Pilbara Minerals to expand lithium footprint in Brazil with Latin Resources acquisition

Hard-rock lithium producer Pilbara Minerals (ASX: PLS) has secured a deal to acquire all the shares in Latin Resources (ASX: LRS) and manage the development of Latin’s highly prospective Salinas lithium project in Brazil.

The on-strategy, counter-cyclical transaction is expected to be accretive to Pilbara across a range of key metrics including net asset value, mineral resources and future production.

Latin shareholders will benefit from an immediate premium and the unlocking of value in the Salinas project, located in the world-class Minas Gerais mining jurisdiction, by leveraging Pilbara’s experience in developing and operating hard-rock lithium projects.

Immediate impact

Salinas has the potential to make a significant contribution to Pilbara by immediately adding around 20% to the company’s global mineral resources, contributing up to 30% of pro forma steady-state production at a cost base expected to be competitive with Pilbara’s Tier 1 Pilgangoora operation in Western Australia and providing new supply opportunities to the North American and European battery markets.

The acquisition will also give Latin shareholders immediate exposure to lithium production from Pilgangoora, which has a current measured, indicated and inferred resource of 413.8 million tonnes.

Transaction terms

Latin shareholders will receive 0.07 new Pilbara shares for each Latin share held, giving them a total shareholding of approximately 6.4% of Pilbara on completion.

Based on Pilbara’s closing price of $2.85 per share on 14 August, the transaction implies a value of $0.20 per Latin share and represents a 57% premium to Latin’s 10-day volume-weighted average price of $0.127 per share.

The all-share transaction structure is expected to preserve Pilbara’s strong net cash and liquidity position and ensure it remains well-capitalised to fund organic growth at Pilgangoora and Salinas.

Pilbara intends to explore a range of funding options to support the development of Salinas, with a final investment decision to be made against prevailing lithium market conditions and customer requirements.

Latin’s board of directors has unanimously recommended the acquisition and the company’s largest shareholder José Luis Manzano (who holds 7.9% equity) intends to vote his shares in favour of the deal.

Latin managing director Chris Gale will join Pilbara as a consultant for 12 months to provide leadership continuity with key stakeholders (including the company’s in-country team, senior government officials and local community representatives) and progress key activities at Salinas.

Leading lithium supplier

Pilbara chief executive officer Dale Henderson said the Latin acquisition would build on the company’s position as one of the world’s leading lithium materials suppliers.

“This deal will deliver our second wholly-owned Tier 1 hard-rock lithium asset and provide us with optionality to sequence new supply and diversify into new growth markets for lithium, such as Europe and North America,” he said.

Mr Henderson said the state of Minas Gerais and the local Salinas community were important to the deal.

“One of the reasons we were initially attracted to Latin was the strong foundation of community support that has been established to date,” he said.

“We look forward to working alongside the Latin team and other key stakeholders as we develop Salinas to its full potential and we are delighted Chris will be joining our team to continue the project’s development journey.”

Pure play producer

Mr Gale welcomed the acquisition, stating the deal would provide Latin shareholders with an opportunity to be involved in the world’s largest pure play hard-rock lithium producer, diversified across Tier 1 projects in Australia and Brazil.

“In addition to delivering an attractive premium, this transaction allows our shareholders to retain ongoing and significantly de-risked exposure to the development of Salinas as part of a larger and more diversified enterprise with a strong balance sheet, cash flow generation and technical expertise, all of which will support the successful development and operation of this project,” Mr. Gale said.

“We are extremely proud of the significant progress our team has made in advancing Salinas to its current pre-development status and I am pleased to continue working with Pilbara in the coming months to advance the project towards production.”

Salinas location

Salinas sits in a region home to over 300 operating mines, including projects owned by majors BHP Group (ASX: BHP), Anglo American and Vale.

In September, a preliminary economic assessment outlined the potential for Salinas to be developed in two stages to deliver combined average annual spodumene concentrate production of 499,000 tonnes on a 5.2% lithium oxide basis over an initial mine life of 11 years.

The scenario was based on a mineral resource estimate of 45.2 million tonnes grading 1.32% lithium oxide, which was upgraded in May to 77.7Mt at 1.24% lithium oxide.

More than 85% of the resource falls into the measured and indicated categories, reinforcing the potential of Salinas to become a large-scale and long-life operation.