Pilbara Minerals share price on watch following tough quarter

This lithium giant has finally handed in its quarterly report card.

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Key points

  • Pilbara Minerals released its quarterly update after the market close on Thursday
  • The lithium miner has underperformed the market on a number of key metrics
  • Management has warned that lithium prices could soften further in the near term

The Pilbara Minerals Ltd (ASX: PLS) share price will be one to watch closely on Friday.

That's because the lithium miner released its eagerly anticipated quarterly update after the market close yesterday.

Pilbara Minerals share price on watch following Q3 update

All eyes will be on the Pilbara Minerals share price this morning after the lithium miner reported a 9% quarter on quarter decline in spodumene production to 148,131 dry metric tonnes (dmt) for the three months ended 31 March.

However, before you panic, it is worth highlighting that this decline was actually in-line with the market's expectations. The consensus estimate was for spodumene production of 148,000 dmt.

One thing, though, that could disappoint the market was its shipments. Pilbara Minerals reported shipments of 144,312 dmt of spodumene concentrate This was down 3% quarter on quarter and well short of the market's estimate of 161,000 dmt. It was also a world away from Goldman Sachs' forecast of 170,000 dmt.

Lithium prices soften

There's been a lot of talk of falling lithium prices recently, which has been weighing heavily on the Pilbara Minerals share price.

These concerns aren't unwarranted, with the company reporting a 15% quarter on quarter decline in the average estimated realised spodumene concentrate sales price to ~US$4,840 per dmt on a ~SC5.3 basis. As a comparison, the consensus estimate was for a decline to US$5,209 per tonne for the quarter.

Management also warned that it expects prices to soften further "until pricing for lithium chemicals stabilises, including domestic pricing in China."

On a positive note, it does see scope for "prices potentially strengthening in the second half of this year as restocking of inventory levels in China occurs across the supply chain."

Costs rise

As with most miners, Pilbara Minerals reported a rise in its cost of production during the quarter.

It reported a unit operating cost of A$632 per dmt (FOB Port Hedland and excl. royalties), which was up 9.15% from the previous quarter. This reflects reduced production volumes and cost pressures due to labour shortages in the Western Australia mining sector, supply chain disruptions, and general inflation.

Despite its rising costs, lower sales volumes, and falling prices, Pilbara Minerals still had a highly profitable quarter. This led to the miner reporting a A$457 million increase in its cash balance to A$2.683 billion.

FY 2023 guidance

Unfortunately, its costs are not expected to improve enough for the company to achieve its unit cost guidance in FY 2023. Management has increased its full-year unit cost guidance to A$600 to A$640 per dmt from A$580 to A$610 per dmt. All other guidance has been reaffirmed for FY 2023.

Motley Fool contributor James Mickleboro 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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