Deal overview

Pilbara Minerals Limited (ASX: PLS), the world’s largest independent hard-rock lithium producer, has agreed to acquire 100% of Latin Resources Limited (ASX: LRS) by way of a Court-approved scheme of arrangement under Part 5.1 of the Corporations Act 2001 (Cth)¹. The binding Scheme Implementation Agreement (SIA) was announced on 15 August 2024.

The transaction is structured as an all-share deal, with Latin Resources shareholders to receive 0.07 new Pilbara Minerals shares for each Latin Resources share held. Based on Pilbara Minerals’ closing price of A$2.85 per share on 14 August 2024, the implied offer price is approximately A$0.20 per Latin Resources share.

The primary asset being acquired is Latin Resources’ flagship Salinas Lithium Project (Salinas) located in Minas Gerais, Brazil — which has the potential to become a top 10 hard-rock lithium operation by production capacity globally (excluding Africa).

“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 to Pilbara Minerals with optionality to sequence new supply and diversify into new growth markets for lithium such as Europe and North America.”

— Dale Henderson, Managing Director and CEO, Pilbara Minerals

Transaction terms

The all-share consideration means no cash will change hands between the two companies. Upon implementation of the Scheme, existing Pilbara Minerals shareholders will retain approximately 93.6% of the enlarged entity, while Latin Resources shareholders will own the remaining ~6.4%.

In connection with the implementation of the Scheme, Pilbara Minerals has agreed in principle to provide a A$10 million loan facility to Latin Resources, available for drawdown towards the end of the anticipated Scheme implementation process for general working capital and early works programs.

The SIA contains customary exclusivity obligations including “no shop, no talk” provisions, notification obligations, and a matching right regime in the event any Superior Proposal emerges. Break fees apply to both parties under certain circumstances.

Strategic rationale

Pilbara Minerals has framed the transaction as an on-strategy, counter-cyclical move to diversify its production base beyond Pilgangoora and gain exposure to growing North American and European battery markets². The all-share structure preserves the company’s strong balance sheet and avoids diluting its net cash and liquidity position, which continues to fund organic growth at Pilgangoora and the development of Salinas.

Based on data from the investor presentation, the acquisition is expected to be accretive across a range of key metrics. Pro-forma potential production increases by approximately 47% (from 1,060 ktpa to 1,559 ktpa SC₅.₂), and Mineral Resources grow by approximately 20% (from 11.8 Mt LCE to 14.1 Mt LCE). On a per-share basis, this translates to approximately 38% accretion to potential production and 12% accretion to Mineral Resources.

“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.”

— Dale Henderson, Managing Director and CEO, Pilbara Minerals

For Latin Resources shareholders, the Scheme delivers an immediate premium to recent trading prices while providing ongoing exposure to the development of Salinas through Pilbara Minerals shares. Shareholders gain access to Pilbara Minerals’ strong balance sheet, its Pilgangoora cash flows, and the company’s proven technical expertise in hard-rock lithium development. They also gain membership in an ASX-50 company with greater trading liquidity and capital markets access.

“I am extremely excited and proud that our achievements in Brazil have attracted such a high quality company in Pilbara Minerals to Salinas. 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.”

— Chris Gale, Managing Director, Latin Resources

The Salinas project

The Salinas Lithium Project is located in Lithium Valley in the State of Minas Gerais, Brazil — a well-established, pro-mining jurisdiction home to more than 300 operating mines, including projects owned by BHP, Anglo American and Vale. The project sits approximately 10 kilometres from the Salinas regional centre and is serviced by existing road, hydro-backed grid power, and water infrastructure.

Latin Resources upgraded its global Mineral Resource Estimate for Salinas to 77.7Mt at 1.24% Li₂O on 30 May 2024, with greater than 85% classified in the Measured and Indicated categories. This represents approximately a 60% increase since the Preliminary Economic Assessment (PEA) was completed in September 2023. The Colina deposit — the primary deposit within Salinas — holds 70.9Mt at 1.25% Li₂O total Measured, Indicated and Inferred Resource, with 95% classified as Measured and Indicated.

Latin Resources’ PEA outlined Stage 1 capital expenditure of approximately US$253 million to achieve first production, targeting combined average annual spodumene concentrate (SC) production of approximately 499 ktpa SC₅.₂. At steady state, Salinas could contribute up to approximately 30% of pro-forma Pilbara Minerals production. Operating costs are expected to be competitive with Pilgangoora.

A Definitive Feasibility Study (DFS) for Salinas was underway at the time of announcement. Under the SIA, Pilbara Minerals and Latin Resources agreed to form an integration committee enabling Pilbara Minerals to share its project development, mining, and processing expertise to assist in optimising the DFS. Pilbara Minerals intends to consider any Final Investment Decision (FID) against prevailing lithium market conditions and customer requirements, consistent with its approach to previous production expansions at Pilgangoora.

Timeline and conditions

The Scheme is subject to several conditions, including an independent expert concluding it is in the best interests of Latin Resources shareholders, customary regulatory approvals, and shareholder approval at a Scheme Meeting. To proceed, resolutions at the Scheme Meeting must be approved by at least 75% of all votes cast and a majority by number of shareholders present and voting.

Prior to the Scheme being implemented, Latin Resources will undertake a program of divesting its non-core assets, which comprise immaterial tenement interests in Peru, Argentina and Australia.

The Latin Resources Board has unanimously recommended the Scheme in the absence of a Superior Proposal, and each director (who together hold 4.8% of Latin Resources’ total issued shares) has confirmed their intention to vote in favour. Latin Resources’ largest shareholder, José Luis Manzano (7.9%), has also indicated his intention to vote in favour under the same conditions.

Latin Resources’ Managing Director Chris Gale has agreed to join Pilbara Minerals as a consultant for 12 months following implementation to provide leadership continuity with key stakeholders, including the in-country team, senior government officials, and local community representatives.

Pilbara Minerals appointed Barrenjoey as its financial adviser and Corrs Chambers Westgarth as legal adviser. Latin Resources appointed Macquarie Capital (Australia) Limited as its financial adviser and King & Wood Mallesons as its legal adviser.