Here’s why the Pilbara Minerals (ASX:PLS) share price is tumbling lower

The Pilbara Minerals Ltd (ASX:PLS) share price is under pressure on Wednesday after releasing its third quarter update…

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The Pilbara Minerals Ltd (ASX: PLS) share price has come under pressure on Wednesday.

In afternoon trade, the lithium producer’s shares are down 4% to $1.25.

Why is the Pilbara Minerals share price under pressure?

Investors have been selling Pilbara Minerals shares today despite the release of a strong third quarter update.

According to the release, the company achieved record production of 77,820 dry metric tonnes (dmt) of spodumene concentrate during the three months ended 31 March. This is up 22% from its second quarter production of 63,712 dmt.

Positively, during the latter two months of the quarter, the company was operating with annualised production capacity of approximately 330,000 tonnes per annum of dry spodumene concentrate. This equates to quarterly production of 82,500 dmt.

Why are its shares falling then?

Taking some of the shine off the quarter, and possibly the reason for the weakness in the Pilbara Minerals share price today, was its shipping update.

During the quarter, the company achieved spodumene concentrate shipments of 71,229 dmt. This was broadly flat on the prior quarter’s shipments of 70,609 dmt.

Management advised that its final March shipment was only partially completed as a result of port delays beyond its control.

Lithium prices continue to rise

Another positive from the report was that lithium chemicals pricing continued to significantly improve during the quarter. Furthermore, this is now starting to be reflected in the price received for spodumene concentrate sales.

Management notes that at the end of March it received a letter of credit ahead of an April 2021 spot sale of spodumene concentrate. This order implies a headline price of US$655/dmt, which it feels highlights the recent strong upward trajectory in pricing.

This compares very favourably to its unit cash operating cost of US$383/dmt that was achieved during the quarter. It is also a big increase on the average selling price of approximately US$410/dmt during the third quarter.

Even better, though, is that management continues to target a unit cash operating cost of US$320-350/dmt. This is based on an AUD:USD exchange rate of 0.72 and its processing plant operating at steady-state production.

If it achieves this and prices remain strong, the company will be generating significant free cash flows. This could be a big positive for the Pilbara Minerals share price in the coming quarters.

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Motley Fool contributor James Mickleboro has no position in any of the stocks mentioned. The Motley Fool Australia has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Bruce Jackson.

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