Pilbara Minerals Ltd (ASX: PLS) shares are tumbling on Thursday morning after the release of a big announcement.
At the time of writing, the lithium giant's shares are down 3% to $2.76.
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Why are Pilbara Minerals shares tumbling?
Investors have been hitting the sell button today after responding negatively to news of a lithium acquisition in Brazil.
According to the release, the company has entered into a binding scheme implementation agreement (SIA) that will see it acquire 100% of the shares in Latin Resources Ltd (ASX: LRS) by way of a Court-approved scheme of arrangement.
The deal will see Latin Resources shareholders receive 0.07 new Pilbara Minerals shares for each Latin Resources share held. This will mean they own ~6.4% of Pilbara Minerals' shares upon implementation of the scheme.
So, with Pilbara Minerals shares ending yesterday's session at $2.85, this values its offer at 19.95 cents per share. This represents a 66.3% premium to where Latin Resources' shares last traded.
The Latin Resources board has unanimously recommended the scheme in the absence of a superior proposal and subject to the independent expert's report. Its directors and largest shareholder also plan to support the offer under the same qualifications.
Why acquire Latin Resources?
Management notes that the deal will add Latin Resources' flagship Salinas Lithium Project to its portfolio.
It highlights that this project has the potential to become a top 10 hard rock lithium operation by production globally (excluding Africa) and is located in the world class mining jurisdiction of Minas Gerais, Brazil.
It immediately adds ~20% to Pilbara Minerals' mineral resources and will contribute up to ~30% of pro-forma steady state production at a cost base that is expected to be competitive with Pilgangoora. In addition, it provides the company with new supply opportunities into the North American and European battery markets.
Pilbara Minerals' managing director and CEO, Dale Henderson, was excited with the deal. He 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.
Latin Resources' managing director, Chris Gale, adds:
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.
