FWIW a quick summary roundup from various broker reports on PLS in the past 24hrs

Citi:

SepQ: curtailing Ngungaju upgrades sentiment and FY25 cash flow

UBS: Sell 12m PT$2.35

Supply leaving (but it wasn't supposed to be PLS first)

PLS has reported strong Sep-Q production and sales of 220kt and 215kt respectively, ~10% ahead of expectations. Costs are tracking well as it ramps up and the realised price was weak as expected at US$683/t (vs US$872/t for IGO). However, the real news was that PLS will put the Ngungaju plant onto care and maintenance from December, downgrading FY25 production by ~100kt and reducing the FY26 outlook to P850 (UBSe 185kt) pending an improved outlook for market balance/prices. The updated FY25 guidance comes with A$63m shaved off capex and expectations for FOB costs to be A$45/t lower at A$620-640/t. PLS suggest this improves cashflow by ~A$200m at US$700/t spodumene. We are happy to remain slightly above on production and below on costs given PLS's excellent operating performance. We await more supply to exit the market. Our NPV based Price Target of A$2.35/sh remains unchanged and we retain a Sell rating

JP Morgan: Neutral Dec25 PT $3

SepQ24: Turning off Ngungaju, but remains another medium-term option should markets turn; retain Neutral

Key takeaways from the SepQ24 quarterly: 1) PLS has placed the higher cost Ngungaju plant into care and maintenance, citing the weak lithium market outlook with a 150-200ktpa impact on medium-term production, and providing further optionality on matching production to market growth (in addition to LRS Salinas and P2000), 2) FY25 production (-100kt), cost (-$45/t FOB) and capex (-$63m) guidance have all been moved lower, 3) the quarterly result was solid, with production/sales volumes beating our forecasts by 13% and 16%, flowing through to a 12% beat on the cost line, and despite realised pricing missing our numbers by 9%, the higher volumes saw revenues net out in line. Our FY25 earnings fall to -$53m (from -$19m) and our NPV is down 2%. We view the stock as fair value at current levels (1x P/NPV), and retain our Neutral rating

CLSA: Outperform PT$3.20

Strategic cost optimisation and growth planning drive upgrade

Playing the cycle smartly, PLS is optimising operations while preserving future optionality. The strategic move to P850, placing Ngungaju into C&M, should deliver up to A$200m in CF benefits while maintaining restart flexibility for the upturn. With growth capex completing late FY25 and steady-state 850ktpa production expected in FY26, PLS is now showing stronger operational discipline and strategic timing. We upgrade to O-PF and lift our TP from A$2.90 to A$3.20 seeing value in PLS’s medium-term production optionality and counter-cyclical strategy

Goldman Sachs: Not Rated

Pilbara Minerals Ltd. (PLS.AX): 1QFY25: Lithium production guidance cut with smaller plant into care & maintenance on cost management

We estimate revised unit cost guidance implies previously expected plant costs at ~A$870-1,120/t (where we continue to model the separate plants, with Ngungaju costs ~US$200/t higher than Pilgan), with the C&M decision likely only partly relating to plant unit costs, in our view, where turning off the plant also enables other significant cost savings such as a significant reduction in mining fleet on stopping work in the Southern pit while the Central/Eastern pits continue largely as planned (we expect combined mining and stripping costs to fall to ~A$10/t), while also deferring other planned capital spend. PLS expect to be able to ramp the plant back up in ~4 months when market conditions improve (we factor in a restart of Ngungaju in mid-CY26 on our price outlook)

RBC: Outperform PT $3.10

Our view: A strong 1Q was overshadowed by the decision to place Ngungaju on care-and-maintenance (C&M). While we are cognisant of minor near-term FCF benefits from curtailing production in light of spot prices, given Ngungaju's asset quality (mid-cost curve asset) and PLS's balance sheet strength, we think placing the asset on C&M was too conservative. We see other operations having higher risk of curtailment. Further to our first-take (link), incorporating 1Q and assuming Ngungaju is on C&M until 2028, sees FCF increase marginally in FY25E, but notable EPS/EBITDA reductions over FY26-28E. Our price target reduces 20c to A$3.10. Outperform retained

Macquarie:

Key Points

• PLS's 1QFY25 production, sales and cost beats were overshadowed by the decision to cut FY25 production guidance by 12% by placing Ngungaju C&M

• Whilst management believe the Ngungaju suspension saves ~A$200m in FY25 cash flow, the key question is when/if the plant returns to full operability

• We adjust production and costs in line with PLS's new guidance and model a FY28 Ngungaju restart aligning with our view on market rebalance

What we liked: Better grades and recoveries; Value over volume

What we didn't like: Realised pricing

What was interesting: Posco JV production

Morgan Stanley: Equal-Weight PT$3

Ngungaju turning off – not so bad after all

Although results benefitted from higher grades, which will eventually fall, near-term Ngangaju closure is accretive to valuation, reducing capital requirements, improving recoveries + reducing mining complexity. But, Li price still challenged with limited reasons to add exposure. Stay EW

BoFA:

PLS Sir, can we have some more?

DISC: Small Position Held in RL & SM

In todays AFR in a welcome relief from stories on conduct by Richard White and Chris Ellison some reporting on PLS

Pilbara Minerals cuts lithium output, suspends plant

For those outside the paywall...

Pilbara Minerals plans to weather the lithium rout by suspending one of its two processing plants in Western Australia and reducing production of the battery material until the commodity price recovers.

Australia’s largest pure-play lithium miner will shed about 50 workers as part of its decision to mothball the plant, and redeploy the remaining 50 employees from the facility across its operations, in the latest setback for Australia’s struggling critical minerals sector.

Pilbara said its decision to reduce output from its flagship Pilgangoora mine until June next year, and indefinitely pause operations at its Ngungaju ore processing facility starting December 1, was driven by the ongoing supply glut that continues to depress lithium prices.

