Good day, and thank you for standing by. Welcome to Pilbara Minerals' Investor Brief Webcast. At this time, all participants are in a listen-only mode. After the speaker's presentation, there'll be a question-and-answer session. Please note, Pilbara Minerals will be only taking one question per person, with one related follow-up question permitted. To ask a question during the session, you'll need to press star one one on your telephone. Please be advised that today's conference is being recorded. I would now like to hand the conference over to your speaker today, Pilbara Minerals' Managing Director and CEO, Dale Henderson. Please go ahead.
Thank you, Maggie, and thank you all for joining on the call today. I'd like to begin by acknowledging the traditional owners on the lands in which our business operates, the Whadjuk people of the Noongar Nation, here in Perth, where we are undertaking this call from today, and the Nyahmol and Kariyarra people, where our operations are located in the Pilbara. We pay our respects to their elders, past and present. Today marks an important milestone in our company's history and that of our friends at Latin Resources. Today, and together, we're excited to announce that we have entered into a binding scheme implementation agreement to acquire Latin Resources via an all-share transaction.
This is a compelling transaction for both sets of shareholders, building out the base of Tier 1 hard rock assets, ultimately increasing production supply through an expected low-cost operating asset, taking place in an established and supportive mining environment in Minas Gerais. And bringing to the Latin Resources team the strengths of Pilbara Minerals, a leading hard rock lithium operator. Now, to take us through this transaction, I'm joined on the call today by Pilbara Minerals' Chief Development Officer, John Stanning, and I'm also joined by Latin Resources' Managing Director, Chris Gale. We'll each take a turn as we speak to the following presentation. Now, please note that the important information disclaimers are on slides two to four. Please read this through at your leisure.
We'll endeavor to step through these slides, assigning roughly half an hour before going to analyst questions. Now, stepping to slide 5. This transaction has a compelling basis and is well-timed. It is an on-strategy, counter-cyclic transaction, which provides us with a pathway to ultimately diversify our revenue beyond our base Pilgangoora asset. Pilbara Minerals' know-how supports unlocking Salinas's project value by de-risking the development and supporting with funding. It is expected to be accretive to Pilbara shareholders across a range of metrics, and delivers both shareholders exposure to a second Tier 1 hard rock lithium project. Also, providing Pilbara Minerals with the optionality to sequence this new supply, depending on market conditions and customer requirements, and potentially diversifying into new growth markets such as Europe or North America.
Lastly, this all-share transaction enables Latin shareholders to participate through the lithium growth journey with Pilbara, and it also preserves Pilbara Minerals' strong balance sheet. Now, moving to slide 6. A quick recap on our strategy. Our ambition for Pilbara is to become a leader in the provision of sustainable battery materials products. To do this, we have four key strategic pillars. First and foremost, our operating platform, the economic engine room of the business. Secondly, growing that operating platform to make the most of our Tier 1 Pilgangoora asset and grow that to full extent. Thirdly, chemicals. Extracting more value per lithium unit through participation and downstream. And lastly, and what today is all about, diversification. Ultimately diversifying revenue beyond the Pilgangoora asset, which is, as I say, the focus of today's presentation. Moving to slide 7. Excuse me.
The lithium market continues to maintain its reputation as a volatile space as the industry continues to take shape rapidly. Industry is growing from a very small base. We have, of course, seen price declines over the past period, following the record-breaking highs of 2022. However, the structural drivers shaping this industry remain intact. These are the energy shift, the adoption of new technology, and of course, government stimulus. Now, the graph on the right-hand side of the slide details the investment in clean energy relative to fossil fuels over the past 10 years. This data is courtesy of the IEA. Now, you can see the strong departure in 2019 through to 2024.
In 2024, you can see that two-thirds approximately of investment is expected to go towards clean tech, of which of course, lithium is a subset or beneficiary of the shift. So the structural theme is undeniable. Now, the graph on the left-hand side here of benchmarks shows a forecast for lithium supply versus demand. I draw your attention to the right-hand side of that graph for 2040, where there is a gap. The gap between the top of the blue column to the green line is the equivalent of 19 Pilgangooras. Pilgangoora, of course, being our base asset. Now, there is, to our knowledge, not 19 Pilgangooras floating out there. In fact, the major hard rock assets are but a handful.
As such, to meet this expected long-term demand, a lot more projects ultimately need to come online, to support this expected demand.... As such, what we anticipate is, it is the best assets like Pilgangoora and now Salinas, which will come to market to form the base of this low-cost, supply, and low-cost, stable supply, I should add. Hence, that's why we're here today, to take the opportunity to build out this base and join these great assets to serve this incredible market that we're seeing unfold, before our eyes. Now, at Pilbara, we've consistently kept our focus trained on this opportunity, looking through these inevitable periods of volatility. Also, we remain focused on continuing to improve our position as a low-cost producer in the knowledge that these price cycles are inevitable.
Now, as you'll see in the coming slides, this acquisition is a natural extension and is well-positioned to become a low-cost operating asset. Moving to Slide 8 for the transaction summary. Pilbara is to acquire 100% of Latin Resources by way of a scheme of arrangement. The transaction consideration is all shares with the Latin shareholders to receive 0.02 shares for each share that they hold in Latin. Based on the exchange ratio, existing Pilbara shareholders will own 93.6%, of the combined group, and Latin shareholders, 6.4%. Based on Pilbara Minerals' last closing price, the transaction implies approximately AUD 0.20 per Latin share, which represents a 32%, premium to the 30-day VWAP.
The transaction has been unanimously recommended by Latin's board, subject to a superior proposal and independent expert concluding that the scheme is in the best interest of Latin's shareholders. Latin's board has signed intention statements to vote in favor of the scheme, and also, Latin's largest shareholder, José Manzano, has also signed his intention, subject to the same conditions. The transaction is subject to, as I say, to customary conditions, which are outlined in the scheme of implementation agreement attached to the ASX announcement we've released today. In terms of timing, we expect that the scheme meeting of the Latin shareholders will occur November twenty-fourth, with completion to follow shortly thereafter. I'd like to acknowledge the great work by the Latin Resources team.
