Is the Pilbara Minerals (ASX:PLS) share price good value?

Mining is a tough business.

Assuming you can even find a suitable deposit, there are immense challenges — and costs — with extraction. Years can pass between discovery and production, and shareholders patience (and wallets) can be sorely tested in the interim. And, given you are dealing with a largely undifferentiated commodity product, there’s no telling what the eventual sale price will be, and how it will change over time.

That being said, when things go right fortunes can be made. Significant ones.

Early investors in Pilbara Minerals (ASX:PLS) can attest to that. The West Australian rare-earths miner has seen shares go from 5c four years ago to around 69c today. That’s a more than 1200% return.

Sparking the jump was the kick-off of the Tabba Tabba tantalum project and some promising lithium and tantalite discoveries at the company’s Pilgangoora site. Licenses and environmental approvals were secured, mine construction was underway, and the price of the underlying resources were surging in the face of rising demand.

Fast forward through to today, and Pilbara Minerals is still yet to record a single cent of positive cash flow. Heck, the company is today burning through about five times as much cash as it was in 2015. To keep things afloat, the company has repeatedly had to pass the hat around among shareholders, increasing the shares on issue by almost three-fold.

To be fair, a lot has changed and progress is being made. The Pilgangoora site is producing, with production ramping up and the expected future demand for lithium seems as strong as ever. The company has $100 million of cash in the bank, and it has some promising exploration upside.

Shares are down around 25% over the past year, and have been essentially flat for most of 2019. Nevertheless, Pilbara Minerals has a world-class asset, and is set to markedly ramp up production in the coming years. If it can pivot to profitability, the current price will no doubt seem like a bargain.

Of course, even if successful in its ambitions, history suggests it will be a rocky road for investors, and that this story will take some time to play out.

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