Pilbara Minerals takes $560m punt on Brazil lithium project

West Australian lithium producer Pilbara Minerals has unveiled a $560 million takeover bid for Latin Resources and its projects in South America in a countercyclical bet on the battery making ingredient.

Latin Resources owns the Salinas lithium project in Brazil touted as having the potential to become the second-largest spodumene concentrate producer in the South American nation.

Pilbara Minerals chief executive Dale Henderson. Trevor Collens

RBC Capital Markets analyst Kaan Peker questioned the rationale for the acquisition, saying it was hard to see any synergies given the distance between WA and Brazil. He suggested it was likely to be free cash flow and earnings dilutive.

One of the attractions for Pilbara Minerals venturing into Brazil is to diversify its customer base away from China.

The deal comes on top of a big expansion of Pilbara Minerals’ flagship Pilgangoora mine in Western Australia and marks its first acquisition since it gobbled up Pilgangoora neighbour Altura Mining in 2020 after a collapse in lithium prices.

Perth-based Latin Resources ended June 30 with $21 million in cash, and has been looking for a buyer or partner to develop Salinas for some time.

Latin Resources closed at 12¢ a share on Wednesday.

Based on Pilbara Minerals’ closing price of $2.85 a share on Wednesday, the takeover offer implies a value of 20¢ a Latin share.

Latin has put a $US253 million ($383.3 million) price tag on developing stage 1 of Salinas, which sits adjacent to the Sigma Lithium mine that started production in 2023 in the Minas Gerais region of Brazil.

Pilbara Minerals said it would look at debt, partnerships and funding sources tied to Salinas’ offtake to finance the development. However, it will only press ahead “if and when market conditions are supportive”.

Pilbara Minerals is currently the most shorted stock on the ASX as some investors bet against lithium prices.

Mr Henderson said Pilbara Minerals had been running a rule over the Salinas project for the past six months and saw it as having potential to become one of the world’s top hard rock lithium mines.

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

Latin is led by Chris Gale, the founder of boutique corporate advisory firm Allegra Capital