It is fair to say that Pilbara Minerals Ltd (ASX: PLS) shares are having a tough year.
After being incredibly resilient in the face of falling lithium prices for some time, they have started to crumble in 2024.
So much so, they are now down over 20% year to date and 35% over the last 12 months.
Has this created a buying opportunity for investors, or should you give Pilbara Minerals shares a wide berth? Let's find out what analysts are saying.
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Pilbara Minerals shares: Buy or Sell?
At the end of last week, the lithium giant announced the results of the pre-feasibility study (PFS) for the expansion of production at the Pilgangoora Operation.
That study found that production capacity at Pilgangoora Operation could be expanded to more than 2 million tonnes per annum (Mtpa) with an estimated capital expenditure of $1.2 billion (-20/+30% accuracy).
Management estimates that the expansion could create significant shareholder value with a P2000 incremental net present value (NPV) of $2.6 billion and incremental internal rate of return (IRR) of 55%. This is based on the assumption of a long term spodumene 6% price of US$1,500 per tonne, which is ahead of current market prices.
Goldman Sachs has responded to the update. Unfortunately, it has seen nothing here to change its bearish view on Pilbara Minerals shares.
As a result, it has retained its sell rating and $2.80 price target on its shares. This implies potential downside of 10% from current levels.
What did the broker say?
Goldman wasn't overly impressed with the P2000 plan. It commented:
PLS has outlined outcomes of a 'P2000' pre-feasibility study (PFS). In line with our Beyond P1000 scenario analysis earlier this year, we see the study result for the next leg of expansion as underwhelming vs. market expectations on a combination of capex, size, and timing.
The broker also highlights that the expansion is likely to have a major impact on its balance sheet and future dividend payments. It adds:
PLS had net cash of A$1.4bn at Mar-24, though this higher capex would likely see PLS move to a net debt position through construction with prolonged negative FCF on our lithium price outlook (prolonging uncertainty on the outlook for dividends). PLS expect to partially fund the project with new loan facilities or other sources, where Australian Federal Government financing agencies have provided non-binding Letters of Support for up to A$400mn for the project following this initial engagement.
PLS also expect to actively engage with selected participants across the battery materials supply chain to explore offtake and partnering opportunities for the expanded production, and has confidence there will be long-term demand for the product, though we reiterate recent new contracts have still been market pricing linked.
All in all, the broker appears to believe investors should stay away from Pilbara Minerals shares until they trade at much lower levels.
