PLS (ASX.PLS) planned expansion, the P2000 project, has reached a new milestone. The company approved capital expenditure to begin preparation ahead of the prefeasibility study outcome, which will determine whether the project proceeds. If it does, production would begin from mid-2029.

Why it matters: The expansion roughly doubles spodumene production capacity at Pilgangoora to about 2 million metric tons per year. Progress on the project was on hold while lithium prices were subdued, but with prices rallying amid resurgent demand, it’s back in focus.

  • Our model already includes the commencement of P2000. The 2024 prefeasibility study demonstrated it was NPV-positive at spodumene concentrate prices over USD 1,000 per metric ton, but the sweet spot was USD 1,500 or greater, and our 10-year average is USD 1,600.
  • PLS’ return on invested capital exceeds our 10% weighted average cost of capital, even at midcycle assuming the lithium price matches the marginal cost of production. As such, we think a brownfield expansion of the same mine is likely to be value-accretive, which informs our confidence in the project proceeding.

The bottom line: We maintain our fair value estimate of $3 per share for narrow-moat PLS. Although we expect P2000 to begin a year earlier than our prior estimate, this is immaterial to our valuation, which models earnings over the life of the mine, almost three decades.

  • Shares are overvalued, trading at close to double our intrinsic assessment. We believe the market is extrapolating spot lithium prices too far into the future. We forecast lithium prices will return to the marginal cost of production from about 2034, 32% lower than spot.

Bears say: Committing $175 million for long-lead items before concluding the feasibility study is risky. The risk is that capital expenditure is spent, but the project doesn’t go ahead. However, we think it’s a calculated bet, and capital at risk is relatively small, only about 1% of market capitalization.

PLS nudges closer to mine expansion with prefeasibility capex approved

PLS’ primary asset is the Pilgangoora mine, the world’s second-largest hard rock lithium operation. Pilgangoora consists of two operating plants, Pilgan and Ngungaju. Both produce a spodumene concentrate, while Pilgan also produces tantalite, a byproduct of this process.

As electric vehicle adoption increases, we expect high-double-digit annual growth in global lithium demand. To capitalize on this, plans are in place to expand the Pilgangoora operation. A new processing plant is expected could be in operation by as soon as mid-2029 which would see spodumene concentrate production almost triple to an average of 1.9 million metric tons per year for a 10-year period from a fiscal 2024 nameplate capacity of about 680 thousand metric tons, or approximately doubling from fiscal 2026 capacity. We estimate Pilgangoora has about 25 years of mine life remaining at the increased run rate.

The smaller Ngungaju plant is planned to resume operations from July 2026, with global lithium prices now above its operating costs. We estimate Ngungaju contributes about one-fifth of current production capacity and is more expensive to run than the Pilgan plant.

The acquisition of Latin Resources, a hard-rock lithium project in Brazil, was completed in 2025. The all-scrip offer was valued at about $600 million, but we estimate Latin Resource’s enterprise value is greater than $1 billion, using our lithium price estimates. We value the new business at $0.40 per share or about 15% of our fair value estimate.

Bulls say

  • As a low-cost spodumene operator, Pilgangoora should earn returns above WACC in most lithium price environments.
  • As a lithium pure play, PLS is well positioned to benefit from EV growth through lithium batteries.
  • A healthy balance sheet provides ample capacity for growth initiatives, like production expansion at Pilgangoora and acquisition of Latin Resources.

Bears say

  • Lithium prices may not recover to our midcycle assumption if electric vehicle demand grows more slowly than expected.
  • Forecasts of PLS’ revenue and profit growth depend on its expansion in the midterm.
  • The expected acquisition of Latin Resources in Brazil introduces heightened geopolitical risk, including the risk of an increase in company taxes and royalties.

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