I reckon the shorts are based on a falling spod price, and the boys said in the podcast yesterday that the price is now around US$875/tonne, so even lower than the US$955/tonne shown in that graph. Interesting that Wodgina has a lower all-in cost than Pilgangoora, with MinRes owning half of Wodgina, half of Mt Marion, and all of Bald Hill - and those three all have lower costs than Liontown's (LTR's) Kathleen Valley and Arcadium Lithium's (LTM's) Mt Cattlin mine. Arcadium Lithium (ALTM.nyse, LTR.asx) was formed from the recent merger of Allkem and U.S. lithium refining outfit Livent (LTHM.nyse). Core Lithium's (CXO's) Finnis project is WAY up there (on the cost curve)!

I wonder where Wesfarmers 50%-owned Mt Holland (ex-Kidman Resources) sits.

PLS was around 20% shorted from well before the spod price fell below US$1,000/tonne (i.e. below PLS' cost of production) - but that would have been on the expectation of a lower spod price, which we have now, so in that respect the shorters were right.

The big difference however is that many of those names are NOT in production yet, so they're not losing money, whereas PLS are in production and if the spod price stays below $1K/tonne they will have some tough decisions to make. They had A$3 Billion in cash at the end of September so they aren't going broke. They also recently announced that Ganfeng have agreed to buy more of their lithium at prevailing market prices over the next few years. However the Albemarle/IGO/Tianqi-owned Greenbushes mine IS in production also, and has the lowest costs - and is the largest hard-rock lithium mine in the World - and they said in late October/early November that they were going to start stockpiling instead of selling their lithium, due to lower prices - see here: https://source.benchmarkminerals.com/article/greenbushes-lithium-mine-will-stockpile-material-as-spodumene-price-lag-hits-miners and here: https://www.afr.com/companies/mining/australia-s-largest-lithium-mine-flags-output-cut-on-weak-china-demand-20231030-p5efzn

Apart from a sharp spike down to $3.23 in early December and straight back up again, PLS' share price has spent the past 12 weeks (almost 3 months) in a range between $3.50 and $4.00/share, so while they did come down in calendar year 2023 from that $4.40 to $5.40 range that they were in from early May through until mid-September, they haven't yet broken down through $3.50 with any conviction. The boys did mention yesterday that the PLS shorts are remaining relatively steady despite the falling spodumene price, so it seems that this scenario is what was expected by the shorters rather than giving them any additional reasons to increase the shorts. I think the shorters got it right with PLS from mid-August through to early December, but the PLS price is now back in that $3.50 to $4 range and I'm not sure there's a huge amount of downside from here. That said, I have no direct exposure to PLS myself. I'm not a PLS shareholder.

I don't short, but if I did, I think there are more obvious companies to short than PLS in terms of ASX-listed lithium players with higher costs and without the massive cash buffer that PLS have to see them through this period of lower lithium lower-prices. The boys were saying that two of the most obvious reasons for shorters picking PLS to short were that (a) Pilbara Minerals are a large and liquid lithium stock, and (b) they might make a bad M&A move with that huge pile of cash, i.e. spend it unwisely. And of course that is possible, however last time that lithium prices cratered PLS made some M&A moves that have played out very well for them since, so I wouldn't expect their management to change their spots and start making bad M&A decisions now.

The following is an excerpt from a 12th December 2023 article (so around 5 weeks old) by Charles Archer, Financial Writer (London) for IG Markets: https://www.ig.com/au/news-and-trade-ideas/pilbara-minerals-shares--untangling-the-contradictions-231211

Pilbara Minerals shares: untangling the contradictions

Pilbara Minerals shares have been falling since August as the lithium price sinks below CNY100,000 per ton. Where next?

Pilbara Minerals (ASX: PLS) shares may have risen by over 400% over the past few years, but the ASX 200 lithium producer has seen its shares fall from AU$5.31 in August to just $3.60 today. Unsurprisingly, the question for would-be investors is whether this fall represents an opportunity — or whether the knife is still falling.

Past performance is not an indicator of future returns; but few predicted the lithium price boom a few years ago. And there are some clues to be garnered from major players in the lithium space.

Pilbara Minerals shares: lithium price

It can be difficult to know where lithium mining stocks will go — to start with, unlike other hard commodities like iron, gold or oil, lithium is widely regarded as a non-fungible speciality chemical and therefore it’s much harder to track price movements.

Chinese pricing shows that lithium carbonate prices have fallen from their peak of just below CNY600,000/tonne in November 2022 to below CNY100,000/tonne today. Investors have blamed a supply glut due to Chinese firms taking advantage of now ceased subsidies in 2021 and 2022 — alongside soaring deliveries to the country from Chile.