From discovery in late 2022 to where they are today, is only possible through a focused, passionate team that has the support of the local community and last 6 months. With that, I'm delighted to share that a number of Latin's key management have already signed on, including Chris, who will join us as a consultant for a period of 12 months to ensure the successful integration post-completion of the scheme and ongoing support to the project. Well done, Chris, for everything you and the team has achieved. On behalf of the board of Pilbara Minerals and the team here, we're excited to be working together with you and the broader team at Latin's. Moving to Slide 9. At last year's Strategy Day, we outlined our inorganic growth strategy framework with the overriding objective to diversify the revenue streams outside of Pilgangoora.
In the interest of time, I won't step through each of these. However, I can simply state that we have a strong match with each of the parameters we are focused on. Now, it's worth highlighting that the timing of the transaction is counter-cyclical, occurring at a low point in the lithium price cycle. Now, the status of the project provides optionality to time development steps thoughtfully in response to market conditions, as is the history of Pilbara Minerals' expansion steps. Ultimately, we'll continue to align future production with the market demand, which of course, is the benefit to both Latin and Pilbara shareholders. Now, with that, I'd like to hand over to Chris, the MD for Latin Resources, to take us through the benefits for Latin shareholders. Over to you, Chris.
Thanks, Dale. Thanks very much. Good morning, everyone. First of all, I'm very excited, proud to present this transaction to Latin and Pilbara shareholders who are on the call today. And proud to attract such a high quality partner in Pilbara Minerals to Latin and the premier jurisdiction of Minas Gerais, Salinas in Brazil. This transaction's been a result of a number of months of hard work by both their respective teams, and it's a very exciting time for Latin shareholders today. The transaction provides Latin shareholders with the opportunity to become part of the world's largest pure hard rock lithium producer in Pilbara Minerals, diversified across a Tier 1 project in Australia and now Brazil. Onto the Salinas Lithium Project. Our team has worked extremely hard to develop a Tier 1 asset, which is one of the key reasons it attracted Pilbara.
It's a low cost, low capital, and scalable project. The project is located in Lithium Valley, in the state of Minas Gerais, Brazil, close to the operations of proven producers such as Sigma Lithium. Salinas has the potential to be a top ten hard rock lithium asset globally, in line with the quality and cost profile of existing Pilbara portfolio. Since our discovery in 2022, we've progressed the asset to PEA stage, released in September last year, and the DFS work is ongoing. The project is expected to produce 499,000 tons per annum on an SC 5.2 basis, at a very competitive all-in sustaining cost of AUD 536 per ton, and capital costs are just over AUD 250 million. Supporting the overall project is one of the largest resources in Brazil.
In actual fact, it is the largest lithium deposit now in Brazil, with over 77 million tonnes at 1.24%, which is 85%, measured and indicated and expected to continue to grow. It is important to note that our resource has grown by more than 70%, since our PFS, with additional material to be incorporated into the DFS. I'd like to also note, we've just had a new discovery at Planalto, 1 kilometer from our main deposit, Salinas, which will enable Pilbara to continue to grow this resource for the state of Minas Gerais and Brazil.
On that note, we are very keen to have Pilbara input into the DFS moving forward, and we'll form an integration committee so Pilbara can contribute to its project development, mining, processing experience to further optimize the potential of Salinas and unlock the value for both Latin and Pilbara Minerals shareholders. On completion of the scheme, Pilbara Minerals will continue to progress and optimize the DFS towards completion, building on the work undertaken by the two companies between now and then. I'd also like to acknowledge the hard work carried out by our team in Brazil at Belo Lithium: Leandro, Rodrigo, Pedro, Tony Greenaway, and our new COO, Aaron Muller. We'll just move on to slide 11 now, thanks. In terms of benefits to Latin shareholders, this transaction delivers a number of benefits.
I'd like to note, especially in such an environment we're facing now in the lithium market, we're very excited that we've now got Pilbara Minerals on board. But some of the benefits that the Latin shareholders will share in, is the immediate upside to the delivery of attractive premium to recent trading prices in Latin share price. Ongoing exposure to the development of Salinas via Pilbara shares, access to Pilbara balance sheet, and more importantly, the experience unlocks value in Salinas by de-risking, funding, and development. Latin shareholders become part of an ASX 50 company with enhanced market positioning and trading liquidity. We also will get exposure to the world's largest pure-play hard rock lithium producer, Pilgangoora, with a Tier 1 asset base. This ensures Latin shareholders retain maximum exposure to any future rebound in the lithium price.
It also provides access to Pilbara's significant lithium mining and processing IP. Very important decision we made when I visited Pilgangoora and saw what the guys had built there, was quite amazing for me, personally. I'd like to also add, talking with Dale in recent times, which includes the leverage of Calix Electric Calcination Technology, to produce lithium chemical Salinas. We see this as a major asset to actually sell into the USA and Europe, as Dale previously mentioned. It's for all these reasons that the Latin board is proud to unanimously recommend Latin shareholders vote in favor of the transaction, intend to do so with their own shareholdings. Further details of these benefits are contained in the ASX announcement released today, and we'll elaborate on the first part of the scheme booklet, which we'll release to shareholders in due course.
I'll now hand over to John, I believe.
Thank you, Chris, and good morning, everyone. I'd first like to start by acknowledging the huge amount of work from the Pilbara team on the due diligence process over the last six months, and also acknowledge the large contribution from the Latin team in assisting us understand Brazil and also the project better. In terms of slide 12 and the strategic rationale for Pilbara, today's transaction has strong strategic merit for Pilbara. It represents an on-strategy, countercyclical transaction that is highly accretive to Pilbara shareholders across a range of key metrics, including NAV, mineral resources, and production. It diversifies our current operations by adding a second potential production center, provides a continued exposure to our Tier 1 asset, and does not dilute Pilbara's overall portfolio quality. There are only a finite number of high-quality development projects available globally, and we're pleased to have secured Salinas, Latin's project.
