The Pilbara Minerals Ltd (ASX: PLS) share price is in focus after the ASX lithium share revealed its latest auction result.
Every so often, Pilbara Minerals tells investors about how a sale of cargo has gone via the digital platform called the Battery Material Exchange.
Strong sale result
Pilbara Minerals said that a cargo of 5,000 dry metric tonnes (dmt) was sold at a target grade of 5.5% lithia.
The ASX lithium share said that it intends to accept the highest bid of US$7,805 per dmt, which on an underlying basis for lithia content and including freight costs, equates to a price of around US$8,575 per dmt.
This was, yet again, more than the last auction – the price has been growing auction after auction over the past 12 months. A few weeks ago it sold 5,000 dmt for a price of around US$7,255 per dmt, or around US$8,000 per dmt when adjusted for lithia content and freight costs.
The auction terms now require the successful bidder to enter a sales contract within 24 hours, requiring a 10% deposit to be paid by early next week and an irrevocable letter of credit from a recognised bank to be presented by late November 2022.
What does this mean?
While Pilbara Minerals isn’t selling all of its production at these prices, I think it shows that the ASX lithium share is managing to milk the digital auction for a high (and going higher) price.
The business is generating so much profit and cashflow that it has announced it’s going to start paying dividends. The idea is to target a dividend payout ratio of between 20% to 30% of free cash flow.
Its current strategy is to grow and diversify its business on the back of the “strong cashflows” being generated from its operations. Identified growth plans will be prioritised ahead of allocating capital to special dividends, share buybacks or capital returns. That includes increasing its production capacity and constructing a 43,000 tonnes per annum of lithium hydroxide monohydrate facility, as well as a mid-stream project to make a value-added lithium salt.
Pilbara Minerals could also invest in new downstream lithium chemical opportunities, likely in partnership with parties involved in the battery materials industry.
Thoughts on this latest auction
It was a great result for the business. Making more money for its production is good for margins and the overall profit. I think the Pilbara Minerals share price reflects the success of the business in 2022.
I don’t know which way it will go in 2023, but the prospect of dividends and diversified profit is compelling. It depends how high the lithium price stays in the coming years. More lithium mining projects are expected around the world, though demand grows as well.
