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Pilbara Minerals shares: were expectations set too high?

Pilbara Minerals shares fell sharply after full-year earnings, as the ASX 200’s company’s explosive growth failed to meet market expectations.

pilbara minerals Source: Bloomberg

Pilbara Minerals (LON: PLS), a darling of the ASX lithium space, reported full year results yesterday to its ever-eager audience. At first inspection, the numbers looked excellent, but shares fell by 8% to AU$4.70 as the company failed to meet prior market expectations.

This contrasts with Nvidia’s results on Wednesday, which saw the company rise by 6.5% immediately after their release — as the NASDAQ company comfortably beat almost all expectations. While operating in completely different sectors, both shares serve to highlight the forward-thinking nature of the markets.

Pilbara Minerals shares: full-year results

It’s hard to find a bad number in Pilbara’s results; spodumene concentrate production rose to 620.1 thousand tonnes, up from just 377.9 thousand tonnes in FY22 — allowing sales to increase by 68% to 607.5 thousand tonnes.

Pilbara saw an average realised price of US$4,447 per tonne across the year, up from US$2,382 per tonne in FY22, and these production and price increases saw revenue rocket by 242% to $4.1 billion. Meanwhile, EBITDA rose by 307% to $3.3 billion, statutory profit after tax rose by 326% to $2.4 billion, and Pibara’s cash balance rose by 464% to $3.3 billion.

Further to this, the ASX 200 company revealed an inaugural annual dividend of $0.14 per share determined, and fully franked — leaving investors with a total dividend of $0.25 per share for the year.

Encouragingly, this is 3 cents higher than expected by Goldman Sachs analysts, leaving PLS having paid out a total of around $750 million for FY23 between the interim and final dividends. Investors will need to be on the company’s share registry before the ex-dividend date of 5 September to receive it on 27 September.

Managing Director and CEO Dale Henderson enthuses that ‘the FY23 period has been an exceptional year for Pilbara Minerals...(with) an impressive set of financial outcomes for the business and our shareholders.’

As ever, it’s important to remember that past performance is not an indicator of future returns.

Where next for Pilbara Minerals’ share price?

There are several main considerations.

Pilbara recently upgraded its Ore Reserves at flagship Pilgangoora by 35% to 2.5Mt of lithium oxide at 1.19% Li2O. This leaves the miner even better positioned for further growth within a Tier-1 mining district — and in the words of the CEO, ‘to commence a new study to explore further expansion of production capacity beyond P1000. This potentially opens the door for additional tonnage to be allocated for downstream and midstream growth opportunities.’

Moreover, the lithium price, which has fallen to just CNY217,500/tonne of lithium carbonate, could soon rebound. Henderson notes that ‘the long-term outlook remains very positive for battery grade lithium raw anticipated demand for lithium outstrips expected supply. During the past quarter the industry saw a pullback in pricing...we expect continued growth in demand for our product with some ongoing pricing volatility in the shorter term.’

Goldman Sachs had predicted that revenue would be (circa) $4.26 billion, with a net profit of $2.41 billion. Accordingly, Pilbara missed both expectations — explaining the immediate market reaction. Further, it’s worth noting that the shares are fairly volatile, falling to as low as $3.44 in March 2023 and rising to as high as $5.37 in early August.

This means that there could be further to fall as the market digests the miss, alongside lithium’s pricing volatility. However, the ASX company has seen massive growth over the last financial year, and is already planning to see production rise to between 660 thousand and 690,000 tonnes in FY24. And if you consider the impact of P680 and the P1000 Project FID, production is planned to hit 1 million tonnes per annum by 2025-26.

In addition, its Joint Venture with POSCO to develop a jointly owned lithium hydroxide plant has moved into the construction phase, and Pilbara has finalised its Mid-Stream Demonstration Plant FID with another JV partner, Calix. Overall, capital expenditure is planned at between $490 million and $540 million, with another $140 million to $160 million to be spent on mine development.

While there could be a better entry point later in Q1, the long term business development plan could see Pilbara Minerals shares see new highs before long.

And next year’s results could see even higher expectations.

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