Learn To Invest
Stocks Special Reports LICs Credit Funds ETFs Tools SMSFs
Video Archive Article Archive
News Stocks Special Reports Funds ETFs Features SMSFs Learn
About

News

Merger to create world’s fifth-biggest Lithium producer

Lewis Jackson  |  20 Apr 2021Text size  Decrease  Increase  |  
Email to Friend

One of the largest holdings of popular Australian ETF ACDC is merging with fellow Australian lithium miner Orocobre in a $1.78 billion deal that will create the world’s fifth-largest lithium company by market capitalisation.

In a deal announced on Monday, Orocobre (ASX: ORE) will acquire 100 per cent of Galaxy’s (ASX: GXY)shares. The new $4 billion market cap firm will be Australia’s most valuable lithium miner and is expected to be included in the ASX 200.

Orocobre chairman Robert Hubbard said size would be an advantage for the new company.

“The logic of this merger is compelling. Both Orocobre and Galaxy shareholders, will benefit from the diversification, growth and scale of a top 5 global lithium chemicals company,” he said in an ASX release.

Galaxy Resources makes up 6.35 per cent of Australia’s best performing ETF of 2020 ACDC, as of April 19. ACDC offers investors exposure to energy storage and the supply chain for the production of batteries.

The combined firm will have lithium brine, hard rock, and chemical assets in Argentina, Australia, Canada, and Japan.

The merger comes amidst soaring demand for lithium, batteries, and electric vehicles. Prices of lithium carbonate, central to the lithium-ion batteries used in electric cars, have soared. Chinese spot prices rose 90 per cent between December 2020 and end of March this year.

Investing Compass
Listen to Morningstar Australia's Investing Compass podcast
Take a deep dive into investing concepts, with practical explanations to help you invest confidently.
Investing Compass

Orocobre closed Monday at $6.55, up 5.65 per cent from its Friday close. Galaxy Resources closed $3.83, up 6.09 per cent from its Friday close. Neither stock is covered by Morningstar.

Galaxy Resources and Orocobre, 1-Yr

Share prices orocobre and galaxy resources

Galaxy Resources – Red / Orocobre – Blue.

Source Morningstar Premium

Orocobre chief executive Martín Pérez de Solay will head the new firm. Galaxy chairman Martin Rowley will head the board. Its head office will be in Argentina, with a corporate headquarters on the Australian East Coast.

The firm will have US$487 million in cash on its balance sheet to deliver its project pipeline.

While Galaxy may benefit from Orocobre’s experience bringing its lithium brine project “Sal de Vida” online, Morningstar analyst Seth Goldstein says the companies have separate competencies in the lithium space.

“While this forms a large lithium company that should benefit from growing EV adoption and higher lithium/spodumene prices, I question management’s synergy estimates as the separate competencies should require the existing overhead costs to remain in place,” he says.

“However, the merger to form a larger lithium player isn’t surprising and we could see additional consolidation among smaller players.”

The merged company joins the top league table of lithium producers after Chinese firm Ganfeng Lithium Co (002460), US listed Albemarle (ALB), Chilean giant Sociedad Quimica y Minera de Chile (SQM), and Tianqi Lithium Corp (002466).

Narrow moat Albemarle closed Monday at $157.50, above Morningstar's fair value estimate of $140. Narrow Moat SQM closed at $55.66, just above Morningstar's fair value estimate of $55.00.

The new Galaxy Resources – Orocobre entity would add to ACDC’s stable of lithium producers which includes Mineral Resources Ltd (ASX: MIN) and Livent Corp (LTHM), but none of the other majors.

is a reporter and data journalist with Morningstar. Tweet him @lewjackk or get in touch via email

© 2021 Morningstar, Inc. All rights reserved. Neither Morningstar, its affiliates, nor the content providers guarantee the data or content contained herein to be accurate, complete or timely nor will they have any liability for its use or distribution. This information is to be used for personal, non-commercial purposes only. No reproduction is permitted without the prior written consent of Morningstar. Any general advice or 'regulated financial advice' under New Zealand law has been prepared by Morningstar Australasia Pty Ltd (ABN: 95 090 665 544, AFSL: 240892), or its Authorised Representatives, and/or Morningstar Research Ltd, subsidiaries of Morningstar, Inc, without reference to your objectives, financial situation or needs. For more information, refer to our Financial Services Guide (AU) and Financial Advice Provider Disclosure Statement (NZ). Our publications, ratings and products should be viewed as an additional investment resource, not as your sole source of information. Morningstar’s full research reports are the source of any Morningstar Ratings and are available from Morningstar or your adviser. Past performance does not necessarily indicate a financial product's future performance. To obtain advice tailored to your situation, contact a licensed financial adviser. Some material is copyright and published under licence from ASX Operations Pty Ltd ACN 004 523 782. The article is current as at date of publication.

Email To Friend