Orocobre, Galaxy agree on lithium merger deal

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Australia’s Orocobre Ltd. [ORL-TSX; ORE-ASX] and Galaxy Resources Ltd. [GSX-ASX] said Monday April 19 they have agreed to a proposed merger of equals in a move to establish a new force in the global lithium sector. Essentially, Orocobre is buying its smaller peer for US$1.4 billion.

The companies said the merger creates the fifth largest global lithium chemicals company with a diversified production base and exciting growth platform, with the potential to unlock significant synergies and realize value for shareholders.

In keeping with that goal, the companies have entered into a “binding merger implementation deed” under which the companies will merge via a “Galaxy scheme of arrangement.”

The combined entity will have US$487 million in cash, and lithium equivalent production capacity of 40,000 tonnes annually.

Under the arrangement, Galaxy shareholders will receive 0.569 Orocobre shares for each Galaxy share held at the scheme record date. Upon implementation of the scheme, Orocobre shareholders will own 54.2% of the combined entity, with Galaxy shareholders owning the remaining 45.8%.

Orocobre shares jumped on the news, rising 8.0% or 47 cents to $6.41 on volume of 207,160. The shares previously traded in a 52-week range of $5.97 and $1.63.

Investor interest in the lithium sector is tied to the fact that the soft white metal is a key ingredient in the production lithium-ion batteries which are used in small electronic devices, including smart phones, laptops, and electric vehicles.

Orocobre’s key asset is the producing Salar de Olaroz, a large-scale, greenfield brine-based lithium project that is located in northern Argentina at an altitude of 3,900 metres above sea level. It was built in partnership with Toyota Tsusho Corp. and the investments division of Argentina’s Jujuy Provincial Government. The operation produces lithium carbonate from the Salar de Olaroz brine resource, which contains high concentrations of lithium and potash brine. Planned production is 42,500 tonnes annually.

Galaxy’s key asset is the Sal de Vida lithium project, which is also located in Argentina. The merged firm will be able to take expertise from Orocobre’s Olaroz brine plant to speed up construction of Sal de Vida, the companies said.

A new name for the merged entity will be selected in due course, representing the global reach of the new entity, which will have its head office in Buenos Aires, Argentina, a corporate headquarter on the Australian east coast and an office in Perth, Australia.

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