Special Report: Steuart McIntyre from Sydney-based Blue Ocean Equities isn’t afraid of making big calls.

The senior mining analyst was one of the first to whack eye-catching price targets on stocks like Pilbara Minerals (ASX: PLS) and Dacian Gold (ASX: DCN) – and be proven correct.

This week he issued a somewhat contrarian call on Pilbara, which like many lithium stocks, has been savaged over the past eight months.

Pilbara is down around 33 per cent from its most recent high of $1 in July last year – despite ticking boxes the construction, commissioning and ramp-up of its flagship Pilgangoora project in WA.

McIntyre believes that Pilbara Minerals is now trading at a large discount to his calculated NPV for the project and, with a price of 67c is trading at a price to NPV ratio of just 0.40 times.

“We believe the discount relates to (1) fear of lithium prices falling further, (2) uncertainty relating to the Stage 1 ramp-up (CAPEX complete) and (3) uncertainty relating to the funding for the Stage 2 expansion,” he wrote in a note to investors.

“We expect risks (2) and (3) to roll off over the next 3-6 months and see potential for a re-rating.”

Pilbara Minerals’ flagship Pilgangoora project in WA. Supplied

McIntyre has increased his price target for Pilbara Minerals to $1.20 per share (from $1.10 previously).

“Our $1.20 price target is based on the NPV for Pilgangoora at 5Mtpa using a lithium concentrate price of US$600/t. The main driver of the price target upgrade is the reduction in discounts on the Stage 2 expansion which now appears fully funded.”

“Stage 2 is now targeting ~800ktpa of concentrate at US$260/tonne and for operating cashflow at current prices of US$384m or ~A$540m.”

Blue Ocean notes that the CAPEX spend on the Stage 1 Pilgangoora operation was completed during the December quarter with the project ramp-up “progressing well”.

“Commercial production is expected this quarter which should see first disclosure on costs providing improved transparency as cash-flow begins to ramp-up,” McIntyre wrote.


Stage 1 is set to produce ~330ktpa of 6 per cent concentrate at a target cost of US$260/tonne, at steady-state operating costs of US$260/t for steady-state operating cash-flow at current prices of US$158m per annum or A$223m, the note continues.

With Stage 2 funding now in place, Blue Ocean sees potential for a re-rating of Pilbara Minerals shares as the final components of the Stage 2 financing plan fall into place “expected by the end of March 2019”.

“Since around mid-last year, lithium stocks have de-rated materially, with sharp share price declines driven by declining lithium prices, oversupply fears and a major change in sentiment,” McIntyre said.

“We have identified a number of stock specific catalysts for PLS which could (and should) lead to a material re-rating over the next 6-12 months.”

Interestingly, McIntyre has also issued a “Strategic Target” for Pilbara Minerals shares of $1.70 per share which he says is primarily based on running the company’s last released lithium concentrate price of US$742/t instead of the Blue Ocean price assumption of US$600/t.

“Put simply, if lithium prices hold at the current level for the long term, our price target for PLS would be $1.70, an implied potential return of >150%.”


Pilbara Minerals is a Stockhead advertiser.
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