PLS announced a "Disclosure of equity derivative positions".

From the announcement:

Pilbara Minerals is releasing this letter to ensure full transparency, however has no reason to believe that the information, of itself, is materially price sensitive and is not aware of any additional information of relevance.

The announcement details a number of call and put options entered into by Ganfeng Lithium, a Chinese lithium producer.

I assume this doesn't really mean much, otherwise it would be marked price sensitive, but I'm still curious to understand more about why it's been released at all.

I understand the overall structure - Ganfeng have limited their downside and upside within a certain price range - and while the overall position is large, at 105 million shares, it's still under 5%.

Further from the announcement:

Guidance Note 20: Equity Derivatives (GN20) issued by the Australian Takeovers Panel... provides that the non-disclosure of equity derivative positions, including short equity derivative positions that offset long positions, may give rise to unacceptable circumstances.

I'm guessing "unacceptable circumstances" actually means something to those in the know? One thought I had was that this could flag some price volatility around the strike price of the options? If any members have experience or thoughts I'd be interested to hear your take.

AFR reports that Pilbara Minerals CFO Luke Bortoli has resigned from the board of EML following an investigation over his use of company credit card for personal expenses. 

The chairman of EML Payments, the prepaid cards business once worth $2 billion, has quit amid a boardroom stoush over whether company money was spent on personal expenses.

Last week, The Australian Financial Review revealed Luke Bortoli, a former executive at buy now, pay later group Afterpay, repaid more than $100,000 spent on a company credit card, telling EML Payments it had been approved by other directors. Dr Bortoli is also the chief financial officer at lithium hopeful Pilbara Minerals.

To be clear, he maintains the expenses were approved. An independent review has been concluded and no action has been taken against him. He’s also repaid the expenses.

This could just be an EML boardroom power grab (as if they didn’t have more pressing matters), but it sure don’t look good.

It’s not clear what the expenses were. You could rack that up pretty quickly on a few international business flights these days, but that doesn’t seem like something that would demand an independent review.

No action to take here but noting it. Would be concerned if a pattern emerged.

[PLS HELD]

Since I just posted the two AFR articles on Pilbara's $560 million takeover offer for Latin Resources I'd figured FWIW I'd see what some of the brokers were saying (note most of these (except RBC) were published before yesterdays conf call and market open)...

Morgan Stanley: Underweight PT $2.70

Today's counter cyclical transaction makes sense. However, for PLS we remain concerned about medium-term recoveries and costs, the contract structures and prices achieved (lower vs. peers), and the ramp-up of the downstream conversion plants alongside weakening Chinese EV sales (-10% MoM in July)

JP Morgan: Neutral PT $2.80

PLS have announced today the acquisition of ASX-listed Latin Resources (LRS) in an all-scrip deal. At PLS’ last close price of $2.85/sh, the offer implies 20cps for LRS’ shareholders, a 67% premium to LRS’ last close. LRS own the Salinas lithium development project in Brazil, with a preliminary study indicating stage 1 production potential of 405kt of SC5 and 123ktpa of SC3 production coming online in 2026 for capex of US$253m. Stepping into a new jurisdiction could be challenging, although the LRS MD will be retained on a consulting basis by PLS for 12mths to assist with the transition. Another growth option (in addition to P2000), presents options in terms of sequencing additional capacity into a market that appears to be oversupplied on our S/D market assumptions over the remainder of the decade

Macquarie:

PLS inorganic strategy makes sense: PLS looking to add resource off Pilgangoora tenure is an intelligent move as it grows the company without incrementally adding tonnes to the market. It also arguably is timed appropriately with lithium prices in the doldrums and the retention of balance sheet flexibility important at this point of the cycle

Macquarie aren't providing a rating or PT - and note they "are currently on research restrictions" - digging into their disclosures section ...

