Pretty grim out there at the minute, and Goldman Sachs latest estimates of $1250pt of SC6 for the 2024 CY doesn't help sentiment.
I thought I would do a base case scenario to demonstrate what PLS' profitability looks like with these pricing projections factored in, as well as a projected cash at bank balance at 30 June next year.
What becomes quite clear is the fact that from a financial perspective, there are absolutely no issues here (if that was ever in doubt). The last 18 months has really saved the Company from any financial duress. If the industry goes the way quite a few analysts are thinking (including GS), what happens over the next 12 months may actually improve PLS long term prospects. In fact it probably will.
At current pricing, low quality sources from Africa are not profitable - so the big uplift in material China has received from these sources over the last 12 months is not viable with the current market dynamic. The low pricing is also going to create huge strain on producers that have just come on board (e.g. CXO), or trying to develop and construct, as the strategy to outlay huge costs with such low pricing does not add up. This will only cause more supply issues than there is already going to be from 2025 onwards. PLS will be a huge beneficiary of this. P1000 should be commissioned and ready to go from mid 2025CY, ready for the uplift in pricing. POSCO is also assumedly completely up and running by then, and who knows what will come of the partnering process but they could be further upside, although this will most likely be further down the track.
As can be shown below, I am still estimating around $1.67b in the bank at 30 June 2024, even after the huge capital outlays totalling $850m for P680/ P100, mine development and project enhancements including Calix etc.
Obviously there will be a cut in the dividend (if there is one) in Feb next year. But even after paying out say a 5c dividend, we should still have over $1.5b in the bank. Also worth noting that this projected balance will have income tax completely up to date, and there shouldn't be any material carry over into the next FY like there was this year.
Estimated gross profit analysis and project bank balance at 30 June using base case pricing below, with the following assumptions:
- Spod SC6 pricing for Dec 23 quarter $1.400 USD, then $1,250 USD for the March and June 24 quarters.
- The pricing has been adjusted for SC 5.3 expected product
- USD exchange - 0.65
- Income tax now paid on monthly basis, so assuming income tax has been paid for the months between July 23 - Sep 23, (the analysis factors in the large outstanding tax balance from the 2023 FY which will be paid in this Dec quarter)
- I haven't accounted for any dividend payment in February next year. As mentioned above, a 5c dividend would cost $150m which could be factored in.
| Quarter | Shipped | Price (USD) | Operating Cost (USD) | Royalties & Freight (USD) | Total Cost (USD) |
| Margin (USD) |
| GROSS PROFIT - AUD |
|---|
| 1 |
|
|
|
|
|
|
|
|
|
|
|---|
| 2 | Sep-23 | 146,922 | $2,240 | $489 | $169 | $658 |
| $1,582 |
| $368,937,868 |
|---|
| 3 | Dec-23 | 165,000 | $1,237 | $420 | $130 | $550 |
| $687 |
| $174,307,692 |
|---|
| 4 | Mar-24 | 175,000 | $1,104 | $420 | $130 | $550 |
| $554 |
| $149,198,718 |
|---|
| 5 | Jun-24 | 175,000 | $1,104 | $420 | $130 | $550 |
| $554 |
| $149,198,718 |
|---|
| 6 |
|
|
|
|
|
|
|
|
|
|
|---|
| 7 |
| 661,922 |
|
|
|
|
|
|
| $841,642,997 |
|---|
| 1 | | CASH BALANCE 30 SEP 2023 | ,000,000,000 |
|---|
| 2 |
|
|
|---|
| 3 | Plus: Gross Profit (Oct 23 - Jun 24) | $472,705,128 |
|---|
| 4 |
|
|
|---|
| 5 | Less: Corp & Admin Overheads (Oct 23 - Jun 24 Est) | $60,000,000 |
|---|
| 6 |
|
|
|---|
| 7 | Less: Tax Payable (Oct 23 - June 24) | $123,811,538 |
|---|
| 8 |
|
|
|---|
| 9 | Less: Capital Costs & Unpaid Tax |
|
|---|
| 10 |
|
|
|---|
| 11 | Tax Payable (balance of of 2023) | $773,000,000 |
|---|
| 12 | Growth Expenditure (P680 & 1000) | $515,000,000 |
|---|
| 13 | Mine Development | $150,000,000 |
|---|
| 14 | Projects & Enhancements | $180,000,000 |
|---|
| 15 |
|
|
|---|
| 16 | CASH BALANCE 30 JUNE 2024 (Est) | $1,670,893,590 |
|---|
(20min delay)