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The Pilbara Minerals Ltd (ASX: please) Share prices are under pressure on Wednesday.
In the afternoon of trading, lithium the miner’s shares fell more than 3% to $5.19.
Why is the Pilbara Minerals share price falling?
Today’s weakness in Pilbara Minerals’ share price appears to have been partly driven by a broker report City this morning.
As the note says, in response to yesterday’s quarterly updateThe broker downgraded the company’s stock to a sell rating, but with an upgraded price target of $4.60.
This price target suggests a potential downside of more than 11% from current levels over the next 12 months.
Why is Citi bearish?
Overall, Citi was pleased with Pilbara Minerals’ first quarter results. It commented:
Solid operating quarter: Ngungaju is on the board with ~67% total recovery, cost tracking is at the low end of guidance and YoY production is ahead. The realized price of US$4,813/t (SC6 basis) is in line with our expectations.
And while the broker doesn’t see any reason why lithium prices should collapse anytime soon, he feels the market is overly bullish on the long-term. Citi estimates Pilbara Minerals’ current share price implies a long-term spodumene price of US$1,800 per tonne. However, the broker expects a price of $850 per ton. Citi explained:
We raised our spodumene deck, earnings, and price target — it’s hard to see a catalyst for a significant decline in lithium prices over the next ~6 months. Still, the stock is up 160% year-to-date, well ahead of peers; we are moving to sell from neutral on the rating. Our PLS estimates suggest a long-term spodumene price of ~US$1,800/t (NPV = share price). The risk to our sell call here is that the market’s view on the long-term price of spodumene will move higher, ie. CitiE US$850/t.