The price rout over the year has torn through the global lithium sector. In Australia, New York-listed Albemarle, the world’s largest lithium producer, shed 300 jobs as part of a radical downsizing of its Kemerton lithium hydroxide refinery in WA.

Also in WA, Rio Tinto’s $9.9 billion takeover target, Arcadium Lithium, has wound up its Mt Cattlin lithium mine and Mineral Resources has reduced output at its Mt Marion mine. Junior miner Core Lithium has suspended mining at its Northern Territory-based Finniss project.

Lithium supply has far outpaced demand for the key battery commodity over the year, according to CRU Group, a London-based mining consultancy, with supply up almost 30 per cent compared to the same point last year, while demand is just 20 per cent.

“That’s not weak demand growth by any stretch of the imagination, but electric vehicle sales have been weaker than expected outside of China,” said Martin Jackson, the lead lithium analyst at CRU.

Another factor contributing to the lithium glut is that miners have sustained production to pursue shrinking profits and a return on their investment. “In absolute terms, China and Zimbabwe have brought 2½ times more additional annual supply on in 2024 than Australia and Chile combined,” he said.

On the demand side, battery cathode manufacturers made unusually early purchases this year, with a significant surge in April, he said. As a result, they will likely use the excess stock for the remainder of the year, effectively reducing demand.

Pilbara experienced a near 20 per cent drop in the price of its lithium-rich spodumene concentrate, falling to $US682 ($1039) per tonne in the September quarter, missing market consensus which expected the miner to fetch $US716 a tonne. Combined with lower sales, this reduced revenue by 31 per cent to $210 million in the three months to September 30.

Pilbara chief executive Dale Henderson said the Ngungaju plant was put on ice in response to current lithium market conditions, near-term lithium outlook and the ramp-up of its newly expanded processing facility, the Pilgan plant, at the Pilgangoora mine.

Once the lithium price has recovered, Mr Henderson said he expects the Ngungaju plant – which operates at a higher cost and lower capacity than the Pilgan plant – will take four months to gear up into production.

Mr Henderson did not specify the price at which the plant would be brought back into production, but added the lithium market needs further rebalancing, through either increased demand or supply cuts, to catalyse a near-term price improvement.

“The Ngungaju plant will remain in care and maintenance, ready to be fully ramped up in approximately four months when market conditions improve, allowing the company to quickly capitalise and capture value in a rising price environment,” Mr Henderson said on Wednesday.

Mr Jackson said CRU expects the lithium price to remain depressed until the end of the year, making the next six months very difficult for miners.

“Even though all eyes seem to be on this period for higher prices, the market is still in an appreciable surplus in 2025 without a greater response from incumbent producers and project investors,” he said. “Contract pricing mechanisms and built in discounts are going to make the next six months very difficult for miners.”

Battery cathode manufacturers in China have no plans to step up activity until the new lunar year, and there is a lot of uncertainty about the export market, he said. The European Union and the United States have placed tariffs on vehicles imported from China.

Still, Liontown Resources is advancing with plans to increase supply into the market. Liontown, which shipped its first batch of spodumene concentrate last month from its Kathleen Valley mine, is expecting to release its final mine plan by the end of the year. Analysts at Barrenjoey noted that the operation is “progressing well”.

Investors and analysts have been waiting for miners to cut supply from the market. But UBS analysts said Pilbara, a lower cost operation, wasn’t expected to be the first mover.

Over the 2025 financial year, Pilbara now expects to produce about 12 per cent less spodumene concentrate – between 700,000 and 740,000 tonnes – compared to previous guidance of 800,000 to 840,000 tonnes.

Pilbara’s unit operating costs are expected to be between $620 and $640 a tonne, down from $650 to $700 a tonne, reflecting lower costs at the Pilgan plant, which was recently expanded and ramped up.

Capital expenditure will also be lower – between $565 million and $610 million, compared to previous guidance of $615 million to $685 million.

Over the quarter, unit costs were 2.5 per cent higher at $606 per tonne, and production was 2.7 per cent lower at 220,100 tonnes. Spodumene concentrate sales were 9 per cent lower at 214,500 tonnes over the quarter, but 10 per cent above UBS expectations.

Pilbara’s share price closed 1 per cent higher at $2.88. The stock is down 27 per cent since the start of the year.

Unsurprisingly the quarterly figures are down on prior quarter due to sales volume and price, but what is very strong given the hole Lithium prices are in is that they are still profitable, and reasonably so. Realised price was just under A$1,000/t and CIF operating costs were A$717/t.

Pilbara Minerals is not the lowest cost producer but it is sitting comfortably in the half of producers that are profitable at current prices. Over half of Lithium being produced is at a loss and assuming that eventually prices move up the cost curve to the margin producer where supply matches demand then a price around US$1,400/dmt or close to double the current price is a point of equilibrium as this slide shows:

I don’t expect PLS will see prices near US$1,400/t any time soon or possibly ever given the supply and demand dynamics are shifting in both cost and quantity. The important point for my investment theses is that PLS is in the top half of the class and likely to stay there and remain profitable through the cycle.

On this point, the recent investment in capex recently is driving costs down and they are optimising operations at Pilgangoora. The “P850” operating model has taken the lead with the Ngungaju plant being mothballed, which is reducing volume but increasing cashflow:

Noting the P850 production is being expanded with the P1000 Project, so capacity increases are coming but per guidance below, it’s one step backwards on volume to get cost reductions before they can take two steps forward with volume increases and cost decreases:

It is worth checking the presentation out yourself, but this slide I also found interesting. What struck me is the gap between supply and demand for Lithium has been minor (around 10% eyeballing it), yet the price movement has been insane. I accept that we are seeing a radical change in the demand opportunity for Lithium, but the relatively small imbalance of supply and demand is surprising in the context of the price move.

