Good News & Bad News, page-44860

I am generally unwilling to call SP tops or bottoms. If I thought I could do it accurately on a consistent basis, I’d “play the market,” rather than using long term investing as my primary investment thesis.

With that said, even in the face of the current macro environment (which I discussed last night on the LTR ASX Today thread), which I see as negative, I firmly believe that PLS’ SP is approaching a low, and should re-set the new bottom soon.

Here’s why I believe that:

The quarterly that just came out has some good news that seems to GENERALLY be getting overlooked (yes, posters have touched on many of these, but not at length).

Just one example is the tantalite concentrate stockpile we have. I don’t know what volume of tantalite PLS had stockpiled at the beginning of FY23, but I can see that we produced 171,895 lbs of tantalite concentrate over the past two years (50,741 lbs in FY23 and 121,154 lbs in FY24), but only shipped 86,334 lbs. That means that we currently have a stockpile of at least 85,561 lbs.

On 19 July 2024, the latest accurate price I can find, the price for 30% Tantalite concentrate, which I believe is what PLS is producing, was U$78.15 per pound. That stockpile alone is worth a touch less than U$6.7M, or almost A$10M, in addition to whatever we produce this year (since we tend to reflect our tantalite revenue as a cost credit, rather than income, we should see a slight decrease in AISC cost, if we sell all that).

There’s also Section 4 of the quarterly, dealing with Exploration and Geology. The quarterly states, and I quote: “Drilling is scheduled to continue through the end of FY24 with a resource upgrade expected in March Quarter 2025.”

Finally, I noticed that there was no mention in the quarterly of what HAD to be a positive price adjustment in Q4. Simply put, concentrate shipped throughout Q3 must have had positive price adjustments in Q4, since our pricing mechanisms work on 30 or 60-day adjustment periods and SC6 prices were up in April and May. The ONLY reason I can see for this is that it was bartered as part of the “new pricing mechanisms” for two of our OTAs, which will be reflected in September quarter pricing, and will be beneficial to PLS.

Now, the above is merely positive sentiment in a terrible market environment, but it does little to cement a bottom for a plunging SP. It puts icing on the cake. The main reasons I feel that we are close or at a bottom include:

From a technical standpoint, the Fifty Percent Principal would indicate that we’re approaching a bottom. Basically, PLS’ SP marched from $0.30 to $5.41 in pretty much the same way Sherman marched through Georgia. A SP hiccup here or there, but the upward progress of SP was near continuous for close to three years before the bottom fell out. That’s a gain of $5.11.

According to the Fifty Percent principal, once our SP began a correction, without some sort of fundamental deleterious change in the company, which there has NOT been (SC6 pricing is cyclical, and not company-dependent, so it’s a cyclical market condition), we should expect VERY STRONG support when the SP has given back 50% of that gain. A little back of the envelope math indicates that this support level would be at approximately $2.85. It bears noting that we have found strong support between $2.85 and $2.90 three times, now.

Due to the fact that the spot price of SC6 has dropped so ferociously, and is still falling, I’d be willing to wager that our drop might end-up being more like 55%, but even allowing for another 5% drop (of the $5.11 SP gain), I could MAYBE see the SP dropping another $0.25, to $2.60, but the price of SC6 would have to drop to, or even below, our break-even price, and stay there for a minute. Personally, I doubt it drops that low, and think we’re at or within ten cents of a bottom, but for the sake of being conservative, I will acknowledge it is a possibility.

Finally, the market is forward-looking, when it’s not hung over. As the non-FUD crowd have all noted MANY times, we’re invested in a cyclical industry, and whether it’s tomorrow or 2026, the price of SC6 WILL swing back upwards, and then run for some time at an elevated level, and when it does, we will be producing between 800+ ktpa (if it recovers this year) and 1 mtpa (when P1000 is completed and integrated into the Pilban Plant by the end of the fiscal year). There’s also the old adage that the cure for low pricing is low pricing, and, as correctly discussed ad nauseum, the longer the price of SC6 stays this low, the more mines that will go into administration or C&M, and the fewer new capacity which will be built and commissioned. Demand continues to increase, but the supply delta is slowing, and will slow even faster the longer the SC^ price stays depressed.

For all these reasons, I think that the price is at or near a bottom.

This is not investment advice, just my own opinion, but I will note that since the beginning of July, I have more than doubled my PLS holding, and I have tripled my LTR holding (I still have more invested in PLS, but it’s getting closer between the two). That's how firmly I believe the above.

Best reards, and good luck to all.