Pilbara Minerals Ltd (ASX: PLS) shares are charging higher on Wednesday.
In morning trade, the lithium miner's shares are up 4% to $3.41.
Why are Pilbara Minerals shares rising?
Investors have been buying the company's shares today after responding positively to its quarterly update.
According to the release, Pilbara Minerals delivered a 22% quarter on quarter increase in spodumene concentrate production to 176kt during the three months. This was achieved through improved processing plant availability with one less shut down in the December quarter compared to the prior quarter.
Also heading in the right direction were its sales volumes, which increased 9% quarter on quarter to 146.4kt.
However, heading very much in the wrong direction was the price of its lithium. Pilbara Minerals reported a 50% decline in its realised price to US$1,113 per tonne.
The good news is that it was able to reduce its unit operating costs (FOB) to US$416 per tonne, which means it is still generating plenty of cash flow despite the lower prices. Unit cost reductions were underpinned by higher sales volumes that were enabled by increased production volume.
Management revealed that it had a cash margin from operations of $176 million. Though, due largely to tax payments, its cash balance had declined almost $900 million to $2,144 million at the end of December.
In light of this, the company has warned that it is unlikely to pay a dividend for the first half of FY 2024.
Cost and capital investment review
Pilbara Minerals believes that the strength of its balance sheet is a significant competitive advantage. As a result, it is focused on preserving that advantage through rationalising non-essential spend that does not impact on expansion or further improve unit operating costs.
With that in mind, management has increased its focus on unit-cost efficiency and conducted a review of capital spend.
Based on this review, it is decreasing its FY 2024 capital expenditure guidance range from $875 million to $975 million to a new range of $820 million to $875 million. This reflects a number of non-essential new projects and enhancements being deferred.
Pleasingly, this reduction in capital expenditure is not expected to impact the timing of the P680 or P1000 expansion projects, which remain on schedule. All other FY 2024 guidance has been reaffirmed.
Outlook
Management remains very positive on the company's long term outlook thanks to the its low costs and the strength of its balance sheet.
The long-term outlook for lithium remains strong based on compounding growth in EV production and other energy storage applications. However, as with many emerging sectors, the industry has seen pricing volatility including periods of lower pricing.
With a low unit-cost structure and strong balance sheet position, Pilbara Minerals is uniquely placed relative to many of its competitors in the lithium sector to withstand and capitalise on a period of lower prices that could rationalise the market. With increasing production capacity, the Group is also uniquely positioned to take advantage of an improvement in market conditions when the pricing cycle turns.
Pilbara Minerals shares are down 30% over the last 12 months.
