The Pilbara Minerals Ltd (ASX: PLS) share price had a great year during FY23, rising by 113%. This vastly outperformed the S&P/ASX 200 Index (ASX: XJO) which only climbed by 10% over the same time period.
The ASX mining share has seen enormous volatility over the last few years, as we can see on the chart below.
I think there are three things that helped the ASX lithium share deliver strong capital growth, which I'll outline my thoughts on.
Low starting valuation
If we look back at the start of FY23, the ASX share market was going through a lot of volatility and the Pilbara Minerals share price started at around $2.20 per share after falling over 40% from January 2022.
By starting at that low point after a decline, it gave the ASX lithium share a much better chance of producing a strong return.
There was a widespread sell-off for the share market as investors worried about the impacts of inflation and how high-interest rates would need to go.
Solid lithium price and good cash flow
As an ASX resource share, the company's success is heavily tied to the price of the commodity.
The lithium price certainly moves around a lot, but as long as it's at a good enough price then the business can make good cash flow.
The latest update is the one that the market has to use. In the three months to 31 March 2023, it achieved an average estimated realised spodumene concentrate sales price of around US$4,840 per dry metric tonne (dmt).
That sales price compared to the unit operating cost of A$632 per dmt. So the company is making a very good margin on its production. It also shipped 144,312 dmt of spodumene concentrate for the three months to 31 March 2023.
It now has an even bigger cash pile on the balance sheet. At 31 March 2023, it had $$2.68 billion cash, which was an increase of $457 million over the quarter.
Project progress
The business is already making a lot of profit every month, but its planned projects could unlock even more financial power.
Pilbara Minerals is looking to increase its production capacity of spodumene concentrate by around 70% over the next two years to around 1 million tonnes per annum thanks to the commissioning of the P1000 project. Equipment that takes a long time to be delivered has been ordered for P1000.
Production could grow even further in subsequent years to keep up with the growing battery demand for lithium.
The Pilbara Minerals share price is also benefiting from its ongoing progress towards being more involved in the lithium battery value chain.
It's working on becoming a "globally significant lithium chemicals producer", with its current joint venture POSCO Pilbara Minerals Solutions.
As it gets closer to completing these projects, investors will pencil in that the ASX lithium share is getting closer to improving its output.
