Pilbara Minerals Ltd (ASX: PLS) shares were sold off again on Thursday
At one stage, the lithium miner's shares were down almost 7% to a new multi-year low of $2.66.
Investors were quick to hit the sell button after the company announced that it has entered into an agreement to acquire Latin Resources Ltd (ASX: LRS).
Pilbara Minerals is paying the equivalent of 19.95 cents per share in an all-scrip deal, which represents a 66.3% premium to its undisturbed share price.
This deal will add Latin Resources' flagship Salinas Lithium Project in Brazil to its portfolio. Management believes it has the potential to become a top 10 hard rock lithium operation by production globally (excluding Africa).
Why were Pilbara Minerals shares sold off?
It appears that investors are not keen on the company's decision to go overseas for its lithium.
However, analysts at Bell Potter see positives from the deal. In response to the news, they commented:
On current lithium market dynamics, we do not expect PLS to make a Final Investment Decision to grow its production beyond P1000. However, the acquisition provides medium term growth optionality into stronger lithium markets, to add +500ktpa spodumene concentrate production at a potentially lower capital intensity than Western Australian hard-rock lithium opportunities.
PLS are capitalising on current lithium market weakness to diversify its asset base beyond Pilgangoora and across geographical regions, further unlocking key North American and European markets and new strategic partnering opportunities. The all-scrip offer means PLS will preserve its advantageous balance sheet strength.
Should you buy the dip?
As things stand, Bell Potter isn't recommending Pilbara Minerals shares as a buy. Though, it does potentially see a lot of value in them at current levels.
According to the note, the broker has retained its hold rating with a trimmed price target of $3.15 (from $3.30). This implies potential upside of 20% for investors over the next 12 months.
Commenting on its hold rating, the broker concludes:
PLS is a large, liquid and clean exposure to global lithium fundamentals and sentiment. PLS is a low-cost producer, it operates in a tier one jurisdiction in Western Australia, and has a strong balance sheet ($1.6b cash at 30 June 2024) which can withstand weaker lithium prices and support expansion programs. We are confident that EV-led demand will see strong long-term lithium market fundamentals. Weak near-term lithium market sentiment results in us retaining our Hold recommendation.
