Everything you need to know about Pilbara Minerals' December quarter report

The December quarter report from Pilbara Minerals (ASX: PLS) has to be one of the most highly anticipated announcements amid a deepening selloff for lithium prices.

As one of the lowest cost and largest ASX-listed lithium producers, the report will provide a key read through for the rest of the industry. Here's everything you need to know about quarterly.

December quarter at a glance

• Spodumene production of 176,000 tonnes, up 22% quarter-on-quarter and above the 162,000 expected by analysts

• Spodumene shipments of 159,900, up 9.3% quarter-on-quarter but below the 166,400 expected by analysts

• United operating costs FOB of $639 a tonne, down 14% quarter-on-quarter but above the $631 a tonne expected by analysts

• Revenue of $264 million, down 46% quarter-on-quarter

• Realised price of US$1,113 a tonne, down 50% quarter-on-quarter

• Cash balance of $2.1 billion, down 29% quarter-on-quarter

Putting it all together: Pilbara Minerals reported a strong operational performance with better-than-expected production while shipments and costs were a little softer-than-expected. The decline in lithium prices has been well-documented and while the face value drop in realised price and revenue is shocking, it should not come as a surprise. Cash at bank fell sharply but the majority of the $897 million quarterly decline is attributed to tax payments (which was flagged during FY23 results).

The most important factors

Cost and capital changes: One of the most important things to look out for in this announcement is whether or not PLS announces any changes to its production and CAPEX outlook – given the weakness in lithium prices, Core Lithium suspending mining operations, Liontown lenders walking away because lithium prices are too low for them to approval a loan etc. PLS said it will continue with its "previously announced strategy of prioritising investment in expanding production through the P680 and P1000 Projects," adding that both projects are fully funded from existing cash balances.

Lower capex: PLS said its balance sheet is a "significant competitive advantage" and wants to keep it that way through "rationalising non-essential spend that does not impact on expansion or further improve unit operating costs." The company lowered its FY24 CAPEX guidance from $875-975 million to $820-875 million, down 8.4% at the midpoint.

Dividends: PLS said its unlikely that a dividend will be paid for the first-half of FY24. The move is in-line with most broker expectations.

What makes things tricky

All-in-all, the result was largely in-line with expectations and PLS remains committed to expanding production while trimming any unnecessary spend.

What makes the situation tricky to analyse is the fact that Pilbara Minerals is the most shorted stock on the ASX, with 21.47% short interest as at 17 January 2024. This means the share price reaction can result in a number of situations:

• The announcement drives up liquidity and shorters use this to cover their positions (which drives up the share price)

• If the announcement was a massive miss, the stock could experience a brief tumble at the open but squeezes upwards as shorters cover

Spodumene prices are also trading around US$850 a tonne, according to S&P Global Platts. Thus, more earnings weakness is expected over the near term.