Other things in play for PLS currently is the impending close of the deal to acquire Brazilian lithium explorer Latin Resources for $630m. They are also in a JV in South Korea for a POSCO chemical processing plan (vertical integration option) and poor Calix (CXL, which I also own) is getting smashed today because PLS is deferring the next phase of the demonstration plant they are working on, looking for more supportive market conditions OR a government handout!

I am happy that my thesis holding nicely and still has some time to play out. It’s only a half position, but I would be happy to increase if a general market pull back offered another opportunity around $2.50.

Disc: I own RL

PLS announced a "Disclosure of equity derivative positions".

From the announcement:

Pilbara Minerals is releasing this letter to ensure full transparency, however has no reason to believe that the information, of itself, is materially price sensitive and is not aware of any additional information of relevance.

The announcement details a number of call and put options entered into by Ganfeng Lithium, a Chinese lithium producer.

I assume this doesn't really mean much, otherwise it would be marked price sensitive, but I'm still curious to understand more about why it's been released at all.

I understand the overall structure - Ganfeng have limited their downside and upside within a certain price range - and while the overall position is large, at 105 million shares, it's still under 5%.

Further from the announcement:

Guidance Note 20: Equity Derivatives (GN20) issued by the Australian Takeovers Panel... provides that the non-disclosure of equity derivative positions, including short equity derivative positions that offset long positions, may give rise to unacceptable circumstances.

I'm guessing "unacceptable circumstances" actually means something to those in the know? One thought I had was that this could flag some price volatility around the strike price of the options? If any members have experience or thoughts I'd be interested to hear your take.

Interesting block trade this morning for PLS....80million shares

Interesting Money of Mine interview with a Singaporean based fund manager YJ Lee from Arcane Capital. Interview covers in particular Lithium and silver. 

Why the Lithium Market Has Bottomed with YJ Lee (youtube.com)

If not able to watch, the points I found interesting were:

Lithium

Market is underestimating the extent to which supply is coming off due to low Li prices.

Markert is underestimating the future demand for Lithium. Just as the market wildly over estimated demand 2 years ago. YJ Lee points to as well as EV demand, demand from e-trucks which are using 10 times the lithium of a car and rising stationary battery usage. He thinks the market has missed both. (YJ says already 85% of taxi fleet in China is EVs)

Cheap solar cells have made solar power at certain times very cheap, this in turn makes battery storage more economic.

Poor spodumene grades are coming out of Africa – much in only around 3 to 3.5% Li.  YJ postulates that this has not been fully appreciated in Li production estimates.

Chinese lepidolite mines can be both high and low cost. (Prevailing western mining journalism keeps telling us they are all high cost).

Western tariffs on Chinese cars will be relatively ineffectual. Big markets already in Middle East and Asia + cracks in EU with Norway saying doesn’t want to put tariffs on EVs.  RoW just want cheap cars. Vertical integration of BYD: makes EVs, batteries and has own car export vessels. Is building 7 more that can take 7,000 cars each.

YJ Lee calls now the lithium market bottom.

Silver

New generation of solar cells are more energy conversion efficient, however use more silver.

YJ Lee argues the silver ETF market may get a speculative kick on the back of industrial demand driving up prices and speculators following.

Silver supply is relatively inelastic. Unlike Lithium which is widespread from James Bay in Canada, to Africa to brines in South America to Chinese lepidolites to the deserts of WA. Bloody everywhere.  (It is interesting Mike Henry was asked around 2 years ago why BHP had not got into Li mining. His response was there is not a deposit on the planet large enough to get them interested)

YJ is trying to get off the ground a Green Metals Fund, so he is of course breathlessly pumping up his own tyres. Who really knows what the real situation is. 

Possibly the only truth is there are more people demanding more and less people willing to work to get it.  Get long productive Australia (PLS, WHC, MIN, DVP, GMD). 

AFR reports that Pilbara Minerals CFO Luke Bortoli has resigned from the board of EML following an investigation over his use of company credit card for personal expenses. 

The chairman of EML Payments, the prepaid cards business once worth $2 billion, has quit amid a boardroom stoush over whether company money was spent on personal expenses.

Last week, The Australian Financial Review revealed Luke Bortoli, a former executive at buy now, pay later group Afterpay, repaid more than $100,000 spent on a company credit card, telling EML Payments it had been approved by other directors. Dr Bortoli is also the chief financial officer at lithium hopeful Pilbara Minerals.

To be clear, he maintains the expenses were approved. An independent review has been concluded and no action has been taken against him. He’s also repaid the expenses.

This could just be an EML boardroom power grab (as if they didn’t have more pressing matters), but it sure don’t look good.

It’s not clear what the expenses were. You could rack that up pretty quickly on a few international business flights these days, but that doesn’t seem like something that would demand an independent review.

No action to take here but noting it. Would be concerned if a pattern emerged.

[PLS HELD]

Since I just posted the two AFR articles on Pilbara's $560 million takeover offer for Latin Resources I'd figured FWIW I'd see what some of the brokers were saying (note most of these (except RBC) were published before yesterdays conf call and market open)...

