Galaxy, Orocobre to create $4bn lithium giant
Galaxy and Orocobre will merge to create one of the world’s largest producers of lithium, a key commodity in batteries.
Orocobre chief executive Martin Perez De Solay says his company’s $4bn merger with Galaxy Resources is “uniquely timed” to take advantage of the fast-growing demand for lithium, as the pair marry producing and growth assets to create Australia’s biggest pure-play producer of the battery-making material.
The deal will result in the two companies merging into a global lithium producer, with operating assets in Western Australia, Argentina and Japan, and growth projects in Canada and South America.
Under the scheme, Galaxy shareholders will receive 0.569 Orocobre shares for each Galaxy share held, with Orocobre shareholders emerging with 54.2 per cent of the combined entity.
The merger comes as the lithium price continues to lift amid rising demand for electric vehicles as global economies get back to business.
Mr Perez De Solay told The Australian the two companies had been talking about a potential tie-up since early this year, as the lithium price lifted as demand returned — not just from Chinese buyers but increasingly in Europe and North America.
“We both saw a market that was different from before, a market that was growing with a much clearer path and very strong demand,” he said.
The deal will initially marry Orocobre’s Olaroz lithium carbonate output and Argentinian borax operations with Galaxy’s Mount Cattlin hard-rock mine in Western Australia that produces spodumene concentrate.
By early next year, Orocobre’s under-construction lithium hydroxide plant in Japan will come on line, and Galaxy also brings a suite of near-term development options, including brine projects in Argentina and a hard-rock project in Canada.
Orocobre has also been looking at expansion options for its Olaroz project.
Its two development projects come with an estimated capital cost of about $US400m ($515m, and Galaxy CEO Simon Hayes — who will become the president of the merged company’s non-Argentinian arms after the merger — said Orocobre’s experience in Argentina would help accelerate development of its Sal de Vida.
Mr Perez De Solay said he saw a strong outlook for lithium demand, and said the merged company — which will be renamed at some point if shareholders approve the deal — was well placed to bring its development projects on line as demand lifted through the rest of the decade.
“We are talking about a market that will be somewhere between 2.4 million-4 million tonnes (of lithium carbonate equivalent) by 2030. Eighteen months ago it was a 250,000-tonne market,” he said.
“This is the beauty of this transaction. It will enable us to continue to add production in a sustainable way over the next five to seven years, because the different projects will be kicking in as the demand picks up. The merger is uniquely timed for the coming market.”
Orocobre this month lifted price expectations for its lithium carbonate for the June quarter, saying it expected to receive an average $US7400 a tonne for output from its Olaroz lithium brine operations, a 25 per cent increase on the $US5853 average price in the March period.
It received only an average $US3797 a tonne for lithium carbonate in the December period.
Similarly, Galaxy flagged a substantial boost for prices for its lithium spodumene concentrate from its Mount Cattlin mine, saying it had priced new cargoes at “well in excess” of $US600 a tonne in May and June, up from lows of below $US400 a tonne last year, putting the operation back in the black on a cash basis as the company returns Mount Cattlin to full production levels.
The merger, which the two companies say will create the world’s fifth-biggest lithium company by market capitalisation, comes as the latest in a series of corporate activity in the sector as prices recover from the COVID-hit lows of last year.
In January, Pilbara Minerals closed the acquisition of the operations of collapsed neighbour Altura Mining, and IGO is edging closer to finalising its acquisition of a partial share of the Australian assets of Chinese lithium giant Tianqi – including 25 per cent of the Greenbushes mine, the world’s biggest hard-rock lithium operation, and a half-share of its WA lithium hydroxide plant.
Orocobre shares rose 5.6 per cent on Monday to $6.55, while Galaxy rose 6.1 per cent to $3.83.
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