Pilbara Minerals loads up on debt despite bleak lithium outlook Elouise FowlerReporter
Aug 26, 2024 – 6.21pm
Lithium miner Pilbara Minerals has secured a $1 billion loan from Australian and international banks to fund a production expansion, just as the market braces for a prolonged slump in prices for the key battery metal.
The new line of credit was unveiled on Monday at the miner’s full-year result, where it reported low lithium prices had dented its net profit by 89 per cent.
The credit facility will refinance existing debt as the company expands its flagship Pilgangoora mine near Port Hedland and finalises its near-$560 million takeover offer for Latin Resources, which contains the Salinas project in Brazil. Pilbara Minerals’ Pilgangoora project in Western Australia. Christian Sprogoe
It also leaves powder dry to make further “growth” bets, the miner revealed. But Pilbara boss Dale Henderson stressed to investors the new loan, provided by Australian and international banks, was not designed to plug holes left in the balance sheet by weak lithium prices or an upcoming capital call.
“This is the next step in the maturity of Pilbara Minerals’ capital structure,” he said. “This is not lithium market related and it is not driven by an impending capital need, rather it provides a more resistant balance sheet, funding flexibility and a lower cost finance structure.”
Pilbara’s net profit crumbled to $257 million in the year ended June 30 from $2.4 billion. It fetched an average price of $US1176 ($1735) a tonne of lithium-rich spodumene over 2023-24, compared to $US4447 tonne in the prior year.
This dragged down Pilbara’s revenue by 69 per cent to $1.2 billion from $4 billion.
But a 16 per cent increase in volume and lower overall costs partially offset the price slump, the company revealed, adding its full-year production of 725,000 tonnes was a 17 per cent increase on the 2023 financial year, and exceeded its guidance range of 660,000 to 690,000 tonnes.
The stock rose 1.3 per cent to $3.02.
Pilbara’s net profit, earnings and revenue beat consensus.
But UBS still advised investors to sell Pilbara shares on Monday; it cut Pilbara’s share price target by 8 per cent to $2.30.
The broker’s downgrade came after it slashed its lithium price forecast for the 2025 and 2026 calendar year by 23 per cent on Monday. It cautioned that not enough supply was being deferred, and global demand for electric vehicles was softening.
“While we don’t observe any large-scale curtailments yet, it is clear that the stress of low prices needs to drive production curtailment and delay/deferral of growth projects,” said UBS analyst Lachlan Shaw.
UBS slashed its outlook for lithium concentrate with 6 per cent lithium content, the hard rock ore that Australia produces, from $US1000 a tonne to $US770 a tonne.
Mr Henderson stood by the company’s decisions in 2022 and 2023 to expand the Pilgangoora mine, which underpins preliminary plans to triple lithium sales by the end of the decade.
He acknowledged “we’re seeing a little bit more softness on pricing”, but he expects demand for lithium will return in the long term.
“It’s about building out that capacity because we know the long term it’s required,” he said. “In both expansion cases, it takes us further down the cost curve,” he said, referring to extracting ore more cheaply when volumes increase.
Spodumene fetched $US760 a tonne on August 23, according to S&P Global’s Platts.
PLS Price at posting:
$2.91 Sentiment: None Disclosure: Not Held
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