Kristie Batten: Brazil’s lithium potential in focus after Pilbara’s Latin takeover

One of Australia’s top mining journalists, Kristie Batten writes for Stockhead every week in her regular column placing a watchful eye on the movers and shakers of the small cap resources scene.

Pilbara Minerals’ countercyclical A$581 million takeover of Latin Resources has analysts wondering who might be next.

Last month, Pilbara Minerals (ASX:PLS) announced the friendly scrip takeover of Latin Resources (ASX:LRS), giving it ownership of the Salinas lithium project in Brazil.

Salinas has a resource estimate of 77.7 million tonnes at 1.24% lithium oxide.

A September 2023 preliminary economic assessment outlined the potential for an 11-year operation to produce 499,000 tonnes of 5.2% spodumene at total cash costs of US$567 per tonne.

Capital costs for the two-stage operation are US$308 million, which will be refined by Pilbara as part of an optimised definitive feasibility study by Pilbara once the acquisition closes.

“The Salinas lithium project has the potential to become one of the 10 largest rock-based lithium operations in the world in terms of production and could open up new growth markets in Europe and North America for Pilbara Minerals,” Pilbara managing director Dale Henderson told the Exposibram (Brazilian International Mining Expo and Congress) event in Brazil last week.

The deal is expected to close by early December.

Honing in on Brazil

The Latin takeover is another tick for Brazil’s emerging lithium sector.

Latin’s neighbour, NASDAQ-listed Sigma Lithium Corp, is the most advanced listed player in the country, recently marking the first anniversary of lithium shipments.

The Grota do Cirilo project sold more than 52,000t of spodumene in the June quarter at low free-on-board operating costs of US$424/t.

The other projects in Brazil highlighted in a recent report by Canada’s BMO Capital Markets were Lithium Ionic’s Salinas and Bandeira projects, Atlas Lithium’s Minas Gerais, Solis Minerals’ (ASX:SLM) Borborema, Oceana Lithium’s (ASX:OCN) Solonopole and OzAurum Resources’ (ASX:OZM) Boca Rica.

However, due to market conditions, many of the Australian lithium explorers in Brazil have pulled back expenditure or are focusing elsewhere.

Oceana recently dropped some of the tenements that make up the Solonopole project but has identified three priority targets considered prospective for lithium and tantalum.

Solis, which is chaired by Latin managing director Chris Gale, has halted expenditure on Borborema until it can map all tenements and define priority targets.

OzAurum’s most recent focus has been on niobium in Brazil, but it remains keen on lithium.

While the first diamond hole at Boca Rica returned no lithium results, the company said this month it was evaluating further potential lithium opportunities in the Lithium Valley.

Not mentioned in the report but also in Brazil is Alderan Resources (ASX:AL8), Lightning Minerals (ASX:L1M), and Perpetual Resources (ASX:PEC).

Earlier this year, Alderan completed stream sediment and reconnaissance rock sampling over its Itambacuri, Carai, Catuji and Itaipe lithium project areas in Minas Gerais.

Assay results for stream sediment samples from Itambacuri, Carai and Itaipe included highly anomalous rare earth element and lithium grades, which will be followed up in the current half.

Last month, Lightning signed a binding option agreement over the Esperança project, 5km south of the company’s recently acquired Caraíbas and Sidrônio lithium projects, where outcropping pegmatites have been confirmed, in Minas Gerais’ Lithium Valley.

The company has allocated $100,000 for work on the projects over the next 12 months.

Finally, Perpetual Resources acquired the Isabella project, just 500m from Atlas’ flagship Das Neves project, in July.

Exploration at Isabella, which previously returned rock chips grading up to 5.62% lithium oxide, started last month, comprising ground reconnaissance work.

Opportunities for buyers

BMO analyst Greg Jones said the lithium developer landscape in the Americas provided opportunity for buyers.

“Given current valuations and the difficulty in raising capital, we see the conditions as being favourable for M&A from a buyer’s perspective,” Jones said in a late August report.

“In our view, projects that buyers will find the most attractive will offer high-quality resources with large-scale, long-life potential, low capital intensity, operating costs at the lower end of the cost curve, access to infrastructure, as well as benefit from a defined permitting process and social license/community support.”

Jones said most potential acquirers were not in position to pursue M&A in the near-term due to weak lithium market conditions.

“While target valuations may be attractive, we see a limited universe of potential buyers at the current time,” he said.

He noted that several of the larger lithium producers had put projects on hold, while Chinese parties, which had demonstrated a strong appetite for acquiring lithium projects in recent years, were restricted in the jurisdictions they could pursue.

“That said, these circumstances could present opportunity for others to outright acquire (e.g., mining-focused private equity), or pursue strategic/joint venture investments (e.g., auto OEMs, battery manufacturers) with less competition,” Jones said.

“In addition, the current environment may prompt government investment, or direct involvement in order to encourage project development, which could support developer valuations and bridge the gap to a stronger M&A market.”

At Stockhead, we tell it like it is. While Latin Resources, OzAurum Resources and Perpetual Resources are Stockhead advertisers at the time of writing, they did not sponsor this article.