PLS chart, page-22816

Price is determined to go to $2.50 level. Shorters getting obese with all the cake they're eating. Short level staying above 22%.

Extract from UBS regarding Latin project. 14 Aug

The 100% scrip consideration leaves net cash intact at A$1.6bn ahead of new project funding (debt/gov financing and strategic/offtake options). However, we remain concerned an over-supplied lithium market will weigh on prices for 1-3yrs ahead and remain unchanged
Sell rated at A$2.50/sh.

78Mt 1.24% resource in Brazil with DFS due next month. Salinas is an advanced spodumene project in Brazil's Minas Gerais region, currently undergoing a DFS due later in the Sep-Q. The current 78Mt 1.24% resource should grow to potentially >100mt at 1.2-1.4%, which could see it of comparable size to WA hard rock deposits. However, the PEA 11yr mine life, upfront US$253m capex and LOM average ~500ktpa SC5.2 production at US$326/t AISC could be challenged at current prices. With ample moving parts and changes since, in particular the very high 17:1 strip ratio, we look to the study for updated assumptions. Under the PEA post tax NPV at spot (US$800/t) is modest at ~US$450m vs ~US$370m deal price.

Diversification beyond the Pilbara Strategic rationale for PLS focuses on single asset diversification and leveraging existing expertise (hard rock open-pit, processing and marketing). With 100% of Salinas offtake uncommitted, this gives PLS exposure into North American and European battery markets. We also note the deal risks diluting the already market expensive PLS operations that trade expensive to peers.

Price pressures and subdued China lithium carbonate demand GFEX futures are down ~10% 1wk amid reports of very subdued China domestic carbonate demand with only ~210t of ~900t tender managing to sell. We haven't seen a supply response yet to justify price normalisation as demand remains soft. We'll have more to say on this after our Africa lithium visit this week.

Valuation: Sell rated A$2.50/sh (unchanged) On our modelling PLS is pricing in US$1,360/t SC6.0 real spodumene indefinitely.