Ground Breakers: Got into PLS in March 2020? Your new dividend just paid back your purchase

Pilbara Minerals shares dive despite delivering a record dividend taking payouts for FY23 to $750 million
The 14c per share payout is almost equal to its share price in March 2020 at the lithium sector’s nadir
Wesfarmers eyes 2024 start for Mt Holland lithium JV with SQM

Did you have the foresight to pile into the world’s hottest lithium miner when it had been all but kicked to the curb?

An investment in Pilbara Minerals (ASX:PLS) of that vintage — 15c in March 2020 — would be akin to a couple without an athletic bone in their body adopting a child with the prodigious sporting talent of an NBA hall of famer. Ch-ching.

Peep this, not only would a $10,000 investment when the price of lithium was in the gutter have netted you around $350,000 in just three and a half years, but today’s final year payout of 14c would have almost paid off your initial outlay on its own.

Madness. If only we all had the foresight to ride out the storm.

Of course the chances you actually got in at the ground floor are pretty small and reserved for an extraordinarily small subset of people. And just as Pilbara Minerals prospered, others such as Altura Mining and Alliance Mineral Assets Limited went to the wall.

Still, nice to be on the right side of history if you were.

Today’s $420m payout, which took its full year return to $750m (over half of all cash returned to shareholders in gold giant Northern Star Resources’ (ASX:NST) decade as a dividend payer), is poised to be just the start.

After shipping around 620,000t of spodumene concentrate in FY23, PLS expectes to ramp up to 660,000-690,000t in FY23 at a product grade of 5.2% Li2O at unit operating costs of $600-670/dmt.

That disappointed some investors, who sent the firm’s shares sharply down today. Consensus had FY24 output at more than 700,000t.

All up a near doubling in prices from US$2382/t in FY22 to US$4447/t in FY23 saw the Pilgangoora mine owner increase revenue by 242% to $4.1b, EBITDA by 307% to $3.3b and profit after tax 326% to $2.4b.

Its cash reserves are sitting at a whopping $3.3b, plenty to play with if it targets M & A opportunities and to fund up to $540m of development capital on its initiatives to ramp up output at Pilgangoora to 680,000tpa and then 1Mtpa by the end of 2025.

With a 35% increase in reserves today to 214Mt, it has now kicked off studies to expand even further beyond that with moves downstream into refining or intermediate salt production in focus.

A partnering process on downstream linked to the 1Mtpa expansion is expected to wrap in the March quarter of 2024.

Pilbara Minerals (ASX:PLS) share price today

Pilbara reels in the cash

The rise of the $14 billion market giant has been so swift, managing director Dale Henderson told analysts this morning the firm’s shipping manager had to buy a new calculator because the volume of sale and variety of prices being received for its product meant they no longer fit on a simple calculator screen.

A far cry from the days when she would ring the bell to signify a rare US$400/t cargo had been completed and sent onto the water bound for China.

The new reserve update has been tabulated at a long run price of US$1450/t, a big increase on the old number of between US$588-700/t, but one Henderson says remains conservative relative to peers.

Spodumene concentrate pricing, on a 6% Li2O basis, is sitting around US$3350/t at the moment, having run up on spot to more than US$8000/t at the market’s zenith last year.

While pricing has come off amid an oversupply of material in China this year, Henderson says the long term outlook for lithium raw materials remains bullish, with investments in the West on battery technology continuing to expand, especially from the Canadian and US Governments and automakers.

He noted “the Canadian Government’s commitments of US$11b to Stellantis and LG on the 6th of July. Toyota 31st of May, investing over US$2.1 billion in battery plants as well.”

“We of course have the China policy. I think I mentioned this last call with tax exemptions for EVs through ’27, further support.

“It seems every every few days or every few weeks, there’s news that reinforce that long term outlook. Pilbara continues full force to make the most of this market and capitalise on the position that we have.”

Henderson said there “would be cycles”, with Pilbara’s aim to remain a low cost operator with its incumbency advantage.

Wesfarmers say spod will flow from Mt Holland from 2024

Wesfarmers (ASX:WES) says commissioning of the concentrator at the Mt Holland lithium mine has finally begun, some seven years after it was first discovered by Kidman Resources.

The WA industrial giant paid $776 million in 2019 to buy out the junior, which found the ginormous pegmatite deposit after hoping to find gold near Southern Cross in WA’s Eastern Goldfields in 2016.

It is developing the project, and a connected hydroxide plant in Kwinana, in partnership with Chilean lithium monster SQM.

That project has been emblematic of the challenges facing companies looking to develop and ramp up lithium discoveries.

From $950m in 2021, Wesfarmers earlier this year increased its capex estimate for Mt Holland and the refinery to $1.2-1.3b, as much as $2.6b on a 100% basis.

There could be yet more pain to come, with the adjacent lithium hydroxide refinery being developed by IGO (ASX:IGO) and Tianqi, part owners of the Greenbushes mine in WA’s South West, seeing no end of ramp up issues.

In its full year results today, Wesfarmers said construction of the Mt Holland mine and concentrator has now been completed, while hydroxide offtakes for the refinery, where civils are complete, have been signed with “tier-one” customers.

Another $350m of development capex has been allocated to the Covalent Lithium JV by WES in FY24, but Wesfarmers and SQM clearly have confidence in the broader market.

“The project continues to be supported by favourable lithium market conditions and forecast strong long-term demand for battery electric vehicles, and preliminary feasibility studies to evaluate the opportunities of expanding the capacity of the lithium mine and concentrator were progressed during the year,” the ASX listed conglomerate noted.

The KMart and Bunnings owner saw net profit lift 4.8% to $2.465 billion after lifting operating cash flows by 81.6% to $4.179b, backing a $1.03 per share dividend.