Morgan Stanley: Underweight PT $2.70

Today's counter cyclical transaction makes sense. However, for PLS we remain concerned about medium-term recoveries and costs, the contract structures and prices achieved (lower vs. peers), and the ramp-up of the downstream conversion plants alongside weakening Chinese EV sales (-10% MoM in July)

JP Morgan: Neutral PT $2.80

PLS have announced today the acquisition of ASX-listed Latin Resources (LRS) in an all-scrip deal. At PLS’ last close price of $2.85/sh, the offer implies 20cps for LRS’ shareholders, a 67% premium to LRS’ last close. LRS own the Salinas lithium development project in Brazil, with a preliminary study indicating stage 1 production potential of 405kt of SC5 and 123ktpa of SC3 production coming online in 2026 for capex of US$253m. Stepping into a new jurisdiction could be challenging, although the LRS MD will be retained on a consulting basis by PLS for 12mths to assist with the transition. Another growth option (in addition to P2000), presents options in terms of sequencing additional capacity into a market that appears to be oversupplied on our S/D market assumptions over the remainder of the decade

Macquarie:

PLS inorganic strategy makes sense: PLS looking to add resource off Pilgangoora tenure is an intelligent move as it grows the company without incrementally adding tonnes to the market. It also arguably is timed appropriately with lithium prices in the doldrums and the retention of balance sheet flexibility important at this point of the cycle

Macquarie aren't providing a rating or PT - and note they "are currently on research restrictions" - digging into their disclosures section ...

Macquarie is currently providing investment banking services to Pilbara Minerals Ltd for which it expects to receive or intends to seek compensation

Macquarie is currently providing investment banking services to Latin Resources Ltd for which it expects to receive or intends to seek compensation

UBS: Sell PT $2.50

While LRS talks to 2026 first production, we're not convinced the market needs the supply and how soon it will come. Deal completion is expected late this calendar year with the Scheme meeting likely in mid-Nov 24. The 100% scrip consideration leaves net cash intact at A$1.6bn ahead of new project funding (debt/gov financing and strategic/ offtake options). However, we remain concerned an over-supplied lithium market will weigh on prices for 1-3yrs ahead and remain unchanged Sell rated at A$2.50/sh

CLSA: Hold PT $2.90

We believe the deal lacks short-term accretiveness, but if timed with a market bottom, which is likely near, and the asset meets its potential, it could offer significant long-term upside. We update our model accordingly and lower our target price from A$3.10 to A$2.90

RBC: Outperform PT $3.90 (up from $3.80)

PLS is offering A20¢ps (all scrip) for LRS. The rationale for the acquisition is to incorporate the 100% LRS-owned Salina project into the portfolio; diversifying the asset base counter cyclically. Based on a recent significant increase in Resources (and pending DFS), our estimates suggest a value accretive acquisition, but near-term earnings/FCF dilution. Further to our first take, we incorporate the Salinas development project in our NAV. Adjusting for the transaction has reduced our FY25e/26e EPS by 6-7%, but increased our price target 3% to A$3.90/sh. We retain our Outperform rating

DISC: Held (very small position) in RL

Two articles in the AFR today covering Pilbara's $560 million takeover offer for Latin Resources

Pilbara Minerals takes $560m punt on Brazil lithium project

and from the Chook The lithium rout can’t seem to stop the ASX’s most shorted stock

For those outside the paywall:

Pilbara Minerals takes $560m punt on Brazil lithium project

Pilbara Minerals boss Dale Henderson says the company acted courageously with a near $560 million takeover offer for Latin Resources and its flagship lithium project Salinas in Brazil, despite analyst and investor doubts about the deal.

In moving on Latin after assessing scores of lithium projects, Pilbara Minerals is making a countercyclical bet on the battery-making ingredient and spreading its wings beyond Western Australia where it is pressing ahead with a massive expansion of its Pilgangoora mine.

RBC Capital Markets analyst Kaan Peker questioned the rationale for the acquisition, saying it was hard to see any synergies given the distance between WA and Brazil. He suggested it was likely to be free cash flow and earnings dilutive.

Ben Lyons, director of equities research at Jarden, queried the quality of the Salinas ore body and whether it could be classified as a top-rank project based on drilling results released by Latin.

The Pilbara Minerals share price fell almost 5 per cent to $2.72 on the back of the takeover announcement, while the Latin price jumped 52 per cent to 18¢. The all-scrip takeover offer – 0.07 new Pilbara shares for each Latin share – values the target at almost $560 million based on Thursday’s prices.

One of the attractions for Pilbara Minerals venturing into Brazil is to diversify its customer base away from China.

The bid for Latin comes as Brazil closes in on a deal with the United States to work more closely on critical minerals supply and improve access to Inflation Reduction Act subsidies.

The US ambassador to Brazil has suggested a deal on preferential treatment in critical minerals could be signed at the G20 leaders’ summit in Rio de Janeiro in November.

Pilbara Minerals has not made an acquisition since it gobbled up Pilgangoora neighbour Altura Mining in 2020 after a collapse in lithium prices.

It is also the first deal spearheaded by former Macquarie investment banker John Stanning since he joined Pilbara Minerals last year on the back of a series of big lithium transactions.

Pilbara Minerals is thought to have assessed lithium projects in its WA backyard, including the Azure assets now owned by Gina Rinehart and the Mineral Resources-backed Wildcat Resources’ Tabba Tabba project that sits close to Pilgangoora.

Mrs Rinehart and Mineral Resources boss Chris Ellison led a spending spree on lithium stocks in WA last year as Pilbara Minerals held fire.

Mr Stanning said that he would “much rather be buying at this point of the cycle than where people were buying last year. We looked at all of those and didn’t see value compared to today.”

Perth-headquartered Latin Resources ended June 30 with $21 million in cash and has been looking for a buyer or partner to develop Salinas.

Asked why Pilbara Minerals did not wait until the Latin share price fell further, or it ran out of cash, Mr Henderson said the takeover target probably had other options.

“Latin ran a process for offtake, and they were engaged with other parties. We don’t know the details of that, but they had other options,” he said.

“We believe that to be true because it’s a great asset, and that obviously weighed on our thinking.”

Latin has put a $US253 million ($383.3 million) price tag on developing the first stage of Salinas, which is next to the Sigma Lithium mine that started production last year in the Minas Gerais region of Brazil. The second stage has a $US55 million price tag.

