WR1 General Discussion, page-32319

Article discusses the reasoning behind Pilbara Minerals acquisition of LRS. WR1 is mentioned as in the top 5 on the shopping list.

Pilbara Minerals' chief development officer for the last 18 months, ex-Macquarie man John Stanning, couldn't resist the temptation to over-egg things when talking up Pilbara's agreed all-scrip takeover of Latin Resources.

The A$583 million/20c a share offer (including some option conversions) is a whopping 57% premium to Latin's 12.7c a share 10-day VWAP in a lithium market still struggling to find a bottom.

So, there was always going to be a temptation to over-egg just what a great catch Latin is with its pre-development Salinas lithium project in Brazil in Mina Gerais state. Since its discovery in late 2022, Salinas has grown to a world scale 77.7Mt at 1.24% lithium oxide.

Stanning said Pilbara settled on Latin/Salinas after completing "extensive opportunity screening of well over 100 projects across multiple continents" over 24 months, finishing up with six months due diligence work on the project

The more likely reality is that once Stanning was brought on board to find an acquisition, there would have been only a half a dozen, maybe 10, hard rock lithium projects that would been worth detailed analysis as potential acquisition targets.

As he was to say later on in the investor call for the Latin acquisition, there are only a finite number of quality hard rock lithium projects globally.

Salinas is certainly amongst the number, along with the Canadian projects held by ASX-listed companies Patriot Battery Metals and Winsome Resources, and Wildcat Resources' Tabba Tabba project in the Pilbara. Then there is Latin's producing Minas Gerais neighbour, Canadian listed Sigma Lithium.

In comparison with Latin, Patriot and Sigma would have been a much bigger bite for Pilbara, particularly at a Latin-type 57% premium, while Winsome's Adina and Wildcat's Tabba Tabba are not as far along the development pathway as Latin's Salinas but are coming fast.

Pilbara's opportunity screening process would have no doubt also detected the presence of Albemarle and Chris Ellison's Mineral Resources with 5% and 3.5% shareholdings respectively in Patriot, and MinRes' 19.8% of Wildcat.

Because of the cyclical low in lithium prices Albemarle is not in a fighting mood. And because of both the low in lithium prices and the more recent sump the iron ore price, neither is MinRes.

But it is doubtful either of them would facilitate a Pilbara move on Patriot given the size of the prize – something that will become clear when the preliminary economic assessment for its Shaakichiuwaanaan (formerly Corvette) project is released on Thursday morning.

Meanwhile, the pressure on MinRes from lithium/iron ore prices – its shares are down 45% since May 20 – suggests it could be less wedded to Tabba Tabba than it was when it stumped up an average of 86c a share last year for its Wildcat stake.

Wildcat is now trading at 27.5c. Apart from the face saving quality of holding on to the Wildcat stake, MinRes doesn't need to be a seller just because Pilbara has decided it was time for some counter-cyclical acquisition activity.

From all that it can be suggested that while Pilbara no doubt had a deep dive in to the biggest and best pre-development hard rock lithium projects (excluding those in Africa), it really was only Latin with its Salinas project that it could complete on.

Nothing wrong with that.

It's just that there was no need to suggest that of the 100-plus projects said to have been screened, the Salinas project is the best. It is a quality project all right, it's just that it could be next best to what Pilbara would have ideally liked to have secured had an ability to complete been available.

As it was, there was some pointed questioning on Salinas' credentials on the investor call.

One equities analyst asked how much due diligence was performed on the orebody by Pilbara because it appeared that Salinas is a highly complex series of pretty thin, stacked pegmatites.

"And just noting that tier 1 gets bandied about pretty loosely across the industry, can you fill us in on just what it is exactly about this orebody that you think it has tier 1 characteristics," the analyst asked.

Pilbara boss Dale Henderson said Pilbara had got comfortable with the scale and quality of Salinas, and its potential to be a low-cost operation. He added that the stacked system of pegmatites was not dissimilar to parts of its mainstay Pilgangoora orebody.

Stanning added that there was a high degree of confidence in the resource which sits predominately in the measured and indicated category. And during due diligence, Pilbara's own technical team "completely remodelled the resource to ensure comfort".

Given the current state of the lithium market, Pilbara's move on Latin could be seen as a bold move. But it is not bold in scale as the pick-up requires only a 6.4% expansion in Pilbara's share base.

It's why the market's reaction to the acquisition was low-key.

There was an attitude of ‘come back to us when there are detailed development plans for the project', and when market conditions warrant Salinas' development over and above the embedded expansion opportunities at Pilgangoora.

On that latter point, Henderson is a true believer. Citing Benchmark Mineral Intelligence forecasts, Henderson pointed to a lithium supply deficit by 2040 equivalent to the production of 19 Pilgangooras.

"To our knowledge there is not 19 Pilgangooras floating out there," Henderson said.

"In fact, there is but a handful. As such, to meet this expected long term demand a lot more projects ultimately need to come on line for this expected demand.

"What we anticipate is that the best assets, like Pilgangoora and now Salinas, will come to market to form the basis of this low cost stable supply. That's why we are here today to build out this base and join these assets to service these incredible markets we are seeing before our eyes."