Australia's Orocobre buys Galaxy to make world's fifth-largest lithium company

Australia's Orocobre and Galaxy Resources announced a A$4 billion (US$3.1 billion) tie-up on Monday (Apr 19) to create the world's fifth-largest lithium miner, as demand soars for the key raw material in electric vehicle batteries.

Orocobre will aquire peer Galaxy under a scheme of arrangement for A$1.78 billion in shares, also creating Australia's largest lithium pure play.

"It's overwhelmingly positive. On a high level, you have got significant synergies with both businesses having an Argentina base," said analyst Reg Spencer of broker Canaccord Genuity.

Both companies were at more than three-year highs in early trade, with Orocobre gaining about 6 per cent to A$6.56 and Galaxy rising 4 per cent to A$3.75.

Both companies have significant expansion plans, putting the merged company on track to produce more than 130,000 tonnes of lithium carbonate equivalent (LCE), 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 transaction will allow the group to materially accelerate the development of our combined growth projects," Galaxy CEO Simon Hay said.

Australian-listed lithium miners have been outlining expansion plans as global stimulus measures to combat the effects of the coronavirus pandemic appear to be bearing fruit. China, the world's biggest producer of battery chemicals, reported a sharp jump in economic growth in the first quarter.

Under the deal, Galaxy shareholders will receive 0.569 Orocobre shares for each Galaxy share. Orocobre shareholders would ultimately own 54.2 per cent of the combined entity, with Galaxy shareholder holding the remaining 45.8 per cent.

The deal has the unanimous support of the Galaxy board, subject to an independent report and no superior proposal emerging.