GOLDMAN SACHS Pilbara Minerals Ltd. (PLS.AX): 3QFY24 in line;...

GOLDMAN SACHS

Pilbara Minerals Ltd. (PLS.AX): 3QFY24 in line; Net cash of ~A$1.4bn leaves FY24 div unlikely; Offtakes may limit spod price upside; Sell
19 April 2024 | 7:41PM AEST

PLS reported in line spodumene production of 179kt, with shipments of 165kt up 3% QoQ, but below GSe/consensus on timing of shipments. Unit costs of A$675/t (FOB; pre-royalties) were broadly in line with market expectations, and growth projects remain on track.

Realised pricing of US$804/t (US$927/t SC6.0 CIF China) was down ~30% QoQ, though broadly in line with market expectations. While provisional pricing modestly impacted Dec-23 quarter sales prices, a cash final pricing adjustment of -A$218mn impacted cash flow in the quarter.

However, PLS’ capture of improvements in spodumene prices is likely limited given the large portion of near-term volumes committed to offtake agreements (~90%+ over FY24-25E, also limiting auction capacity). Due to a significant portion of volume being linked to chemicals pricing (broadly remained flat since the beginning of March), despite the recent improvement in spodumene prices following a small number of auctions, we see this limiting any potential uplift of PLS’ realised spodumene prices into the Jun-24 quarter.

Furthermore, this greater contracted exposure may also slow the realisation of any broader lithium complex price rises/falls for PLS vs. peers. PLS’ net cash declined to A$1.4bn (from ~A$1.8bn) and has almost halved over the last 6 months (partly on catch up FY23 tax in the Dec-23 quarter). As a result, we see a FY24 final dividend as increasingly unlikely (prior GSe ~A2cps) given capital spend, realised lithium pricing challenges, and PLS having already deferred non-essential spend/the 1H dividend to preserve a balance sheet advantage (though expect dividends to return with the FY25 interim result).

We note that on our numbers, both before/after including a Beyond P1000 expansion, net cash troughs at ~A$0.8-0.9bn (before likely longer dated downstream capex).

Our 12m PT is down to A$2.80/sh, where PLS (Sell) remains at a premium to peers (1.2x NAV & pricing ~US$1,300/t LT spodumene (including a nominal value of A$1.1bn for growth); peer average ~1.05x & ~US$1,210/t (lithium pure-plays ~US$1,110/t; GSe US$1,150/t LT real)), with near-term FCF continuing to decline on lithium prices and increasing growth spend (c.-10% FCF yield in FY24E, and c.0% in FY25-27E).

We also continue to see risk that a Beyond P1000 expansion disappoints vs. market expectations on a combination of capex, size, or timing