Pilbara Minerals’ shorting pressure eases but UBS slaps sell recommendation on the ASX’s most shorted stock
Adrian RausoThe West Australian
Mon, 4 December 2023 12:35PM
A stockpile of spodumene at Pilbara's Pilgangoora operation in the Pilbara. Credit: Pilbara Minerals
Pilbara Minerals remains the lightning rod for lithium bears as UBS slashes its price target for the miner, but heavy pressure from short-sellers on the Dale Henderson-led business is showing signs of easing, according to the latest data from the Australian Securities and Investments Commission.
UBS downgraded its outlook for Pilbara in a research note issued to clients on Friday, trimming its price target from $3.75 to $3.05 and changing its sentiment from ‘neutral’ to ‘sell’. Pilbara shares were trading down 1.7 per cent to $3.55 at 11.30am on Monday.
Unlike its peers Mineral Resources and IGO, which have projects in other commodities under their belts, pure-play lithium producer Pilbara is fully exposed to the current weak lithium price environment, UBS analyst Levi Spry said.
“We see no risk to production growth plans, but we do expect the market to focus on realised price for PLS’s current 5.2 per cent product, and the company’s declining cash balance ... with reduced operating cashflow in this heavy investment cycle,” Mr Spry said.
UBS expects Pilbara’s cash balance to sit at around $500 million by June 2025. As at the end of September this year, Pilbara had around $3 billion of cash in its warchest as seeks to expand its flagship project — the Pilgangoora lithium operation near Port Hedland — and push downstream in the lithium value chain.
Pilbara has been the target of short sellers in recent months, who are hoping to profit from a declining share price, pitting these detractors against Pilbara’s large contingent of mum-and-dad shareholders.
There are signs the short selling pressure is easing however, according to the latest data available.
On November 24, the percentage of Pilbara’s shares falling into the hands of short sellers surpassed 21 per cent, continuing a trend of consistent growth in the portion of its shares being shorted in recent months. As of last Tuesday — the most recent day of data available from ASIC — the percentage of short-sold shares fell to around 18.5 per cent.
This is the first decline in short selling interest by more than two percentage points since the big wave of short selling surfaced in July, when its short sold percentage was hovering around 6.
Despite the recent improvement, Pilbara’s shares remain the most shorted ordinary shares on the ASX. The only other lithium stock in the top 20 is fellow pure-play lithium producer Core Lithium, which has 11.4 per cent of its shares shorted.
When quizzed by a shareholder at Pilbara’s annual general meeting last month why the company in particular has been in the firing line of shorters, Mr Henderson said the miner was a prime target thanks to its large market capitalisation, liquidity in the trading of its shares, and pure-play exposure to lithium.
“What we’ve rationalised is that people are actually betting against the lithium price because there’s very, very few financial instruments to do that through,” he said.
“But you have to be very brave to bet against Pilbara…what we’ve seen is when the lithium market turns, it turns quickly.”
Mr Henderson made those comments while noting the market price for the renewable battery ingredient will remain volatile in the short term.
“It’s been a rollercoaster ... unfortunately I think the rollercoaster will continue,” Mr Henderson said.
At its peak, the Australian export price for 6 per cent spodumene lithium concentrate climbed past $US8000 a tonne earlier this year, before crumbling to around $US1600 a tonne last month.
PLS Price at posting:
$3.53 Sentiment: None Disclosure: Held
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