Two of Australia's leading lithium companies are joining forces to capitalise on the pending electric vehicle (EV) boom, after Orocobre (ASX: ORE) and Galaxy Resources (ASX: GXY) announced a planned merger of equals today.
With an expected combined market capitalisation of $4 billion, the merger would make Orocobre the world's fifth-largest lithium chemicals company.
Under the proposed scheme Orocobre would acquire 100 per cent of shares in Galaxy by giving up 45.8 per cent of shares in the enlarged group, to be given a new name in due course.
The move comes amidst a rebound in lithium prices since late 2020 after the market was stagnant for several years under the weight of global oversupply.
However, economic recovery as well as an international push for battery-based energy and transport solutions - buoyed by carmakers, European subsidies and the Biden Administration's ambitious goals in the US for charging stations and the EV transition - have led the price to more than double since December.
Perth-based Galaxy and Brisbane-based Orocobre's projects are quite different, with the former's Mt Cattlin operation in Western Australia producing lithium concentrate from "hard rock" spodumene, while Orocobre extracts lithium from brine at its Olaroz facility in the high-altitude saltpans of northwestern Argentina.
Galaxy also has a project in Stage 1 development in the South American nation - the Sal de Vida (Salt of Life) project to the south of Olaroz in the "Hombre Muerto" (Dead Man) salt flat.
Late last year the group raised $160.7 million in equity financing for the next steps of the project, as well as for bringing its James Bay project in Quebec, Canada to construction-ready status.
As part of the merger announced today, Orocobre's current CEO Martín Pérez de Solay will remain in the role with the merged entity, while Galaxy chairman and minority shareholder will be the non-executive chairman of the new group.
Orocobre's non-executive chairman Robert Hubbard would become deputy chairman of the new group, and current Galaxy CEO would become president of the international business, reporting to Pérez de Solay.
The new company's head office will be in Buenos, Argentina but its corporate headquarters will be on the Australian East Coast along with an office in Perth.
Galaxy chairman Martin Rowley says the transaction has the potential to be a significant value-creating opportunity for shareholders in both companies.
"The scheme provides shareholders of Galaxy with the opportunity to share in the significant benefits of being part of a larger diversified group and the synergies expected to be available to help enhance and progress our portfolio of world class assets," says Rowley.
"The merged entity's growth opportunities in both brine and hard rock position it uniquely to take advantage of expected rising EV demand for lithium."
Orocobre chairman Robert Hubbard describes the logic for the merger as "compelling".
"Both Orocobre and Galaxy shareholders, will benefit from the diversification, growth and scale of a top five global lithium chemicals company.
"I take this opportunity to re-iterate the group's ongoing commitment to the principles of delivering the highest level of transparency of our environmental, social and governance performance, the foundations upon which our assets have and will continue to be developed."
Meanwhile, the two companies' CEOs have emphasised themes such as highly complementary skills and knowledge, as well as an ability to consolidate to realise the full potential of their asset portfolios.
"The merger consolidates the combined group's position in Argentina and will give us significant operational, technical and financial flexibility to deliver the full value of our combined portfolio," says Pérez de Solay of Orocobre.
"The transaction will allow the group to materially accelerate the development of our combined growth projects," adds Hay of Galaxy.Never miss a news update, subscribe here. Follow us on LinkedIn, Instagram and Twitter.
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