Pilbara Minerals shares: Buy or Sell?

Is it time to buy this lithium miner? Here's what one broker thinks.

| More on:
A man sits in contemplation on his sofa looking at his phone as though he has just heard some serious or interesting news.

Image source: Getty Images

You’re reading a free article with opinions that may differ from The Motley Fool’s Premium Investing Services. Become a Motley Fool member today to get instant access to our top analyst recommendations, in-depth research, investing resources, and more. Learn More

It is fair to say that Pilbara Minerals Ltd (ASX: PLS) shares are having a tough year.

After being incredibly resilient in the face of falling lithium prices for some time, they have started to crumble in 2024.

So much so, they are now down over 20% year to date and 35% over the last 12 months.

Has this created a buying opportunity for investors, or should you give Pilbara Minerals shares a wide berth? Let's find out what analysts are saying.

Pilbara Minerals shares: Buy or Sell?

At the end of last week, the lithium giant announced the results of the pre-feasibility study (PFS) for the expansion of production at the Pilgangoora Operation.

That study found that production capacity at Pilgangoora Operation could be expanded to more than 2 million tonnes per annum (Mtpa) with an estimated capital expenditure of $1.2 billion (-20/+30% accuracy).

Management estimates that the expansion could create significant shareholder value with a P2000 incremental net present value (NPV) of $2.6 billion and incremental internal rate of return (IRR) of 55%. This is based on the assumption of a long term spodumene 6% price of US$1,500 per tonne, which is ahead of current market prices.

Goldman Sachs has responded to the update. Unfortunately, it has seen nothing here to change its bearish view on Pilbara Minerals shares.

As a result, it has retained its sell rating and $2.80 price target on its shares. This implies potential downside of 10% from current levels.

What did the broker say?

Goldman wasn't overly impressed with the P2000 plan. It commented:

PLS has outlined outcomes of a 'P2000' pre-feasibility study (PFS). In line with our Beyond P1000 scenario analysis earlier this year, we see the study result for the next leg of expansion as underwhelming vs. market expectations on a combination of capex, size, and timing.

The broker also highlights that the expansion is likely to have a major impact on its balance sheet and future dividend payments. It adds:

PLS had net cash of A$1.4bn at Mar-24, though this higher capex would likely see PLS move to a net debt position through construction with prolonged negative FCF on our lithium price outlook (prolonging uncertainty on the outlook for dividends). PLS expect to partially fund the project with new loan facilities or other sources, where Australian Federal Government financing agencies have provided non-binding Letters of Support for up to A$400mn for the project following this initial engagement.

PLS also expect to actively engage with selected participants across the battery materials supply chain to explore offtake and partnering opportunities for the expanded production, and has confidence there will be long-term demand for the product, though we reiterate recent new contracts have still been market pricing linked.

All in all, the broker appears to believe investors should stay away from Pilbara Minerals shares until they trade at much lower levels.

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 positions in and has recommended Goldman Sachs Group. 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.

More on Share Market News

An executive stands looking out a glass window over the city.
Best Shares

The ASX bosses getting richer on the back of soaring ASX shares

These founders and CEOs made money hand over fist last financial year...

Read more »

A young man pointing up looking amazed, indicating a surging share price movement for an ASX company
Broker Notes

These ASX shares could rise ~20% to 40%

Analysts believe these shares could generate big returns for investors.

Read more »

Contented looking man leans back in his chair at his desk and smiles.
Broker Notes

Top brokers name 3 ASX shares to buy next week

Brokers gave buy ratings to these ASX shares last week. Why are they bullish?

Read more »

5 mini houses on a pile of coins.
Share Market News

Here's how the ASX 200 market sectors stacked up last week

ASX real estate shares were strongest amid a volatile week during which the ASX 200 set a new record.

Read more »

Two smiling work colleagues discuss an investment or business plan at their office.
Broker Notes

Which beaten down ASX 200 share did Goldman Sachs just upgrade to a buy rating?

The broker has become more bullish on this stock following last week's update.

Read more »

Hand holding Australian dollar (AUD) bills, symbolising ex dividend day. Passive income.
Best Shares

The best ASX shares to invest $1,000 in right now

Analysts think that putting your money into these stocks could be a smart move.

Read more »

green etf represented by letters E,T and F sitting on green grass
Share Market News

4 ASX ETFs to buy for FY25 and beyond

Could these ETFs be top options for investors looking for long term picks?

Read more »

A smiling woman sips coffee at a cafe ready to learn about ASX investing concepts.
Opinions

How I'd invest $10,000 in ASX shares right now

I’m bullish about the prospects of these stocks.

Read more »