Pilbara Minerals (PLS) | Debt refi removes some market pressure
Production up, sales down: PLS, like other producers, moved to campaign mining and processing in response to weaker market conditions for spodumene and the impact of COVID-19. During the quarter, PLS produced 34,484dmt of spodumene concentrate and sold 29,312dmt. It also produced 23,404lbs of tantalite concentrate and sold 23,232lb. Sales revenue for the quarter was A$16.8m. No sales unit prices were released but if we assume a 5-10% discount on tantalite pricing, the implied sales price for spodumene was US$330-350/dmt, significantly below the indicative market range of US$410-423/dmt. PLS indicated that CFR operating costs for the quarter were ~US$450/dmt, due to the campaign operations, and may take some time to reach the US$320-350/dmt target.
Debt refi pushes out repayments and lowers interest rate: PLS has negotiated a new senior debt facility of US$110m, which is interest only for the first two years (5% versus the previous 12%) and has repayments spread over the last three years with a final year bullet. This facility will replace the US$100m Nordic Bond PLS used to finance stage one, which was due to start being repaid this year. Moving the payment terms out better aligns the repayments with an expected improvement in lithium prices; a period when PLS can hopefully expand its operations, reach its cost guidance and generate significant cash flow.
Earnings and valuation lower for now: Taking into account the higher costs, lower spodumene prices and a delay in the price recovery, we have increased our NLAT for FY20 and FY21 to $85.5m and $29.1m respectively and lowered our FY22 NPAT to $47.1m. Our valuation has decreased 1cps to 48cps, which is highly reliant on PLS meeting its cost guidance and delivering the multi-stage expansion and a recovery in spodumene demand in prices.
Investment view: We believe the rally in the share price without any significant recovery in spodumene prices or stockpile drawdown is premature. We downgrade our rating from Hold to SELL on the back of the recent share price performance. Our price target is unchanged at 19cps. Click here to read full report