Has Pilbara Minerals finally turned the long lithium corner?
Pilbara Minerals shares are rallying on a better-than-expected quarterly production and activities report, we investigate why.
It’s been a tough 18 months for the ASX’s major pure-play lithium producer, Pilbara Minerals (ASX: PLS). Over this time, like lithium prices, its share price has slid, and slid – from around $5.50 a share in August 2023, to close to $2 at December’s lows, and now back to around $2.40.
Over most of this time and until very recently, it was the ASX’s most shorted stock – i.e., voted by the big fund managers as “Most Likely to Fail”. That dubious honour has since passed to uranium producer Boss Energy (ASX: BOE), and perhaps this is a sign the big fund managers are seeing a potential turning of the corner in Pilbara’s fortunes.
Today’s release of the company’s December quarter production and activities report appears to gel with this assumption. It wasn’t a shoot-the-lights-out affair – production was lower for the second consecutive quarter, costs rose modestly, and Pilbara’s much-vaunted cash pile shrunk – but there were several aspects of the release that beat market expectations. Perhaps it’s a case of the corner is just a very long one…Let’s dive in!
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Quarterly results at a glance
Production, Sales, Costs, Cash
- Spodumene production: 188.2Kt, -14.5% q/q (vs 182.3kt consensus = 3.2% Beat ✅)
- Spodumene sales: 204.1Kt, -4.8% q/q (vs 184.1kt consensus = 10.9% Beat ✅)
- Average realised selling price: US$700/t CIF China, +3.2% q/q (vs US$658 = 6.4% Beat ✅)
- Unit operating cost (FOB Port Hedland): A$621/t, +2.5% q/q (vs A$606 = 2.5% Miss ❌)
- Cash balance: A$1.2 billion, -$182 million q/q (vs A$1.38 billion = 13% Miss ❌)
Guidance (no change)
- FY25 Production guidance 700-740kt (RBC is forecasting 739kt)
- FY25 Cost guidance (FOB) A$620-640/t (RBC is forecasting $640/t)
- FY25 Capex of A$565-610m (RBC is forecasting $595m)
Quarterly results commentary
In a “quick take” research note on the results, RBC Capital declared it an “overall strong” on higher-than-expected run-rate with respect to ore processing. The broker viewed tweaks to two of the company’s offtake agreements – to better align with market pricing – as a “positive”.
If there was one criticism, it was over Pilbara’s cash flow for the quarter. RBC noted these were “marginally weaker” than expected due to provisional pricing adjustments* and $62 million more than expected spent on capital expenditures (CAPEX) during the quarter.
One other sticking point, suggests RBC, could be the requirement for further funding for the POSCO lithium hydroxide processing joint venture in South Korea. The broker notes that whilst Train 1 and Train 2 appear to be “progressing well”, the project may require additional funding this year “due to low market pricing”.
Broker consensus
RBC is one of several PLS supporters among the broking community, presently running with an OUTPERFORM rating and a $3.00 price target. With four ratings upgrades in as many months, it does appear that general sentiment among the brokers towards PLS is turning increasingly positive.
The full list of brokers and their ratings and price targets heading into today’s release are shown in the table below. Be sure to monitor tomorrow's edition of ASX Broker Moves and the Evening Wrap for any changes that come through.
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To obtain a stock’s Broker Consensus Rating, we assign a value of +1 to any rating better than HOLD/NEUTRAL/MARKETWEIGHT, a value of 0 for any rating equivalent to HOLD/NEUTRAL/MARKETWEIGHT, and a value of -1 to any rating worse than HOLD/NEUTRAL/MARKETWEIGHT.
We then take the average of all assigned rating values and assign a Broker Consensus Rating of BUY to values greater than +0.5, a rating of HOLD for values between -0.5 and +0.5, and a rating of SELL for values less than -0.5.
The Broker Consensus Target is simply the average of the target prices we have on file for each broker. Typically, brokers define their target prices as a 12-month forecast. Each target price is based on fundamental valuation assumptions.
PLS’s broker consensus rating is +0.54, resulting in a Broker Consensus Rating of BUY. Its Broker Consensus Target is $2.90. This suggests brokers collectively believe the stock is around 27% undervalued based upon the closing price on Tuesday, 28 January of $2.31.
(*Provisional pricing adjustments refer to the commodity producer making a temporary price adjustment at the time of shipping based upon market conditions as a mechanism to account for price fluctuations between the time of shipping and final delivery. If the final price is lower than the provisional price, for example, during weak market conditions, it may negatively impact reported revenue).
This article first appeared on Market Index on Wednesday 29 January 2024.
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Carl has over 30-years investing experience and has helped investors navigate several bull and bear markets over this time. He is a well respected markets commentator who specialises in how the global macro impacts Australian and US equities. Carl has a passion for technical analysis and has taught his unique brand of price-action trend following to thousands of Aussie investors.
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Carl has over 30-years investing experience and has helped investors navigate several bull and bear markets over this time. He is a well respected markets commentator who specialises in how the global macro impacts Australian and US equities. Carl...
Carl has over 30-years investing experience and has helped investors navigate several bull and bear markets over this time. He is a well respected markets commentator who specialises in how the global macro impacts Australian and US equities. Carl...
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