Pilbara Minerals Share Price Bottom or False Dawn? Two Thoughts (ASX:PLS)
At time of writing, the share price of Pilbara Minerals Ltd [ASX:PLS] is one of the leading lights on the ASX today, up 5.97%, trading at 31 cents.
The last month saw some interesting developments in the lithium/battery tech space and the Pilbara Minerals share price started strongly, only to fall back over the last couple weeks:
The short squeeze on Tesla got everyone’s attention. We present the case for a Pilbara Minerals bottom and digest the latest bits of battery tech news grabbing headlines.
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Thought #1: Pilbara share price reflects SPP/placement price, plenty of cash on hand
In October, Pilbara announced the completion of a placement to Contemporary Amperex Technology Co (Hong Kong) Limited (CATL), which involved a tranche of $35 million followed by another $55 million.
CATL is China’s largest battery producer for electric vehicles.
Combined with an oversubscribed Share Purchase Plan (SPP), both coming in at 30 cents, this adds up to a total cap raise of around $111.5 million before costs.
Capital raises sometimes have a tendency to drag share prices to around the level where new shares are issued.
Then, it’s about what the company does with the newly acquired funds — whether it uses them wisely or not.
So it’s not particularly surprising that after a EV/lithium news-hype bounce, which also showed up a little in the Lynas Corporation Ltd [ASX:LYC] share price, the Pilbara share price likewise retreated.
But with a quarterly released late last month, which reveals cash and cash equivalents of $105 million on hand — the company now has some room to manoeuvre.
The question now is, will this buffer last them until a much hoped for lithium price recovery?
While it may still be too early to conclusively say that the Australian lithium sector is back on, there is one more reason why a Pilbara share price bottom could be close.
Thought #2: Tesla’s links to CATL could benefit Pilbara
In a Nasdaq announcement on 3 February, it was revealed that CATL has signed a two-year deal with Tesla for batteries.
One of Tesla’s key partners in batteries is Panasonic, whose battery business recently posted its first quarterly profit.
The partnership between CATL and Pilbara could prove to be the catalyst for a share price improvement.
In hailing CATL’s entry to Pilbara’s share registry, Managing Director Ken Brinsden said it would seek to leverage CATL’s, ‘downstream supply chain and relationships with electric vehicle manufacturers around the globe.’
CATL is a massive company and their chart for the last year is looking impressive:
Tesla has a powerful brand, its cars are instantly recognisable, and the growing Chinese (upper) middle class may develop a strong taste for EVs with Western origins.
If Tesla can make its products affordable and demand swells on cue, Pilbara could stand to benefit from a broader lithium/battery tech revival via CATL.
With the most recent quarterly from Pilbara revealing $27.9 million in receipts and $32.9 million on operating costs at the Pilgangoora project — the company appears from the outside to just about be hanging on.
A move on Pilbara at this share price would potentially involve substantial risks, not least of which is their ability to efficiently get to Stage 2 of its expansion.
My colleague Ryan Clarkson-Ledward recently said this of Tesla:
‘The only way to truly win when it comes to a stock like Tesla, is to block out any emotions. One way or the other.
‘You need to think and act in a manner that is totally free from emotion.’
I think a similar thing would apply to Pilbara. You can dream of EV/lithium riches, but you can’t let it cloud your thoughts.
Has the market underestimated Pilbara’s potential?
We will revisit this should another major share price move materialise.
For Money Morning
PS: My colleague Ryan Clarkson-Ledward wrote about Tesla in his most recent piece for our Money Morning e-letter. Get left of field investment ideas and analysis straight to your inbox with a free subscription.