploration and resource definition for their Bald Hill Tantalum mine. His corporate experience has included appointments as CEO of Marenica Energy Limited and CEO and director of Thor Mining PLC. Mr Young has been the Company s Exploration Manager since June 2014 and a Director since September MAJOR SHAREHOLDERS There are no substantial shareholders. OPTIONS, CONVERTIBLES AND UNPAID CAPITAL The main holders of the options are management and the Board. Fig. 14: Options Expiry Strike Number Unpaid Capital ($m) Mar-17 $0.03 4,166, Dec-16 $0.05 1,250, Mar-17 $0.05 4,937, Mar-17 $ ,000, Dec-17 $0.15 3,268, May-18 $ ,500, May-17 $0.65 7,000, May-18 $ , May-19 $ ,500, Total 103,422,346 $35.0m Page 13 of 21

14 FINANCIALS PRODUCTION / PROFIT & LOSS The Company is targeting construction from December 2016 and commissioning December Company guidance The Company is targeting construction from December 2016 and commissioning December Hartleys Forecasts We assume first production in early CY18. Fig. 15: Production and Profit and Loss P&L Unit 30 Jun Jun Jun Jun Jun 21 Net Revenue A$m Total Costs A$m EBITDA A$m margin - 63% 63% 58% 51% Depreciation/Amort A$m EBIT A$m Net Interest A$m Pre-Tax Profit A$m Tax Expense A$m Normalised NPAT A$m Abnormal Items A$m Reported Profit A$m Minority A$m Profit Attrib A$m Source: Hartleys Research Estimates BALANCE SHEET Fig. 16: Balance Sheet Balance Sheet Unit 30 Jun Jun Jun Jun Jun 21 Cash A$m Other Current Assets A$m Total Current Assets A$m Property, Plant & Equip. A$m Exploration A$m Investments/other A$m Tot Non-Curr. Assets A$m Total Assets A$m Short Term Borrowings A$m Other A$m Total Curr. Liabilities A$m Long Term Borrowings A$m Other A$m Total Non-Curr. Liabil. A$m Total Liabilities A$m Net Assets A$m Net Debt A$m Source: Hartleys Research Estimates Page 14 of 21

15 Gearing ratios We assume ~A$100m of debt or prepayments to finance construction. Fig. 17: Gearing Ratios Ratio Analysis Unit 30 Jun Jun Jun Jun Jun 21 Cashflow Per Share A$ cps Cashflow Multiple x Earnings Per Share A$ cps Price to Earnings Ratio x Dividends Per Share AUD Dividend Yield % 0.0% 0.0% 0.0% 0.0% 0.0% Net Debt / Net Debt + Equity% 25% 3% -43% -94% -144% Interest Cover X na na Return on Equity % na 40% 30% 19% 12% Source: Hartleys Research Estimates Fixed Assets PLS currently has minimal fixed assets. Debt We assume ~A$100m of debt or pre-payments to finance construction. Hedging Currently there is no hedging. However, the Company intends to write offtake agreements with cap and collar price clauses. CASH FLOW Fig. 18: Cash Flow Statement Cashflow Unit 30 Jun Jun Jun Jun Jun 21 Operating Cashflow A$m Income Tax Paid A$m Interest & Other A$m Operating Activities A$m Property, Plant & Equip. A$m Exploration and Devel. A$m Other A$m Investment Activities A$m The PFS estimates capex of A$184m. We assume slightly higher. Borrowings A$m Equity or "tbc capital" A$m Dividends Paid A$m Financing Activities A$m Net Cashflow A$m Source: Hartleys Research Estimates Capex requirements The PFS estimates capex of A$184m. We assume slightly higher. Free cash flow PLS should generate substantial free cash flow once in production. Dividends We do not expect the Company to pay dividends in the foreseeable future. Page 15 of 21

16 EQUITY ISSUANCE We assume no more equity dilution to fund construction. We assume no more equity dilution to fund construction. SENSITIVITIES FX exposure PLS costs are based in AUD while selling prices are denominated in USD. Interest Rate exposure We assume some debt financing to fund construction. sensitivity to interest rates is small. However, our valuation Commodity price exposure PLS is exposed the spodumene prices, which in turn can be driven by lithium carbonate and lithium hydroxide prices. Fig. 19: Valuation sensitivity to selling prices Spodumene Price Base Case EBITDA pa LOM per tonne PLS Val. New Shares A$m pa US$m pa EV/EBITDA AUD* USD (A$/shr) (m) $ $ 32 $ x $ $ 52 $ x $ $ 73 $ x $ $ 94 $ x $ $ 115 $ x $ $ 135 $ x $ $ 156 $ x $ $ 177 $ x $ $ 198 $ x $ $ 219 $ x $ $ 239 $ x $ $ 260 $ x $ $ 281 $ x $ $ 302 $ x $ $ 323 $ x AUD/USD* 0.74 Source: Hartleys Research Estimates Page 16 of 21

