C - Pilbara Minerals: Skyrocketing Growth

Summary

• Pilbara Minerals generated gross sales of $1.037 billion in the latest quarter, which nearly surpassed sales for the entire fiscal year 2022 of $1.189 billion.
• The company's cash position grew by $783.7 million (a 133% increase) to $1.375 billion.
• In 2022, Pilbara's earnings grew from a loss of $2 per share to a positive $18.47 per share.
• Reiterate the Strong Buy rating on Pilbara and a price target of $28.

Two months ago on August 22nd, I wrote an introductory article Pilbara Minerals: A Pure Play Lithium Miner. As the world’s largest independent hard rock lithium operator (miner), Pilbara Minerals Limited ( PILBF ) was benefiting from the immense demand for lithium driven by the world’s transition to electric vehicles ("EVs"). This demand for lithium was projected to grow by 25% a year over the next decade.

At the time, the company had just reported that they were cash flow positive and increased their cash position 270% to $874 million. In addition, the company reported a 56% increase in production of its main mineral, spodumene, which is where lithium is derived from.

Skyrocketing Growth

Fast forward two months to today (Tuesday, 10/25/22), when the company released its latest quarterly activities report . In the most recent quarter, Pilbara reported generating gross sales proceeds of $1.037 billion from sales of 138,249 dmt (dry metric tonne) of spodumene. To appreciate the incredible growth Pilbara Minerals is experiencing, you need only look at the total revenues the company generated in all of 2022 of $1.189 billion. In other words, what Pilbara generated in sales in one quarter from one product (spodumene) almost equaled what it generated for all of 2022.

Even more impressive than the growth in revenues is the earnings the company generated in 2022. At the end of 2021, Pilbara reported a loss of $2.00 per share and a net loss of $51.45 million. In 2022, the company reported diluted earnings of $18.47 per share on net income of $563 million. Not knowing yet what the company will earn in the next quarter after generating $1.037 billion in sales, one can only begin to imagine the growth in earnings for fiscal year 2023.

Stock Lagging

Yet, despite the growth in revenues and earnings, the stock has not reflected the same growth rates. When I wrote the initial article in August, the PILBF stock was trading at $2.22 per share. Today, the stock trades at $3.44 per share, which is a 55% increase in only two months, but still well below the growth rate of its revenues (576%) or its earnings (1,023%).

For investors, this provides an opportunity. Even though the stock has gained over 50% the last two months, there is plenty of room for the stock to run.

In my initial analysis two months ago, I estimated that Pilbara would earn $5.55 billion by 2027, and generate net income of $1.1 billion. Based on the company’s recently reported quarterly sales of $1.037 billion, it is well on its way to earning $5 billion as early as 2024.

Below is a table contrasting the company’s metrics when the original article was written in August to my 5-year estimate at the time, and two months later to show how the company’s earnings have grown and how much cheaper the stock has gotten based on its price-to-earnings ratio:

Source of company metrics: Morningstar & Pilbara Minerals Investor Relations

Global Lithium Deficit

One factor that bodes well for the company is the projected gap that is estimated to grow over the next two decades as the demand for lithium far outstrips the supply.

In a recent report published by the International Energy Agency ((IEA)), the IEA concluded:

Global battery and minerals supply chains need to expand tenfold to meet projected critical mineral needs by 2030.

With the demand for electric vehicle batteries expected to increase thru 2030, the industry is projected to need 50 more lithium mines by 2030 to meet the global demand. Fortunately for Pilbara, its main site, called Pilgangoora, has a 25-year lifespan that should enable the company to participate in this incredible secular growth trend.

Concentrated Ownership by Institutional Investors

One probable reason the stock has not moved to match the company’s growth rate is that 68% of the outstanding shares are held by institutional shareholders. In fact, 50% of the stock is owned by only three companies – HSBC Holdings (HSBC), JPMorgan Chase (JPM), and Citigroup (C). This concentration of ownership is one of the reasons why the stock does not trade as widely as other mining companies.

In the case of the over-the-counter ((OTC)) shares of PILBF, the average daily trading volume is only 348,180 shares a day out of over 2.9 billion shares outstanding. This is equivalent to 0.012 percent of all outstanding shares. A very small percent and likely not to move the stock price much on a daily basis.

However, as the company continues to grow and blow out earnings quarter after quarter over the next several years as anticipated, I believe individual investors around the world will begin to pay attention to this small but fast-growing Australian company, and that will ultimately be reflected in the share price.

For further details see: