PLS Group Ltd (ASX: PLS) is making one of the biggest investments in its history.
The ASX lithium share recently approved a $1.9 billion expansion of its flagship Pilgangoora operation in Western Australia, signalling considerable confidence in the industry's future.
It's a bold decision, especially given how unpredictable lithium prices have been in recent years.
But could this investment help PLS become a much more valuable business over the coming decade?
And should investors follow its lead and buy PLS shares?
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A major expansion is coming
PLS has given the green light to its P2000 project, which will significantly expand production capacity at Pilgangoora.
The centrepiece is a new processing plant called Jimmagunya, which will help increase annual spodumene concentrate production capacity to approximately 2 million tonnes.
For context, PLS produced around 880,000 tonnes during FY26.
First production from the new facility is expected in the September quarter of 2029, followed by a ramp-up lasting approximately six months.
That's a substantial increase in the company's potential production, and I've looked into how PLS plans to achieve it.
Management advised that the expansion will introduce improved processing technology that allows the company to recover more lithium from material previously considered waste.
This could help reduce the amount of waste rock that needs to be removed and improve operating efficiency.
In fact, the company's updated Pilgangoora Ore Reserve contains 31% more lithium than previously estimated, following the expansion study and separate underground mining work.
I think that's encouraging because PLS is finding ways to extract more value from an asset it already owns.
Why make such a big investment?
I think management is positioning the company for what it expects will be a much larger lithium market in the 2030s.
Electric vehicles remain an important source of demand, while the growing use of batteries to store renewable electricity provides another opportunity.
If these markets expand as expected, established producers with substantial capacity and competitive operating costs could be well placed to benefit.
PLS certainly likes the economics of its proposed expansion. Its feasibility study estimates that P2000 could generate an additional $2.7 billion in after-tax net present value, with an internal rate of return of 29.5%.
Those are encouraging projections, although they depend on assumptions including a long-term lithium concentrate price of US$1,620 per tonne. And importantly, the company has financial resources to support its ambitions.
PLS ended FY26 with $2.29 billion in cash after generating underlying EBITDA of $1.14 billion.
It is also planning up to $650 million in additional infrastructure investment at Pilgangoora, making this a substantial capital commitment.
Would I buy PLS shares?
I think the expansion strengthens the long-term investment case. The opportunity to produce considerably more lithium at potentially lower unit costs could translate into substantial earnings growth if lithium prices remain supportive.
Of course, the timing introduces uncertainty. Lithium prices can move dramatically as new supply enters the market, and spending billions of dollars ahead of future demand carries risks.
Construction delays or cost overruns could also reduce the project's eventual returns. But I like that PLS is investing in the scale and efficiency of an established operation rather than relying entirely on developing a new mine.
Foolish takeaway
For investors prepared to ride out lithium's volatility, I would be happy buying PLS shares with a long-term view.
The P2000 project won't transform earnings overnight, and the eventual return will depend heavily on lithium market conditions.
But I think management is building a business that could be significantly larger and more competitive by the end of this decade. That's a future I'd be interested in investing in today.