17 VALUATION CONSIDERATIONS AND PRICE TARGET METHODOLOGY VALUATION Fig. 20: Pilgangoora study and Hartleys assumptions PFS Hartleys (base) Difference Hartleys (spot) Hartleys (spot versus base) Mining inventory 29.5Mt 40Mt 35.6% 40Mt - grade Li2O 1.31% 1.34% 2.2% 1.34% - grade Ta2O % 130 Potential Mining inventory % 40 - grade Li2O 1.29% 1.34% 3.8% 1.34% - grade Ta2O % 130 Mine Life (yrs) 15.0yrs 20.0yrs 33.3% 20.0yrs Capex - Total A$184m A$205.8m 11.8% A$205.8m Mined Ore + Waste (mt pa) 9.0mt pa 9.5mt pa 5.6% 9.5mt pa Waste (mt pa) 7.0mt pa 7.5mt pa 7.2% 7.5mt pa Strip Ratio (x) 3.5x 3.8x 7.2% 3.8x - first five years 2.9x 2.9x 1.0% 2.9x Mill Feed (mt pa) 2.0mt pa 2.0mt pa 0.0% 2.0mt pa Total Spodumene Mined Total Tantalite Mined Spodumene Recoveries 76.7% 75.0% -2.2% 75.0% Tantalite Recoveries 47.0% 15.0% -68.1% 15.0% Spudumene Sold 330.0ktpa 334.7ktpa 1.4% 334.7ktpa - LCE (0.135x) 44.6ktpa 45.2ktpa 1.4% 45.2ktpa Tantalite Sold 274klb pa 86klb pa -68.6% 86klb pa Construction date Dec-16 Dec % Dec-16 Commisioning date Dec-17 Dec % Dec-17 Revenue (US$) - LOM US$2,257m US$4,266m 89.0% US$5,124m 20.1% - tantalite US$245m US$103m -57.9% US$103m Costs (US$) - LOM -US$1,099m -US$1,857m 69.1% -US$1,868m 0.6% - / tonne -US$ 222 /t -US$ 277 /t 25.0% -US$ 279 /t 0.6% EBITDA (US$) - LOM US$1,159m US$2,409m 107.9% US$3,256m 35.2% EBITDA - A$ pa A$103m pa A$156.5m pa 51.9% A$218.6m pa 39.7% - first 5 years A$120m pa A$188.5m pa 57.1% A$219.8m pa 16.6% EV/EBITDA (year 1) 7.1x 4.6x -34.7% 4.0x -14.3% EV/EBITDA (lom) 8.2x 5.6x -32.5% 4.0x -28.4% Life of mine avg selling price (Spodumene) US$ fob US$ 456 /t US$ 637 /t 39.7% US$ 765 /t 20.1% Life of mine avg selling price (Tantalite) US$ fob US$ 60 /t US$ 60 /t 0.0% US$ 60 /t 0.0% Life of mine avg C1 cash costs pre credit A$ 339 /t A$ 360 /t 6.1% A$ 375 /t 4.2% Life of mine avg C1 cash costs after credit A$ 273 /t A$ 340 /t 24.4% A$ 354 /t 4.2% - US$ after credit US$ 205 /t US$ 262 /t 28.0% US$ 264 /t 0.6% Life of mine avg C2 cash costs pre credit A$ 364 /t A$ 387 /t 6.1% A$ 403 /t 4.2% after credit A$ 293 /t A$ 365 /t 24.4% A$ 381 /t 4.2% fx US$/A$ % % Page 17 of 21

18 Fig. 21: Assumption Key Assumptions and Risks for valuation Risk of not realising assumption Downside risk to valuation if assumption is incorrect Comment ~20 year mine life Low Meaningful upside This appears reasonable based on current resources 2mtpa processing Upside/downside Moderate We assume throughput in line with the PFS. The Company may look to expand should the market allow. Capex slightly higher than PFS Low Upside / downside We assume capex slightly higher than the PFS Debt/equity funding Low Upside / downside We assume the project is mostly equity funded. More debt funding would improve our valuation Tantalite recoveries lower than PFS estimate No value for Tabba Tabba or other projects No value for downstream opportunities Low Upside We assume low recoveries in order to be conservative Low Upside We assume no explicit value outside of the lithium project. Low Upside We assume no explicit value for potential downstream opportunities. Exploration value Moderate Low We assume modest exploration value. Conclusion Source: Hartleys Spodumene selling prices are the most significant risk, and adjacent to this is signing the offtakes for product. Commissioning and financing are also risks to our valuation. PRICE TARGET Our price target is based on a risk weighted scenario of various potential valuation outcomes. Price Target Methodology Weighting Spot 12 mth out NPV base case, assuming significant equity dilution 44% $0.77 $0.84 NPV at spot commodity and fx prices 40% $0.95 $1.03 NPV base case with tantalite 15% $0.85 $0.93 Net cash 1% $0.09 $0.09 Risk weighted composite $ Months Price Target $0.92 Shareprice - Last $ mth total return (% to 12mth target + dividend) 50% Source: Hartleys Estimate Page 18 of 21

