Latin Resources Ltd (ASX:LRS, OTC:LRSRF) and its flagship Salinas Lithium Project in Brazil are set to be acquired by Pilbara Minerals Ltd (ASX:PLS) in a deal worth around A$560 million.
The “highly compelling and mutually beneficial” agreement will see LRS shareholders receive PLS shares at a 57% premium to the current LRS share price.
LRS shareholders will receive PLS shares in a ratio of 0.07 PLS share, which closed at A$2.85 per share yesterday, for each LRS share held. This transaction implies a value of A$0.20 per LRS share — representing a 57% premium to Latin’s 10-day volume-weighted average price (VWAP) of A$0.127 per share.
The deal will be structured as a scheme of arrangement, where existing PLS shareholders will own 93.6% of the new company and Latin shareholders will own the remainder.
This 100% scrip transaction preserves PLS’s strong net cash position and ensures it remains well capitalised to execute on its growth pipeline.
Immediate and longer-term benefits
Latin Resources shareholders will benefit from the immediate premium paid, along with the unlocking of Salinas’ value by de-risking funding and development through leveraging Pilbara Minerals’ proven experience in developing and operating hard rock lithium projects. There’s also the immediate exposure to lithium production from Pilbara Minerals’ Tier-1 Pilgangoora operation in Western Australia.
Latin Resources managing director Chris Gale, who fully supports the transaction, spoke of the benefits to shareholders: “I am extremely excited and proud that our achievements in Brazil have attracted such a high-quality company in Pilbara Minerals to Salinas.
“I have spent time at Pilbara Minerals’ Pilgangoora mine, met with the Pilbara Minerals team and I’m in no doubt that Pilbara Minerals’ expertise’ in lithium mining will be an enormous benefit not only to Latin Resources and its 100%-owned Brazilian subsidiary, Belo Lithium, but to Brazil itself.
"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.
“The scheme announced today provides Latin Resources shareholders with an exciting opportunity to become shareholders 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 Latin Resources shareholders to retain ongoing, but significantly de-risked, exposure to the development of Salinas as part of a larger, more diversified enterprise with a strong balance sheet, cashflow generation and technical expertise, all of which will support the successful development and operation of Salinas.
“Along with my fellow directors, I had no hesitation in supporting this scheme and I am very much looking forward to working with Dale and the Pilbara Minerals team to unlock the full potential of Salinas.”
The company summarised the benefits to LRS shareholders, as follows:
Mutually beneficial transaction
The Salinas Lithium Project has potential to become a top 10 hard rock lithium operation by production globally (excluding Africa), in the world-class mining jurisdiction of Minas Gerais, Brazil, with development flexibility to supply new markets.
For PLS, the strategic rationale of the acquisition is:
Pilbara Minerals managing director and CEO Dale Henderson said: “We are excited to announce the acquisition of Latin Resources. This acquisition is on-strategy, diversifying the business with what we believe is a counter-cyclical, accretive extension that further builds out Pilbara Minerals’ position as one of the leading lithium materials suppliers globally.
“The acquisition will deliver our second 100%-owned, Tier-1, hard rock lithium asset, which is expected to be low-cost and accretive for our shareholders. It provides Pilbara Minerals with optionality to sequence new supply and diversify into new growth markets for lithium such as Europe and North America.
“The acquisition follows an extensive period of project assessment globally in which we rank Latin Resources’ Salinas project at the top of our list when benchmarked holistically across a range of key criteria.
“Further, a comprehensive due diligence period has been conducted over the past six months which has built-out our understanding of the asset and the region’s potential. Importantly, the acquisition leverages Pilbara Minerals’ capability in hard rock lithium resource delineation, project development, operations and marketing experience.
Gale to join Pilbara Minerals
Chris Gale has agreed to join Pilbara Minerals as a consultant for a 12-month period to provide leadership continuity at Salinas.
“Along with members of my executive management team, I was very pleased to be asked to commit to continue to work with Pilbara Minerals to advance the Salinas project towards production and I’m excited about the future prospects for our project in Brazil when combined with Pilbara Minerals’ existing asset base,” said Gale.
Henderson added, “We look forward to working alongside the Latin Resources 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 development journey of the project.
“We expect the combination of the Latin Resources and Pilbara Minerals teams will unlock the significant value of the Salinas project over time, de-risking its development and timing the project delivery appropriately in lock-step with the lithium market’s growth.
“We are also pleased to welcome Latin Resources shareholders onto the Pilbara Minerals share register. The all-share transaction structure enables Latin Resources shareholders to continue to participate in the Salinas project and broader lithium market growth journey through the Pilbara Minerals business.
“Further, the structure also ensures Pilbara Minerals preserves its strong balance sheet capacity enabling the business to support current growth commitments and consider additional opportunities in the future."
LRS board unanimously recommends scheme
The Latin Resources board has unanimously recommended the scheme in the absence of a superior proposal.
The company’s largest shareholder José Luis Manzano (7.9%) also intends to vote in favour of the scheme, in the absence of a superior proposal emerging and subject to the independent expert concluding the scheme is in the best interests of LRS shareholders.