Pilbara Minerals shares: where next after profits surge by nearly 1,000%?

Pilbara Minerals (ASX: PLS) shares have been on a rollercoaster journey over the past few years. The ASX 200 stock is up by 407% over the past five years and 44% over the past year, but has also sunk since its record AU$5.50 on 9 November 2022 to just AU$4.10 today.

Of course, much of this rise and fall has been dictated by the rocketing and then tumbling price of lithium, which has been covered in detail here. But secondary factors are also weighing on Pilbara Minerals shares, leaving its future trajectory difficult to predict with any certainty.

Pilbara Minerals share price: half-year results

Reporting half-year results on 22 February, Pilbara Minerals saw sales revenue of $2.18 billion, up 305% from the $292 million reported in 1H FY22. Accordingly, PLS saw EBITDA of $1.81 billion, up 1,091% year on year, while statutory net profit after tax hit rose by an astonishing 989% to $1.24 billion. In addition, the company launched its maiden, fully-franked, dividend of 11 cents per share.

Operationally, all was on the up at the ASX 200 lithium miner. Production increased by 83% year-on-year to 309,255 dry metric tonnes (dmt) of spodumene concentrate over the six-month period. And 286,876 dmt was shipped out, an increase of 68%, driven by ‘deliberately targeting a lower product grade to optimise product yield and maximise concentrate production.’

On top of this good news, the company saw the average realised sales price of its lithium increase by an average of 305% to US$4,993/dmt ~ SC5.4 basis (CIF China).

CEO Dale Henderson enthused this an ‘exceptional financial result,’ noting that ‘the strong cash generation from the Pilgangoora Project has further strengthened the company’s balance sheet, putting us in an enviable position with $2.23 billion in the bank as at 31 December 2022 – a $1.63 billion increase on the prior corresponding period.’

Where next for Pilbara Minerals shares?

Henderson struck a positive tone last month, arguing that ‘the combination of a world-class asset, operating expertise and team spirit is coming together and delivering into a growing market...the stage is set for Pilbara Minerals to take massive growth steps in the months and years ahead. This is just the beginning.’

It’s worth noting that despite the uncertain trajectory of lithium prices through 2023, PLS is the sole-owner of the Pilgangoora Lithium-Tantalum Project in Western Australia, the world’s largest, independent hard-rock lithium operation. And to a certain extent, the ASX 200 company remains the bellwether for the Australian lithium sector.

However, a spanner has been thrown into the works in recent days. CATL — the world’s largest battery maker — has sold its remaining circa 4.9% stake, or 146 million shares, in PLS for AU$601 million.

While this yielded an excellent AU$555 million in profit over its original investment at AU$0.30, this sell-off does not exactly inspire confidence in PLS’s prospects. CATL has already discounted its batteries to certain buyers in exchange for exclusivity contracts, and given its wide perspective of the lithium supply chain, it’s not unreasonable to assume that the titan expects PLS shares to slide further.

Indeed, Barrenjoey analyst Dan Moran notes that ‘you'd think at face value that their expectation is that prices are going to fall.’ However, many analysts remain supportive of the view that longer-term lithium prices will remain elevated as EV battery demand widens the supply gap.

This leaves an interesting question for Pilbara. It has a mountain of cash to invest — so will it return more to shareholders, look for further lithium deposits, or seek opportunities elsewhere? No path is certain, though the CEO is clearly going for growth.

And overall, this leaves Pilbara Minerals’ share price on an uncertain trajectory through 2023.

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