Provides near-term production optionality, underpinned by a fast-tracked permitting process in a pro-mining jurisdiction with established infrastructure already in the region. It also enables us to leverage our proven in-house technical expertise to de-risk the development and optimize the project. And Salinas' strategic location and 100%, uncommitted offtake can help unlock the North American and European battery markets and diversify our existing customer base. The transaction structure importantly ensures we're able to preserve our strong cash position and are well capitalized to fund our existing near-term organic growth and Salinas, but only when market conditions support. Now, turning to slide 13. I mentioned already that this is an on-strategy, highly accretive transaction. It's a transaction that delivers Pilbara a significant uplift in terms of production, which is expected to increase 47%, with the addition of Salinas, and that's prior to any FID on P2000.
Salinas also immediately contributes 20%, of the combined resource. If I could leave you with a takeaway on this slide today, is that we're issuing 6.4%, of our shares, and we're getting a producing asset or a future producing asset, that could add 30%, of our production. Now, moving to slide 14. As Dale said at the start, our fourth strategic pillar is diversifying beyond Pilgangoora, and this transaction delivers a pathway to do that, and revenue beyond Pilgangoora. Spreading our operational presence across a second hard rock mine in an emerging lithium region, as illustrated on the map on the right-hand side. Salinas and its location in Brazil provides us with an opportunity to service the emerging North American and European battery supply chains, while still having optionality to also service our existing customer base into Asia.
Moving to slide 15. Salinas gives us continued exposure to Tier One assets. It's one of the world's largest undeveloped hard rock lithium projects, and the main deposit is the Colina Deposit, as Chris spoke to earlier. The majority of the resource is there, but there are also a number of prospective targets, as Chris spoke to before. There's been a significant amount of drilling completed at the project to date. The resource base there has grown rapidly, as you'll see in the bottom right chart. This has resulted in a high degree of confidence in the resource, which sits predominantly within the measured and indicated categories, you can see. As part of our due diligence process, our team has completely remodeled the resource, to ensure comfort for that.
Pilbara team has been really impressed with the Latin team culture and the quality of the exploration work completed by the team on site. With this strong foundational work completed by Latin, it places Pilbara well to work with Latin to optimize the DFS, the mine planning, and define an ore reserve with time. Now, moving to slide 16. We mentioned earlier that Salinas is a top 10 development project, and this is helpful on the chart of framing that. On the right-hand side, the chart shows that in jurisdictions out of Africa, this is where this project sits favorably among other Tier 1 projects, and with Kathleen Valley now moving into production, it is expected to be the largest producer of all the advanced stage development projects that have disclosed current production estimates. Moving to slide 17.
Over the last 24 months, the Pilbara team has completed extensive opportunity screening of well over 100 projects across multiple continents. Drilling down into Brazil, we've completed a lot of work over the last six months on Brazil and Minas Gerais as a state, and rate it very highly as a mining jurisdiction. Brazil has a large and established mining industry, as shown on the page. The Salinas project is located in Minas Gerais, which hosts the third largest economy in Brazil, and is home to over 300 operating mines, with many global mining corporate companies operating in country, the logo shown on the right, and including a number of existing lithium operations, which I'll come back to. The government is pro-mining and actively seeking to develop a lithium sector, as Chris mentioned earlier.
This is demonstrated by Latin recently signing an MoU with Invest Minas, the government agency. Now, the MoU is about helping to fast-track approvals for the development of Salinas, and collaborate on building a lithium sector in the state. The approval process and support from the local government is a key advantage to the region, and with Latin adopting the same fast-track permitting process as the nearby Sigma Lithium has completed. Moving to slide 18. We thought it would be useful as we went through our screening process, to help conceptualize Minas Gerais as a region and compare it against WA, which our existing operations are located. As you can see, Minas Gerais does have hundreds of operating mines, underscoring the scale of the mining industry that has already been established there.
Further, we believe that Minas Gerais compares favorably with WA in terms of costs, permitting timelines, power, and access to skilled labor, all of which we've closely analyzed as part of our due diligence, and a key criterion we looked at when assessing the attractiveness of the region versus other regions we also look at. Moving to slide 19. With a number of operating mines in the region, Minas Gerais is well served by existing infrastructure, roads. There are existing sealed roads providing access to mine sites, the town of Salinas, and there are industrial roads through which concentrate can be trucked to the port. With power, that is one of the most important advantages we see in the region. The region is backed by hydro grid power, with Latin having access to this. This is a key benefit from both an ESG and a cost perspective.
In terms of water, Salinas has access to a sustainable water supply coming from a proximal dam. Further on water, as part of the PEA and now the DFS, dry stack tailings has been the base case, and which is really important as part of the permitting process. Moving to the port, the port of Ilhéus is around 520 kilometers away from Latin, has been identified by Latin as the port option. There are other port options, and our team has been to this port, inspect the facilities there, and are happy with what they see. Moving to slide 20. Near-term production optionality. We have high confidence in the ability to bring Salinas online quickly when market conditions support. Having observed the recent success of Sigma Lithium, which has an operation 75 kilometers from Salinas.
Now, Sigma and its project was permitted and constructed in under 2 years. It provides a good template for Salinas and Pilbara with Latin.... Latin completed the PEA in September 2023, as Chris mentioned earlier, and recently announced a major mineral resource upgrade, 60%, more than the prior resource used in the PEA. Latin has commenced work on a DFS, and Pilbara now engineering the studies team to work alongside the Latin team to optimize the DFS, including continuing that after we reach the scheme implementation completion. We will provide an update on the timing of the study as soon as practicable in due course. Moving to slide 21. As has been mentioned previously, Salinas is a hard rock operation.
The key benefit of this, it allows us to leverage our existing technical expertise in hard rock development and operation for the benefit of both sets of shareholders. In terms of mining, Salinas has been designed as a single open pit mine, which is amenable to drill and blast, similar to our existing Pilgangoora asset. Further, with a big mining presence in the region, there is a skilled local labor force and an array of mining contractors. Our team has visited a number of those contractors. In terms of processing, the spodumene is coarse-grained, so amenable to DMS processing, and we see opportunities beyond this in the future to optimize the flow sheet, including considering things like midstream processing in the future. Shipping and marketing, I've already covered, with port access key. Now moving to slide 22.
