For anyone beginning to worry about their investment in PLS, unless you need the money right this minute and PLS is your only option, stop worrying. Period.
Has the SP gone down, recently? Yes. Will it continue to slide? Maybe. In fact, probably at least a little more.
Why am I positive about PLS, then? The person that I most respect as an investor, because he has a SIXTY year track record of outperforming the market (18+% v. 10% for the S&P500 in that 60 year period) is Warren Buffet, and right now, PLS is ticking almost all of his boxes for when to purchase a stock, including:
1. Buy when there’s blood in the streets.
2. Purchase the stock of good companies at a fair price.
3. Invest in the management of a company. At the end of the day, good management will outperform other companies in their industry. PLS has maybe the best management team in the industry.
4. Invest in cash flow, and avoid companies saddled with debt. Have you seen PLS’ balance sheet?
The only difference between PLS last year and this year is the price of SC6, and that is cyclical, and will eventually bounce back upwards.
Things to remember, which help to fuel my optimism include:
1. We have A$1.8B in the bank (earning approximately A$22.5M per quarter interest, BTW). That balance sheet will complete P680, complete P1000, complete the Calix JV, bump our share in the POSCO JV to 30%, and still leave room to weather any foreseeable economic storms.
2. The operation was barely cash flow positive (before CAPEX) in Q3, with a realized price of U$804. The spot price moved up the majority of the quarter, and is currently a bit North of U$1,100. That U$300 difference, multiplied by 170 kt (which would actually be a slight decrease from last quarter’s production), represents an extra U$51M, or approximately A$75M in revenue from last quarter.
3. Something that I haven’t seen anyone pay attention to is shipment price adjustments. Remember that in Q3FY24 (last quarter), PLS took a hit of A$218, because most of our OTAs include a one month or two month price adjustment period (we book a sale at the price when the shipment is delivered, but the final price is actually whatever the price is either 30 or 60 days after the shipment is received), and since prices were decreasing, the SC6 we sold in Q2 had their prices adjusted downwards.
a. SC6 prices having been moving upwards since January, especially from February to early May, so we should assume that most or all of our Q3 sales will have final pricing adjusted upwards. Our realized price for SC6 went down U$309 between our Q2 sales and Q3 pricing adjustments, but has gone back up by almost exactly the same amount from Q3 to now, so I would expect an upwards adjustment approximately matching Q3’s downward adjustment (assuming similar sales volume). That would be an extra A$218, give or take a few $M.
4. PLS might be one of the only operations in the world that is actually out-producing nameplate. Technically, our nameplate is 580K, and we are almost completed with P680, but we have produced 176 kt and 179 kt in the past two quarters, including a record 90 kt in March, alone. If we average the production over past two quarters and project it over a year, that has us at 710 ktpa, and there are still some improvements related to P680 to come online!
Finally, I would remind everyone that our management/BOD had the foresight to take advantage of the AJM failure and ramp-up production right before the last upswing in Lithium pricing. That allowed them to bank enough cash to expand production all the way up to 1 mtpa (P1000) while paying their first dividends. With our cash stockpile, they have been able to continue pushing CAPEX projects, on time and budget, mind you, during a period of time where our realized pricing dropped between 70% and 80% and other companies' projects have halted, slowed or delayed. With P680 nearly completed and P1000 and the Calix JV due to commence production next year, it looks like PLS will be ready just in time for the next significant upswing in Lithium pricing. If we can conclude increasing our share of the POSCO JV to 30% by then, as well, it will be a hat trick!
We invest in the real world, and a black swan event, like a recession or, God forbid, a major powers war, could happen at any time. If such an event occurs, almost ALL investments will tank. Assuming the world remains "normal," PLS is an almost no-brainer investment. Please note that I said “investment”; if you are a trader, PLS might not be the place to put your capital to work, especially today, but if you are looking at a timeline of three years or more, PLS is a no-brainer (in my non-professional, that’s where I am putting my money, opinion).
Best regards, and have a nice day!
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