The Pilbara Minerals Ltd (ASX: PLS) share price has been through a lot of pain over the last couple of months.
Since 9 November, it's down 28%. However, over the past six months, it has risen by close to 70%. Certainly, it has been a very volatile time for the ASX lithium sector generally.
Image source: Getty Images
Is the negativity warranted?
On 26 October 2021, Pilbara Minerals announced that it had sold 10,000 dry metric tonnes (dmt) of spodumene concentrate for US$2,350 per dmt via the Battery Material Exchange (BMX).
Over the course of 2022, the company reported progressively higher prices through a number of BMX auctions. On 16 November 2022, it reported the sale of a 5,000 dmt cargo for US$7,805 per dmt.
In just over a year, the auction price jumped 230%.
But, on 14 December 2022, it revealed that it had sold two cargoes totalling 10,000 dmt for an average price of US$7,552 per dmt. That represented a decline of around 3% from the November auction. Investors may be thinking that the November auction price was the peak. The question is, is it going to keep falling?
However, at US$7,500 per dmt, Pilbara Minerals is still generating significant profit and cash flow.
The company also reported on 21 December 2022 that it had achieved a "significant improvement in pricing outcomes" with its major offtake customers, after completing price reviews. This revised price applies for all shipments in December 2022 and onwards.
Pilbara Minerals said that based on market pricing data, average pricing would equate to approximately US$6,300 per dmt (CIF [cost, insurance, freight] China) on an SC6.0 equivalent basis.
Essentially, the business is still experiencing strong pricing outcomes.
KPMG's mining outlook for 2023 suggested that the mining outlook is "largely positive". National Mining and Metals Leader at KPMG Australia Nick Harridge said that the "key demand story is highlighted with lithium".
The report also said: "The pace of EV sales is increasing with nearly half of the current stock of EVs sold in the last year. But the transition away from fossil fuels will continue to require a rapid increase in the number of EVs manufactured."
What's the outlook for the Pilbara Minerals share price?
According to the forecast on Commsec, the ASX lithium share is valued at five times FY23's estimated earnings and eight times FY24's estimated earnings. Both of those valuations do not seem very demanding at all.
Remember, the lithium miner is looking to ramp up its production capacity of total spodumene concentrate across its Pilgangoora project of up to one million tonnes per annum. Plus, the business is working on growing its presence in the value chain of the lithium battery-making process, which means it will be able to capture more of the value.
Analysts are mixed on the company at the moment. Of the 16 analyst calls covered by Commsec, three are sells, six are holds, and seven are buys.
While Goldman Sachs currently rates it as a hold (according to Commsec), the price target of $4.70 implies a possible rise of around 20% over the next year.
What happens in 2023 could be largely dependent on the lithium price. If the commodity price holds up, then investor confidence could return – it's already up more than 9% in 2023 to date.
With more electric vehicles expected to be manufactured in the coming years, I think the Pilbara Minerals share price is a long-term buy, with a possible dividend yield of 3.8% (excluding the effect of franking credits).