We've mentioned a number of times that Salinas' location in Brazil potentially provides Pilbara with exposure to new battery and markets in North America and Europe. The chart there shows that based on Rho Motion numbers for June, both those markets are forecast to grow materially over the coming years, which we see as a key positive. Now, we also have the flexibility to continue to supply Asia in the near term. I'll then move to slide 23, talking around financial flexibility. As we mentioned earlier, undertaking the acquisition of Latin via all share consideration preserves Pilbara Minerals' strong balance sheet and ensures Pilbara remains well capitalized to fund our expansion strategy at Pilgangoora and the future development of Salinas. Now, the company intends to fund Salinas' plant construction with project debt, together with other funding sources as required. This may include corporate debt, strategic partnerships, or offtake financing.
Latin has already been running a strategic funding process for the project, and we understand has received a significant range of interest from a range of parties on the project. Funding of near-term modest costs of Latin to deliver the DFS will be made via Pilbara's existing cash reserves. Pilbara is in a stronger position to fund the project in a more efficient way than Latin, given our size, but we will only do so in terms of go-forward development when the market conditions support. Our strong balance sheet continues to position Pilbara well relative to peers, both locally and globally. And on that note, I'll hand back to Dale for concluding comments.
Thank you very much, John. To conclude, this is a great transaction, well timed, with a suite of strong benefits for both groups of shareholders. Firstly, on strategy, counter-cyclic transaction, which provides a platform to diversify our revenue beyond Pilgangoora. It helps unlock the Salinas value by de-risking funding and development. It's expected to be strongly accretive to Pilbara shareholders over time across a range of key metrics. Delivers both sets of shareholder exposure to a second Tier 1 hard rock lithium project. Provides optionality to sequence new supply based on market demand, including into new markets such as Europe and North America, as John mentioned.
It is an all-share transaction, which enables Latin shareholders to participate in the ongoing project growth journey to Salinas, while also participating in the growth journey, journey of lithium more generally through participation in Pilbara Minerals business, while also preserving the strong balance sheet of Pilbara Minerals. So a great set of benefits flowing out of this transaction. Now, I'd like to thank John Stanning and his team, particularly for all the analysts over the last 18 months who have been asking me: "What's John doing?" There you go. I can finally answer, answer that. Well done to the team, and more broadly, the broader team, Latin's, in particular, Latin's team, who have worked together on what's been a long period of deep, deep work together. So thank you to all.
Lastly, to our shareholders, of course, we've taken this decision incredibly seriously. We've had the wonderful privilege of stewarding the Pilgangoora asset to life. That makes for a high bar as we start to consider the next incremental step. As I've labored historically, our objective of doing accretive steps only if and when it makes sense, well, this is this moment. So we are delighted to be partnering up with Latin. We think this is a fantastic transaction, which positions our business and the collective business in a fantastic footing to grow with the market and enjoy the benefits of this incredible market which is unfolding before us. So with that, thank you all for listening to our presentation, and we'll now move to Q&A. Back to you, Maggie.
... Thank you. As a reminder, to ask a question, you'll need to press star one on your telephone. Please stand by as we compile the Q&A roster. Our first question comes from the line of Kaan Peker from RBC. Please go ahead.
Thank you, Dale and team. I appreciate the questions. I just wanted to understand a little bit around the transaction. It was good to hear that there was some due diligence done on the resource modeling. But just wanted to sort of get a feel if the transaction makes sense without the tailings product, and also the flow sheet design and processing, what due diligence was done on that? Thanks.
Sure. I'll offer a comment and then John can add to it. Thank you for your question, Khan. So it's fair to say that our due diligence has been extensive, looking at all the information that the Latin team has generated. And we've deployed our best in our business as it relates to the resource understanding, the processing, and plus evaluating the infrastructure and the corporate elements. We have, as you expect, left no stone unturned. As it relates to the process itself, the economic case is compelling, as in terms of what the Latin team has pulled together. It's not dependent necessarily on selling tiles or anything of that sort.
But of course, Pilbara has also looked at this acquisition through the lens of what can Pilbara do to further add value over time? And with that, as you might expect, we have a few learnings, which we think will be great to deploy this asset, given the similarities between the two assets. So I'll then hand to John for any additional comments.
Yeah, thanks, Dale. In terms of the question on the tailings product, Pilbara Minerals has done a lot of due diligence, including having our key engineering and studies team being involved in the method and processing side. We have done some of our own test work as well. In terms of the DFS provides us the ability to optimize the flow sheet and the processing, we would probably see a slightly different product in terms of where we think that gives us stability to blend that product in. But the DFS allows us to optimize with the Latin team, the ultimate products.
And maybe just to follow up, I think one of the, the key aspects that Chris has indicated was a de-risking of funding, but also talking about consideration of timing with regards to market. And I think the studies sort of indicated first production by 2026. Can we maybe talk about those sort of conflicting aspects?
Yeah, sure. Thanks, Kaan. So, for the collective team, the focus has of course been about the merits of the transaction and getting set up such that ultimately we can navigate this asset to market. As to the specific timing, well, of course, there's some flexibility around that, and we will give that deep consideration in the coming months. And obviously once the transaction completes at the end of the calendar year, we'll have a much more definitive view of the go-forward timing. And of course, in that will be deep consideration as to the market landscape and outlook at that point in time.
Well, thanks a lot. Appreciate it.
Thank you. Our next question comes from the line of Kate McCutcheon from Citi. Please go ahead.
Hi, good morning, Dale and John. You traded at a premium to peers, in my view, in part to a simple Australian-based growth story, and there's been some not so great examples of Aus companies going to Brazil. What gives you comfort that you can execute in another country, in a different time zone, et cetera, and what does Pilbara bring through that lens?
Yeah, thanks. Thanks, Kate. And John can weigh in on this one too. Of course, when we think about the value accretion step for Pilbara shareholders, what we think through there is. We'll, as I've mentioned in the presentation, plenty more lithium is required for market, and there's gonna be, what we think, ultimately strong margins to be made from low-cost assets. So we think through this investment proposition on a first principles basis around the quality of the asset and the quality of the region. Now, to your point, the Brazil region, and as we've walked through the presentation here, is a very established mining region with established precedent of successful lithium projects. And it is a very mature region with which has had a lot of success.
