Potential accretive deal for Pilbara Minerals ‘within 3 months’, says Blue Ocean
Lithium producer Pilbara Minerals (ASX: PLS) could be on the radar of strategic partners
12th April 2019
Resources Rising Stars
Lithium producer Pilbara Minerals (ASX: PLS) could be on the radar of strategic partners such as Wesfarmers, Mineral Resources and Livent, with a “value-accretive” deal potentially crystallising in the near term, according to Sydney-based institutional broking firm Blue Ocean Equities.
In a fresh note released yesterday, Blue Ocean analyst Steuart McIntyre says that given the high prices paid recently for lithium assets, he sees merit in Pilbara testing the appetite with potential strategic partners.
“On our forecasts, at the end of March Pilbara had ~A$90 million in cash and undrawn debt and is trading at a very large discount to NPV at spot prices. So why is it starting a partnership process now? On our forecasts….it certainly doesn’t have to,” McIntyre wrote.
“Given the high recent prices paid for lithium assets, we see an elevated probability of an accretive deal near term.”
Blue Ocean cites recent deals where the purchaser paid a much higher price than prevailing equity market valuations, including Albermarle’s US$1.15 billion cash acquisition of a 50% stake in the MinRes’ Wodgina Project and POSCO’s US$280 million acquisition for the northern Sal De Vida tenements.
“While there is a very large universe of potential buyers, we have put together a short-list of potential candidates below along with some high-level commentary,” Blue Ocean said.
The broker cites potential partners including Mineral Resources, Livent (spun out of FMC), diversified conglomerate Wesfarmers in the wake of its US$1.5 billion bid for Lynas Corporation, Pilbara’s existing partners Ganfeng, POSCO and Great Wall, other lithium majors like Tianqi, SQM and Albermarl and battery majors like CATL, LG Chem and Samsung.
Automakers also make it onto Blue Ocean’s list, although it says Volkswagen is now less likely after its recent 10-year lithium supply agreement with Ganfeng.
“While recoveries at Pilgangoora in the March quarter were well below target, in our view Pilbara remains well capitalised and, on our forecasts, should have around ~A$90 million in cash and undrawn debt at the end of March,” McIntyre said.
“On our forecasts, based on its financing plans announced in January 2019, Pilbara does not need additional capital to fund its Stage 2 expansion at Pilgangoora.
“Which makes us wonder why PLS is considering this partner process now, particularly given we believe the company would probably achieve a better price once Stage 1 recoveries improve and the plant is operating at design capacity.
“There are several reasons why Pilbara might be running this partner process now, but we believe the most likely reason is the potential for an attractive price.”
Blue Ocean has set a $1.20 price target for Pilbara Minerals based on the NPV for Pilgangoora at 5Mtpa and using an unchanged lithium concentrate price of US$600/t.
The broker also has a “strategic target” of $1.70 for the stock.
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