Indeed, stockpiling is ongoing at Greenbushes — widely regarded as Australia’s highest quality lithium mine — and its operator is considering both production cuts and lower sales.

For Pilbara, the question is one of whether current pricing improves. The company has significant expansion plans, but these only make economic sense at a certain pricing level; and the floor is yet to be found. For context, Morgan Stanley analysts thought that lithium markets were at a ‘turning point’ as far back as May 2023.

Pilbara Minerals share price: where next?

Pilbara has been hit with two downgrades recently. 

First, UBS cut its price target from AU$3.75 to AU$3.05 and put a ‘sell’ rating on the stock. The bank has downgraded its forecast lithium price expectations for the next three years significantly, and consequently reduced expectations for Pilbara’s earnings by 38% in F24, 69% IN FY25 and 51% in FY26.

It notes there is ‘no risk to production growth plans’ but also argues there will be ‘reduced cash flow in this heavy investment cycle.’

This week, Citi piled on the pressure — downgrading its rating to ‘neutral’ with an AU$3.90 price target on the stock, also citing downgraded lithium pricing expectations. And then, more bad news. Long-time Chairman Anthony Kiernan AM is retiring at the end of January 2024, weakening the board.

But investment banks work on 12-month timeframes, and while their lithium price expectations are longer-term, multi-year commodity pricing predictions are notoriously uncertain. And longer-term, Pilbara Minerals is clearly attractive to at least one institutional investor.

Over 2023, ASX superannuation titan AustralianSuper has increased its position in the miner to over 153.36 million shares representing 5.1% of shares in issue — a threshold that merited an ASX announcement.

These types of funds are preparing for the very long term. And it’s worth noting that Rio Tinto has just forecast a 945% increase in lithium demand over the next 10 years. Then there’s the Chris Ellison and Gina Rinehart machinations to consider — significant effort is going into securing the best lithium supplies for the future.

To ride out the storm, CEO Dale Henderson recently argued that ‘what gives us comfort is being a low-cost producer and being at the low-end of the cost curve, so we make sure that's front of mind for us and such that we can weather any ups and downs.’

For context, PLS delivered 144.2 kilotons of spodumene in Q1 FY24, and is working hard to gain more exposure to the lithium supply chain. This includes working with Calix on a mid-stream demonstration plant using the partner’s patented electric kiln tech — reducing carbon emissions through renewable energy.

And then there’s also the much-vaunted project with POSCO to build a lithium hydroxide chemical facility in South Korea — with the first train on schedule to start commissioning in this quarter.

While analysts seem pessimistic about the short to midterm lithium pricing dynamics, Rystad Energy Vice President Susan Zou recently argued that ‘the global battery supply chain may find lithium in shortfall again approaching the end of this decade when the supply growth might not keep pace with that of the demand.’

--- end of excerpt ---

For those who missed it, you can check out the MoM boys talking falling lithium prices here, and talking PLS in particular here. Both from yesterday's Poddy. Today's Poddy was also really good: "3 Ways of How Not to Run a Company"

Additional: I liked the discussion in yesterday's Pod about how a number of companies pivoted into lithium last year and how they might be trying to become uranium companies this year with the recent uranium price surge, although they suggest that window of opportunity might be quite small... Here's an announcement by struggling gold miner Calidus Resources (CAI) yesterday: Potential-lithium-corridor-defined-at-Tabba-Tabba-South.PDF

It might look like Calidus are jumping on a train that's already coming off the rails, but if the Kali Metals (KM1) IPO last week (Monday 8th Jan 2024) is any sort of idicator, there's still plenty of appetite for lithium companies, especially when Chris Ellison and MinRes are involved and buying. IPO'd at 25 cps, and traded as high as 89 cps on Wednesday - closed today at 49 cps. See here: Kali Metals rallied 250% in three days. Here are key takeaways from the IPO (marketindex.com.au)

The MoM boys had a very interesting discussion about that IPO and the timing of their Spodumene-identified-at-Higginsville-Lithium-District.PDF announcement on Wednesday (10th Jan) two days after they IPO'd - when they'd known the results (of their rock chip sampling program) since December 22nd - as they explained in their reply to the ASX's "Please explain" letter - see here: Response-to-ASX-Aware-Query.PDF. See also: Company-Presentation.PDF [from last Friday]. The Money of Mine (MoM) boys also delved into some interesting Kali Metals (KM1) cross-trades by Bell Potter that ocurred on day one of the IPO (8-Jan-2024) - in today's poddy - see here. It's a fair assumption that MinRes were the buyers and the boys have narrowed down the likely sellers and their profits on holding 4 million and 3.5 million KM1 shares respectively for a little over 6 hours. Good Stuff!