Pilbara Minerals (PLS) | Moderated price and demand
Spodumene shipments flat QoQ: PLS produced 20,251t of spodumene concentrate during the quarter and sold 33,729t, which was marginally less than our forecast and below the bottom end of the 35-40,000t guidance. Tantalum shipments continue to be lumpy, but at 33,970lbs were in line with forecast. No sales revenue statistics were provided for the quarter, but we note that the $19.7m revenue in the cashflow statement was low and may reflect the terms of sales. Operating costs, as per the cash flow statement, were $8.7m, or around US$435/t subject to what was included (which is not disclosed). This would have delivered a breakeven operating result. PLS ended the quarter with $101m in cash and $186m in debt.
Market continues to weaken: PLS noted that prices for spodumene concentrate weakened near the end of the quarter towards the US$400/t level and that demand is suffering from high stock levels, business disruption at converters in China and end-user demand. Guidance for sales in the June quarter was given at 25-35,000t, or flat to down quarter-on-quarter. PLS is fortunate to have the larger consumers as customers and 100% of production under offtake agreements. But in the current environment, PLS cannot force customers to take product at the plant’s full production rate, and we forecast that the plant will operate at an effective utilisation of 40% for CY20.
Stage 2 phase pushed out and spread out: PLS is due to deliver the technical study for Stage 2 in the June quarter, and a DFS on the implementation of the three-phase Stage 2 expansion is expected to be completed in December 2020. We have pre-empted the studies by assuming that with customer and JV partner backing, FID occurs in the March 2021 quarter and the first phase is a 40kt expansion to better match demand, and that a 9-12mth period of debottling occurs between the next two phases of 100kt and 190kt to bed in the plant and customer offtake. On those assumptions, the operations would be running at 660ktpa of concentrate in June 2026.
Investment view: We are downgrading our price target from 28cps to 19cps. We now only attribute 50% of the value of Pilgangoora in generating our price target because of the significant uncertainty in the spodumene market. The NPV has fallen 5c to 49c and we maintain a Speculative HOLD rating.