Pilbara Minerals said it would look at debt, partnerships and funding sources tied to Salinas’ offtake to finance the development. However, it will only press ahead “if and when market conditions are supportive”.

Pilbara Minerals is currently the most shorted stock on the ASX as some investors bet against lithium prices.

Mr Henderson said Pilbara Minerals had been running a rule over the Salinas project for the past six months and saw it as having the potential to become one of the world’s top hard rock lithium mines.

He said the deal was a reflection of the company’s pioneering spirit, which has included developing Pilgangoora and its associated processing plant, breaking new ground in lithium auctions and moving downstream into a lithium hydroxide plant in South Korea.

“There is a level of courage around stepping into this region, but we have conviction,” he said.

“I think in the fullness of time Pilbara will be judged on the agreement we made today, and I think history will look back on us kindly.”

The company has already invested in an expansion project to grow production at Pilgangoora to about 1 million tonnes a year within three years, and signalled it could eventually jump to 2 million tonnes a year.

Mr Henderson said the Latin acquisition provided options to sequence new supply and diversify into new markets such as Europe and North America.

Latin is led by Chris Gale, the founder of boutique corporate advisory firm Allegra Capital.

The lithium rout can’t seem to stop the ASX’s most shorted stock

While there are many things to be wary of in mining, one is domestic champions going offshore. Can Pilbara Minerals become a two-trick pony?

West Australian lithium miner Pilbara Minerals is very good at one thing. In an industry where no one wants to be a one-trick pony, can it be good at two?

If it is, the $8.5 billion Pilbara Minerals is going to have to prove the doubters wrong. You could sense the groans coming out of investors’ offices in Sydney and Melbourne as the domestic champion miner made its big strategic move.

While there are many things to be wary of in mining, one is domestic champions going offshore. Just because you can dig up rocks and build plants in Australia, it doesn’t guarantee you can do it on the other side of the world.

And synergies between farflung assets brought together by M&A deals are usually scant, as Rio Tinto boss Jakob Stausholm reminded us a fortnight ago.

Nevertheless, Pilbara Minerals, which makes more than $500 million digging up and selling WA lithium in a bad year like FY24, is doing it.

It is buying ASX-listed Latin Resources to get it hands on the Salinas lithium project in Brazil. Salinas has a big resource (2.3 million tonnes), potential 10-year-plus mine life and, at best, could be mining hard rock lithium in a couple of years.

The deal values Latin Resources at $560 million; it’s early stages with a definitive feasibility study under way.

If its second trick works, Pilbara Minerals boss Dale Henderson will look like a champion.

The best thing you can say about it is that it is a countercyclical move; Pilbara Minerals is buying when others are retreating (Arcadium Lithium may shut Mt Cattlin, for example), making it a “big surprise”, as Euroz Hartleys analyst Trent Barnett says.

“We assumed Pilbara would buy one of the more obvious projects; so this is left field for us.”

It is using scrip, not cash, offering Latin Resources shareholders a relatively small chunk of the combined group (6.4 per cent), swapping expensive scrip for cheap resources and reserves.

But in times like this, the naysayers win the day. Pilbara Minerals shares were down 3.9 per cent on Thursday, to be down 31 per cent this year and 43 per cent since last August. It’s like this across the lithium sector.

It’s funny how investors change their moods. In tough times like these, they want Pilbara to be a one-asset miner focused only on improving and expanding its Pilgangoora project. In better times, they bag Henderson for having only one asset and not “moving forward”, as he put it.

Now there is competition for capital in the Pilbara Minerals portfolio.

“This is our wheelhouse,” Henderson told some of the sceptical analysts on Thursday. He says Salinas looks similar to Pilgangoora, he likes the geology and the region, and the timing – it’s the pick of 100 projects Pilbara Minerals’ corporate development team has studied.

But is it really better than just focusing on Pilgangoora above all else? Pilbara Minerals, already the most heavily shorted stock on the ASX, isn’t going to win that debate today or this week, while the lithium price is in the toilet. But it is buying now for when things turn.

DISC: Held (very small) in RL

The AFR posted an article online yesterday titled "The carnage in the EV industry is only getting started".

It's syndicated from The Telegraph in the UK, and opens with some pretty bearish statements on the future of the EV industry:

Profits at the German auto giant Mercedes plunged last Friday as sales of its slick new range of electric vehicles went into freefall.

Porsche abandoned its sales targets for battery-powered cars amid waning demand from customers. Ford is losing nearly $US50,000 ($A76,000) on every EV it sells, while Tesla’s profits dropped 45 per cent. Meanwhile, battery manufacturers such as Germany’s Varta are getting wiped out.

It has become clear that the EV industry is on the brink of collapse. Hundreds of billions of euros, dollars and pounds have been pumped into this industry by political leaders and the subsidy junkies that surround them – and it is surely time they were held to account for the vast quantities of taxpayer cash that has been wasted.

Mostly the article seems to be complaining about "the billions" wasted on EVs, which I assume is a reference to public policy. It's light on details (lucky the AFR has posted it as an opinion piece!).

"Profits at the German auto giant Mercedes plunged on Friday as sales of its slick new range of electric vehicles (EVs) went into freefall." Looking at the latest results from Mercedes, EV sales are down, but only 6% YoY. Free cash flow is down, but "free fall" doesn't line up with the battery-electric vehicle results.

A graph is included titled "Tesla sales go into reverse"

Which is true - they are down for 2024! Or was 2023 an anomaly?

I don't follow vehicle manufacturers closely, and I think it's fair to say there are headwinds for vehicle manufacturers in general. But this article doesn't really bring any convincing arguments to support the theory that EVs are a failed experiment (though individual manufacturers might struggle)

My thesis around PLS is:

• many products are just far better when they are electrified, including vehicles
• battery-electric is a proven technology and will continue to be popular
• lithium will remain a critical part of battery manufacturing, and eventually we will move into the recovery phase of the cycle

I'm writing this as a reminder to myself: ignore the noise!

