Pilbara Minerals Ltd (ASX: PLS) shares caught the eye on Wednesday.
Investors were buying the lithium miner's shares after responding positively to its quarterly update.
However, it wasn't the company's performance that was getting investors excited, it was what management said.
It is finally responding to the difficult operating conditions by suspending one of its higher cost facilities. It has also put it mid-stream plans on hold until further notice.
Broker reaction
Bell Potter has been looking over the update and believes what management is doing is prudent given the lithium market weakness. It said:
PLS' production outlook (from mid-2025 onwards) is reduced to 850ktpa (from 1Mtpa). On 1 December 2024, the company will place the Ngungaju processing plant on temporary care and maintenance; reduce mining fleets from seven to four; defer non-essential capital expenditure; and pause mid-stream demonstration plant construction. PLS forecast the changes will generate a year-end cash uplift of $200m. Recommencement of full operations is contingent on sustainably improved lithium pricing; PLS expect Ngungaju will require a four-month ramp-up to full capacity.
Idling Ngungaju is a prudent approach with clear cost benefits, highlighting PLS' strong operational flexibility which can rapidly respond to changing market conditions. The company holds additional levers should lithium market conditions further deteriorate.
Is it a buy?
While the broker is a fan of the company and is positive on these plans, it isn't enough for it to recommend Pilbara Minerals' shares as a buy. It commented:
PLS operates a low-cost asset in a tier one jurisdiction, is diversifying through the lithium value chain, and has a strong balance sheet ($1.4b cash at 30 September 2024) that can support expansion projects through sustained periods of market weakness. It offers a clean exposure to global lithium fundamentals and sentiment. On our updated valuation, we maintain our hold recommendation.
The note reveals that Bell Potter has held firm with its hold rating and with a slightly trimmed price target of $2.95 (from $3.00). Based on the Pilbara Minerals share price of $2.88, this implies potential upside of just 2.5% for investors over the next 12 months.
In light of this, the broker appears to believe that investors ought to keep their powder dry until a more compelling entry point is created.
But if you are looking for lithium exposure, you could check out Liontown Resources Ltd (ASX: LTR). Bell Potter has reaffirmed its speculative buy rating and $1.50 price target on its shares this morning. You can read about that recommendation here.
