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The share price of Pilbara Minerals Ltd (ASX:PLS) has experienced a slight decline of 2% following the announcement of its acquisition deal with Latin Resources Ltd (ASX:LRS). Pilbara Minerals, one of the leading lithium miners globally with its flagship Pilgangoora operations in Australia, is set to acquire Latin Resources through an all-share transaction.
Details of the Acquisition
Pilbara Minerals will acquire 100% of Latin Resources in an all-share offer. As part of the deal, Latin Resources shareholders will receive 0.07 new Pilbara Minerals shares for each Latin Resources share they hold. Upon completion of the transaction, Latin Resources' shareholders will collectively own about 6.4% of Pilbara Minerals, an ASX mining stock. In response to the announcement, Latin Resources shares have surged by 55%.
Pilbara Minerals has described the acquisition as "highly compelling and mutually beneficial." The deal will integrate Latin Resources' Salinas lithium project into Pilbara Minerals' portfolio. This project is anticipated to rank among the top 10 hard rock lithium operations globally by production, outside of Africa.
Rationale Behind the Deal
The acquisition is seen as strategically sound and counter-cyclical. It offers Latin Resources shareholders a premium, with the transaction valuing Latin Resources shares at approximately A$0.20 each. This represents a 57% premium to the 10-day average price and a 32% premium to the 30-day average price.
For Pilbara Minerals, the Salinas project is expected to boost its mineral resources by around 20% and contribute up to 30% to its 'steady state production.' The cost base for the Salinas project is anticipated to be competitive with that of Pilgangoora, enhancing the overall efficiency and production capacity of Pilbara Minerals.
The deal is also set to provide Latin Resources shareholders with several benefits, including enhanced market positioning, a larger free float with significantly increased liquidity, improved access to capital markets, and inclusion in relevant ASX and global indices.
Outlook and Next Steps
The board of Latin Resources has unanimously endorsed the acquisition, subject to an independent expert's assessment confirming that the deal is in the best interests of its shareholders. All directors are expected to vote in favor of the transaction, which has also received backing from Latin Resources’ largest shareholder, Jose Luis Manzano.
For Pilbara Minerals, the acquisition aligns with its strategy to expand its mineral resources and future production capabilities. The timing of the deal, amidst a challenging period for the lithium sector, could potentially leverage lower sector valuations. Success in developing the Salinas project will be crucial for justifying the acquisition, given that 6% of Pilbara Minerals’ business will be allocated to Latin Resources’ shareholders.
Should lithium prices recover, Pilbara Minerals’ share price might benefit from the acquisition and the enhanced asset base. However, with global lithium supply increasing and uncertain demand growth for electric vehicles, the future performance of Pilbara Minerals’ shares will depend on various market dynamics. The outcome of the acquisition and the project's success will be key factors in determining the long-term impact on the company’s share price.
