Australian lithium miner, Pilbara Minerals [ASX:PLS], released a Capital Management Framework and bounced 3% in shares by the early afternoon.
Pilbara says its framework will ‘establish an appropriate structure that prudently allocates available capital between investment into the existing business’ while targeting sustainability, growth opportunities, and shareholder returns.
The lithium miner was compelled by robust lithium market prospects and a healthy cash balance.
PLS shares have gone up 106% across the last 52-week cycle, despite a drop of more than 8% this last week.
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Pilbara’s capital management framework
The company has decided to put the framework in place in light of optimal market conditions continuing for the lithium industry and the company within it.
The miner has been particularly encouraged by its own operational results up until now, as well as its cash balance of $1.375 billion at the end of the September quarter.
These were the details of Pilbara’s new framework attack plan:
- To ‘grow and diversify’ on strong cash flow brought in by operations; P680 Project, P1000 Project, POSCO downstream joint venture, Mid-Stream Project, and new downstream lithium chemical opportunities
- Funding priority is given to capital used for maintaining operations and ‘near term productivity initiatives designed to maximize cash being generated from existing operations’
- Remaining net operating cash flow will then go to sustaining capital for operational maintenance, investing in sustainability strategies, and maintaining the balance sheet for company protection in volatile commodity price movements.
- A target dividend payout ratio to be established at 20–30% of free cash flow (fully franked).
Pilbara noted that any excess cash flow that exceeds these priorities will go towards further operational improvements, investments in its growth, acquisitions and any further opportunities that may arise.
The miner said excess funds could also be put towards debt reduction, and perhaps, some cash may even be returned to its shareholders.
To chase its growth and diversification strategy, the miner said it will focus closely on near-term ‘growth paths’ that are already identified and which are anticipated to deliver the greatest shareholder value long-term.
CEO of PLS Dale Henderson commented:
‘The strong dynamics we are experiencing for the lithium materials market and healthy production profile have quickly transformed the financial position of the business. With this comes the opportunity to bolster the growth path for the business and provide improved long-term value return for our shareholders – many of whom have stayed the course through both our ups and downs.
‘With strong cashflows being generated, it is pleasing to be in a position to seek to return value to our shareholders so early in our operational life via a maiden fully franked dividend for the 2023 Financial Year.’
Source: PLS
Pilbara’s plan for 2023
The company’s framework aims to provide a sustainable dividend payout that reflects its current position and enables it to use the remaining cash for its growth and diversification goals and strategies.
Pilbara also enters a new era of income taxes in FY23 as a result of using up tax loss benefits throughout 2022. This has also played into Pilbara’s decision to provide its target dividend payout ratio for FY23.
Overall, Mr Henderson’s outlook for the company was a bright one:
‘The established operating platform, expansion pathway and downstream participation opportunities place Pilbara Minerals in an enviable position to capitalise on the emerging demand for lithium materials. I am excited about what the future holds for the business, the opportunities this will bring to our stakeholders and all those who are connected with the business.’
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