Pilbara Minerals (PLS) is one of Australia’s most significant listed pure-play lithium mining companies. The company owns two lithium mines in WA’s Pilgangoora region. The company produces two products, lithium spodumene, and tantalite concentrate.
PLS confirmed full-year production guidance of 340-380,000 DMT of lithium spodumene in the recently released quarterly production report.
PLS has high-quality assets that are producing right now, so they can take advantage of high prices, and the company has plans to increase production over the next few years up to 560 – 580kpta of the annual output.
In the March quarterly report, unit operating cost (FOB port Hedland excluding royalties) of US$458/dmt was achieved. Considering the increasing cost of wages, fuel costs look to be under control. The average spodumene price reference for sales came in at US$2,650/dmt.
The majority of PLS production is sold under long-term off-take agreements. Any excess production is sold through a digital trading platform operated by PLS called Battery Mineral Exchange (BMX). One cargo was sold through BMX during the March quarter achieved a sale price of US$5,650/dmt. As production increases, the company expects the number of auctions to increase over time which should lead to higher realised prices over time.
Operating cash flow in the March quarter was $113.9M, which delivered quarter ending cash balance of $284.9M. Strong operational cash flow and a solid cash balance mean the company will not have to tap the market for more funds to bring on additional production. There is nothing worse than recommending a new position for the report then in the days and weeks after opening a new position, a discounted capital raising depresses the share price like what has occurred to us in Allegiance Coal (AHQ).
On a technical level, there has been a double top in the share price recently, and the current price action shows the support level of $2.60 is holding.
TRADE ACTION
Number of shares: 2,000
Buy up to: $2.75
Stop loss: $2.15
Target price: $3.50