As we've looked globally at the different options, we think it's a fantastic jurisdiction to be bringing another asset to life, and we've got comfort around that. And ultimately, yeah, we think this will be a great operating center as we've seen across other commodities in that region. John, we'd like to.
Yeah, make a couple of observations, and we have focused deeply on this question because we acknowledge that there haven't always been success stories with offshore acquisitions by Australian companies. I think when we look at this and the diligence we've done, it starts with a project, and we need to be comfortable with the quality of the project, and we're comfortable with the quality of the project. But importantly, we're not acquiring an operating project here. We're acquiring a project that is still in the DFS phase. So it actually allows our in-house engineering and studies team to work jointly to actually engineer and design the project the way that from all our learnings, bringing all our learnings on board. Additionally, we are securing the existing Latin team, the in-country team, and we're looking to work very closely with them.
We were really impressed with the culture and the achievements that they have made on the exploration front and some of the early development studies. So I think if we're acquiring an operating mine, completely different level of complexity. Whereas a project where we have time to optimize the DFS and to plan out the execution phase of that, it gives us more confidence.
Okay. Yeah. And you said part of the strategic rationale is to access North American and European markets. If I look at your contract book from Pilgangoora, apart from the POSCO offtake, your spots going to China and Indonesia, and then you're not really integrated apart from POSCO. So is there a view that there's a premium in that market or scope to become more integrated in North America, Europe? I'm just interested in that. Thank you.
Yeah. No, good, good question, Kate. And, yeah, you're 100%, right in that the landscape of the lithium industry today, the center of processing or the center of gravity for processing remains squarely in Asia. But of course, in the fullness of time and on a multi-decade outlook, it seems highly probable to us that these other parts of the globe will establish processing hubs in themselves, in particular Europe and North America. Now, where the Salinas project is located is more proximal to those broader markets. And, you know, it's well positioned to flow product to those markets when they emerge. However, yeah, we're not dependent on that, and routing those supply back via Asia is readily doable, and still a very compelling case.
Does that answer your question, Kate?
Yep. Yep. Thank you, Dale.
Thanks, Kate.
Thank you. Our next question comes from Al Harvey, from JP Morgan. Please go ahead.
Good morning, Dale. Just to ask the sequencing question a little bit differently. I suppose you presented your strategic pillars there earlier. One of your key strategic pillars is to get the most out of Pilgangoora, and kind of makes sense with the P2000 expansion. I guess, just trying to understand how we weigh up that against the diversification pillar that I suppose you're addressing with the Latin deal today. And I suppose, in a roundabout way, you know, how you're thinking about sequencing those two product projects relative to those strategic pillars?
Yeah, good, good question, Al, and we will, we'll provide more insight around sequencing, in the coming months as we, as we do more work and, and get through, the completion of the, of the transaction. But the broad premise and the way we've thought about this is, the world needs a lot more lithium. It's going to come from low-cost assets. Pilgangoora is going to be part of that supply, but so is Salinas. And, Salinas is, is booked into the supply models of most analysts, so it's, it's already expected to come to market. And for Pilbara, it'll be a question of timing that sensibly, and we will obviously look to bring, and will bring both to market, in time. But we will, sequence that thoughtfully based on the specifics of, of each of those assets.
And in all cases, we'll make sure it's optimized for the benefits of our shareholders.
Yep. Understood. Thanks, Dale. Just a quick follow-up. You announced the resignation of the COO last week. I know you promoted a team member to the AGM of Ops up to the exec team. Guess I'm just trying to understand, is there a need now with this, with the acquisition to, think about, a COO replacement? And if so, kind of how you're thinking about what skills you might be focusing on there to, attract into the team?
Yeah, sure. No, thanks, Al. And, yeah, obviously following the COO's resignation, and as per the announcement, Brett McFadgen's stepped up to the Executive General Manager role. So I'm delighted with what Brett's achieved at the site and very capable senior leader, which we have full confidence in, in taking carriage of the broader operating mandate at Pilgangoora. But as you say, as to this acquisition today and the need for potentially broader leadership, well, the good news there is, and as John and Chris has mentioned, we have the leadership team from Latin joining the Pilbara ranks, and so we are well supported in that regard, certainly in the near term as we think about the current needs of that project.
We feel we're in very good standing to take carriage of both assets at the same time.
Thanks, Dale.
Thank you. Just a moment for our next question, please. Next, we have Tim Huff from Canaccord. Please go ahead.
Thanks, guys, and congratulations to all involved. Perhaps one for Chris. Just looking at the transaction and the discussions you had on cash versus stock consideration. And you know, obviously there's a pretty clear reason why I think stock has been selected, but just to talk us through some of that.
Hi, Tim. Yeah, thank you. So the question is, accepting Pilbara shares rather than cash?
Yes. Yep.
Yeah, look, you know, I think the bottom line is in this, Tim, is ultimately this transaction means believing in lithium and lithium's future. And if you believe in lithium, you believe in the lithium future, electrification and the decarbonization of the world, you've got to believe in Pilbara Minerals. Pilbara Minerals, I've been to site. I've spent a lot of time with the team over the last few months. Extremely, you know, pleased, and I suppose at the end of the day, they are the best in the world at what they do. And we weighed all that up about where we're moving at the moment into DFS, into construction, and that's one of the reasons we brought Pilbara on board.
Getting to the question of accepting the all shares, all scrip transaction is that I think that what we're effectively doing is swapping out very good paper, very good undervalued paper of Latin Resources into excellent undervalued paper with Pilbara. And I think if our shareholders actually have a look at over the last year, and certainly over the last two or three months, most lithium companies have really suffered as a result of the downturn in the lithium sentiment. So I am more than happy and would prefer to accept, personally, being one of the larger shareholders, to accept Pilbara paper in lieu of cash at this time. Pilbara's got a great future. They've got an even brighter future now with Latin Resources asset in Brazil.
I just think this was the best thing we could have done, not only from an operational point of view, but also from accepting this bid from Pilbara and taking some, you know, great paper moving forward into the future.
I tend to 100% agree on your points there. Perhaps one thing, digging into the asset and noting that the PEA was done on a smaller resource base. I guess, you know, is that an area where we'll look to see to get an update on that? Or do you think it's really a recut of the entire sort of project going forward?
