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Australian mining groups Orocobre and Galaxy Resources plan to merge into a $ 4 billion (US $ 3.1 billion) deal that would create one of the world’s largest producers of lithium, as increased demand for turbocharged electric vehicles metal prices.
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 boost the groups ’financial firepower and their ability to grow faster. .
Together, Brisbane-based Orocobre and Perth-based Galaxy would be the world’s fifth largest producer of lithium, an important material in electric vehicle batteries. Both companies said they had the potential to expand annual production of lithium carbonate, a processed form of the raw material used in batteries, from 40,000 to 100,000 tons in the coming years.
“The transaction will allow the group to materially accelerate the development of our combined growth projects,” Galaxy CEO Simon Hay told investors. “And that growth is perfectly timed to meet the increasing demand from our customers.”
Shares of Orocobre rose nearly 5% after the announcement of the deal, while those of Galaxy added 2.7%.
Among them, Galaxy and Orocobre are planning several major development projects, including Olaroz and Sal de Vida in Argentina and James Bay in Canada, which analysts predict will require more than $ 1 billion in capital expenditures.
The merged company will be headquartered in Argentina, where Orocobre operates the Olaroz lithium facility, and will have $ 487 million in cash on its balance sheet.
“The combined entity will have a significant increase in liquidity and improved access to capital, which we see as a factor facilitating the delivery of accelerated growth plans,” said Reg Spencer, an analyst at investment bank Canaccord Genuity .
Canaccord said it would consider improving its current production forecasts for the two companies from 130,000 tonnes of lithium carbonate by 2025 if the merger continues.
The global lithium market has retreated after two years of depressed prices, fueled by concerns of oversupply due to a wave of mining expansions.
Lithium carbonate prices have been fired about 70 percent this year with strong demand for electric vehicles, according to Macquarie. The bank predicted further price increases of 30 to 100 percent over the next four years, as well electric vehicles begin to move the roughly one billion internal combustion engines in the world.
“Our upward prospects for demand for electric vehicles see the lithium market moving [a] deficit in 2022 with material shortages from 2025, ”Macquarie said in a recent note.
Under the proposed merger, which has been approved by the boards of directors of the two companies, Galaxy shareholders would receive 0.57 Orobre shares for each Galaxy share. Orocobre’s shareholders would own 54.2% of the combined entity, along with the rest of Galaxy’s investors. 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 merged entity’s international business and will report to De Solay.
“The company will have a very, very strong balance sheet and this will allow us to increase the debt of what is needed to develop projects. . . quickly, ”de Solay said.
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