Are Core Lithium’s problems with its trumpeted Tesla contract a trigger for a re-rating of our lithium boom, or is a surprise in the latest Pilbara Minerals quarterly report about a looming decision on a first ever dividend a positive sign of things to come?
Thursday saw news of the sudden collapse of Core Lithium’s agreement to supply electric vehicle giant Tesla.
The company’s shares fell more than 5% to $1.38 on Thursday.
The news came as Core started production at its Northern Territory lithium mine this month. The Tesla deal was only revealed on August 29 and less than two months later it is no more.
Core Lithium had an offtake term sheet to supply Tesla up to 110,000 of lithium spodumene concentrate annually from its Finniss mine located 88 kilometres south of Darwin.
“With the recent official opening of the Finniss Lithium Mine and the underwritten share placement to fund accelerated resource definition, Core is well positioned to take advantage of strong global demand and constrained lithium supply,” Core said on Thursday.
“The sale of 15,000 tonnes of direct shipping ore (DSO) shows strong international demand for Finniss lithium. The DSO sale was tendered on a CIF basis to several pre-screened participants active in the lithium-ion battery supply chain. Demand for spodumene DSO material was strong, evidenced by the price achieved.
“The DSO is expected to be shipped before the end of the year, in advance of spodumene concentrate production in H1 2023. Agreements in place with Ganfeng, and Yahua bring total concentrate sales under offtake contracts to about 80% of the Finniss Lithium Project production over the first four years of operations.
“Global lithium demand is forecast to stay strong for the foreseeable future and Core continues to receive strong inbound interest in lithium spodumene concentrate from the Finniss Lithium Project,” Core said confidently on its statement on Thursday.
So will this be the story that pricks the lithium boom for the time being? Judging by reports of continuing strong sales of electric vehicles in China, Europe and the US, the answer should be no.
The question of the current strength remains, especially after the way shares in industry leader Pilbara Minerals sold off briefly this week despite another big cash generating quarterly report after analysts at Citi questioned its valuation.
Pilbara shares lost more than 4% after the Citi report, though they regained nearly 3% on Thursday.
Citi downgraded the company’s shares to a sell rating but with an improved price target of $4.60. This price target implies potential downside of over 10% from current levels over the next 12 months.
But the Citi analysts also don’t appear to have fully examined Pilbara’s quarterly report which has its quarterly revenue now running at a $A4 billion a year clip, making it a substantial miner.
Citi’s analysts missed the big news in the Pilbara quarterly – that it is becoming a grown-up company and will soon outline its capital management policy, including the payment of a dividend.
Right at the bottom of the commentary in the quarter, Pilbara revealed that it had a net cash position at September 30 of $1.214 billion.
The company went on to say it “is currently establishing a Capital Management Framework (including a dividend policy), which it expects to release during the December Quarter 2022.”
By the end of 2022 shareholders will have a very good idea of a dividend policy and when the payments will start and what sort. It has to start generating franking credits to make itself really attractive, but cash dividends or a capital return to start with won’t be sneezed at.
And having a huge cash pile, plus more to be added this quarter, will allow the company to be generous while being conservative in leaving a lot of cash in the bank to survive a sharp downturn in lithium prices in 2024 that a lot of forecasts are predicting.
But shareholders will know that heading into 2023, they will receive something more tangible than a capital gain at a time when the shares might have reached the end of their current run.
Fancy a speccie miner like Pilbara having a dividend yield!?
Thanks to higher production and sales Pilbara Minerals lifted its cash pile by close to $800 million in the three months to September 30 to more than $1.3 billion.
Pilbara said in its report that it lifted spodumene concentrate production and sales from the Pilgangoora project in WA’s Pilbara to take advantage of the strong demand for lithium.
Production rose 16% in the quarter to 147,105 dry tonnes of concentrate from the June 2022 quarter. Importantly that was more than 70% above the 85,759 dry tonnes produced in the same quarter of 2021-22.
Pilbara said the Ngungaju plant achieved annual nameplate capacity of 180-200,000 dry tonnes and the tonne produced represents an annualised production rate of 588,000 dry metric tonnes of spodumene concentrate.
The company says it is still aiming to produce 640,000 to 680,000 tonnes of spodumene annually
In response to increasing customer demand and strong lithium raw materials pricing, Pilbara said it has continued to adjust production by lowering its targeted product grade to optimise product yield, thereby maximising sales volumes to take advantage of current market pricing conditions.
Strong pricing was also achieved from three Battery Material Exchange (BMX) sale auctions, with one auction achieving a realised price of $US6,988/dmt SC5.5 basis (FOB Port Hedland), which equates to $US7,708/dmt on an SC6.0 equivalent basis (CIF China).
Pilbara Minerals said it shipped 138,249 dmt of spodumene concentrate during the Quarter at an average grade of ~SC5.3 Li2O, achieving an average realised sales price of US$4,266/dmt ~5.3% basis (CIF China). This equates to a reference price of US$4,813/dmt on a SC6.0 basis (CIF China) following a pro-rata adjustment for actual lithia content.
A year earlier it shipped 91,549 dmt of spodumene concentrate for the Quarter.
Pilbara Minerals closed the Quarter with a cash balance of $1.375 billion, up $783.3 million o from the June 30 balance of $591.7M million and the $137.3 billion at the end of the September, 2021 quarter.
During the Quarter, Pilbara Minerals said it received proceeds of $1.037B billion from customer sales associated with sales of 138,249 dmt of spodumene concentrate and 45,041 dmt of middlings product (inclusive of $19.0 million of payments following completion of final pricing adjustments for June Quarter 2022 cargoes that were provisionally priced); and interest income of $2.2 million.
That’s revenue at a $A4 billion annual rate (assuming similar figures are reported for the next three quarters).
Pilbara’s shares are up 50% in the last three months and the company’s market value has more than doubled to around $16 billion.
That’s around $800 million more than the $15.2 billion valuation for Newcrest, the country’s biggest gold miner (with a solid copper overlay).
