By Melanie Burton and Shruti Sonal
MELBOURNE (Reuters) – Australian lithium miner Orocobre Ltd buys smaller domestic colleague Galaxy Resources for $ 1.4 billion to create the world’s fifth most valuable producer of the key raw material for electric vehicle batteries.
The all-stock deal for A $ 1.78 billion ($ 1.38 billion) announced on Monday, which will also establish Australia’s most valuable lithium miner with a market cap of A $ 4 billion, as demand for the material is huge is increasing amid a jump in global electric vehicle sales.
The new entity will have hard rock, brine and chemical assets in Australia, Argentina, Canada and Japan, and will be able to accelerate development and sell in global markets.
“It’s overwhelmingly positive. At a high level, you have significant synergies with both Argentine-based companies,” said analyst Reg Spencer of broker Canaccord Genuity.
Shares of both companies hit their highs in more than three years in early trading, with Orocobre rising about 6% to A $ 6.56 and Galaxy rising 4% to A $ 3.75.
Both companies have significant expansion plans, putting the merged company on track to produce more than 130,000 tons of lithium carbonate equivalent (LCE), up from about 40,000 tons now, with operational synergies and global diversity to make it a major global player , Spencer added. .
Orocobre and Galaxy, which operate the Olaroz and Sal de Vida lithium projects in Argentina respectively, are looking to consolidate their assets in the country.
The merged company will be able to use the expertise of Orocobre’s Olaroz brine plant to accelerate the construction of Sal De Vida. Shared technical expertise will also help develop a chemical business on the James Bay bluestone project in Canada, which is well positioned to supply the North American market.
“The transaction will allow the group to significantly accelerate the development of our combined growth projects,” said Simon Hay, Galaxy CEO.
Orocobre chief executive Martín Pérez de Solay will assume the top job with the new entity, while Hay will be president of International Business, reporting to the Solay. The company’s headquarters will be on the east coast of Australia.
The merged company will have a strong balance sheet with $ 487 million in cash, better access to finance and streamlined product marketing.
By market capitalization, it ranks fifth after Ganfeng Lithium Co, Albemarle Corp, SQM and Tianqi Lithium Corp.
Lithium miners listed in Australia have drawn up expansion plans as global stimulus measures to combat the effects of the coronavirus pandemic seem to be paying off. China, the world’s largest producer of battery chemicals, reported a sharp jump in economic growth in the first quarter.
Consultancy BMI said in January that it saw the global lithium market with a 6,000 tonne deficit this year, compared to a largely balanced market in 2020.
Under the deal, Galaxy shareholders will receive 0.569 Orocobre shares for each Galaxy share. Orocobre shareholders would ultimately own 54.2% of the combined entity, while Galaxy shareholders would own the remaining 45.8%.
The deal has the unanimous support of the Galaxy board, subject to an independent report and not a superior proposal. It is due to be completed in August.
($ 1 = 1.2935 Australian dollars)
(Reporting by Melanie Burton in Melbourne and Shruti Sonal in Bengaluru; adapted by Diane Craft, Jane Wardell and Muralikumar Anantharaman)