The Pilbara Minerals Ltd (ASX: PLS) share price looks like an attractive buy according to the experts at Macquarie.
Pilbara Minerals is one of the largest lithium miners on the ASX.
The lithium opportunity
Lithium is seeing global demand rapidly increase. The commodity is a key commodity for electric vehicles. Lithium is needed for the battery to be capable enough for travelling long distances.
In the fourth quarter of 2021, Tesla alone produced 305,000 vehicles. For the whole 2021 year it delivered 936,000 vehicles.
According to reporting by the Wall Street Journal, analysts expect that Tesla will be able to deliver around 1.5 million vehicles to customers in 2022. This would be reportedly consistent with the company's target of growing deliveries by around 50% each year over the next few years.
The mining giant Rio Tinto Limited (ASX: RIO) has recognised that lithium is an attractive commodity. That's why the business has expanded into lithium with the Rincon lithium project in South America. At this stage, its European Jadar project has been blocked.
Rio Tinto says that the market fundamentals for battery grade lithium carbonate are strong, with lithium demand forecast to grow by 25% to 35% per annum over the next decade with a significant supply demand deficit expected from the second half of this decade. This could help the Pilbara Minerals share price in the coming years.
How does Pilbara fit into the lithium picture?
This ASX lithium share owns the Pilgangoora Project in Western Australia's resource-rich Pilbara region. The Pilgangoora ore body is one of the largest hard rock lithium deposits in the world according to the company.
It has two processing plants, which produce a spodumene concentrate and the the Pilgan Plant also produces a tantalite concentrate.
Having two processing plants provides Pilbara Minerals with 'speed to market' by enabling it to rapidly increase production to satisfy rising lithium market demand and flexibility by being able to blend products to meet customer needs, according to the company.
The Pilbara Minerals share price is rated as a buy by Macquarie, with a price target of $3.50 because of the strong lithium prices that the company is currently benefiting from.
In the company's FY22 half-year result it generated record sales revenue of $291.7 million, making a statutory profit after tax of $114 million.
During the half-year, it shipped 170,228 dry metric tonnes (dmt). It achieved an average selling price of US$1,250 per dmt. Since the end of the half-year, pricing has continued to increase, with price reporting agencies currently indicating spot spodumene concentrate prices in the range of US$3,750 to US$4,500 per dmt.
Expansion and diversification plans
The company says that the Pilgangoora project provides a significant opportunity for the company to expand operations and production with market demand.
It's doing a number of improvement works to increase production. Pilbara says the proposed Stage 2 expansion would increase processing capacity to 5Mt per year, to produce 800,000t to 850,000t per year of 6% spodumene concentrate, and 800,000 pounds per annum of tantalite concentrate.
The company is also thinking about diversifying by manufacturing high-value battery-grade lithium products through downstream processing, which has the potential to deliver "significant additional value" for Pilbara Minerals.
Pilbara Minerals share price valuation
Macquarie's earnings estimate puts the Pilbara share price at 12x FY23's estimated earnings.
