Pilbara Minerals warns of market volatility and lower shareholder payout as lithium prices drop off a cliff

Falling lithium prices have slashed quarterly revenue for Pilbara Minerals by almost a third and prompted a warning for shareholders to expect continued market volatility to cascade through to lower dividends.

Spodumene concentrate production from Pilbara’s Pilgangoora operations near Port Hedland was 144,200 tonnes for the three months to the end of September, a 2 per cent fall from the same period a year earlier and an 11 per cent tumble from the June quarter.

It sold 146,400t during the first quarter of the 2024 financial year but average realised prices dived 31 per cent — down from $US3256/t to $US2240/t. It marks a near halving of prices from a year earlier.

Revenue for the September quarter came in at $493 million, down 42 per cent from the previous quarter’s $844m and 47 per cent off the prior corresponding period’s $868m.

Pilbara had previously outlined a payout ratio to shareholders of 30 per cent of its free cash flow, but the Dale Henderson-led miner said the current market conditions had forced it to take a more “prudent” approach.

“Market conditions have softened in a period where the group is undertaking major capital investment programs,” Pilbara said.

“In light of this backdrop, the board has determined, at this time, not to proceed with a one-off capital management initiative.”

Pilbara said that demand for lithium raw materials was expected to remain consistent heading into the second quarter, which is typically a stronger period for EV sales.

“Market pricing for spodumene concentrate and lithium chemicals is, however, likely to continue to remain volatile in the near-term given uncertain macroeconomic conditions and closely managed inventories in the supply chain,” it said.

“The long-term outlook for lithium materials supply remains positive with an expected structural deficit of lithium materials supply relative to the expected demand for lithium-based products such as electric vehicles and battery energy storage.”

The fall in released spodumene concentrate prices matches a similar results revealed by Chris Ellison’s Mineral Resources on Wednesday. The miner was also stung by a weak lithium price in the first quarter, with the average realised prices dropping 28 per cent to just $US1870/t, down from $US2589/t three months earlier and less than half the price it achieved in the same period a year earlier.

On Thursday lithium peer Allkem also released its quarterly report, which detailed a 39 per cent decrease in average realised prices from its Mt Cattlin operation in WA.

When quizzed on the price drop variations between fellow lithium producers, Mr Henderson said the large spread of prices was due to an opaque and fragmented lithium trading market.

“There really needs to be a physical trading market to provide more transparent pricing,” Mr Henderson told analysts on Thursday.

“We are all doing the best we can with the pricing tools we have available to us.”

Mr Henderson’s comments come a day after MinRes head of corporate development James Bruce said the short-term lithium pricing environment was being impacted by “market manipulation”.

“A lot of paper-trading is going on right now in the market,” Mr Bruce said on Wednesday.