Pilbara Minerals beats production forecasts but lithium prices tumble

Pilbara Minerals (ASX: PLS) has defied the recent turn of events for lithium markets, posting better-than-expected production, shipments and unit costs for the June quarter. The company’s shares opened 3.05% higher to $4.73 as the market opened on Tuesday.

Production of spodumene concentrate increased by 10% quarter-on-quarter to 162,800 tonnes, which slightly beat analyst expectations of 162,000 tonnes.

Shipments were particularly strong at 176,300 tonnes against expectations of 160,000 tonnes. The company said this reflected “continued strong end customer demand, production volume increases and the timing of shipments.”

Unit operating costs were mostly unchanged quarter-on-quarter at $628 a tonne and in-line with consensus expectations of $630 a tonne. 

The increase in shipments bolstered the company’s cash position to $3.3 billion which is around 23% of its current $14.2 billion market cap.

Softening lithium prices 

The operationally strong June quarter was not enough to offset the weakness in lithium spot prices. Group revenue declined 18% quarter-on-quarter from $1 billion to $800 million.

Pilbara Minerals said the 22% increase in sales volumes didn’t offset a 33% decline in average estimated realised prices, which fell from US$4,840 to US$3,256 a tonne.

From a year-on-year perspective, Group revenues increased 238% to $4 billion.

Goldman Sachs: Impressive free cash flow yields

Goldman Sachs said the June quarter result was solid with spodumene production and sales volumes 6-15% higher than its forecasts, partially offset by lower realised prices.

“The reported realised price of US$3,256/dmt was 15% lower than our expectations,” the broker said in a note on Tuesday.

“The company reported a total cash balance of $3.3bn which beats our forecast by 28%. PLS also paid cash tax of $121m which increased its full-franked dividend payout capacity by ~$400m.”

Goldman retained an OUTPERFORM rating and kept its price target unchanged at $7.30. 

“On our forecasts, PLS is trading on impressive free cash flow yields of 22% and 14% for FY23 and FY24, respectively,” the analysts said.

Citi: Cash beat, weaker prices

Citi trimmed its target price by 30 cents per share on “our more conservative approach to the expansion ramp-up,” but reiterated “nothing in the result [has changed] our view here.”

The investment bank retained a BUY rating with a $5.10 target price.

Some of its key takeaways include:

• The $3.3bn cash position was 2% ahead of Citi’s estimates

• Realised pricing of US$3,256/t was 12% below consensus

• September quarter EV sales “should be stronger quarter-on-quarter”

• P680 expansion is on track for the first quarter of FY24