Well, yeah, Tim, you're right. We worked on 27 million tons for the PEA. We've now got 67 million ton Measured and Indicated. So we'll be working, as Dale mentioned earlier, and John mentioned earlier, we'll be working very closely now. We'll start integration on Monday with the team, with the Pilbara team, and we'll work through that, and work out how the DFS looks moving forward, especially with this new resource upgrade. So it's work in progress, and you'll see over the coming months what we intend on building and developing, over the, around the DFS.
Just to add a little bit of additional color there, Tim, yeah, we are very much excited about where this project could ultimately head to. I think the Latin team has done a fantastic job in such a short period from discovery and the resource growth. They've wasted no time getting runs on the board. We've flown some of our best in the business over to site and looking at their team, walking the ground, and then talking through potential opportunities. And I think what's flowed out of that is some great ideas and some learnings we're looking to transfer over time. And I think one of the nice things around over this past six months period is the getting to know each other, the two respective teams. There are a lot of common ground.
There's some deep respect, and through that process is actually part of what has attracted both groups to do what- to ultimately end up where we are today. We think it's a great asset, a great region, and looking forward to combining powers to see where we can take the asset.
Likewise. Likewise. Well done, guys. Thank you very much.
Thank you. Our next question comes from Robert Stein from Macquarie. Please go ahead.
Hi, team. Thanks for the opportunity. Just one strategic question, sort of touching on a previous question. So now we've got actual complementary capital in the Pilbara portfolio, and some analysts, not naming names, but some analysts were quite critical of the P2000, the addition of volumes into the market. This inorganic strategy obviously plays a different way to grow and effectively grows the company without that sort of market disruption. Can we expect more of the same? And does this increase complementary capital actually drive efficiency within the Pilbara portfolio in how you look to grow?
... Yeah, good day, Rob. Thanks, thanks for the question. I think the way to think about this is, this is a increase in the options available to Pilbara, and Pilbara, you know, retains control of our destiny. And so we've got, yeah, more options at our disposal, and we can control ultimately the, the, the timing and progress of these, these legs of expansion. And if anyone's looking for any comfort around this fact, they should look in the rearview mirror of Pilbara's journey, which has been one of methodical, careful expansion steps with deep thought, thinking around our capital position and preservation, whilst an outlook to the market. And further, thinking deeply about the right partners of choice and what they bring to the table.
And in that category, obviously, we'll continue to explore that. So the way to think about it is, it will be more of the same, and of course, this is all in service for this great opportunity, which is the long-term prospects for the lithium market. Now, I appreciate that this step today is actually in stark contrast with some of our peers out there who are retreating, et cetera, et cetera, and taking the choices they need to take for their business. So in Pilbara's case, we've been patient, we've been careful, and we are doing what we think is best for our shareholders, which is this counter-cyclical accretive transaction we've announced today.
Thanks, Dale. As a follow-up, just with the balance, you know, the scrip bid and the balance sheet flexibility, you know, noting the quoted capital intensity of the projects, you know, how should we think about returns going forward? Obviously, this one doesn't burn up that big, nice cash stockpile you built. Obviously, we're at the market low here, and you do have, you know, dry powder, so to speak. Can we expect you to, you know, continue to act countercyclically and tie up resource now that you're obviously a key market player, one of the biggest independent producers? What you do does matter, you know, and is important to the lithium market. Can we expect to see more of the same?
Well, good question, Rob. I, we wouldn't want to reveal too much. Other than to say we'll be consistent with our strategy. Yeah, we will, we'll in accordance with our strategy, think deeply about an organic growth. Obviously, this is a material step today and plenty of work to be done. And as our board said yesterday, we've got to the start line, which is quite appropriate. We've got the transaction work to step through and ultimately more work to be done on development. So, we have plenty on. So, I don't think we'll be doing anything too shortly, but who knows?
Thank you.
Thank you. Just a moment for our next question, please. Next, we have Ben Lyons from Jarden. Please go ahead.
That might be me. Good day, Dale. Good day, John. It's Ben. Just wondering, as you went through this process, obviously, heaps to consider getting comfort with the jurisdiction, you know, logistics, infrastructure, et cetera. But I'm really interested in how much DD was actually performed on the ore body. You know, one of the aspects that's concerned us about Salinas historically has been the publication of some of those old cross-sections and long sections, which aren't included in this slide deck today. But it appeared to us that Salinas is actually a highly complex series of pretty thin stacked pegmatites. And just noting that Tier 1 gets bandied about pretty loosely across the industry, but whether you could just fill us in on what exactly it is about this ore body that you think is Tier 1 characteristics? Thank you.
Yeah, thanks. Thanks, Ben, and I'll offer an answer, and John, feel free to add. Yeah, obviously, the resource is key, both scale, quality, and the ability to extract and process at a low cost, a low operating cost. And we've got comfortable with all of that. This is our wheelhouse, and as we deployed our talent, in working through this, we have done exactly that, including our key resource people, our key geologists, who have been with our business, frankly, forever, have been involved. Our key processing guys, who have been with the business, in most cases, more than five or six years, or all of the above, were deployed to work through this.
There are some similarities to the Pilgangoora asset. The stacked system that you mentioned is not dissimilar to some parts of our ore body, of which we have experience exactly at how to mine and process those parts of the ore body. We've considered that. We've also considered very conservative assumptions, down-rating performance that we have achieved at Pilgangoora, applying that to the system, and we've got very comfortable around that. And then further, of course, we've modeled potential upside, deploying some of the methodologies, excuse me, we've used at Pilgangoora, plus working through the potential value steps we might bring in time in the way of ore sorting, et cetera, et cetera.
So there's been quite a lot of deep work, thinking through that, and yeah, we're very happy with what we see there. And it's probably worth adding that the mineralogy is very good. That's clean. There's no concerns around that. We're not concerned around the host rock, and we believe this is very much a case of just deploying a lot of the know-how that we've built over the years and leveraging that into this new asset, which of course is a great way to create value, leveraging our IP into another asset. John, anything to add?
