Pilbara Minerals Ltd (ASX: PLS) shares looked attractive enough for fund manager Blackmore Capital to invest in the ASX lithium share.
As we can see on the chart above, the company's share price is still well below where it was earlier this year.
But, there are numerous reasons why the owner of the largest hard-rock lithium mine in Australia could still be an attractive investment opportunity.
The pros…
One of Blackmore's key points is that Pilbara Minerals currently contributes 8% of the global lithium supply, and it's increasing its production capacity by 70% to 1 million tonnes per annum via its P680 and P1000 expansion projects over the next two years. It has a mine life of 34 years.
Another point of interest is Pilbara Minerals' plans to take part in a downstream processing plant joint venture (with an interest of up to 30%) with POSCO in South Korea to produce battery-grade lithium hydroxide.
The ASX lithium share is also working on a mid-stream strategic partnering plan to process up to 300kt per annum of its 5.6% mine product to a 16% technical grade lithium metal for export from Australia.
Bear market
Blackmore Capital added that battery minerals entered into a bear market in 2023. The benchmark spodumene concentrate price peaked in December 2022 and has fallen by around 80% to roughly US$1,600 per tonne.
While lithium demand has continued to rise, the rate of growth has slowed with Chinese electric vehicle subsidies being phased out and EU incentives reduced at a time of weaker economic conditions
This has consequently led to the Pilbara Minerals share price dropping around 30% from 10 August 2023.
But, in Blackmore Capital's words:
Medium-term growth rates are expected to recover as China's EV's are now cost-competitive with combustion engine vehicles, new model launches in the EU will come into stringent CO2 targets in 2025 and US EV demand will be increasingly supported by IRA credits.
Cash pile, valuation and dividends
The investment team at Blackmore Capital said Pilbara Minerals was expected to finish 2023 with a net cash position of more than $3 billion against a market capitalisation of $10.5 billion.
It said at the time, the ASX lithium share was trading on an FY24 forecast enterprise value to earnings before interest, tax, depreciation and amortisation (EBITDA) multiple of 6.5x, and had a dividend yield of 2%.
The fund manager said production expansions would continue to "significant earnings growth" from FY25 to FY26.
Strong track record
Blackmore Capital finished its optimistic comments with the following on Pilbara Minerals shares:
With a strong track record in mine operation and project execution backed by a strong balance sheet and cash generation, Pilbara is well-positioned to benefit from increasing its production into end-market recovery over the next 12-24 months.