Macquarie is currently providing investment banking services to Pilbara Minerals Ltd for which it expects to receive or intends to seek compensation

Macquarie is currently providing investment banking services to Latin Resources Ltd for which it expects to receive or intends to seek compensation

UBS: Sell PT $2.50

While LRS talks to 2026 first production, we're not convinced the market needs the supply and how soon it will come. Deal completion is expected late this calendar year with the Scheme meeting likely in mid-Nov 24. The 100% scrip consideration leaves net cash intact at A$1.6bn ahead of new project funding (debt/gov financing and strategic/ offtake options). However, we remain concerned an over-supplied lithium market will weigh on prices for 1-3yrs ahead and remain unchanged Sell rated at A$2.50/sh

CLSA: Hold PT $2.90

We believe the deal lacks short-term accretiveness, but if timed with a market bottom, which is likely near, and the asset meets its potential, it could offer significant long-term upside. We update our model accordingly and lower our target price from A$3.10 to A$2.90

RBC: Outperform PT $3.90 (up from $3.80)

PLS is offering A20¢ps (all scrip) for LRS. The rationale for the acquisition is to incorporate the 100% LRS-owned Salina project into the portfolio; diversifying the asset base counter cyclically. Based on a recent significant increase in Resources (and pending DFS), our estimates suggest a value accretive acquisition, but near-term earnings/FCF dilution. Further to our first take, we incorporate the Salinas development project in our NAV. Adjusting for the transaction has reduced our FY25e/26e EPS by 6-7%, but increased our price target 3% to A$3.90/sh. We retain our Outperform rating

DISC: Held (very small position) in RL

Two articles in the AFR today covering Pilbara's $560 million takeover offer for Latin Resources

Pilbara Minerals takes $560m punt on Brazil lithium project

and from the Chook The lithium rout can’t seem to stop the ASX’s most shorted stock

For those outside the paywall:

Pilbara Minerals takes $560m punt on Brazil lithium project

Pilbara Minerals boss Dale Henderson says the company acted courageously with a near $560 million takeover offer for Latin Resources and its flagship lithium project Salinas in Brazil, despite analyst and investor doubts about the deal.

In moving on Latin after assessing scores of lithium projects, Pilbara Minerals is making a countercyclical bet on the battery-making ingredient and spreading its wings beyond Western Australia where it is pressing ahead with a massive expansion of its Pilgangoora mine.

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.

Ben Lyons, director of equities research at Jarden, queried the quality of the Salinas ore body and whether it could be classified as a top-rank project based on drilling results released by Latin.

The Pilbara Minerals share price fell almost 5 per cent to $2.72 on the back of the takeover announcement, while the Latin price jumped 52 per cent to 18¢. The all-scrip takeover offer – 0.07 new Pilbara shares for each Latin share – values the target at almost $560 million based on Thursday’s prices.

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

The bid for Latin comes as Brazil closes in on a deal with the United States to work more closely on critical minerals supply and improve access to Inflation Reduction Act subsidies.

The US ambassador to Brazil has suggested a deal on preferential treatment in critical minerals could be signed at the G20 leaders’ summit in Rio de Janeiro in November.

Pilbara Minerals has not made an acquisition since it gobbled up Pilgangoora neighbour Altura Mining in 2020 after a collapse in lithium prices.

It is also the first deal spearheaded by former Macquarie investment banker John Stanning since he joined Pilbara Minerals last year on the back of a series of big lithium transactions.

Pilbara Minerals is thought to have assessed lithium projects in its WA backyard, including the Azure assets now owned by Gina Rinehart and the Mineral Resources-backed Wildcat Resources’ Tabba Tabba project that sits close to Pilgangoora.

Mrs Rinehart and Mineral Resources boss Chris Ellison led a spending spree on lithium stocks in WA last year as Pilbara Minerals held fire.

Mr Stanning said that he would “much rather be buying at this point of the cycle than where people were buying last year. We looked at all of those and didn’t see value compared to today.”

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

Asked why Pilbara Minerals did not wait until the Latin share price fell further, or it ran out of cash, Mr Henderson said the takeover target probably had other options.

