Because of BOT downrampers who want to buy more PLSUBS...

Because of BOT downrampers who want to buy more PLS

UBS report
Pilbara Minerals "Lithium Beta" (Sell) Spry

A$1.2bn net cashPLS has reported strong Sep-Q production, in-line sales at good costs but realised prices were slightly below our expectations. Following the strong start to FY23 we believe it can better guidance of 540 - 580kt (UBSe 612kt) and have upgraded our throughput, grade and recovery assumptions in the near term lifting EPS 9/24/10% in FY23/24/25E. We are monitoring waste movement rates, capital spend and realised price discounts but PLS continues to do an excellent operational job and is generating significant earnings and cashflows delivering volume into these elevated prices. However PLS trades on a 4.9x FY23 EV/EBITDA and at a premium to ASX peers. We remain bullish on lithium but see better value alternatives and remain SELL rated at A$3.05/sh PT.Sep-Q 22 show FY23 guidance look conservativeProduction of 147kt spodumene (588ktpa rate) came with further processing capacity (combined Pilgan & Ngungaju 3.2 to 3.6mtpa rates) still to be unlocked before the P680 (potentially 750ktpa at 5.4%). Unit costs including freight and royalties of A$1,122/t/US$767/t were also ahead of our expectations on the stronger production result.P1000 FID and capital management plans pendingEarthworks are underway on P680 and it remains on track for Dec-Q 23 commissioning while FID on the A$300m P1000 is expected by year end. Around this time we also expect an announcement of a maiden capital management /dividend policy. While PLS remains a growth company with a not insignificant (but manageable) capex program in front of it (P1000, Calix demo plant & any growth opportunities), a A$784m increase in cash over the Q improved net cash to A$1.2bn. We expect healthy returns but note debt covenants mean not before year end and franking mightn't be available until June-30.Strong markets but discounted realised priceDespite the deteriorating global backdrop, lithium prices continue to beat expectations and the latest BMX (Oct 24) of 5kt at US$8,000/t SC6.0 equiv indicates strength continues. PLS does continue to push volume (including selling some 1.2%), maximising yield and recovery of lithia units. Sales at 5.3% achieved an average price of US$4,266/t (87% under long term contract) up 9% q/q but at an increased discount of 36.5% to the Fastmarkets SC6.0 average Sep-Q price of US$6,723/t which increased 13% q/q.Valuation: SELL rated A$3.05/sh PT (prev A$2.65/sh)Our valuation is based on 1xNPV at 10% using a long term SC6.0 spodumene price of US$1,100/t and AUD:USD 0.75. On our modelling PLS is pricing in US$2,200/dmt SC6.0 spodumene, or US$1,880/dmt based off our ~14.5% LT discount to SC6.0.