October was another strong month for the Pilbara Minerals share price

Pilbara Minerals continues to generate enormous cash flow from the high lithium price.

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Key points
  • In October, Pilbara Minerals shares have outperformed the ASX 200 by more than 17%
  • The company is benefiting from the rising lithium price
  • Pilbara Minerals is building a large cash pile on its balance sheet

The Pilbara Minerals Ltd (ASX: PLS) share price has had a very strong few months and October has been another period of growth for the business. The ASX lithium share has risen by 6.8% this month.

That return compares favourably to the overall S&P/ASX 200 Index (ASX: XJO). That's down 10.6%, meaning that Pilbara Minerals has outperformed by around 17%.

There were a couple of important announcements made by the company in October. So let's dive in and have a look.

A female employee in a hard hat and overalls with high visibility stripes sits at the wheel of a large mining vehicle with mining equipment in the background.

Image source: Getty Images

Strong lithium price

As a resource business, the price that Pilbara Minerals can get for its production can significantly affect its revenue, net profit after tax (NPAT), cash flow and its share price.

A higher commodity price can largely translate into extra profit and cash flow for the business. Investors often like to value a business based on how much profit it's making.

As the lithium price has grown, this has meant the company can sell its production at a higher price. It made two sales announcements during the month.

On 18 October, it announced that instead of going through with its tenth scheduled digital auction on the Battery Material Exchange, it accepted a pre-auction bid for 5,000 dry metric tonnes (dmt) of spodumene concentrate.

The pre-auction offer was US$7,100 per dmt, which equated to an approximate equivalent price of US$7,830 after adjusting for lithia content on a pro rata basis and freight costs.

On 24 October, it announced another sale for another 5,000 dmt after that pre-auction process. It entered into a sales contract for 5,000dmt at US$7,255 per dmt. That's an equivalent of around US$8,000 after adjusting for lithia content and including freight costs.

Quarterly update

Pilbara Minerals also announced its quarterly update.

It announced that in the three months to September 2022, it achieved an increase in production and sales.

Production was 147,105 dmt of spodumene concentrate, which was a 16% increase from the three months to June 2022. The Ngungaju plant achieved its nameplate capacity of 180,000 dmt to 200,000 dmt per annum.

The average realised sales price was US$4,266. This enabled a "significant contribution" of $783.7 million of cash, leading to the balance sheet ending with $1.375 billion of cash.

Foolish takeaway

The Pilbara Minerals share price has been a strong performer as the lithium price continued to rise. It's very hard to say when lithium prices will reach a peak, but the ASX lithium share can continue to achieve stronger cash flow as this happens.

Motley Fool contributor Tristan Harrison has no position in any of the stocks mentioned. The Motley Fool Australia's parent company Motley Fool Holdings Inc. 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 Scott Phillips.

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