Monsters of Rock: Analysts keep faith in Pilbara to navigate choppy lithium waters - *

Monsters of Rock: Analysts keep faith in Pilbara to navigate choppy lithium waters

Mining

June 24, 2024 | Josh Chiat

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• Lithium miner Pilbara Minerals is still a buy: Jarden
• ASX giant announced major potential expansion plans on Friday
• But analysts have knocked down price target on lower medium term lithium price forecasts

Lithium stocks have been in the doghouse for the past few months as prices have hovered at low levels, but there’s never any shortage of enthusiasm when the EV metal to rule them all is involved.

Pilbara Minerals (ASXLS) gave a boost of confidence to the market by utilising a US$1500/t SC6 price in an expansion study on taking its Pilgangoora mine from a current 620,000tpa to ~2Mtpa, albeit at a 5.2% Li2O basis, from 2028.

An FID is unlikely until the end of last year, but the initial study’s release has demonstrated the good and bad ahead for lithium investors.

On one side, it demonstrates incumbent producers remain constructive that prices will recover to levels that could support large increases in production.

At the same time, incumbent producers with economies of scale could flood the market and repeat the oversupply conditions seen regularly in the juvenile commodity since the EV boom began.

Jarden analysts led by Ben Lyons reduced their price target on PLS from $4.10 to $3.80 today but retained a buy rating with a projected return against this morning’s share price of 22.2%.

The price target was cut after Jarden dropped its spodumene prices to US$1200/t for FY25 and US$1250/t for FY26, a move that would see its EBITDA forecasts for the lithium giant chopped 1% this year, 40% for FY25 and 46% for FY26.

“The EV phenomenon is not over, with global sales increasing by 34% to ~14.1m vehicles in CY23. CYTD sales growth also continues to exceed our forecasts, albeit solely driven by China, with 1Q sales +35% yoy,” Lyons, Jon Bishop and Adam Bennett said.

“Lithium demand growth remains strong, despite the high-cost Chinese supply response, and PLS remains embedded in the second quartile of the cost curve.

“In our opinion, PLS have earned the right to grow, at least in line with demand – controlling a vast 100%-owned Resource, with proven metallurgy, high quality offtake partners, and an abundance of cash.

“PLS currently represent ~8% of global supply, and the commercial team deals with suppliers to the leading global battery manufacturers on a daily basis.

“Whilst the large scale of the conceptual P2000 expansion will likely cause some concern over potential market oversupply, we view it as extremely unlikely that the study was conducted in an information vacuum – rather we would expect it incorporated customer feedback and market intelligence from the commercial team.”

Pilbara Minerals indicated its NPV would be $2.6b at US$1500/t, with Jarden tipping an NPV of $2.2b at US$1200/t, its long term spodumene price target. Both PLS and Jarden included sensitivities for US$1000/t, but Jarden says long-term prices that low are not sustainable and may not capture the capital intensity of growing production.

“Few operations would generate sufficient returns at these levels – perhaps only first and second quartile operations, including Greenbushes, Pilgangoora, Goulamina, Mt Holland (subject to ramp up performance), and perhaps Wodgina (depending upon sustaining capital requirements).”

WoodMac notably came out with projections for lithium prices of US$1000/t out to FY28 last week, a forecast which tanked the battery metals market on Friday.