Lithium Co.'s Shares May Benefit From Pilbara Minerals Bid for Latin Resources

Source: Greg Jones 08/19/2024

BMO Capital Markets analyst Greg Jones, in a research report published on August 14, 2024, provided an update on Lithium Ionic Corp. LTHCF following Pilbara Minerals' announcement of its intention to acquire Latin Resources LRSRF. The analyst maintained an Outperform(S) rating and a target price of CA$2.00 on Lithium Ionic's stock.

Pilbara Minerals announced plans to acquire Latin Resources in an all-share transaction valued at approximately US$370 million, representing a 32% premium to LRS's 30-day VWAP. Jones noted, "Based on Latin's resources of 77.7Mt at 1.24% Li20, the consideration implies an EV/resource multiple of ~US$150/t LCE, which is generally in line with multiples paid in other recent lithium developer transactions."

The analyst sees this development as potentially positive for Lithium Ionic, stating, "We highlighted in our recent note that LTH is currently trading at a discount vs. its hard rock developer peers on an EV/resource basis (~US$10/t LCE vs. peer median of US$24/t LCE), and that a re-rating towards the peer median could provide ~50% share price uplift."

Jones emphasized the similarities between Lithium Ionic's and Latin Resources' projects, noting, "LTH has defined resources of 60.1Mt at 1.28% Li2O, expects to receive its permits to begin construction at Bandeira imminently, and to deliver a PEA on its Salinas project, which is directly adjacent to the LRS project, later this year."

The analyst believes that Pilbara's entry into the Brazilian lithium market could be beneficial for Lithium Ionic. "With an established lithium producer entering the region and providing a tangible value benchmark for a neighbouring project, we expect LTH shares will react positively on the back of this news" Jones stated.

Lithium Ionic's strategic focus includes advancing its Bandeira project towards production and developing the Salinas project. The company is well-positioned in Brazil's emerging lithium region, which Pilbara cited as part of its rationale for acquiring Latin Resources.

BMO Capital Markets' valuation methodology for Lithium Ionic remains unchanged from their previous report, based on a combination of NAV multiple and an in-situ value for resources.

With an Outperform rating and a target price of CA$2.00, representing a potential total return of 285% from the price at the time of the report of CA$0.52, BMO Capital Markets continues to see significant upside potential for Lithium Ionic.

Jones concluded that the Pilbara-Latin Resources transaction "could be such a catalyst" for the re-rating of Lithium Ionic shares that he previously highlighted as a possibility.

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Disclosures for BMO Capital Markets, Lithium Ionic Corp., August 14, 2024

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Company Specific Disclosures Disclosure 2: BMO Capital Markets has provided investment banking services for remuneration with respect to Lithium Ionic Corp. within the past 12 months. Disclosure 4: BMO Capital Markets or an affiliate has received compensation for investment banking services from Lithium Ionic Corp. within the past 12 months. Disclosure 6A: Lithium Ionic Corp. is a client (or was a client) of BMO Nesbitt Burns Inc., BMO Capital Markets Corp., BMO Capital Markets Limited or an affiliate within the past 12 months: A) Investment Banking Services Disclosure 8A: BMO Capital Markets or affiliates have beneficial ownership of 1% or more of any class of the equity securities of Lithium Ionic Corp. (a) as of the end of the month prior to the issuance date of the research report, or (b) as of the end of the second most recent month if the report issuance date is less than 10 days after the end of the prior month.

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