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  • Writer's pictureMarcus Bogdan

Buy Pilbara Minerals (PLS)

Blended Australian Equities Portfolio | Australian Equities income Portfolio


We have initiated a position in Pilbara Minerals, whose wholly owned Pilgangoora Operation is the largest hard-rock lithium mine in Australia and contributes 8% of global lithium supply.


The company is increasing its production capacity by 70% to 1 million tonnes per annum through its P680 and P1000 expansions over the next two years and has a mine life of 34 years. It also has a downstream processing plant joint venture (up to 30% participation) with POSCO in South Korea to produce battery grade Lithium Hydroxide. Its Mid-Stream strategic partnering process is underway to process up to 300ktpa of its 5.6% mine product to 16% technical grade lithium metal for export from Australia.


Battery minerals have entered in a bear market in 2023. The benchmark spodumene concentrate price peaked in December 2022 and has since fallen ~80% to ~US$1600/t. Lithium demand has continued to grow but the rate of growth has slowed as China national EV subsidies were phased out and EU incentives reduced amid weaker economic conditions.


However, medium term growth rates are expected to recover as China’s EV’s are now cost competitive with combustion engine vehicles, new model launches in the EU will come into stringent CO2 targets in 2025 and US EV demand will be increasingly supported by IRA credits.


Since its 2023 peak in August the PLS share price has declined 32%, underperforming the ASX200 return by 26%. PLS is expected to finish CY23 with net cash position of more than $3b against a current market capitalization of $10.8b.


It trades on an FY24 forecast EV/EBITDA multiple of 6.5 times and dividend yield of 2.0% while its production expansions will contribute to significant earnings growth in FY25-FY26. With a strong track record in mine operation and project execution backed by a strong balance sheet and cash generation, Pilbara is well positioned benefit from increasing its production into end market recovery over the next 12-24 months.

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