Pilbara Minerals (ASX:PLS) share price races higher after strong lithium prices offset potential guidance downgrade

Key points

• Pilbara Minerals had a disappointing quarter for production and shipments
• FY 2022 guidance likely to be downgraded with half year results
• But very strong lithium prices are offsetting this disappointment

The Pilbara Minerals Ltd (ASX: PLS) share price is starting the week strongly following the release of its second quarter update.

At the time of writing, the lithium miner’s shares are up 4% to $3.35.

What happened during the second quarter?

For the three months ended 31 December, Pilbara Minerals reported production of 83,476 dry metric tonnes (dmt) of spodumene concentrate.

This was down 2.7% quarter on quarter and fell short of the downgraded guidance range of 85,000 to 95,000 dmt given with just 10 days of the quarter remaining on 21 December. Management advised that this was due to the extended outages at both the Ngungaju and Pilgan plants in the latter part of December.

It further explained that the key impacts being experienced relate principally to manning levels for increased contract mining, construction, and improvement projects, as well as delays in sourcing additional labour and equipment for plant shutdowns and repairs. It notes that these issues are being widely experienced across the entire Western Australian resources sector.

During the quarter, Pilbara Minerals shipped 78,679 dmt of spodumene concentrate, which was down 14% quarter on quarter.

In light of the above, management has warned that it is reviewing its FY 2022 guidance for production of 400,000 to 450,000 dmt and shipments of 380,000 to 440,000 dmt.

Finally, in respect to costs, Pilbara Minerals reported a unit operating cost of US$587 per dmt at the Pilgan operation. While this is higher quarter on quarter, it is largely due to higher royalties linked to significantly higher selling prices.

Strong lithium prices

It wasn’t all doom and gloom during the second quarter. One highlight was the sky high prices that Pilbara Minerals is commanding for its lithium. The release explains that the average prices received in the December quarter were in the range of approximately US$1,750 per dmt to US$1,800 per dmt on a CIF China SC 6.0 basis. This was at the top end of its guidance range of US$1,650 to US$1,800 per dmt.

It gets better. Management revealed that indicative pricing for the third quarter under existing offtake contracts is expected to be in the range of US$2,600 to US$3,000 per dmt on a CIF China SC6.0 basis.

Judging by the Pilbara Minerals share price performance today, this news appears to have offset the disappointment of a potential production and shipments downgrade next month.

Further details, including its FY 2022 guidance, will be provided with its half year results next month.

The post Pilbara Minerals (ASX:PLS) share price races higher after strong lithium prices offset potential guidance downgrade appeared first on The Motley Fool Australia.

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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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