Ground Breakers: Australia's big lithium miners rake in +$2.5bn profits as Pilbara Minerals pays first divvie

Pilbara Minerals rakes in $1.24 billion profit, paying out over a quarter in its maiden 11c per share dividend
MinRes and Allkem report strong profits, as Mineral Resources inks near $1b deal to head downstream with Albermarle in China
Big four Aussie lithium plays pull in combined profits of more than $2.5 billion in half year

Pilbara Minerals (ASX:PLS) has finally done it, paying its first dividend five years after the start of operations at its Pilgangoora lithium mine.

The decision to pay the 11c per share, $329.8 million return to shareholders next month has come well ahead of the end of year FY23 target previously considered by the lithium miner’s board.

But it is little wonder given the spodumene slinger’s remarkable run on record lithium prices, with profits rising a ludicrous 989% in the December half to $1.24 billion.

That’s more than double the combined forces of Australia’s three largest gold miners, Newcrest (ASX:NCM), Northern Star (ASX:NST) and Evolution (ASX:EVN), three companies with a combined market cap of around $38 billion.

The previous $114m half-year profit in 2022 was, we should remind you, the company’s first ever. In fact in 2019 and 2020 the company was, like many lithium players, on its knees as sales fell below the cost of production.

The reversal of fortune, which saw PLS expand its capacity to 560-580,000tpa by acquiring its not so lucky collapsed neighbour Altura Mining, has been nothing short of miraculous.

Average realised spodumene prices rose 305% year on year on a 5.4% basis (forget the 6% Li2O benchmark grade) to US$4993/dmt CIF China.

Unit costs including royalties and shipping to China rose 70% to US$1136/t, with operating costs at the mine gate up 25% to US$595/dmt.

All largely immaterial given the remarkable lift in prices and production, with PLS bolstering output by 83% to 309,255t and shipments by 68% to 286,876/t.

That underpinned a 647% — you read that right — increase in revenue to $2.18 billion, and 1091% lift in earnings to $1.81b, with earnings per share up 975% to 41.59c.

With an expansion to 680,000tpa ongoing and another to 1Mtpa in the works, as well as a downstream JV with POSCO, it has more than enough cash in the bank at $2.23b (up $1.63b in a year, and net cash of $2.08b against secured debt of $147.8 million) to balance returns to shareholders with growth capital.

Started from the bottom

Managing director Dale Henderson described the result, in a year when spot sales of spodumene on its Battery Material Exchange platform at times rose above US$8000/t on a 6% basis, as exceptional.

“This is an exceptional financial result. Our record operational performance, along with the positive supply and demand dynamics being experienced in the lithium market has enabled us to deliver a landmark $1.24 billion net profit for the half- year,” he said.

“This result has enabled the Board to declare an inaugural fully franked interim dividend of 11 cents per share. This is a huge milestone for Pilbara Minerals, and we are very pleased to be able to reward our shareholders who have had faith and stuck with us over the journey.

“This strong financial performance provides the Company a great platform, supporting our growth and diversification strategy to become a leading, sustainable battery materials supplier.

“On behalf of the Board, I would like to acknowledge the exceptional hard work, dedication and tireless efforts of everyone across the Pilbara Minerals team and our many business partners who have also contributed to these outcomes. These achievements would not have been possible without the collective commitment, teamwork and shared belief. This collective team spirit is growing a truly great home-grown Australian Company.

“The Company and its stakeholders are poised to continue to thrive. The combination of a world-class asset, operating expertise and team spirit is coming together and delivering into a growing market. The stage is set for Pilbara Minerals to take massive growth steps in the months and years ahead. This is just the beginning.”

A penny stock in 2014 when it acquired the Pilgangoora mine, PLS first emerged as a major ASX player in 2016, when the inaugural battery-driven lithium boom began.

Now valued at $13.5 billion, its shares fell to as low as ~15c in March 2020 as an oversupply of lithium threatened to kill off the Australian industry’s early movers.

Now the whole team’s here

Ironically, the tantalum by-product from Pilgangoora was the lead element on the bill when its purchase was announced almost nine years ago by PLS.

Electric vehicles have changed that. Last year as many EVs were being sold a week as were produced in all of 2012.

Sales increased worldwide last year from 6.6 million in 2021 to around 10.5m. They’re expected to grow further this year and eventually displace internal combustion engine cars entirely.

That is if we can find the lithium and other raw materials to actually build the batteries that go into them.