Yeah, Ben, on the due diligence front, there's been multiple site visits. I think I mentioned earlier that basically we've taken the raw data from ground up, built our own resource models, which is different. We use different methodology to Latin, and we actually got comfort that we got similar sort of numbers when we did that exercise, which was really important for us. We've then looked at the mining and the mining assumptions, and we believe they're conservative in terms of we, as Dale, so we've derated. We've also looked at fleets and worked with our due diligence on plans and mine planning, and we've got the ability to optimize further the DFS.
But we certainly we're conscious that, any new ore body we need to get across and do the right level of diligence, and we believe we've done that.
Yep. Okay. Thanks for your response. Thanks.
Thank you. Our next question comes from Rahul Anand from Morgan Stanley Australia. Please go ahead.
Oh, hi, team. Thanks for the call. Ben has just asked you about the nature of the ore body, which I was gonna ask you about, in terms of stark nature. But, perhaps as a follow-up to his question then, I just wanted to check, in terms of your DD, of Salinas, I mean, how would you compare it to Pilgangoora in terms of perhaps the flow sheet and the end product that you're gonna be able to produce? You've talked about the cost of production being pretty similar, but I want to zone in perhaps on impurities, process flow sheet, and any challenges that you see in addition to Pilgangoora, and then obviously the product, that you produce. So that's the first one. I'll come back with a second.
Yeah. Thanks, Anand. Sorry, Rahul. Yeah, in this space, in terms of flow sheet, we've taken a view that what Minas come up with is solid and stacks up. However, we've got some ideas around how we might be able to evolve that over time, and that does draw on those learnings from Pilgangoora. As to the product being generated, we are comfortable that we will be able to achieve a similar type of product. And we know that in terms of the network we've done studying the ore. So we're comfortable on those fronts. Yeah, there's been nothing of concern out of the DD. John?
Yeah, there are some areas that with our team that we would look to optimize, and I think Latin already been doing that as part of the DFS. So we see the benefits of ore sorting here. So we would absolutely place the learnings from our work with ore sorting. We would see the merit in ore sorting. Stage one is a DMS product, and we support that. And over time, there are abilities to look at what else could be produced from the project, including midstream, when power is $0.04-$0.05 per kWh, hydropower, green power, it provides a lot of extra optionality on the processing side over time.
Got it. Okay. Look, for my follow-up, I just wanted to come back to the strategy question and not labor the point, because you've obviously talked about how you're gonna think about capital allocation to Pilgangoora and your latest acquisition here today. But, Dale, perhaps just if you can shed a bit of light in terms of the downstream strategy and the upstream. This clearly seems like there's a clear vote here for the upstream strategy. You know, you're coming in with a fair bit of confidence, and you've made a very quick decision and gone ahead with it, whereas you've obviously been much more calculated in terms of the downstream. And I just wanted to perhaps get your views.
Is it fair to say that this is a vote towards the fact that the downstream is probably a bit too tough and upstream seems to be the way to go for you as well, and perhaps, you know, what you have in the downstream now with POSCO is where we end up in terms of the long term?
Yeah. Thanks. Thanks, Rahul. No, I wouldn't go with that sort of takeaway. Probably the first thing to say is that this wasn't a quick decision. Chris can attest to that. We've got to know each other over quite some period, and John and his team, as he mentioned earlier, looked at over 100 projects. We have been very thoughtful and deep in the work we've done. I use the word calculated. I think we've been that, and not only as we thought about downstream, but also these upstream ones. We take the position we've established in the industry incredibly seriously, as we should. We want to make sure that any step, any growth step is spot on.
In order to do that, there's a lot of, lot of hard graft and work to be done. So, what you see here is a product of that. As it relates to downstream, look, we remain. You know, our thesis around our involvement remains the same around that, granted that, there's still a lot evolving out there as it relates to relative performance of, of different businesses and different domiciles. We're obviously watching that all very closely. And of course, we've got this, sensible, measured participation, within our joint venture with POSCO. And of course, we're in the thick of that with them, observing and learning, but we remain, positive about, that aspect of the supply chain.
Yeah, so out of all that, I would not take the step today as vote in favor of upstream over downstream.
Got it. Okay, that's very clear. Thank you very much for your answers.
Thanks, Rahul.
Thank you. Our next question comes from Matthew Chalmers from Bank of America Securities. Please go ahead.
Yeah. Good morning, Dale, Chris, John. Congratulations on the deal. Just a quick question from my end. You stated that you view the deal will likely be NAV accretive day one. I think, just better understanding, what is the value that PLS is seeing in Salinas that the market perhaps isn't pricing in? And then just secondly, any views on risk of interlopers now that you've put Latin in play?
Yeah, thanks, thanks, Matt. John here. I'll take that question. We did mention the transaction was NAV accretive. We have done a bunch of analysis and scenarios, looking at the transaction, both on a NAV and other metrics. We've looked at a range of price scenarios, but I think it's fair to say, well, when we looked at this, we weren't using the same sort of pricing as P2000. So we've looked at a range of price scenarios, on our numbers. It is NAV accretive. We've baked conservatism in our forecasts, and we're comfortable with the outcome of that. Just checking that the second point of the question was around interlopers.
Yeah, that's correct.
Look, there's always the risk of interlopers in M&A. We're focused on what we can control, and I think what we add, a lot of people can't add in terms of the deep project development expertise. There are definitely some areas that we think we can add value and optimize, and that I think adds value where others might not be able to, but we'll just focus on what we can control. I'll note that a lot of others seem to have withdrawn in this market. We just see there's a finite number of resources around globally. We don't want to be in Africa, so we've now secured another top ten project, and that's what we're focused on.
Yeah. Thanks, John. Then, sorry, just one last, if I may. Just going back to Ben's point around your, the definition of Tier 1. Is there a structured classification into, or screening criteria that you use in order to determine what is a Tier 1 asset?
Yeah, good question, Matt.
Can I answer that? It's Chris, Chris here. Our definition of a Tier 1 asset is the ability to produce 100,000 tons of LCE per year for a minimum of 15 years. And that too is what we've seen as a general rule of thumb throughout the last couple of years. And I've always spoken about this because, you know, the ability to be able to do that means you have to produce around 800,000-900,000 tons of spodumene concentrate per year. And we believe our asset has the ability to be able to do that. DFS is not out yet. The PEA's out, but remember, the PEA had a 27 million ton resource. We now have a 67 million ton.
