The Pilbara Minerals Ltd (ASX: PLS) share price has soared 165% over the last year. Can it benefit from the booming lithium price?
Pilbara is one of the largest lithium miners on the ASX. It’s ramping up its production.
In the first six months of FY22, it shipped 170,228 dry metric tonnes (dmt) of spodumene concentrate, a 49% increase compared to the first half of FY21.
Perhaps most impressively from HY22, it made statutory net profit after tax (NPAT) of $114 million. That was a significant improvement from the statutory loss after tax of $21.2 million in HY21.
Booming lithium prices
The company is seeing continued improvement in lithium market conditions.
There is huge demand for lithium as the number of electric vehicles produced keeps increasing.
The company said that it achieved an average selling price of around US$1,250 per dry metric tonne. In February 2022, the company said that since the end of the half-year, pricing has continued to increase with price reporting agencies saying at the time that spot spodumene concentrate prices were in the range of between US$3,750 per dry metric tonne to US$4,500 per dry metric tonne.
The thing with resource businesses is that they have to take the price that the market/customers are paying. When the commodity price goes up, this predominately adds straight to net profit and cash flow, after paying government taxes.
These higher prices should significantly add to Pilbara Minerals’ profit.
Pilbara can also grow profit with the company’s potential to capture more of the lithium value chain with its ‘mid-stream’ project.
Can the Pilbara Minerals share price keep rising?
I certainly think that the net profit will keep rising if the lithium price remains strong and it can grow lithium production.
But share prices don’t necessarily follow the same pattern as profit.
There is a lot of expectation when it comes to lithium demand and electric vehicle demand built into the price already.
CommSec projections imply that the Pilbara Minerals share price is valued at eight times the estimated earnings for the 2023 financial year. It could yet be cheap at today’s price – it depends on how high the lithium price is from here. Any short-term weakness in the lithium price could make it an interesting investment opportunity.
