Valuation vs Sentiment For Pilbara Minerals

Commodities | 1:39 PM

The US-Australia critical minerals investment agreement has driven lithium miner Pilbara Minerals’ share price on sentiment, well above fundamentals, on most assessments.

• US-Australia critical minerals deal sends miner share prices surging
• Pilbara Minerals posts solid September quarter beat
• Lithium prices remain below new production threshold
• Most brokers see Pilbara Minerals as overvalued

By Greg Peel

The much anticipated, belated face to face meeting between Prime Minister Albanese and President Trump was hailed a raging success, with the lever of joint rare earth and other critical minerals investment deftly pulled, as expected.

The agreement has since put a rocket under the share prices of relevant miners, particularly rare earth miners but also others in the wider spectrum of critical minerals, including lithium miner Pilbara Minerals ((PLS)).

Throw in a slight rise in otherwise wallowing lithium prices recently plus an impressive September quarter production and sales report and Pilbara Minerals’ share price has risen 45% year to date compared a 10% rise in spodumene prices and 4% for Chinese lithium carbonate prices.

Is this justifiable? The jury is somewhat out.

Record Recoveries

Pilbara Minerals’ September quarter production of 225kt was a 6% beat to consensus and 2% higher quarter on quarter, reflecting a stable performance from the optimised Pilgan plant post the P1000 project, Macquarie notes.

Lithium recovery saw a significant step-up to a record 78.2%, from 71.6% in the June quarter, which was attributable to its ore-sorting facility -- a key positive in Macquarie’s view as it also presents upside to future spodumene output growth and unit cost reduction.

Adding to the impressive performance was a -13% quarter on quarter fall in unit operating costs, alongside a 20% increase in realised prices.

The key downside, Ord Minnett suggests, and a result of the soft pricing environment for lithium overall, was a reduction in the company’s cash balance of -$122m, although that fall shrinks to -$72m if a build-up in working capital is excluded.

After removing working capital adjustments and pricing adjustments, the miner still made a loss of -$40m, Citi notes, even at a record low unit cost.

With unit costs expected to pick back up for the remainder of the year, Pilbara is focusing on optimising at the lowest cash burn until spodumene concentrate prices recover.

Navigating A Volatile Environment

Pilbara Minerals continues to navigate a volatile lithium market environment, Bell Potter notes, through several initiatives targeting cash preservation during the current weaker lithium price environment. At Pilgangoora, cost reduction and operational enhancements include the transition to an owner-operator mining fleet and the processing of higher levels of lower grade ore.

At its South Korean lithium hydroxide facility, the miner and joint venture partner POSCO have agreed to moderate production in the short term. While Train 2 delivered first customer certification in the quarter, Macquarie notes the POSCO JV operated with a lower run-rate and the full-year spodumene offtake was reduced to circa 150kt.

Macquarie believes this indicates the plant is not generating a positive margin in the current price environment.

Pilbara Minerals continues to advance earlier stage projects (Colina Project in Brazil, P2000 expansion and mid-stream demonstration plant at Pilgangoora, downstream conversion partnership with Ganfeng), preparing itself to capture value on what Bell Potter expects will be stronger lithium markets over the long term.

Despite beats across the board on September quarter metrics, management has retained FY26 guidance. Notably, unit cost guidance was maintained despite the 7% beat in the September quarter, with management assuming some negative seasonal impact on operations from the wet season and a decline in recoveries from the increased use contract (low grade) ore at the plant.