14-April-2024: I received a link to the following article today in an email from Roger Montgomery's investment management company:

https://rogermontgomery.com/pilbara-minerals-the-asxs-most-shorted-stock-yet-poised-for-long-term-success/ [19-March-2024]

[Not behind a paywall]

PILBARA MINERALS: THE ASX’S MOST SHORTED STOCK, YET POISED FOR LONG-TERM SUCCESS? 

As a low-cost and long-life spodumene producer (spodumene is a raw material used to produce lithium for batteries in your phone, e-bike and electric vehicles (EVs)), Pilbara Minerals (ASX:PLS) is one of the highest quality single commodity miners on the ASX. The share price has been punished recently, with the spodumene price falling from over U.S.$8,000 per tonne to below U.S.$1,000 per tonne in just over 12 months.  

This was driven by slowing demand as governments around the world wound back their subsidies for EVs, and the higher cost of living began to take a toll on consumers. A large oversupply had emerged as commodity producers ramped up supply, a logical response to high spodumene prices that were far above production costs for even the newest and most inefficient operators.  

Given the tough operating environment, Pilbara Minerals management behaviour has showcased a measured and conservative approach to surviving the price cycle. The company has a strong net cash position of over $1.5 billion, built up from high prices in previous years and prudent deployment of capital. With cash costs of production of AU$691 per tonne, the company has been able to maintain profitable operations throughout this difficult period as higher-cost rivals suspend or close operations to reduce cash burn.  

The company’s production expansion projects, P680 and P1000, are well progressed and have a two-fold effect. Increased production volume will go some way in offsetting falls in realised price, while increasing economies of scale decrease the unit cost of production per tonne. Current annual production is 620kt and will increase 60 per cent to 1 million tonnes beyond FY25.  

The company has also partnered up for mid-stream and downstream projects, which have the potential to increase future returns to shareholders. A mid-stream joint venture operation with Calix Ltd, an environmental technology company, is progressing with the objective of decarbonising the processing of spodumene. A large South Korean steel company, POSCO, is the downstream project partner that has started the commissioning of a lithium hydroxide plant, producing the finished product used in batteries and EVs. 

With such strong fundamentals providing solid downside protection while simultaneously setting a platform for significant upside, the Australian Eagle Asset Management team have gradually built up a position in Pilbara Minerals in the past few months. As the most shorted stock on the ASX, the share price could rise significantly when the spodumene price inevitably recovers, forcing short sellers to close their positions.  

While the team cannot claim any expertise in forecasting spodumene prices, we remain confident, given its current strong balance sheet and low cost of production, that Pilbara Minerals will be one of the long-term winners of the future as the world moves away from fossil fuels and accelerates towards renewable energy. 

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The Montgomery Fund and the Montgomery [Private] Fund owns shares in Pilbara Minerals. This blog was prepared 18 March 2024 with the information we have today, and our view may change. It does not constitute formal advice or professional investment advice. If you wish to trade Pilbara Minerals, you should seek financial advice.

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By Daniel Chan

Daniel Chan joined Australian Eagle Asset Management in 2014 as an Investment Analyst, and beyond the usual realms of financial modelling, Daniel is also responsible for writing research papers for portfolio stocks as well as stocks within the ASX 100. He is also responsible for the implementation of the Australian Eagle investment philosophy across the portfolio and bringing to the team’s attention any company inflection points that may assist with the purchase or sale of these stocks.

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I always read these sort of bullish reports from the POV that the writers either holds shares themselves or the company they work for does, or else it's a paid report on behalf of the company being reported on. That said, you can often still find useful pieces of information in these reports that do help to form an independent view - it's just always best to use multiple sources of info rather than just one, especially when that one is expected to paint the company in the best possible light.

That said, I can't argue that Pilbara Minerals (PLS), as Australia's most shorted company, with more than 20% of their SOI being shorted - see here: ShortMan - Short position graph for PLS ...is primed for a northbound SP spike IF the shorters are wrong and there is a short squeeze.

The argument behind shorting PLS appears to be more around shorting lithium, and PLS being the largest and easiest ASX-listed pure-lithium play to short.

My own thoughts on that are that PLS is the strongest pure lithium player in Australia (possible the World) and they're in a very strong (net cash) position with a huge pile of cash to tide them over even if prices stay below their cost of production for a decent chunk of time, and if I was going to short a lithium company, PLS would not be my first choice. [I never short any companies by the way, that was just a hypothetical]

Another analyst, Gaurav Sodhi from Intelligent Investor has also been bullish on PLS, although he has recently (in early March) changed his "Buy" call on PLS to a "Hold".

The Intelligent Investor Australian Equity Income Fund (Managed Fund) (ASX:INIF), the Intelligent Investor Ethical Share Fund (Managed Fund) (ASX:INES), and the Intelligent Investor Australian Equity Growth Fund (Managed Fund) (ASX:IIGF) all own shares in Pilbara Minerals Limited (PLS).

Here's a link to Gaurav's latest thoughts on PLS - may be behind a paywall:

Pilbara Minerals: Interim result 2024 - Intelligent Investor [01-Mar-2024]

I don't hold PLS - as I'm not ready to have direct exposure to a pure lithium play. I don't understand the supply/demand dynamics and environment in lithium enough to be comfortable with that exposure, however I do hold MinRes (MIN) shares in multiple portfolios (including here) and they do have some lithium assets - but it's not all they do - they are also diversified across iron ore, mining services, and investing.

