The Pilbara Minerals Ltd (ASX: PLS) share price had a tough end to FY22. In fact, it is still down around 40% from mid-January 2022. But heading into a new financial year, could Pilbara shares be about to recharge returns for investors in FY23?
Pilbara Minerals is one of the largest ASX lithium shares in Australia. In the latest update for the three months to June 2022, the company said there was a significant increase in its quarterly production to between 123,000 dry metric tonnes (dmt) and 127,000 dmt. That's an approximate 54% increase from the last quarter and shows how much more the business is expecting to produce.
Strong cash flow
The business saw "further improvements" in pricing outcomes during the three months to June 2022, which reflected "strong demand conditions".
Pilbara recently announced the latest digital auction on the Battery Material Exchange (BMX), with a sale equating to an approximate price of just over US$7,000 per dmt. Management says that demand remains "incredibly strong with a continued healthy outlook for the foreseeable future". This could bode well for FY23.
Pilbara Minerals notes that, combined with increased shipment volumes, this will substantially increase its cash position to around $850 million to $855 million.
Estimated shipments for the three months to 30 June 2022 are for between 127,000 dmt and 132,000 dmt. That is an approximate 118% increase compared to the shipments for the three months to March 2022.
That will bring total shipments in FY22 in the range of 355,000 dmt to 360,000 dmt.
What will Pilbara Minerals do with all that cash?
Its Pilgangoora project is a key area of focus for the business, which says:
An expansion and diversification pathway underpins our long-term strategy to unlock the full value of the Pilgangoora project and become fully integrated within the lithium raw materials and chemicals value chain.
The company is working on a 'mid-stream' project aiming to generate a higher-value and more environmentally-friendly product for the battery materials industry.
A scoping study has provided preliminary support for the technical viability of constructing a demonstration-scale chemicals facility. The facility will produce value-added lithium phosphate salts through an "innovative" refining processing at Pilgangoora.
The company recently announced a final investment decision for its P680 project, including both primary rejection, and crushing and ore sorting, to deliver production capacity of between 640,000 dmt to 680,000 dmt per annum for a total estimated capital investment of $297.5 million.
Shareholders could also be in line for a dividend in FY23.
Ord Minnett rating
The broker Ord Minnett currently rates Pilbara Minerals as a buy, with a price target of $3.50. That implies a rise of almost 50% over the next year.
It has estimated an annual dividend in FY23, which would equate to a dividend yield of around 6%.
At the current Pilbara Minerals share price, Ord Minnett puts it at under 4x FY23's estimated earnings.
