The sector is splitting...

It is becoming increasingly clear that the market is maturing, and beginning to view the Lithium sector in two traditional segments - Producers & Explorers.

The dynamics that drove the Explorers through much of 2015-2017 (announce a huge resource, talk up the massive demand for lithium) is no longer exciting the market like it once did. We've seen BGS announce a doubling of their resource (to minimal share price response) and AVZ constantly crowing about the largest deposit ever (again, minimal share price response).

Why?

Because the extraordinary margins and opportunity will be made in the next 3-5 years.

Notwithstanding that Morgan Stanley are overestimating how soon the market will come back into balance, we can all agree that the market will come back into balance at some point. It's just unrealistic to think that companies will be making 80, 90, 150, 200% margins on their product forever. If prices remain elevated, more supply will come online at some point.

The Producers (and near-term producers) are therefore facing the traditional dynamics of a mining company, but with the EV/Battery-tech supercycle behind them. Consequently, they're an asymmetric risk bet....either they can get product out according to their offtakes, and they'll capture the cream of the tight market over the next 3-5 years, or they won't and they'll miss the opportunity.

I don't know what Lithium pricing will be in 3-5 years....but I know what it is now...because everyone has just reported it.
- GXY: "prices remain significantly elevated on a year-on-year (“YoY”) basis (c.+21% for lithium carbonate, c.+5% for lithium hydroxide in China)"
- ORE: "Record price received of US$13,533/tonne on a free on board basis (FOB), up 17% quarter on quarter (QoQ)" [equates to about US$1,000/t for spod. and the kicker] "Prices for the June quarter 2018 are expected to be higher than in the March 2018 quarter"
- MIN: "The market price for 6% spodumene was $USD900 per tonne...during the current quarter with the prices increasing by 6.8% to $USD960...from April 2018"

Any company that can reliably get product out - at reasonable cost and with strong offtake partners is going to be rolling in it.

PLS certainly fits the bill for me.

*Checks back of envelope....

800k kg of spod (Stage 2)
US$700 margins ($925 sale price minus $225 production cost)
1.25 (US:AU $)
= $700m EBITDA

Yep...should do pretty well