This cheap ASX miner can weather the storm in lithium

Esther Holloway | Morningstar

Pilbara Minerals’ Pilgangoora mine in Western Australia is the world’s second-largest hard rock lithium operation and consists of two operating plants, Pilgan and Ngungaju. Pilbara (PLS) also recently acquired a Brazilian hard-rock project from Latin Resources.

Pilbara’s March 2025-quarter revenue of $150 million fell 30% compared with the December 2024 quarter. Lower volumes from the Pilgan ramp up and the first full quarter with the Ngungaju plant mothballed outweighed 7% higher realized lithium prices.

Pilbara is on track to meet fiscal 2025 production and cost guidance. However, the lithium market is facing more challenges than we previously thought. Electric vehicle sales growth has stalled in the US and Europe, keeping lithium oversupplied.

We temper our lithium price recovery trajectory, materially downgrading our near-term forecast. We now expect prices to reach USD 20,000 per metric ton by the end of calendar 2026, down from USD 25,000 previously. Despite the slow recovery, our midcycle price remains USD 15,000.

Pilbara shares remain materially undervalued

The main valuation driver for Pilbara Minerals is the lithium price. As a result, we cut our fiscal 2026 and fiscal 2027 earnings per share estimates to $0.07 and $0.22, respectively, from $0.20 and $0.48, previously. Our fiscal 2025 EPS estimate for a loss of $0.02 is little changed.

We cut our fair value estimate for narrow-moat Pilbara by 12% to $3.00, primarily reflecting weaker expected medium-term lithium prices and earnings. Pilbara’s full ownership of the Pilgangoora mine accounts for about 85% of our valuation. The Latin Resources acquisition comprises the other 15%.

The shares continue to look materially undervalued and while the near-term challenges persist, our positive long-term view is intact.

Source: Morningstar

We expect EV sales to reaccelerate and lithium companies to benefit. Supply growth is set to slow in the near term, and we expect the market to return to balance and support higher prices as demand recovers.

Strong balance sheet and cost advantage boost confidence

Pilbara’s balance sheet remains in excellent shape, with $1.1 billion in cash and a net cash position of $700 million as of March 2025. With major projects pushed back and reduced cash usage, the company is well-positioned to navigate near-term lithium price weakness.

We expect the Ngungaju plant to remain under care and maintenance in the medium term. Global project delays, including Pilbara’s deferral of its 2 million metric ton Pilgan expansion to at least fiscal 2027, should help check the industry’s near-term supply growth.

With a strong balance sheet and suspended capacity, we believe Pilbara is well-placed to respond when prices recover. Especially when you consider the cost advantaged nature of its major asset.

Pilbara’s hard-rock Pilgangoora mine in Western Australia produces lithium spodumene concentrate at a low cost of production, generating economic profits at most lithium prices. With about 20 years left on current reserve estimates, Pilgangoora has sufficient remaining life to warrant a narrow moat.

We estimate that Pilgangoora’s cash costs will average about USD 400 per metric ton over the next decade, which is below our midcycle price forecast for spodumene concentrate of USD 1,200 per metric ton. This places the mine at the bottom end of the hard rock lithium cost curve.

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All prices and analysis at 23 April 2025.  This information has been prepared by Morningstar Australasia Pty Limited (“Morningstar”) ABN: 95 090 665 544 AFSL: 240 892). The content is distributed by WealthHub Securities Limited (WSL) (ABN 83 089 718 249)(AFSL No. 230704). WSL is a Market Participant under the ASIC Market Integrity Rules and a wholly owned subsidiary of National Australia Bank Limited (ABN 12 004 044 937)(AFSL No. 230686) (NAB). NAB doesn’t guarantee its subsidiaries’ obligations or performance, or the products or services its subsidiaries offer.  This material is intended to provide general advice only. It has been prepared without having regard to or taking into account any particular investor’s objectives, financial situation and/or needs. All investors should therefore consider the appropriateness of the advice, in light of their own objectives, financial situation and/or needs, before acting on the advice.  Past performance is not a reliable indicator of future performance.  Any comments, suggestions or views presented do not reflect the views of WSL and/or NAB.  Subject to any terms implied by law and which cannot be excluded, neither WSL nor NAB shall be liable for any errors, omissions, defects or misrepresentations in the information or general advice including any third party sourced data (including by reasons of negligence, negligent misstatement or otherwise) or for any loss or damage (whether direct or indirect) suffered by persons who use or rely on the general advice or information. If any law prohibits the exclusion of such liability, WSL and NAB limit its liability to the re-supply of the information, provided that such limitation is permitted by law and is fair and reasonable. For more information, please click here.