Lithium

Ord Minnett upgrades Pilbara Mins to Buy: Target price up over 50%

Tue 05 Apr 22, 2:18pm (AEST)
image

Stocks in article

pls
MktCap:
-
lyl
MktCap:
-
ake
MktCap:
-

Share article

Key Points

  • The company's share price started to bounce higher mid-March
  • Pilbara Minerals is enjoying record prices for its spodumene
  • Fairmont Equities believes Pilbara Minerals may have turned the corner

Following Pilbara Minerals' (ASX: PLS) mid-stream project update last Thursday, Ord Minnett has upgraded the emerging lithium and tantalum producer to Buy from Hold, with the target price increasing by 55% to $4.50.

After taking a robust lithium outlook the broker doubled its prior 2023 price forecast for spodumene to US$5,000/t.

Ord Minnett’s hydroxide and carbonate estimated have lifted 50% and 60%, respectively and the broker’s long-term forecast rises by 18%.

Inflection point

While Pilbara’s share price has struggled – relative to its peers – since the start of the year, Fairmont Equities believes that as one of the country’s largest producers, Pilbara may have finally turned the corner.

“The downtrend from earlier this year has now been broken and we believe that it is now starting a new uptrend which should see it shortly trade to all-time highs,” the broker noted.

Despite losing ground late January, Pilbara’s share price started to bounce higher mid-March and since then shares have risen from $2.57 to $3.61.

Mid-stream update

As one of Australia’s biggest hard-rock lithium miners from its Pilgangoora operation in the Pilbara, the company is planning to lift production of lithium-rich spodumene concentrate to more than 1m tonnes annually.

However, the company is also assessing new mid-stream value-added products, and last week announced plans to build a demonstration chemicals facility to produce a lithium phosphate salt product.

Undertaken by Lycopodium Minerals (ASX: LYL), Pilbara’s recently released Scoping Study provided preliminary support for the technical viability of constructing a demonstration-scale chemicals facility producing value-added lithium phosphate salts via an innovative refining process at the company’s Pilgangoora Operation in WA.

The estimated capital development cost of the envisaged demonstration plant is between $50-70m.

Long-term play

While Pilbara is encouraged by the results to date from the Scoping Study, contributing engineering is still considered to be at an early stage of development.

Outgoing Pilbara CEO Ken Brinsden believes the company is onto a winner with this project. But he suspects it will be a long-term play, especially given the small amount of lithium phosphate sold around the world today.

Meantime, Pilbara is enjoying record prices for its spodumene, and in the first half to December 31, achieved an average price of $US1250 a tonne for its spodumene concentrate.

Commenting recently on pricing, Brinsden was unambiguous in his expectation for it to remain strong.

“A mine takes five to seven years to get up and running. You can build a chemical plant and a car plant in less than two years … so it’s going to take quite some time for the mines to catch up.”

image

Pilbara Minerals share price appears to be regaining lost ground.

What other brokers think

Based on the four brokers that cover Pilbara (as reported on by FN Arena) the stock is currently trading with 12.2% upside to the target price. These brokers are divided equally between Buy and Neutral recommendations.

Macquarie expects spot lithium prices to underpin strong earnings upgrade momentum and sees a key near-term catalyst resulting from a potential spot sale on its battery material exchange (BMX) platform.        

The broker’s Outperform rating is unchanged (target price $4.30) and regards the positive scoping study at the Mid-Stream Project as an opportunity to capture more value along the lithium value chain.

While Credit Suisse favours Allkem (ASX: AKE), the broker notes that Pilbara should enjoy a premium over Allkem given a strong track record and management. Credit Suisse retains a Neutral rating with the target price increasing to $3.90 from $3.20.

Consensus on Pilbara is Moderate Buy.

Based on Morningstar’s fair value of $3.15, the stock appears to be overvalued.

The stock was -3.04% lower in early afternoon trading.

 

Written By

Mark Story

Editor

Mark is an investigative financial journalist and editor who started his career working for Marathon Oil in London. He has a degree in politics/economics and a diploma in journalism. Mark has worked on 70-plus newspapers and financial publications across Australia, NZ, the US, and Asia including: The Australian Financial Review, Money Magazine, Australian Property Investor and Finance Asia. Mark is passionate about improving the financial literacy of all Australians through the highest quality content. Email Mark at [email protected].

Get the latest news and media direct to your inbox

Sign up FREE