LA Private

Tough quarter for Pilbara Minerals

Operationally, Pilbara Minerals (ASX:PLS), the country’s best-performing lithium player, had a solid three months to March 31 at its WA operations, with record mining, production, and sales. Unfortunately, on the pricing and financial side, it was as tough as it will probably get.

But while the company’s cash pile has halved in the year to March 31, it is still a substantial $1.8 billion (and unlike a year ago, there is no interim dividend to pay), meaning it has ample liquidity to ride out the still tough and challenging market conditions.

First, the good-ish news. Pilbara said the March quarter saw a “Solid operational performance with a production volume of 179.0 thousand (k) dry metric tonnes (dmt) of spodumene concentrate in the three-month period with the P680 Primary Rejection Facility achieving nameplate production capacity in the second half of the Quarter.”

The “average estimated realized price was US$804/dmt (CIF China) on an SC5.3 basis in the Quarter.

“Relative to the December Quarter 2023 (prior Quarter), prices stabilized and then increased toward the end of the March Quarter. The pre-auction sale of 5k dmt at US$1,106/dmt SC5.5 in March reflects the ongoing demand and positive pricing for unallocated production volume.’

And “revenue declined 27% to $192 million compared to the prior Quarter, reflecting a 28% decline in the average realized price, partly offset by a 3% increase in sales volume.”

The not-so-good-ish news was that the revenue figure was a fraction of what it was in the March 2023 quarter’s $1.09 billion. The cash balance of $1.8 billion was understandably down from the $2.68 billion at March 31, 2023.

The revenue figure for the March 2024 quarter of $192 million was down 27% from $264 million in the December quarter and over a billion dollars in the March 2023 quarter.

But Pilbara revealed there was a pricing quirk in the quarter that cut the $192 million revenue figure to just $7 million.

Pilbara explained “If prices remain stable over time, there will be no material impact from final price adjustments. March Quarter was unusual in that it was impacted by sharply declining prices in December Quarter that have since stabilized.

“Receipts from customers for March Quarter shipments of $225M were offset by pricing adjustments from shipments prior to March Quarter of -$218M, resulting in receipts from customers of $7M.”
“Excluding pricing adjustments on shipments prior to March 2024 Quarter, cash margin from operations (defined as receipts from customers less payments for operating costs) would have been $72M in the March Quarter.

“This demonstrates positive cash margin from the Group’s operations at the lower average estimated realized price of US$804/dmt in the Quarter.”

The bottom line is that sales made in previous quarters were not made at a final price but subject to adjustment to give the buyer protection in the event of a falling price and give Pilbara protection in the event of a rising price.

At the moment, the former is the case, so as the price continued falling in early 2024, the buyers came back to Pilbara and got price cuts and what were effectively refunds, reducing sales revenues for the quarter to virtually nothing.

Pilbara’s decision last year to walk away from paying dividends, slash costs, and reach production/sales deals with customers has paid off – it is continuing to mine, sell, and export, helped by the massive cash cushion (which some greedy shareholders last year were demanding be returned to them).

Now the cash pile is keeping Pilbara alive.

That’s reflected in the share price, which is only down 1.5% so far this year, unlike other lithium groups – such as Liontown Resources, whose shares have collapsed, and global majors like Albemarle, whose shares are down nearly 24%, and SQM of Chile, whose shares are off nearly 23%.

Both companies are emerging rivals in Australian lithium for Pilbara.

The ASX 200 is only up 0.19% year to date, so Pilbara’s caution is helping protect it in the stock market as well as in the global lithium markets.