The company has a lot of spare capacity that can be mobilised quickly in less than a year, thanks to a very well-timed acquisition of a second processing plant. The company has demonstrated great capital discipline and flexibility in facing very volatile lithium prices. This is now rewarded with the company being able to profit from the lithium price rebound.
Pilbara has a solid balance sheet, has managed to refinance at much lower rates, and has sufficient cash and cash flow to pursue its ambitious capex program. Its ore reserves are very large and can support much higher levels of production, which will be further supported by ramp-up initiatives across both the Pilgan and Ngangaju plants. The capacity for incremental production increases allows the company to quickly react to lithium price rises. On the other hand, in case of a price crash, it can mothball some of its processing plants to reduce costs and weather the downturn.
After the FY22 full year results, it is clear that Pilbara Minerals is one of the few established hard rock producers that will benefit greatly from the massive uptick in lithium prices. Margins have increased massively and the vast majority of profit was generated in the last two quarters of the financial year. This coupled with massive revenue generation, BMX price discovery auctions, JVs with Posco and Calix, plus the possibility of near term dividends, the target price for PLS $6.50.
