Australian mining groups Orocobre and Galaxy Resources plan to merge in a AU $ 4 billion (US $ 3.1 billion) deal that would create one of the world’s largest lithium producers as demand for electric vehicles grows. will turbocharging the prices of metal.
Companies listed on the Australian Stock Exchange said on Monday that the combined business would establish a diversified production base in Australia, South America and Canada, as well as strengthen the group’s financial strength and ability to grow faster. .
Together, Brisbane-based Orocobre and Perth-headquartered Galaxy would be the world’s fifth largest producer of lithium, which is an important material in electric vehicle batteries. Both companies said they have the potential to increase annual production of lithium carbonate, a transformed form of the raw material used in batteries, from 40,000 to 100,000 tonnes over the next few years.
“The transaction will allow the group to significantly accelerate the development of our combined growth plans,” Galaxy CEO Simon Hay told investors. “And this growth is perfectly synchronized to meet the strong demand from our customers.”
Orocobre shares rose nearly 5% after the deal was announced, while Galaxy shares rose 2.7%.
Between them, Galaxy and Orocobre are planning several large development projects, including Olaroz and Sal de Vida in Argentina and James Bay in Canada, which analysts predict will need more than A $ 1 billion in investment.
The merged company would be headquartered in Argentina, where Orocobre operates the Olaroz lithium plant, and would have $ 487 million in cash on its balance sheet.
“The combined entity will benefit from significantly increased liquidity and better access to capital, which we see as a major catalyst in the implementation of accelerated growth plans,” said Reg Spencer, analyst at a Canaccord Genuity investment bank.
Canaccord said it would consider improving its current production forecast for the two companies to 130,000 tonnes of lithium carbonate in 2025 if the merger goes through.
The global lithium market has rebounded after two years of depressed prices, sparked by fears of a glut of supply due to a wave of mining expansion.
Lithium carbonate price soared about 70 percent this year on strong demand for electric vehicles, according to Macquarie. The bank expects further price increases of 30-100% over the next four years, as electric vehicles are starting to move the roughly 1 billion internal combustion engines in the world.
“Our optimistic outlook for electric vehicle demand sees the lithium market evolve [a] deficit in 2022 with material shortages emerging from 2025, ”Macquarie said in a recent memo.
As part of the proposed merger, which was approved by the boards of directors of both companies, Galaxy shareholders would receive 0.57 Orocobre shares for each Galaxy share. Orocobre shareholders would own 54.2% of the combined entity, with Galaxy investors holding the remainder. The merger is subject to shareholder approval.
Martín Pérez de Solay, CEO of Orocobre, will lead the combined group. Galaxy’s Hay will become president of the international operations of the merged entity and report to Solay.
“The company will have a very, very solid balance sheet and this will allow us to take on debt whatever is necessary to develop projects. . . quickly, said de Solay.