19 RECOMMENDATION & RISKS We initiate with a Buy recommendation. INVESTMENT THESIS & RECOMMENDATION We initiate with a Buy recommendation. On Company estimates, PLS is trading on EV (diluted for capex) of 7.1x (year 1) and 8.2x LOM. On our estimates, which are more conservative on capex and tantalite sales but more aggressive on spodumene prices, PLS trades on 4.6x year one EBITDA. Note, on spot prices, our multiple estimate falls to 4.0x year one EBITDA, showing the significant leverage for spodumene bulls. RISKS The largest risk for PLS is financing the construction. Adjacent to this risk, is the ability for the Company to sign offtakes for the product to provide certainty for financers. Additionally, the prices for spodumene are a risk. Other risks for are similar to most developers: the outcomes of more detailed studies, management key-man risk, relevant government approvals, political risk, commodity prices, commissioning success and the asset performance versus nameplate design. SIMPLE S.W.O.T. TABLE Strengths Weaknesses Opportunities Threats Source: Hartleys Research Strong cash balance Large deposit and long mine life Good lithium grades Low capex Speed to first production Potential to expand Located in Western Australia Low tantalite grade First right of refusal with GAM Offtakes still to be signed Mine life extensions Technical grade lithium sales Expansion into downstream Metallurgical recoveries Selling prices Page 19 of 21

20 EV/EBITDA BANDS Fig. 22: Using Hartleys base case commodity forecasts Shareprice PLS Actual Hartleys Target 8x EV/EBITDA 6x EV/EBITDA 4x EV/EBITDA 2x EV/EBITDA 1x EV/EBITDA Source: Hartleys Estimates, IRESS Fig. 23: Using spot commodity prices Shareprice PLS Actual 8x EV/EBITDA 6x EV/EBITDA 4x EV/EBITDA 2x EV/EBITDA 1x EV/EBITDA Source: Hartleys Estimates Page 20 of 21

21 HARTLEYS CORPORATE DIRECTORY Research Trent Barnett Head of Research Mike Millikan Resources Analyst Scott Williamson Resources Analyst Simon Andrew Energy Analyst Janine Bell Research Assistant Corporate Finance Dale Bryan Director & Head of Corp Fin. Richard Simpson Director Paul Fryer Director Ben Wale Associate Director Ben Crossing Associate Director Stephen Kite Associate Director Scott Weir Associate Director Rhys Simpson Manager Registered Office Level 6, 141 St Georges TcePostal Address: PerthWA 6000 GPO Box 2777 Australia Perth WA 6001 PH: FX: info@hartleys.com.au Note: personal addresses of company employees are structured in the following manner:firstname_lastname@hartleys.com.au Hartleys Recommendation Categories Buy Accumulate Neutral Reduce / Take profits Sell No Rating Speculative Buy Share price appreciation anticipated. Share price appreciation anticipated but the risk/reward is not as attractive as a Buy. Alternatively, for the share price to rise it may be contingent on the outcome of an uncertain or distant event. Analyst will often indicate a price level at which it may become a Buy. Take no action. Upside & downside risk/reward is evenly balanced. It is anticipated to be unlikely that there will be gains over the investment time horizon but there is a possibility of some price weakness over that period. Significant price depreciation anticipated. No recommendation. Share price could be volatile. While it is anticipated that, on a risk/reward basis, an investment is attractive, there is at least one identifiable risk that has a meaningful possibility of occurring, which, if it did occur, could lead to significant share price reduction. Consequently, the investment is considered high risk. Institutional Sales Carrick Ryan Justin Stewart Simon van den Berg Chris Chong Digby Gilmour Veronika Tkacova Wealth Management Nicola Bond Bradley Booth Adrian Brant Nathan Bray Sven Burrell Simon Casey Tony Chien Tim Cottee David Cross Nicholas Draper John Featherby Ben Fleay James Gatti John Goodlad Andrew Gribble David Hainsworth Neil Inglis Murray Jacob Gavin Lehmann Shane Lehmann Steven Loxley Andrew Macnaughtan Scott Metcalf David Michael Jamie Moullin Chris Munro Michael Munro Ian Parker Charlie Ransom (CEO) Conlie Salvemini Mark Sandford David Smyth Greg Soudure Sonya Soudure Dirk Vanderstruyf Samuel Williams Jayme Walsh Disclaimer/Disclosure The author of this publication, Hartleys Limited ABN ( Hartleys ), its Directors and their Associates from time to time may hold shares in the security/securities mentioned in this Research document and therefore may benefit from any increase in the price of those securities. Hartleys and its Advisers may earn brokerage, fees, commissions, other benefits or advantages as a result of a transaction arising from any advice mentioned in publications to clients. Hartleys has assisted in the completion of part of a capital raising in the past 12 months for Pilbara Mines Limited. Any financial product advice contained in this document is unsolicited general information only. Do not act on this advice without first consulting your investment adviser to determine whether the advice is appropriate for your investment objectives, financial situation and particular needs. Hartleys believes that any information or advice (including any financial product advice) contained in this document is accurate when issued. Hartleys however, does not warrant its accuracy or reliability. Hartleys, its officers, agents and employees exclude all liability whatsoever, in negligence or otherwise, for any loss or damage relating to this document to the full extent permitted by law. Page 21 of 21