“Latin ran a process for offtake, and they were engaged with other parties. We don’t know the details of that, but they had other options,” he said.

“We believe that to be true because it’s a great asset, and that obviously weighed on our thinking.”

Latin has put a $US253 million ($383.3 million) price tag on developing the first stage of Salinas, which is next to the Sigma Lithium mine that started production last year in the Minas Gerais region of Brazil. The second stage has a $US55 million price tag.

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 the potential to become one of the world’s top hard rock lithium mines.

He said the deal was a reflection of the company’s pioneering spirit, which has included developing Pilgangoora and its associated processing plant, breaking new ground in lithium auctions and moving downstream into a lithium hydroxide plant in South Korea.

“There is a level of courage around stepping into this region, but we have conviction,” he said.

“I think in the fullness of time Pilbara will be judged on the agreement we made today, and I think history will look back on us kindly.”

The company has already invested in an expansion project to grow production at Pilgangoora to about 1 million tonnes a year within three years, and signalled it could eventually jump to 2 million tonnes a year.

Mr Henderson said the Latin acquisition provided options to sequence new supply and diversify into new markets such as Europe and North America.

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

The lithium rout can’t seem to stop the ASX’s most shorted stock

While there are many things to be wary of in mining, one is domestic champions going offshore. Can Pilbara Minerals become a two-trick pony?

West Australian lithium miner Pilbara Minerals is very good at one thing. In an industry where no one wants to be a one-trick pony, can it be good at two?

If it is, the $8.5 billion Pilbara Minerals is going to have to prove the doubters wrong. You could sense the groans coming out of investors’ offices in Sydney and Melbourne as the domestic champion miner made its big strategic move.

While there are many things to be wary of in mining, one is domestic champions going offshore. Just because you can dig up rocks and build plants in Australia, it doesn’t guarantee you can do it on the other side of the world.

And synergies between farflung assets brought together by M&A deals are usually scant, as Rio Tinto boss Jakob Stausholm reminded us a fortnight ago.

Nevertheless, Pilbara Minerals, which makes more than $500 million digging up and selling WA lithium in a bad year like FY24, is doing it.

It is buying ASX-listed Latin Resources to get it hands on the Salinas lithium project in Brazil. Salinas has a big resource (2.3 million tonnes), potential 10-year-plus mine life and, at best, could be mining hard rock lithium in a couple of years.

The deal values Latin Resources at $560 million; it’s early stages with a definitive feasibility study under way.

If its second trick works, Pilbara Minerals boss Dale Henderson will look like a champion.

The best thing you can say about it is that it is a countercyclical move; Pilbara Minerals is buying when others are retreating (Arcadium Lithium may shut Mt Cattlin, for example), making it a “big surprise”, as Euroz Hartleys analyst Trent Barnett says.

“We assumed Pilbara would buy one of the more obvious projects; so this is left field for us.”

It is using scrip, not cash, offering Latin Resources shareholders a relatively small chunk of the combined group (6.4 per cent), swapping expensive scrip for cheap resources and reserves.

But in times like this, the naysayers win the day. Pilbara Minerals shares were down 3.9 per cent on Thursday, to be down 31 per cent this year and 43 per cent since last August. It’s like this across the lithium sector.

It’s funny how investors change their moods. In tough times like these, they want Pilbara to be a one-asset miner focused only on improving and expanding its Pilgangoora project. In better times, they bag Henderson for having only one asset and not “moving forward”, as he put it.

Now there is competition for capital in the Pilbara Minerals portfolio.

“This is our wheelhouse,” Henderson told some of the sceptical analysts on Thursday. He says Salinas looks similar to Pilgangoora, he likes the geology and the region, and the timing – it’s the pick of 100 projects Pilbara Minerals’ corporate development team has studied.

But is it really better than just focusing on Pilgangoora above all else? Pilbara Minerals, already the most heavily shorted stock on the ASX, isn’t going to win that debate today or this week, while the lithium price is in the toilet. But it is buying now for when things turn.

DISC: Held (very small) in RL