But back to PLS. The company's management have done well. They've acquired good assets at cheap prices and then worked them hard and built up a very healthy warchest of cash while investing billions back into their own business to lower their own costs and set themselves up very nicely for the future. They also developed a sort of lithium auction system that should allow them to rapidly benefit from higher lithium prices when they come, rather than having locked in all of their future production at set prices for years as many other lithium miners have done. Excellent foresight and planning, superb execution from a quality management team; there's a lot to like about Pilbara Minerals.

If and when I want pure lithium exposure, this is the company I would be looking to get it through.

Here's just the start of Gaurav's March article on PLS:

Pilbara Minerals: Interim result 2024

Amid lower prices, this result was a flex.

We all knew this was coming. Amid tumbling lithium prices, Pilbara Minerals’ margins, profits and cash flow all crashed.

Net profits for the period fell from $1.2bn to $220m; operating margins crumbled from 83% to 55%. This was because received lithium prices went from almost US$5,000 a tonne to US$1,645.

Despite those dramatic falls, this result was a demonstration of how good Pilbara’s wholly-owned asset is.

The fact that the miner still made operating margins of over 50% and operating cash flows of over $500m for the half year neatly illustrates why we upgraded Pilbara amid grim pessimism (see Pilbara Minerals: luck and lithium).

Of course, lithium prices are lower now, so those margins will be crunched again, but no one else in the industry is making much cash. Here we have proof, if we needed any more, that Pilbara is the best hard rock lithium asset in the world.

Pilbara is doing what low-cost mines ought to do: maximising output.

For more, see here: https://www.intelligentinvestor.com.au/recommendations/pilbara-minerals-interim-result-2024/153340

https://thewest.com.au/business/mining/pilbara-minerals-fires-up-emissions-reduction-target-plan-with-woodside-gas-deal-for-growing-pilgangoora--c-12976501

Key takeaways:

Revenue: $757 M (down 65% on PCP)

Profit: $213 M (down 82% on PCP)

EPS: 7.25 cents (down 82% on PCP)

Trading on forward PER of around 25......................

Current share price includes a premium for a recovery in Spodumene prices........

From the Australian ...

Only Wodgina and Greenbushes are profitable at the current spot price

Pilgangoora is above the cost curve and appears this is what is driving the shorts.

From money of mine podcast.

https://www.youtube.com/@MoneyofMine

AustralianSuper builds stake in lithium miner Pilbara Minerals

Australia’s largest pension fund on Thursday emerged as a 5.1% stakeholder in Pilbara Minerals after snapping up shares now worth A$558 million ($371 million) at a time of heightened interest in the country’s lithium miners

The only shareholder with a larger stake in Pilbara Minerals is a subsidiary of Ganfeng Lithium Group, which owns 5.7%, according to LSEG data

A stock exchange filing, required as AustralianSuper‘s stake now makes it a “substantial shareholder”, showed the A$300 billion fund had built its position since July, picking up more shares in September and October as Pilbara‘s share price dropped

Lithium stocks have been battered as prices for hard rock lithium, or spodumene, have slumped 70% over the past year. Pilbara Minerals is the most shorted stock on the Australian Stock Exchange, ASX data shows, which has sent its shares down 21% over the past year

However, buyers are betting the plunge in lithium prices will be short-lived as supply shortages for battery makers reemerge

AustralianSuper declined to comment

The pension giant has become a more activist investor, leading opposition to a high-profile $10.6 billion bid for Australia’s top power retailer Origin Energy

Its move into Pilbara Minerals comes at the same time as mining magnates have snapped up stakes in takeover battles for some of Pilbara‘s rivals

Gina Rinehart, Australia’s richest person, spoiled Albemarle’s ALB.N A$6.6 billion bid for Liontown Resources LTR.AX

Pilbara‘s shares closed 2.3% higher on Thursday

Production relatively flat @ 144.2 kT

Sales up 6%

Revenue down 42% on prior quarter, as Lithium Hydroxide prices collapse.

Realised price per Tonne down 31% on prior quarter.

Looks to be trading on a forward PER of 15, assuming they maintain current realised price. The problem is Spodumene prices have fallen a further 20% over the past month.

IMO, there appears to be more downside than upside at present.

Now voting power: 6.19%

Guess JP Morgan & affiliates are shorting PLS.

PLS most shorted stock on the ASX

Tantalite production decreased in Q4 FY23 with 7,224 lbs produced relative to 8,575 lbs in Q3 FY23. For the full year FY23 period, the Group recorded 620.1k dmt of concentrate production, 64% higher than FY22 and at the top end of production guidance. The increase in production for the full year was driven by a combination of product grade strategy and improvements in productivity.

PILBARA MINERALS LIMITED (ASX:PLS) - Ann: June 2023 Quarterly Activities Report, page-1 - HotCopper | ASX Share Prices, Stock Market & Share Trading Forum

Share price reaction ; $4.95 up ~7% this arvo

supported by a $20mill Govt Grant . Executed April 2023

ASX +security code Security description PLS, ORDINARY FULLY PAID

Number of +securities to be quoted 168,678

Issue date 04/04/2023

Looks ok ..But the resource price must stand -up. ( Chart here )

• Release Date: 27/04/23 18:38 ( noted released outside trading hrs )
• Summary: March 2023 Quarterly Activities Presentation
• Price Sensitive: Yes
• Download Document  896.61KB
• 
  

below MIN vs the Li Carb' Price: ........the red -line incase yur colored blind"

So Li Carb chart to test the bottom of the price "pit" then bounce out / bottom out.

Market Cap ($M): 11,872

Return on invested capital: is good

Free cash flow: ablility to pay a fully franked dividend is ok

Where to next for PLS?

https://auto.economictimes.indiatimes.com/news/auto-components/pilbara-minerals-in-very-early-stages-of-considering-ma/97767870

@west it gets better…the sell rating with an upgrade from 3.15 to 3.40 has now (allegedly) been changed to neutral and a new price target of 4.70. All in the space of a few days. Oh my, it’s a comedy show unless you are paying for advice then, you wouldn’t know what to think.

did they not just put out a Sell rating... @NewbieHK

UBS upgrades lithium price forecasts, stocks

Alex Gluyas

Share post

UBS has upgraded its lithium price forecasts and stock valuations, noting that the battery metal will remain in a physical deficit for the near and medium term.

