Pilbara Minerals Ltd (ASX: PLS) is an Australian lithium mining company. PLS’s Pilgangoora Lithium-Tantalum Project in WA, is one of world’s largest lithium ore deposits. The sheer production of the Pilganagoora Project, being 2 million tonnes per annum, could capitulate PLS as a market leader in the multibillion-dollar lithium industry.  

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Financials  

Positives 

PLS only started making revenue in 2018. However, between June 2018-2019 PLS experienced revenue growth of 320%. The high-quality minerals derived from the Pilgangoora Project contributed to PLS’s impressive revenue surge. PLS has grown its revenue to a meaningful $42.79 million (June 2019).  

PLS’s D/E ratio is 0.37:1 or 37% (June 2019). In isolation, investors might view a 0:37:1 D/E ratio as financially sound. However, in the past two years, PLS improved its D/E ratio from 0.62:1 (62%) in 2017 to 0.37:1 (2019). Thus, PLS’s D/E is forecasted to continually improve throughout 2020.  

Moreover, PLS’s debt level of $139 million is not concerning. Because PLS pumps their debt into the expansion of the Pilgangoora Project. In turn, contributing to the 320% growth in revenue and putting investors at ease if PLS takes on more debt.  

Negatives  

Despite the improvements in revenue and D/E, PLS does hold financial risk.  

Pilbara is unprofitable. In turn, investors cannot truly predict if PLS will be a financial success. In addition, a lack of profitability means PLS does not offer dividends. Meaning investors can only make money through a capital gain on the share price. Ultimately increasing the risk.  

Moreover, PLS’s ROE is –7.68% which is financially poor in comparison to the Industry average of 12.9% (Simply Wall Street).  

Is Pilbara Minerals Ltd worth the long wait?  

Investors suffered a 60% loss on PLS in 2019. Making many investors question whether PLS is worth the investment for 2020?   

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Short answer: It is too difficult to predict the short-term stock price .

However, Pilbara holds significant potential in the expanding lithium market. Why?  

  • PLS already “secured agreements with Chinese companies Ganfeng Lithium and Great Wall Motor Company, as well as South Korean steel producer POSCO” (Motley Fool)  
  • The Pilgangoora project is one of the world’s biggest lithium ore deposits 

If, the world’s appetite for lithium continues to rise, Pilbara may be a great long-term hold however we always recommened you do your own research as this is general market commentary.

Conclusion, high volatility around PLS in 2020 is probable. It is generally not recommended to try and make capital gains on high volatile stocks like PLS. Instead, investors should shift their attention to more reliable mining companies such as BHP . An ideal entry point for BHP may be 36 or below.?   

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The information above should not be taken as financial advice. Youth Investment Group has no liability for personal financial interests or investment decisions. You should make your own investment decisions based upon your own research and what you believe is best for you.  

Written by Patrick McLoughlin, Associate of YIG. 

 

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