A case of back to “demand exceeds supply” for Pilbara Minerals

Few sectors on the ASX have experienced the kind of violent boom–bust cycle that lithium has endured over the past three years. At the centre of it sits PLS Group (PLS) (formerly Pilbara Minerals) – a poster child for both extremes.

As lithium prices collapsed from their 2022 highs, Pilbara’s earnings evaporated, swinging from a $2.4 billion FY23 windfall to a $200 million FY25 loss. Not surprisingly, its share price was hammered alongside the broader sector.

But in a market where cycles turn quickly, the recovery has been just as dramatic. Spodumene prices have surged more than 300% from their lows, dragging Pilbara’s profitability sharply higher in the process.

To unpack what comes next, I spoke with Tim Carleton, Portfolio Manager at Auscap Asset Management. With a long track record of investing through commodity cycles, Carleton brings a disciplined, balance-sheet-focused approach to resource investing. Importantly, he believes Pilbara’s ability to navigate the downturn – while strengthening its operational base – has positioned it to capitalise on the current recovery in lithium markets.

Key Numbers (H1 FY26)

• Production: 432.8kt (+6% YoY)
• Sales: 446.0kt (+7% YoY)
• Realised price: US$965/t (+40% YoY)
• SC6 equivalent price: US$1,105/t (+42% YoY)
• Unit operating cost (FOB): $563/t (–8% YoY)
• Revenue: $624 million (+47% YoY)
• Underlying EBITDA: $253 million (+241% YoY)
• EBITDA margin: 41% (vs 17%)
• NPAT: $33 million (vs –$69 million loss)
• Cash: $954 million
• Total liquidity: ~$1.6 billion

Do you currently hold the stock and what is your rating?

Rating: HOLD

Carleton: Yes, we are a shareholder. We thought it was a solid result demonstrating the value of a disciplined and strategy management team who have kept a strong balance sheet through the commodity cycle, improved operations and expanded production.

What matters from the results?

Carleton: For most commodity producers, the demand and supply equation determines the commodity price, and the commodity price is the most significant factor determining profitability. There will be periods of excess supply, which results in low prices. We have been in this environment over the last few years. It’s very important that miners optimise their operations and stay afloat during this period.

Pilbara has done an excellent job during the downturn. They expanded production, improved the mining site, increased plant recoveries and brought down the cost of production. The Pilgangoora site improvement has been very noticeable in site visits we have done in recent years. And then there will be periods when demand exceeds supply, leading to elevated prices. We are in this environment now.

The miners that have done the hard work in the downturn are in a position to capitalise. And this is what we are seeing from Pilbara. Production was up 6% year on year and sales were up 7%. Operating cost per tonne was down 8% year on year. When combined with realised spodumene prices that were up 40% year on year saw the company turn from a loss position last year to profit in the first half of FY26.

How do those outcomes affect the outlook?

Carleton: Strong cost control results in very strong operating leverage to higher commodity prices. Should lithium spodumene prices stay at current levels the company should deliver much stronger levels of profitability in future periods.

It will also allow the company to expand production. A feasibility study into the P2000 project, which would double Pilbara’s concentrate production at Pilgangoora, is due in the December quarter this year.

What should investors be paying attention to as the story unfolds?

Carleton: This is really all about the demand and supply equation for lithium products. Battery Energy Storage System (BESS) demand has surprised to the upside recently. This has led to tightness in the market which has caused prices to rally from just over US$600/t to over US$2000/t. The spodumene price remains the biggest potential upside and downside risk to the stock.

On that front the company disclosed that it had seen strong inbound interest from groups looking to secure supply. This led to the recent agreement with Canmax which agreed to an offtake agreement that contained a price floor of US$1000/t (SC6 basis) for 150ktpa for 2 years and a prepayment of US$100m.

The strength of demand enquiry has also seen the company announce the restart of the Ngungaju plant and continue to progress the feasibility study into the P2000 brownfields expansion.

What could you be wrong about?

Carleton: With mining there is always a level of risk around the operations falling short of expectations. This is a constant risk that can’t be eliminated. While we are aware of this risk, we are more concerned when management teams get carried away with the cycle and put their balance sheet at risk.

We think this is a low risk for Pilbara Minerals given the company’s strong past discipline, led by CEO Dale Henderson, in maintaining a strong balance sheet when the market was euphoric in the last lithium boom.