The broker refreshed its outlook following China’s rapid reopening and growing expectations for a sales rebound post Chinese New Year.

“We believe lithium markets will remain in deficit for the near and medium term before moving to structural deficit long term,” Lachlan Shaw, analyst at UBS.

“This needs a demand rationing price, for which we have seen no evidence in the past 12 months despite record-high prices that are orders of magnitude above costs.”

UBS upgraded its spodumene/chemical prices by up to 50 per cent which led to earnings upgrades across its coverage.

The broker upgraded Pilbara Minerals to “neutral”, and Mineral Resources and IGO to “buy”. UBS maintained its “buy” rating on Allkem.

For those interested the Quarterly Investor Conference Call from PLS is below. It provides a nice summary of the present and future opportunities and challenges as the company sees them.

I think it’s worth a listen for holders, non-holders and those who may be considering a holding.

What I found interesting is listening to some of the questions raised by GS, UBS, JPM etc and comparing them to the questions Andrew raises in the Strawman Interviews. Obviously, it’s not a like for like comparison but, it’s just interesting to see the difference (ie what I see as a short term focus almost looking for a gotcha moment) in the questions from the larger investment houses v Andrew’s more people focused in depth review of the people running the show and what they are doing to grow and develop.

https://www.webcasts.com.au/13125/player/index.php?player_id=20349&skip_stats=1

Add the potential dividend (assume interim, full, interim) back to their 3.40 (12m) price target and you are already getting back to yesterdays price. So one could hedge their bets.

The UBS valuations are priced on catastrophic drops in Lithium. With Liontown announcing today an increase in construction costs developers could be under further cost pressures to get production going. Will UBS redo their PLS price prediction?

So while the producers clean up developers face upward cost pressures to start producing.

This reminds me so much of the FMG v investment bank battles during their growth. These investment - advisory companies are stuck in the days where they think Retail holders can not access news themselves.

At $3.40 assuming just last quarter results x 4 (and no dividend payout) PLS could have $6B in the bank!

So UBS would like their clients to think that PLS should then only be valued at 10B?

I am not good at forecasting so I am happy to run off the present data. I will leave the guess work to the large investment and advisory financial companies.

The day after PLS quarterly results - oh my! Smells of desperation needing to get this update out today.

Pilbara Quarterly trading update

I think this article is important because it highlights that the world when it comes to EVs and thus Li requirements is greater than just China and the USA. So when we are talking about EVs and lithium demand it’s important to not just rely on information that suggests potential slow down or uptakes in China or the US due to XXX. Let’s not forget China “makes and sells” not just for their own consumption but, the world!

https://europe.autonews.com/automakers/chinas-ev-exports-surge-record-european-demand

Pilbara director Miriam Stanborough bought on-market 18000 shares at $3.86 on Wednesday

PLS continue to clean up holding these auctions. When one considers the cash being delivered by this company and 1) it’s not at full capacity, 2) a majority of present earnings have been locked in at “significantly” lower earnings it’s valuation of 4.55 just does not add up.

I understand the “it’s a commodity stock” but just how many so called tech stocks earning no money, with the dream of a solution, and a fanciful unlimited TAM continue to bleed cash are priced “significantly higher” on a relative basis even after big pull backs.

Lithium isn’t going anywhere and PLS a “producer” earning a bucket load of cash is right in the mix. I can’t help but think we have seen this story played out again and again (think FMG).

Maybe it’s a mix of “it’s a commodity” or “the price of Li has to retreat” or “looking for the spec explorer rather than the actual producer to get the life changing multiple expansion” or the so called investment company reports released “referring to lower valuations” whilst they accumulate in the background (does this really happen - ha ha).

If one looks past the “noise” and analyses the “numbers” I can’t help but think PLS is a future BHP, RIO or FMG if it isn’t already.

Note: I hold iRL.

PLS 12th BMX Auction.

US$8,299/DMT

PLS Share price $$4.55

Participating interests in the JV will be 55% Pilbara Minerals and 45% Calix, with each party funding their share of operating and capital costs and Calix licensing their patented technology and calcination knowhow into the JV

Latest BMX auction results.

16/11/22  $7805 dmt

 There has been a steady increase in price month on month

About a year ago, 26/10/21, the price was $2350

I’m sure this rate of increase is unsustainable but have no idea when it will slow or reverse.

Backs up yesterday’s announcement to start paying dividends from FCF, 20-30% payout from a cash balance of 1.375b

Held

"Battery Material Exchange" equates to a price of ~US$7,708/dmt (SC6.0, CIF China basis).

PLS price reaction up 1% to $4.94 (The Fed raised the federal funds rate by 75 bps to the 3%-3.25% range)

Above: YTD Growth returns (Chart shows the NHC coal ahead - but will unwind when a dark swan swims in)

Above: 5yr Growth returns

qualified buyers with a total of 22 bids received online during the 30-minute auction window. equates to a price of ~US$7,708/dmt (SC6.0, CIF China basis). 

Thought I'd post here instead of CXO as PLS is a current producer

Wonder if demand destruction for EVs could be on the horizon? And how much of the EV hype is driven by the current Biden administration and other western govs round the world. I usually don't pay much attention to Zerohedge but this is a good article.

Lithium prices hit new record as EV affordability concerns mount

$1.2 Bill Revenue plus 577% , $814.5Mill EBITDA, $561.8Mill NPAT

That is it dig up the dirt and ship it around and you get paid,

PowerPoint Presentation (markitdigital.com)