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Why the Pilbara Minerals (ASX:PLS) share price is going nuts

The Pilbara Minerals Ltd (ASX: PLS) share price is up 8% today. There is a very good reason why the ASX lithium share is charging higher.

What’s going on with the Pilbara Minerals share price?

Adding today’s gain to the last 12 months, Pilbara Minerals has risen by an astonishing 665%.

Yesterday evening, after the market had closed, the company announced the results of its second battery material exchange (BMX) auction. It was selling spodumene concentrate, which has a high concentration of lithium.

The company said that there was strong interest in both the BMX platform participation and bidding within the auction.

Pilbara Minerals said that it intends to accept the highest bid of US$2,240 per dry metric tonne for an intended cargo of 8,000 per dry metric tonne.

On a ‘pro rata lithia basis’, including freight costs, this is approximately equivalent to a price of US$2,500 per dry metric tonne.

Based on the terms of the auction, the bidder is now required to enter into a sales contract with Pilbara Minerals in the coming days which requires a letter of credit to be presented. Ship loading is expected in November.

Management said that given the strong margins yielded through the BMX trading platform to date, Pilbara Minerals expects to channel more concentrate sales through the platform, including concentrate generated from the recommencement of the Ngungaju processing plant.

What to make of this announcement

This is clearly good news for the ongoing strength of the lithium price and lithium miners. It has been a booming period for Pilbara Minerals considering there is an elevated level of expectation that electric vehicle sales are going to boom in the coming years.

But, according to the Australian Financial Reviewsupply is now able to keep up with demand. Low lithium prices in 2019 and a lot of 2020 meant there wasn’t much interest in developing new mines. Pilbara Minerals actually did a capital raising in 2019.

The AFR reported that even if every ‘probable’ lithium mine could be ramped up, there may be supply shortages for years.

Is the Pilbara Minerals share price good value?

I really don’t know if Pilbara Minerals is good value right now after such a strong run. Investors may be pricing in too much of success for the lithium miner, or maybe not. I’d have to consult my crystal ball! Others in the sector are also seeing a lot of investor interest, like Orocobre Ltd (ASX: ORE).

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At the time of publishing, Jaz does not have a financial or commercial interest in any of the companies mentioned.

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