PLS 0.00% 49.0¢ pilbara minerals limited

What's PLS worth?

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    What’s PLS worth?

    As per my post on the daily SP chatter string, I’ve started a new string for valuation/analysis/critique. Hopefully this string can be more dedicated to fundamental analysis of PLS rather than wild speculation.

    IMO there’s a lot I like PLS … it’s a true Tier 1 asset (large asset, projected to be at sharp end for cost), leveraged to growth of EV and I also like the relationship/options with Posco. However, being in commissioning/construction mode and producing a new mineral with volatile pricing – it’s at the high end of the risk spectrum and SP volitivity. So, what’s it worth today?

    Market Analysts:

    • ThompsonReuters consensus 12 month SP target is $1.02 across 7 analysts.
    • High$1.20 (unchanged since Aug18); Low $0.70.
    • 5 of the 7 analysts have downgraded the SP target since start Apr19

    Bringing those 12 month targets back to SP as of today, the analysts have an averagevalue of ~90c.

    I prefer to try to understand the range of values based on key risks. IMO the biggest of these are:

    • SP6 price received
    • SP6 yield (driving both costs/dmt and production tonnes)
    • Time frame for existing/new production to achieve design performance

    Potential CAPEX blowouts and other OPEX are minor risks IMO (ie. I think these can be well managed by KB and his team). On the upside, Posco JV and Stage 3 could add value, but as I said on the other string, there are too few details to estimate value IMO. If others have methods of valuing these (as opposed to just speculating what they’re worth) – perhaps they can add them to the string.

    I’ve therefore created a matrix of values based on:

    • Operating cost basis uses latest Stage 3 advice (US$290/t at 75% yield). This is much higher than the Stage 1 LOM figure (US$207/t) but PLS have since adjusted down the yield and possibly other components. Therefore, US$290 may be a tad conservative (but Stage 1 Feas too bullish).
    • CashOPEX components affected by yield have been scaled (ie. mining &processing) those unaffected left as per Stage 3 advice (eg. Royalties, nativetitle)
    • Simple 10x Net Operating Cash Flow valuation model at time of performance metric.
    • Future performance discounted back to Jun19 at 12%pa.

    Results below. I’ve included the Stage 1 only numbers to illustrate the importance of getting to design yield (15-20c worth in SP terms). Seems to me the analysts (on average) are projecting either much lower SP6 prices than PLS is currently achieving and/or a lack of confidence in PLS achieving design yield.

    As a reference point, PLS based their Stage 1 Feasibility Study on a long term SP6 price of onlyUS$537/t.

    Have others done similar price/yield/value analysis? Thoughts?

    Last edited by SimonGr: 13/06/19
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