It is a scarcity which has been behind the bumper profits and sales numbers for Australia’s hard rock producers, who turn out around half of the world’s raw lithium materials. And two more — Mineral Resources (ASX:MIN) and Allkem (ASX:AKE) flashed their wares today.

Along with IGO (ASX:IGO) today’s results took total profit for Aussie lithium’s big four to more than $2.5 billion for the December half.

Diversified iron ore, lithium and mining services play (with a little gas thrown in) Mineral Resources turned out $390 million in profits, supporting a fully franked dividend of $1.20 per share.

It was a 1890% turn around from last year’s shock loss and paused dividend when low iron ore prices and grade price realisations sunk Chris Ellison’s miner.

MinRes boasted a 74% rise in revenue to $2.35 billion with underlying EBITDA up 503% to $939m.

While operating cash flow was up 333% to $281m, an 84% rise in capex to $741m for the growth hungry miner cut into its cash, down 29% to $1.7 billion. MinRes’ net debt sat at ~$1.4b as of December 31.

But importantly MinRes was able to restructure its JV with American lithium giant Albemarle in a deal Ellison says will capture more of the lithium value chain margin.

It will tip an initial US$350 million and a total of around $969 million (US$660m) to take a 50,000tpa half share in new and existing conversion plants in China’s Qinzhou and Meishan localities onwed by Albemarle.

Qinzhou has a 25,000tpa production capacity and will begin converting concentrate from MinRes and Albemarle’s Wodgina mine early in 2024.

Meishan is under construction with a design capacity of 50,000tpa, and will be commissioned by the end of next year.

The downstream joint venture will also see MinRes up its stake in Wodgina from 40 to 50%, with its stake in Albemarle’s Kemerton plant near Bunbury in WA sliding from 40 to 15%.

Albemarle will use spodumene from its Greenbushes mine to feed Kemerton, with MinRes paying market rates for the spodumene that goes into its 15% share.

MinRes also progressed to FID on its 35Mtpa Onslow Iron project in the Pilbara, recently receiving a recommendation from the WA EPA that infrastructure to support the development be approved by the State’s environment minister.

“Over the past 12 months, the business has been restructured for growth in each of our four business pillars,” Ellison said.

“We have locked in substantial growth in each of these business divisions for the next five years and built the foundations that will set up MinRes for the next 50 years.

“This half has seen us take the business from a mining services contractor and upstream miner to a leading downstream supplier of lithium to global auto manufacturers.

“In lithium, we are expanding our fully integrated battery chemicals business through the restructure of the joint venture with Albemarle. Owning the rock and converting it into battery chemicals, sold by MinRes, means we capture more margin of the value chain.

“In iron ore, we are progressing plans to unlock stranded deposits at our game-changing Onslow Iron project, which will transition us to a low cost, long-life iron ore producer.

“In energy, we are pursuing opportunities to secure reliable, low-cost natural gas to power our operations, transition away from diesel and coal-fired power and unlock downstream potential.”

Allkem rounds out lithium legends

Allkem, born from the merger of Australian hard rocker Galaxy and South American brine producer Orocobre, said its revenue increased 3x over in the December half to US$558 million.

That drove a rise in profit from just US$12.56m last year to US$222.5m in H1 FY23 from continuing operations, with total profit of US$219.2m.

The miner’s EBITDA lifted roughly fourfold to US$401.45m.

As expected the result was driven by record revenue at its Olaroz brine and Mt Cattlin spodumene mine, with the Olaroz facility reporting record production of 7542t.

Allkem has US$552m net cash in the bank, though expansions appear to be taking a higher priority at the moment than shareholder returns.

The company is 97% of the way into a stage 2 expansion of Olaroz, with first production planned in the June quarter.

It is constructing a second brine project in Argentina at Sal de Vida, due for completion in the middle of next year, and is closer than ever to an FID on the James Bay hard rock mine in Canada after receiving federal approval for the Quebec mine’s environmental impact assessment.

“Our FY23 half year results continue to demonstrate the improving profitability of our existing operations and the strong demand we receive from customers.”

“Amidst strong demand for lithium products we have delivered first production at the Naraha Lithium Hydroxide Plant and advanced Olaroz Stage 2 to commissioning. Sal de Vida construction is well underway, and James Bay is advancing with approvals received by the federal government for the ESIA.”

“With two revenue generating operations being supplemented in the near future by Olaroz Stage 2 and a strong balance sheet, we are fully funded to complete construction at Sal de Vida and the development of James Bay.”