3 key takeaways for ASX lithium share investors from Pilbara Minerals report

Miner looking at a tablet.

ASX lithium share investors will have been keeping one eye on the third quarter production update from Pilbara Minerals Ltd (ASX: PLS) on Friday.

Whether you own or are considering buying shares in Pilbara, Core Lithium Ltd (ASX: CXO), IGO Ltd (ASX: IGO), Liontown Resources Ltd (ASX: LTR) or any other ASX lithium share, Pilbara’s results offer some insight into what the market’s been facing. And what lies ahead.

Below, we look at three key takeaways from Pilbara Minerals’ report.

3 insights for ASX lithium share investors

On the positive side of the ledger, Pilbara Minerals managed to increase both its lithium production and sales over the three months ending 31 March.

The S&P/ASX 200 Index (ASX: XJO) lithium miner boosted its spodumene (a lithium bearing mineral) production by 2% from the prior quarter to 179,000 tonnes. Sales were up 3% to 165,000 tonnes.

The first key takeaway for ASX lithium share investors is that the price Pilbara Minerals received for its lithium product during the third quarter dropped 28% from the second quarter for a realised average price of US$804 a tonne.

Management didn’t make any forecasts on future prices. However, global supply growth of the battery critical metal is widely forecast to exceed demand growth over the next few years yet. So, investors should be aware that prices aren’t likely to rebound back to the record highs we saw in the latter half of 2022 anytime soon.

Which brings us to the second key takeaway.

Dividend outlook dims

Amid declining revenue, ASX lithium shares are likely to see their balance sheets come under increasing pressure.

Pilbara Minerals reported a 17% decline in its cash balance over the three months, with $1.8 billion in cash as at 31 March.

That dims the outlook for any dividends from Pilbara Minerals for FY 2024. And likely the next few years as well.

Pilbara pleased investors in FY 2023 by declaring two fully franked dividends, the first ever from the ASX 200 miner. The full-year payout came to 25 cents per share.

And the third key takeaway for ASX lithium share investors is to hunt for those companies able to streamline their costs and increase their productivity during this time of lithium oversupply.

These are the stocks that could rocket once the supply and demand dynamics come back into balance.

As the Motley Fool reported on Pilbara’s results on Friday, “Costs were a mixed bag with unit operation costs excluding freight and royalties (FOB) lifting 7% to US$444 a tonne and unit operating costs (CIF) falling 2% to US$519 a tonne”.

However, in a potentially promising sign, management highlighted that March showed significant improvement in both costs and production.

According to Pilbara:

March set a new monthly production record with over 80k dmt produced at a unit operating cost (FOB) of less than $625/dmt. This peak monthly performance was underpinned by the continuous operation of P680 at its expanded production capacity with no shutdowns, higher ore lithium head grade and higher lithium recoveries due to operational improvements including the mobile ore sorters.

Whether you’re looking to buy ASX lithium shares or any other stocks, be sure to do your own research first. If you’re not comfortable with that, simply reach out for some expert advice.

Wondering where you should invest $1,000 right now?

When investing expert Scott Phillips has a stock tip, it can pay to listen. After all, the flagship Motley Fool Share Advisor newsletter he has run for over ten years has provided thousands of paying members with stock picks that have doubled, tripled or even more.*

Scott just revealed what he believes could be the ‘five best ASX stocks’ for investors to buy right now. We believe these stocks are trading at attractive prices and Scott thinks they could be great buys right now…

See The 5 Stocks *Returns as of 1 February 2024

More reading

Motley Fool contributor Bernd Struben has no position in any of the stocks mentioned. The Motley Fool Australia’s parent company Motley Fool Holdings Inc. has no position in any of the stocks mentioned. The Motley Fool Australia has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Scott Phillips.