Company Overview: Pilbara Minerals Limited is a strategic metals producer. The Company is engaged in the exploration, development and mining of mineral resources. It owns the Pilgangoora Lithium-Tantalite Project, which is located in the Pilbara region of Western Australia. The Pilgangoora Lithium-Tantalite Project is located approximately 120 kilometers southeast of Port Hedland in Western Australia. The Pilgangoora Lithium-Tantalite Project is a spodumene (lithium-mineral) deposit. It has a farm-in and joint venture agreement over approximately six tenements comprising its West Pilbara project. The Pilgangoora Lithium-Tantalite Project has an Indicated and Inferred Resource of approximately 128.6 metric tons grading over 1.22% lithium oxide containing approximately 1.57 metric tons of lithium oxide and over 40 metric pounds of tantalum pentoxide. Its subsidiaries include Tabba Tabba Tantalum Pty Ltd, Sturt Resources Ltd, Sturt Resources PNG Ltd, Star 15 Limited and New Global Limited.
 

PLS Details

Offtake Agreement with China’s Great Wall Motor Company: Pilbara Minerals Limited (ASX: PLS) happens to be an Australian lithium-tantalum producer which is having the market capitalization of $1.13 billion (as on February 12, 2019). With the development of the 100%-owned Pilgangoora Lithium-Tantalum Project, the company focuses to become a largest lithium raw materials producer by 2020. Coming to the management team, Mr. Ken Brinsden is the Managing Director and CEO (or Chief Executive Officer) of Pilbara Minerals while Mr. Alex Eastwood happens to be the company’s Company Secretary & General Counsel. The company had earlier released their results for FY 2018. The company stated that, in FY 2018, it witnessed consolidated loss amounting to $19.42 million. In this loss, there were certain non-cash items like the non-cash share-based payment expense amounting to $4.63 million, a non-cash depreciation charge amounting to $1.50 million as well as unrealized foreign exchange losses which amounted to $6.36 million which is primarily related to restatement of US$ denominated secured bond to year-end closing foreign exchange rate. Also, the company stated that in FY 2018, it had signed offtake agreement which focuses to supply 75,000tpa of the chemical grade spodumene concentrate from the Stage 2 production. The company stated that the supply would be made to China’s Great Wall Motor Company over the initial five-year term. However, Great Wall can extend the quantum of supply for up to an additional 10 years through two 5-year options. From the liquidity front, it can be said that Pilbara Minerals happens to be in a decent position as compared to the broader industry making it effective to meet the short-term commitments which might arise. The company’s current ratio stood at 3.01x which implies comfortably higher than the industry median of 1.72x. We expect that the company would be substantially aided by its strong liquidity levels moving forward and it would be able to confront the short-term commitments in an easy way. Moreover, the company’s net margins have improved significantly in the past five years (FY 2014- FY 2018). 
 

Offtake for 100% of Stage 1 and 2 of Pilgangoora (Source: Company Reports)

POSCO and Pilbara Entered into Non-Binding MoU: Not so long ago, Pilbara Minerals Limited had stated that POSCO and PLS would be evaluating larger downstream chemical facility in line with the growth of Pilgangoora. With respect to the agreements under the consideration, existing offtake agreement with regards to spodumene concentrate from Pilgangoora project would witness a rise to support jointly owned South Korean JV chemical plant from 240ktpa to 315ktpa of the spodumene concentrate over life-of-mine.

PLS’ right to participate as a 30% joint venture partner with respect to South Korean JV chemical plant needs to be exercised on or before February 28, 2019. The final documentation, as well as Board approvals, need to be wrapped up in May 2019.

Robust Performance Demonstrated in December 2018 Quarter: Pilbara Minerals Limited had recently reported the results for the December 2018 quarter in which it demonstrated robust operating performance with respect to Pilgangoora Lithium-Tantalum Project because the progress of Stage 1 processing plant continued. This depicts the product quality, as well as production growth with regards to Stage 1 and the company, also added that the Stage 2 expansion has been taking shape.

The company stated that, in December 2018 quarter, the company shipped 46,682dmt of 6% spodumene concentrate and an average selling price which stood at US$742/dmt CFR which depicts offtake pricing model which has been developed with the key customers. At the end of December 2018, the company possessed A$70.3 million cash balance. In the December 2018 quarter, the items related to the expenditure consisted A$52.5 million towards Pilgangoora Project operation which is inclusive of the Stage 1 pre-production commissioning as well as ramp costs and costs which are related to development and construction of Stage 1 as well as Stage 2 of the project.

Other items of the expenditure were A$6.0 million on the DSO mining costs associated with the prior quarter activities, A$3.6 million on the payroll, administration as well as corporate costs, A$4.2 million towards the interest as well as financing payments primarily related to USD senior secured bond facility and A$1.9 million towards the exploration as well as evaluation work with regards to Pilgangoora Project. In the December quarter, Pilbara Minerals witnessed the proceeds amounting to A$48.0 million primarily because of the sale of spodumene concentrate. In the December 2018 quarter, the company’s net cash used in the operating activities amounted to A$14.9 million. Further, the group estimated cash outflow for the next quarter of approximately $83,263k, comprising of exploration and evaluation expenses ($917k), Development - feasibility and mine properties in development costs ($22,707k), Production costs ($52,039k), Staff costs ($1,790k), Administration and corporate costs ($1,365k), and other expenses ($4,445k).
 

