Pilbara’s Waking Up

July 17, 2018

Pilbara Minerals (ASX: PLS) stock is up 17% since the beginning of July.  There could be a number of reasons for this, but it’s tough to speculate or pinpoint exactly what the driver is. Nonetheless, we wanted to take a second to update our readers on what is happening and how we view the stock.

Flipping the Switch

Pilbara has begun production of concentrate, with the first concentrate having been produced in June. Their next milestone is expected to happen in August as they deliver their first concentrate to customers. While this is a certainly a big achievement, the company’s focus going forward will no doubt be on ramping up production as fast as possible, and expanding to stage 2.  Aside from being able to start earning revenue, being in production in today’s lithium market is a big plus, as it allows these producing companies to take advantage of favorable fundamentals and carve out market share in the early innings of the lithium story. Thus, we believe the production factor is what has helped put a floor in the stock during the selloff, and also helped to drive the recent rally.

Making the Rounds

We’ve gotten to know Pilbara Minerals, and Managing Director Ken Brinsden pretty well over the past year or so.  While he’s certainly a strong operator and manager, we are more excited by his ability to promote the company and project as he has done throughout the development phase.  More recently, he’s been making the rounds again, appearing in our Lithium CEO Roundtable, and presenting at the Industrial Minerals conference in Las Vegas. These types of appearances help keep the company in the spotlight, while also bringing in new institutional investors as well.  The conference took place at the end of June, and the recent rally began the following week without any meaningful newsflow, which we believe points to investors building new positions or adding to existing ones.

Valuation Refresher

Given that nothing material has changed, we have not changed our valuation estimate for the company as shown below.

Source: Company filings, internal estimates

We would like to note that the reason we carry out a multi year valuation is because we want to see how the estimated intrinsic value trends over the next five years.  As long term investors, this gives us more confidence in overall picture, allowing us to accumulate or trim in the shorter term in response to various factors. In our opinion, given the lack of widespread awareness about the lithium sector, there is a lot of uncertainty as to when exactly the stock prices will converge to intrinsic valuations, and investors will need to have some patience, as 2018 has demonstrated thus far, which is why we are more comfortable just owning undervalued names and waiting.

But for shorter term investors that may be following our notes- to get a useful valuation one could discount the valuation back to present day.  For example, the 2023 valuation estimate discounted at 10% to today would imply a current valuation of 2.53 AUD per share. 

Either way, in our opinion there is clearly a lot of runway left for Pilbara Minerals’ stock as the company continues to develop the Pilgangoora Lithium Project into a world class operation.

So stay tuned via twitter and email to get our analysis and updates as they hit the tape!