Latin Resources (ASX: LRS) has received a “friendly” $560 million all-scrip bid from top-gun hard rock lithium producer, Pilbara Minerals (ASX: PLS), which has moved to gain unfettered access to the highly-regarded Salinas deposit in the Brazilian State of Minas Gerais.
Based on Pilbara’s current $2.70 share price, the deal values Latin’s shares at 19c each – a 58 per cent premium to its 12c closing price yesterday. The binding scheme of arrangement has been unanimously agreed to by the Latin board in the absence of a superior bid.
Importantly, the company’s biggest shareholder, Argentine businessman and Integra Capital founder José Luis Manzano, has also agreed to sell his 7.9 per cent holding. Manzano’s commitment reduces the danger of the bid failing to reach the minimum 90 per cent acceptance for a compulsory takeover.
Latin’s flagship Salinas project hosts a 78 million-tonne measured and indicated resource running at 1.24 per cent lithium oxide. Having completed a preliminary economic assessment (PEA) a year ago, the company has been in the midst of producing a definitive feasibility study (DFS).
But Australia’s biggest pure-play lithium producer has made the decision not to wait for the outcome of the DFS in making what it refers to as “a counter-cyclical move” to snap the company up.
Pilbara believes Salinas offers its own shareholders the benefits of geographical and revenue diversification to complement its giant Pilgangoora operation in Western Australia’s Pilbara region. And from a Latin shareholders perspective, Pilbara’s considerable war chest unlocks the value of the Brazilian project by de-risking funding and development.
Judged by Latin to have the potential to be a top-10 hard rock operation globally, the takeover bid also presents Pilbara shareholders with accretive growth outside its existing portfolio by building a second, 100 per cent-owned tier-one mine with the development flexibility to be able to supply new markets in the Americas.
According to Pilbara management, by immediately increasing its global resource and contributing some 30 per cent, or 528,000 tonnes, of lithium oxide at a steady rate of production, Salinas materially adds to its net asset value (NAV).
I am extremely excited and proud that our achievements in Brazil have attracted such a high-quality company in Pilbara Minerals to Salinas. Brazil’s Lithium Valley will now well and truly be on the world’s global lithium map as one of the best lithium mining jurisdictions in the world.
Latin Resources Managing Director Chris Gale
Gale said that in addition to delivering an attractive share price premium, the transaction will allow Latin shareholders to retain ongoing – but significantly de-risked – exposure to the development of Salinas as part of a bigger, more diversified enterprise with a strong balance sheet, cashflow generation and technical expertise.
Pilbara managing director and chief executive officer Dale Henderson says that after an extensive period of global project assessment, the company rated Latin’s Salinas project at the top of its list. Management conducted a six-month due diligence period to build out its understanding of the asset and the region’s potential.
Latin’s 2023 PEA delivered an impressive after-tax net present value (NPV) of $3.6 billion, with an internal rate of return of 132 per cent – or a seven-month payback – and phase one capital expenditure of $489 million for 528,000 tonnes of lithium oxide steady-state production. The study had assumed a spodumene concentrate of US$927 (AU$1426) a tonne with a US$536 (AU$824) per tonne total production cost.
Even though spodumene concentrate prices are trading lower today at about $US840 (AU$1290) a tonne, as cited in Pilbara’s latest quarterly numbers, the more than 50 per cent profit margins are still attractive – especially for Pilbara, which is sitting on $750 million in excess cash, even after taking into consideration the $865 million earmarked for its domestic expansion plans.
Given the doom and gloom of the lithium market during the previous 12 months, a counter-cyclical transaction by one of the big players to buy a big development-ready project will be seen as a universally positive by investors. The bid appears to be a win-win for all parties concerned and may well be just the medicine the lithium market needs to spark it back to life.
A fresh takeover bid – especially when relatively unexpected – often adds a level of excitement among ASX punters and that was again the case this morning. Latin’s share price jumped 44 per cent from an overnight close of 12c, with a whopping 150 million units traded before 11am.
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