The Pilbara Minerals Ltd (ASX: PLS) share price is under pressure on Wednesday.
In afternoon trade, the lithium miner's shares are down over 3% to $5.19.
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Why is the Pilbara Minerals share price dropping?
The weakness in the Pilbara Minerals share price today appears to have been driven partly by a broker note out of Citi this morning.
According to the note, in response to yesterday's quarterly update, the broker has downgraded the company's shares to a sell rating but with an improved price target of $4.60.
This price target implies potential downside of over 11% from current levels over the next 12 months.
Why is Citi bearish?
Overall, Citi was pleased with Pilbara Minerals' performance during the first quarter. It commented:
A solid operational quarter: Ngungaju running at nameplate, overall recovery of ~67%, costs tracking at the lower end of guidance and production annualising ahead. Realised pricing of US$4,813/t (SC6 basis) in line with our expectations.
And while the broker doesn't see any reason why lithium prices should come crashing down to earth any time soon, it feels the market is too bullish on the long term. Citi estimates that the current Pilbara Minerals share price implies a long term spodumene price of US$1,800 per tonne. However, the broker is expecting a price of US$850 per tonne. Citi explained:
We've pushed up our spodumene deck, earnings and target price—it's hard to see a catalyst for lithium prices to track materially down over the next ~6months. That said, the stock is up by 160% in a year, well ahead of peers; we move to Sell from Neutral on valuation. On our estimates, PLS is implying a long term spodumene price of ~US$1800/t (NPV=share price). The risk to our Sell call here is that the market's view on long term spodumene price moves higher i.e., CitiE US$850/t.