Net cash used in operating activities (Source: Company Reports)

A Look at Financing Stage 2, 5Mtpa: Pilbara Minerals Limited had recently disclosed information related to the financing Stage 2, 5Mtpa in its presentation. The company stated that the customer financing supports the funding package for $231 million expansion. It stated that US$25 million relates to the pre-payment from the Great Wall Motor Company while A$50 million is related to equity placement to Ganfeng Lithium. However, proposed new US$50 million is related to Nordic Bond which is to be issued in pursuant to terms and conditions of the company’s existing Nordic Bond, existing cash primarily associated with previous equity placement to POSCO of South Korea as well as future cash-flow generated from the Stage 1 operations.

A Brief about Stage 3 Project: In the release dated January 2, 2019, Pilbara Minerals Limited had stated that the Stage 2 DFS results, existing Ore Reserves as well as associated project engineering give flexibility with regards to design as well as layout of Pilgangoora project so that future expansion beyond 5Mtpa Stage 2 project (Stage 3) can be facilitated. The company added that initial Stage 3 studies happen to be underway which proposes ultimate ore processing capacity of up to 7.5Mtpa, however, by the ability to initially configure the interim step to process 6.2Mtpa, delivering up to 1,000,000 tonnes p.a. of spodumene concentrate or more than 130Ktpa on LCE basis.

Drivers for Future: Pilbara Minerals Limited would be focusing on securing the position as one of the largest as well as lowest cost lithium-tantalum producers. The company stated that it would be continuing the Stage 1 optimisation works so that name-plate capacity can be achieved including the design plant utilisation as well as lithia recovery rate. It stated that it would be working for securing a position in downstream lithium raw materials supply chain with the help of partnerships as well as further vertical integration.

The company seeks to work for the objectives which revolve around completing the development and mine world class lithium-tantalum deposit at Pilgangoora Project which is 100% owned and is situated in Pilbara region of Western Australia and continuing to conduct the exploration activities at Pilgangoora Project so that existing JORC resource and reserve can be increased. Other objectives include further exploration at other North Pilbara exploration projects as well as undertaking the participation in downstream chemical processing opportunities so that size and quality if the project can be leveraged.

Stock Recommendation: On the daily chart of Pilbara Minerals Limited, Exponential Moving Average or EMA has been applied and default values were used for the purposes. After careful observation, it was noticed that the stock price has crossed the EMA and had trended in the downward direction. This signifies bearish momentum. However, the company’s operating and net margins have improved significantly in the past five years (FY 2014- FY 2018).The financials are expected to improve with the help of ongoing development of stage 1 and stage 2 operations. The NPAT from the negative zone is expected to be shifting to a favourable side in the coming years in the view of strong LiOH prices, advanced stage projects and cost-effective discovery. Another factor which could attract the attention of the market players moving forward is the improvement in the return on equity (or ROE). The company’s ROE stood at -7.1% in FY 2018 which implies an improvement of 10.3% on the YoY basis. Talking about the past performance, the stock of Pilbara Minerals Limited had generated the return of -25.43% in the span of previous 6 months while, in the time frame of previous 3 months, it had posted the return of -24.56%. Based on the aforementioned factors and current trading level, we give a “Speculative Buy” recommendation on the stock of Pilbara Minerals at the current market price of A$0.65 per share (up 0.775% on 12 February 2019).

 
PLS Daily Chart (Source: Thomson Reuters)

Disclaimer
 
The advice given by Kalkine Pty Ltd and provided on this website is general information only and it does not take into account your investment objectives, financial situation or needs. You should therefore consider whether the advice is appropriate to your investment objectives, financial situation and needs before acting upon it. You should seek advice from a financial adviser, stockbroker or other professional (including taxation and legal advice) as necessary before acting on any advice. Not all investments are appropriate for all people. Kalkine.com.au and associated pages are published by Kalkine Pty Ltd ABN 34 154 808 312 (Australian Financial Services License Number 425376). The information on this website has been prepared from a wide variety of sources, which Kalkine Pty Ltd, to the best of its knowledge and belief, considers accurate. You should make your own enquiries about any investments and we strongly suggest you seek advice before acting upon any recommendation. Kalkine Pty Ltd has made every effort to ensure the reliability of information contained in its newsletters and websites. All information represents our views at the date of publication and may change without notice. To the extent permitted by law, Kalkine Pty Ltd excludes all liability for any loss or damage arising from the use of this website and any information published (including any indirect or consequential loss, any data loss or data corruption). If the law prohibits this exclusion, Kalkine Pty Ltd hereby limits its liability, to the extent permitted by law to the resupply of services. There may be a product disclosure statement or other offer document for the securities and financial products we write about in Kalkine Reports. You should obtain a copy of the product disclosure statement or offer document before making any decision about whether to acquire the security or product. The link to our Terms & Conditions has been provided please go through them and also have a read of the Financial Services Guide. On the date of publishing this report (mentioned on the website), employees and/or associates of Kalkine Pty Ltd do not hold positions in any of the stocks covered on the website. These stocks can change any time and readers of the reports should not consider these stocks as personalised advice.