The Pilbara Minerals Ltd (ASX: PLS) share price has been one of the best performers in the S&P/ASX 200 Index (ASX: XJO) over the last few months.
In the three months to 30 September 2022, the ASX lithium share has seen its share price gain 99%. Between 30 June 2022 to today, it’s up an impressive 137%.
What’s going on?
Many ASX shares saw their share prices plummet in the first half of 2022 as markets tried to work out what businesses were worth in this period of high inflation and rising interest rates.
Inflation can increase company costs and hurt demand. But why do interest rates matter? Billionaire Ray Dalio once said:
It all comes down to interest rates. As an investor, all you’re doing is putting up a lump sum payment for a future cash flow.
But while many ASX shares are fairly close to their June lows. The Pilbara Minerals share price has charged higher. For starters, it’s benefiting from the growing demand for electric vehicles.
I think there are key factors worth noting over the last few months.
Strong lithium price
The ASX lithium share has been utilising a digital auction platform called the Battery Material Exchange (BMX) to sell some of its production.
On 23 June 2022, just before the FY23 first quarter, it auctioned 5,000 dry metric tonnes (dmt) of spodumene concentrate and accepted a price of US$6,350 per dmt.
On 13 July 2022, it sold 5,000 dmt for a price of US$6,188 per dmt.
On 2 August 2022, it sold 5,000dmt for US$6,350 per dmt.
On 20 September 22, it sold 5,000dmt for US$6,988 per dmt.
Despite all the worries about the global economy, the lithium price has stayed strong in the first few weeks of the FY23 first quarter and then kept growing.
The commodity price is key for the business because a higher resource price can largely add straight onto its net profit after tax (NPAT) and cash flow. It costs roughly the same to produce the resource, so more revenue for that production is just extra money for the company.
I think this came through in the company’s FY22 result, which was another positive catalyst for (or supportive of) the Pilbara Minerals share price.
FY22 report
The ASX lithium share reported it shipped 361,035 of spodumene concentrate, representing a 28% year-over-year increase.
Revenue grew by 577% to $1.2 billion. The statutory NPAT jumped to $561.8 million, a huge increase from the FY21 statutory loss of $51.4 million.
The FY23 outlook was promising. The company has approved expansion to grow production by a further 100,000 tonnes per annum to a combined 640,000 tonnes to 680,000 tonnes per annum. It’s now also progressing towards a final investment decision to expand production to one million tonnes per annum.
The Pilbara Minerals managing director Dale Henderson said:
The business is in an enviable position, supplying product into a burgeoning growth market with a clear pathway for further production growth off a performing operating base. Further, chemicals participation with our downstream JV with [South Korean company] POSCO and our midstream project provides another extension of value creation for our shareholders. A very exciting future lies ahead for our business and our shareholders.
The post Amid the doom and gloom, Pilbara Minerals shares delivered 100% gains in Q1. Here’s why appeared first on The Motley Fool Australia.
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More reading
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- 4 investment truths that have been shattered in 2022
- Could oversold ASX growth shares now be a buying opportunity for value investors?
- Were ASX 200 bank shares a safe place to park cash in Q1?
- Which has more upside, Allkem or Pilbara Minerals shares?
Motley Fool contributor Tristan Harrison 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 Scott Phillips.
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