[SMM Analysis] Pilbara Minerals announces a $400 million investment in lithium exploration in Brazil

Pilbara Minerals, the world's largest lithium producer, is making its first investment in Brazil. On Wednesday (9.11), the Australian mining company announced a $400 million investment (R$2.2 billion) in its Belo Lithium operation to develop its lithium extraction project in Salinas, located in the Jequitinhonha Valley, Minas Gerais. The commodity is considered strategic for the energy transition.

Pilbara Minerals acquired Belo Lithium from another Australian company, Latin Resources, in August for $370 million. The deal involves a stock swap between the companies and is pending shareholder approval, with a meeting set for November. However, the board of directors has already confirmed their intention to vote in favor of the deal, barring a superior offer.

With the deal, Pilbara seeks to diversify its revenue sources beyond its Pilgangoora asset in Western Australia. By acquiring the Salinas operation, the mining company aims to increase its exposure to the North American and European battery markets, strengthening its portfolio.

Although not yet in the extraction phase, the Salinas Lithium project will increase Pilbara Minerals' current reserves by 20%. The company also projects that the venture will contribute up to 30% of its production volume once production stabilizes.

A preliminary assessment of the Salinas project indicates a potential production capacity of 405,000 tonnes of high-quality lithium oxide spodumene concentrate per year during Phase 1, with production expected to begin in 2026. In Phase 2, starting in 2029, annual output is estimated to reach 525,000 tonnes of high-quality lithium oxide spodumene concentrate and 159,000 tonnes per year of a lower-grade product.

Pilbara Minerals expects to create approximately 4,000 direct and indirect jobs during the construction phase, slated for 2025 and 2026, and over 1,000 permanent jobs during the operational phase, with a commitment to ensuring that 50% of the workforce is local.

“The acquisition of Latin Resources [Belo Lithium] is a key milestone in our diversification and global expansion strategy. The Salinas Lithium Project, with its potential to become one of the largest hard rock lithium operations in the world, will be vital in cementing our leadership position in the North American and European battery markets,” said Dale Henderson, managing director and CEO of Pilbara Minerals.

Chris Gale, executive director of Latin Resources, will join Pilbara Minerals as a consultant for 12 months to ensure a smooth integration process and operational continuity.

Pilbara Minerals plans to begin construction of Belo Lithium’s industrial unit in January. The company expects to obtain preliminary and operational licenses by December this year, with production set to begin in 2026. For now, the company holds a preliminary license for economic feasibility studies.

According to the mining company, the Salinas reserve has an extraction potential of 77.7 million tonnes of lithium oxide spodumene concentrate.

Mr. Henderson noted that Pilbara sees opportunities for lithium and critical mineral exploration in Brazil, a country he believes will become one of the world’s largest producers of critical minerals. The Jequitinhonha Valley, now dubbed the "Lithium Valley" in the mining industry, has already attracted significant investments from other major players, such as Sigma Lithium and Atlas Lithium.

Pilbara owns the world's largest lithium reserves, accounting for 8% of the total global reserves. “Part of the reason for coming to Brazil is that we see unprecedented development in the Jequitinhonha Valley region. Our focus now is to ensure the success of the operation, but if acquisition opportunities arise, we will certainly seize them,” the CEO said.

Last year, Sigma Lithium hired Bank of America as an advisor for a potential sale, but the process has not progressed, partly due to the decline in global lithium prices. In more recent interviews, Sigma's CEO and shareholder, Ana Cabral, indicated that she was not willing to sell the business at current lithium price levels and would instead focus on doubling lithium production capacity at the Grota do Cirilo industrial complex.

Commenting on competition from African lithium production, the Pilbara Minerals CEO said the company’s Australian assets already offer a very low production cost, and he expects similarly low costs in Brazil. “We’re not concerned about increased supply from Africa because we have very competitive production,” Mr. Henderson said.

Chris Gale, Pilbara Minerals’ future consultant, said that the Jequitinhonha Valley mine would likely be an open-pit operation, not underground, which reduces production costs. “Additionally, Minas Gerais has an abundant supply of renewable energy,” he added.

Regarding the drop in lithium prices, Mr. Henderson said he expects a long-term recovery as demand increases and supply stabilizes.