Pilbara Minerals Ltd (ASX: PLS) shares have been having a tough time of late.
While this is disappointing for shareholders, it could be a buying opportunity for the rest of us.
That's the view of analysts at Macquarie Group Ltd (ASX: MQG), which see significant value in its shares at current levels.
What is the broker saying about Pilbara Minerals shares?
Firstly, Macquarie has been running the rule over the lithium miner's third quarter update and concedes that it fell short of expectations. It said:
3QFY25 production of 125kt was 12% below VA consensus and 34% lower QoQ, reflecting Ngungaju's transition to care and maintenance, and tie in optimisations for the P1000 project. We note plant recovery of 67.2% missed VA consensus of 69.9%. 3QFY25 sales of 125kt were in line with production, but 12% below VA consensus.
There were some positives, though. The broker adds:
Cash costs of US$430/t FOB (A$685/t FOB) were a 3% beat but 6% higher QoQ. PLS realised price of US$747/dmt beat VA consensus by 4% and was 7% above our forecast. PLS had cash of A$1.1b cash balance at quarter-end (in line with VA consensus), which was 9% lower QoQ.
It also highlights that management has reiterated its FY 2025 guidance of 700kt to 740kt of spodumene concentrate at cash costs of A$620 to A$640 per tonne. This compares to the consensus estimate of 726kt at A$631 per tonne and Macquarie's estimate of 715kt at A$620 per tonne.
Big returns
In response to the above, Macquarie has reaffirmed its outperform rating and $2.40 price target on Pilbara Minerals' shares.
Based on its current share price of $1.40, this implies potential upside of 71% for investors over the next 12 months.
Commenting on its outperform recommendation, the broker said:
Maintain Outperform: 3QFY25 was weaker than expected, but the company remains on track to achieve FY25 guidance. We prefer Pilbara at these suppressed levels and remain optimistic on the company's capital management potential following a focus on productivity.
Macquarie also spoke positively about the acquisition of Latin Resources and management's plans for its assets. It adds:
PLS successfully completed the acquisition of Latin Resources during the quarter and has commenced a targetted exploration program with the aim of infilling the existing resource, expanding the existing resource, and testing new targets to inform study optimisations with outcomes expected in 4QFY26. PLS has signalled that any project investment decision will follow the study optimisations and improvement in lithium market and conditions. Regarding P2000, PLS has deferred FS outcomes until FY27 with an FID not anticipated with spodumene at these levels.
