The Pilbara Minerals Ltd (ASX: PLS) share price has sunk 35% in the last 12 months, as shown on the chart below. With FY25 just around the corner, it's worthwhile considering if the ASX lithium share can recharge investor returns.
The ASX mining share has been struggling with the commodity price sinking. In the quarterly update for the three months to 31 March 2024, it revealed that its realised price for its production dropped 28% to US$804 per tonne, down from US$1,113 per tonne for the three months to December 2023.
Commodity businesses' profits are closely linked to the strength of the commodity price. Production costs don't cost much month to month, so a decrease in revenue significantly harms net profit as well, which can then flow onto the share price. That's what has happened to Pilbara Minerals shares.
Lithium price stabilising
Pilbara Minerals reported in the quarterly update that, compared to the December 2023 quarter, the lithium price stabilised and then increased towards the end of the March 2024 quarter. A pre-auction sale in March of 5,000 dry metric tonnes (dmt) at a price of US$1,106 per dmt reflects the "ongoing demand and positive pricing for unallocated production volume".
UBS said last week in a note that it thinks a spot price of US$1,050 to US$1,075 per tonne is a "fair reflection of a well-supplied market."
The broker thinks the market is still pricing in a lithium rebound to US$1,440 per tonne based on the Pilbara Minerals share price. UBS suggests it could take a couple of years for the lithium price to return to UBS' long-term target of US$1,400 per tonne.
UBS notes the recent announcement of a pre-feasibility study by Pilbara Minerals that shows the Pilgagoora project could expect to be 2mt per annum in the future.
However, in the short term:
We continue to see the market well supplied and now longer-term we see plans from the likes of P2000 and Zijin Mining's Manono as quickly solving any potential 2030 deficit.
FY25 forecast for Pilbara Minerals shares
UBS now predicts the ASX lithium share can generate $1.27 billion of revenue in FY24 and FY25, while net profit after tax (NPAT) could increase to $398 million in FY24, up from a projected $359 million in FY24.
The UBS price target on Pilbara Minerals shares is $2.70, which currently suggests a 14% decline over the next 12 months from where the valuation sits today.