So in my view, the Tier 1, and it's a great question because everyone asks what's a Tier 1 asset. That's what we believe a Tier 1 asset is, the ability to produce 100,000 tons of LCE per year for a minimum of 15 years.
Is there a unit cost element to that risk?
Well, I suggest there would be, but we, you know, at the moment, we're working through our DFS, and we would believe that that will come out once we work through with Pilbara on the DFS. They will actually—what we're hoping to is there a lot of value into the DFS to help us improvise and produce a lot, I suppose, a lot more value within the DFS than what we'd normally have. As Dale mentioned earlier, they have a fantastic team. They're the most experienced spodumene producers in the world, and we're going to enhance that and develop that into our DFS to make sure that comes through with full value.
Probably just to round out on that, on that question as well. I appreciate that people, some people are liberal on the use of the Tier 1 asset slogan. I think for Pilbara's, from Pilbara's perspective, there's a lot of markers of this asset which are, which are great. There's the resource scale that we've seen emerge very rapidly from, you know, 45 million ton resource only in June last year. Fast-forward less than a year later, it's stepped up by more than 70%, of 30 million tons plus, with more, you know, there's more drilling to go over time. There's the scale, there's the quali- there's the mineralogy itself, stacks up, those types of elements. Plus, of course, domiciled in a fantastic mining jurisdiction.
When you start layering those things and then you look at the precedent in the area, the likes of Sigma and what they're being able to achieve, it all presents very, very favorably, particularly when you contrast that against the other regions and other projects globally. Yeah, hopefully that helps.
Thanks very much, Dale. Yep, thank you.
Thank you. Our next question comes from the line of Mitch Ryan from Jefferies. Please go ahead.
Hi, morning, Chris, Dale, and John. Thank you very much for taking my question. I'd note the 17-to-1 strip ratio on the Colina deposit. I just wondering if, as part of the additional resource subsequent to PEA, that, where, where that sits relative to the existing ore body in that first, PEA, and also what the ability, may, ore sorting may have on that strip ratio?
Yeah, obviously, the PEA, as Chris mentioned, the PEA was done on a, a much smaller resource and mining inventory. Since then, as was mentioned, it's grown 60%-70%. And I think you can assume that on the work we've done, and all the drilling completed, we'd expect the strip ratio, so the study's ongoing, but we'd expect the strip ratio to fall materially based on the analysis we've done.
Okay, so that additional resource has been sort of higher up in the pit or sitting inside the bounds of the existing pit?
That's right. Based on our work. Yeah, based on the work, the strip ratio, we've seen the strip ratio falling. We obviously haven't optimized the DFS, so we can't comment on the exact numbers. But yeah, we're comfortable. Obviously, that is one of the things we absolutely look at when we look at mining. Yeah, we feel comfortable.
Sorry, and one thing to add, Mitch, is the mining costs are very competitive in Brazil, which also helps. So it's not straightforward just to compare, say, Aussie strip ratio to there. There is a difference there in terms of mining costs.
Okay. Okay, thank you. And then any potential that ore sorting would have, would be over and above that, that increased resource?
Yeah, we haven't disclosed any outcomes other than restate the PEA outcomes that was done. But in the fullness of time, we will, of course, be more explicit around the value we think we can create through additional techniques such as ore sorting.
Okay. Thank you. Appreciate you taking my question.
Thank you. Our next question comes from Glyn Wilcox from Barrenjoey. Please go ahead.
Good morning, Dale and team. Look, I guess I just want to dig a little bit deeper, and I know you're gonna answer this in the fullness of time. But if I look at the PEA, I mean, $250 million CapEx, all-in sustaining cost, just over $500 for 400,000 tons of 5.5% grade concentrate. But, you-- the, the PEA had a $3.6 billion NPV at $1,700. If I actually put in spot pricing today, that would drop below $500 million NPV for that project, based on the sensitivity that was in the PEA, which is, and you're paying more than that. Given what Chris was saying, like, where is... With the resource now where it is, what is this now?
Is, do you think it will be a 1 million tonne business to make it Tier 1? Is that what I'm hearing to, to sort of give us comfort that, you know, you're, you're not paying overs for the project? Just trying to think, where is the flex? Is it, is it the throughput that goes up now with the resource? Is it just life extension, or is it a combination? You know, like, any early reads you're getting 12 months on since the PEA.
Yeah. Thanks, thanks, Glyn. And, as you, as you know, we're a bit restricted here, given that, more is to be worked through and, and ultimately disclosed, in the fullness of time. But the short answer is, on all the dimensions, you'd want to see improvement. But they are there. Obviously, first and foremost, the resource, huge leap up in the year, in the year just being, that unlocks all sorts of possibility. And then you layer on, the other value add techniques, which we've touched on the call today. Whether it's some of our mining techniques or sorting techniques, or in the plant itself, all of that sums through to further upside.
So, yeah, we're very happy with where this heads and ultimately, yeah, the transaction that we've agreed today.
Sorry, would you still envisage a sort of an SC3 product at all, or is it now with the resource getting bigger, you can just focus on a one-product strategy?
Yeah, the work we've done, Glyn, we're probably less inclined towards the three-step product. It's an option, but it's more, I think it allows us to blend in that product. And there's some other, with some of our processing work, we'd look to do as part of the DFS. With the fraction in other areas, I think that would probably change, in our view, but we still need to do the work.
All right. Thanks very much.
Thank you for all the questions. This concludes our Q&A session. I will now hand the conference back to Dale Henderson for closing remarks.
Yeah, thanks, Maggie, and thank you everyone for dialing in today. Today is a historic moment for both the Latin Resources business and Pilbara Minerals business. We're delighted to be partnering up with this transaction. We're excited about this accretive extension to the Pilbara Minerals portfolio, and we remain excited about the long-term prospects of this industry. This asset is gonna be a key part of our growth journey moving forward. Thank you all for dialing in, and we look forward to updating in the future.
Thank you. This concludes today's conference call. Thank you all for participating. You may now disconnect.