One of the worst performers on the market today has been the Pilbara Minerals Ltd (ASX: PLS) share price.
In early trade its shares were down as much as 13% to 32.5 cents despite the release of a seemingly positive update from the lithium miner.
At the time of writing Pilbara’s shares have recovered slightly and are lower by 10% to 33.7 cents.
Why did its share price plunge?
Although the mining company released positive bulk sampling results from its 100%-owned Pilgangoora Lithium-Tantalum Project in Western Australia, the market appears to be disappointed with the lack of progress being made in relation to its mining permit approval and offtake and financing discussions.
Management advised today that the mining proposal process is ongoing, with the company currently finalising its response to technical queries from the Department of Mines and Petroleum (DMP).
These include two queries relating to design criteria which accommodates the possible maximum flooding event and the influence of zones of pit instability.
The company expects to submit its response to these queries shortly, allowing the DMP to continue its assessment. As a result, it appears confident that approval will be granted within weeks.
Furthermore, offtake and financing discussions are progressing well according to management. They believes that demand for its products remains as strong as ever, particularly in the lucrative China market.
Should you buy the dip?
Today’s sell off does appear to be a bit of an overreaction in my opinion.
The bulk sampling results revealed an outstanding average grade of 2.1% lithium oxide (in spodumene). I believe this confirms that the project has significant long-term value.
Whilst the lack of news regarding permits and financing is disappointing, in a few weeks this should all be settled once and for all.
Whilst I have a preference for Galaxy Resources Limited (ASX: GXY) in the industry, I think Pilbara is certainly worth considering as a long-term investment for those looking to gain exposure to the resources sector.
It is however a high risk one and I would suggest investors hold off until it has its permit and financing in place. Once in place I would then recommend investors restrict any investment to just a small part of their portfolio.
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Motley Fool contributor James Mickleboro has no position in any stocks mentioned. The Motley Fool Australia has no position in any of the stocks mentioned. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Bruce Jackson.