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Pilbara Minerals poised for cashflow surge on rising prices and ballooning demand for spodumene

Plus, our whisper last week on Rumble proved well-founded but don’t forget Zenith, Beament begins his goodbyes at Northern Star, Sovereign prepares for maiden rutile resource and Biswas has a crack at cryptos

23rd April 2021
Barry Fitzgerald
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The turnaround in the lithium market has been remarkable stuff, with the key battery material swept up in the global “green” investment boom in the decarbonisation of transport and energy.
The resultant surge in lithium prices in the opening months of 2021 has seen last year’s beaten-up lithium stocks recapture their darling status.
Pilbara (PLS) tells the tale. In the depth of despair over COVID-19 a year ago, Pilbara could be bought for 18c. It has since climbed to $1.11.
It got sold off in Thursday’s market along with the other lithium stocks, including the $4 billion merging pair of Orocobre (ORE) and Galaxy (GXY), on some profit-taking.
But the thematic that lithium prices have to continue to rise to meet the coming tsunami of demand, and that the established producers are best placed to respond, remains intact.
Macquarie forecasts prices for the lithium precursor spodumene, which Pilbara produces, will steadily rise from $US458/t in the 2021FY to as much as $US730/t in the 2025FY.
It is happening now, and then some, with Pilbara reporting in its March quarter report that prices were in the $US550-$US700t range towards the end of the period.
Unit cash costs for Pilbara in the quarter were $US383/t, and the company’s target to get to $320-$350t range remains intact, with more levers to pull thanks to the acquisition of the adjoining Altura operation in January for a knockdown price of $US175m.
From all that it can be said that spodumene production is again a cash margin business, and a growing one at that, particularly when $US700t prices are plugged in.
Like the rest of the industry, Pilbara is reworking a lot of things to take advantage of lithium’s turnaround, and the strong demand in growth. The Altura acquisition, and the likelihood of a downstream move into lithium hydroxide in a joint venture in South Korea with POSCO, means it has a lot of levers to pull.
But the basic theme is that Pilbara is well-poised to capitalise on lithium’s return as a commodity to be in through major expansions, and the move downstream to capture the value-add.
Macquarie, which has a $1.50 a share price target on the stock following the quarterly, reckons that come 2025, Pilbara’s annual spodumene production will have grown from a forecast 273,000t this financial year at an AISC of $US364/t to 660,000t at an AISC of $US369/t.
As the margin grows with higher prices, the 2025 production effort would be good for EBITDA of $413m. It was negative last financial year.