Lithium Watch – A Good Project but Poor Return

John Robertson

PortfolioDirect

No track record but priced for success. That is the Pilbara Minerals story. Despite what they say, investors continue to show a preference for ‘trend’ over ‘team’ in making investment choices. The Pilbara Minerals definitive feasibility study released in the past week puts a A$709 million value on the Pilgangoora lithium project but the market value of the company is already $627 million implying a skinny 13% difference. The reward for investing in an unproven team at this stage of development appears inadequate. The company is anticipating an average annual EBITDA over the life of the project of A$121 million. That also sounds an impressively high number but anything less than a five times EBITDA multiple once in production would leave the company’s market value short of where it is now. Even a generous 6-7 multiple in four or five years (once the company is demonstrating it can deliver its targeted profits consistently) is, at best, only a 6% annual return. And that assumes no equity raising along the way for working capital, not an assumption with much historical support.


John Robertson
John Robertson
PortfolioDirect

John Robertson is Chief Investment Strategist for PortfolioDirect a provider of resource sector investment stock ratings and portfolio strategies for mining and oil and gas investors. He has worked as a policy economist, corporate business...

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