The Pilbara Minerals Ltd (ASX: PLS) share price is dropping on Monday morning.
At the time of writing, the lithium miner’s shares are down 7% to $2.10.
Why is the Plibara Minerals share price dropping?
The weakness in the Pilbara Minerals share price on Monday has been driven by news that one of its major shareholders has sold its stake.
According to an announcement out of Mineral Resources Limited (ASX: MIN), the mining and mining services company has decided to exit its shareholding. It held a 5.4% stake prior to selling its holding via a fully underwritten accelerated block trade offered to institutional investors.
The release explains that Mineral Resources raised gross pre-tax proceeds of approximately $328 million from the sale.
Why is Mineral Resources selling its stake?
Mineral Resources was very pleased with the Pilbara Minerals share price performance since its investment in 2016 but felt now was the time to cash in and use these funds internally.
It explained: “MRL is delighted with the share price value delivered by Pilbara Minerals’ development of Pilgangoora but believes it is time to redirect this investment into the Company’s own growth projects, including in the hard-rock lithium and iron ore sectors.”
Mineral Resources became a substantial shareholder in the company as part of an agreement to relinquish offtake rights and a royalty that the company held over Pilbara Minerals’ Pilgangoora project.
What now for Pilbara Minerals’ shares?
Given how Mineral Resources knows the lithium industry extremely well, investors may be concerned that this sale signifies the top for the Pilbara Minerals share price. At least in the near term.
While that may prove to be the case, one leading broker still sees decent upside for its shares.
A note out of Macquarie from late last month reveals that its analysts have an outperform rating and $2.70 price target on the company’s shares.
Based on where Pilbara Minerals’ shares are trading now, this implies potential upside of 35% over the next 12 months.
The post Why the Pilbara Minerals (ASX:PLS) share price is sinking 7% on Monday appeared first on The Motley Fool Australia.
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More reading
- How is the Pilbara Minerals (ASX:PLS) share price performing against its sector?
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- The Pilbara Minerals (ASX:PLS) share price is up 5% on Friday
- Here’s why the Pilbara Minerals (ASX:PLS) share price is up 25% in a month
Motley Fool contributor James Mickleboro has no position in any of the stocks mentioned. The Motley Fool Australia’s parent company Motley Fool Holdings Inc. has no position in any of the stocks mentioned. The Motley Fool Australia has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Bruce Jackson.
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