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Why Pilbara Minerals Ltd (ASX:PLS) shares surged higher today

One of the best performers in morning trade on Friday has been the Pilbara Minerals Ltd (ASX: PLS) share price.

At the time of writing the lithium miner’s shares are up 6% to 89.5 cents.

Why are Pilbara Minerals’ shares surging higher?

This morning Pilbara Minerals released the results of its definitive feasibility study (DFS) for the Stage 2 5Mtpa Pilgangoora Lithium-Tantalum project.

According to the release, the DFS outlined a compelling case for the expansion to proceed following recent commissioning of its Stage 1 2Mtpa facility.

The study found that the project had a net present value of $2.16 billion, with life of mine project revenue estimated to be $12.2 billion and life of mine EBITDA of $6.3 billion.

Management believes the expansion will be a globally cost competitive operation producing between 800,000 – 850,000 tonnes per annum of high-quality spodumene concentrate over its 17-year mine life.

One slight negative, though, was that there has been an increase in the estimated capital costs from $207 million to $231 million and life of mine cash operating costs of US$263 per tonne.

Should you invest?

I think that this was a great result for shareholders and I’m not surprised to see its shares rise on the news.

However, whether Pilbara Minerals will be a good investment or not depends largely on the price of lithium over the medium and long-term.

The shares of lithium miners including Pilabra, Galaxy Resources Limited (ASX: GXY), and Orocobre Limited (ASX: ORE) have come under pressure this year due to concerns that lithium prices could sink lower in the medium term due to increasing supply.

While I remain optimistic that demand will continue to outstrip supply long into the future, if it doesn’t then the lithium miners could continue to sink lower. Because of this, I think they are high risk investments that are largely unsuitable for the average investor.

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Motley Fool contributor James Mickleboro owns shares of Galaxy Resources Limited. 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 Scott Phillips.

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