We have been bearish for ~2years but we now call for higher prices
We have (again) increased our CY26/27/28 spodumene SC6 CFR China prices by
32%/10%/23% to US$1,250/1,150/1,350/t versus spot of US$940/t driven by Chinese
supply disruptions and likely potential for more. As highlighted in our teams "China
Lithium: More Disruption? More Upside?" and "Lithium: Deeper China disruptions to lift
prices further", our base case now assumes; 1) 12 month suspension of CATL's
lepidolite mine and 2) 9-12month suspension of the other 7 lepidolite mines from Sept
30. Exactly how long-lived it is remains to be seen with higher prices potentially solving
permitting issues more quickly and incentivising some latent capacity. Nonetheless, we
see material upgrades to IGO and PLS EPS, with PLS best placed to capitalise on the
upswing in our view with EV/EBITDA and FCF yields of 7.8x/6.4x & 6.9%/6.8% in
FY26/27. We upgrade both to Neutral with a $5.75/sh & $2.30/sh PT for IGO & PLS.
PLS best positioned for the next cycle with the balance sheet and project combo
There was nothing material in PLS's FY25 results with the company highlighting its
sector leading balance sheet (A$599m net cash) and strong growth options. Given its
strong operating history, we model 880kt at A$590/t FOB (slightly above 820-870kt
prod guidance) and the midpoint of costs (PLSe A$580/t). We continue to assume
Ngangaju produces from FY27 after 4 month of restart works with only modest capex
needed in the plant but likely more substantial investment on the mining front (fleet etc).
PLS will deliver an optimised DFS on Colina (UBSe ~500ktpa & 1st production March Q
FY28) in June Q FY26 and the P2000 PFS in FY27 (UBSe production FY31).
IGO set to see a return to healthy dividends in FY26 (despite the JV's challenges)
While the June Q focussed on another write-down and continued operation (cash burn)
at Kwinana, the looming Dec 26 closure of Nova and the disappointing outlook for
Greenbushes (lower than expected production and more capex), things look materially
better under our improved price profile. While there has been some interesting press
surrounding the TLEA JV (LINK), we assume material dividends to IGO from FY26. The
ramp up of CGP3 and ongoing optimisation of installed infrastructure could present
further upside to near term production levels (UBSe FY26/27 1.64kt/1.92kt).
IGO PT up 20% to $5.75/sh & PLS up 44% to $2.30/sh; Upgrade both to Neutral
Our NPV-based Price targets are higher based on our improved short-med term outlook
for prices with our long-term assumption of US$1,200/t SC6 CFR China and AUDUSD
0.70 unchanged. On our modelling, IGO is pricing US$1,140/t and PLS US$1,160/t.
Note: UBS is restricted on Liontown Resources (LTR.AX) following its equity raise.
p.s. previous holder
PLS Price at posting:
$2.15 Sentiment: None Disclosure: Not Held
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