A $4 billion lithium play will be created by the merger of Orocobre (ASX: ORE) and Galaxy Resources (ASX: GXY), both companies having major projects in South America’s “Lithium Triangle” that spans northern Argentina, Chile and southern Bolivia.
Its timing is critical too: lithium demand prospects are at their most optimistic for years, the earlier fears of large surpluses have faded and the electric vehicle story — with its reliance on lithium-ion batteries — is bullish.
The combined entity will also have diversified jurisdictional positions, with projects in Canada and Australia as well as Argentina.
By way of a scheme of arrangement, Orocobre will acquire all shares in Galaxy, with Galaxy shareholders receiving 0.569 Orocobre shares for each Galaxy share held.
Galaxy shareholders will own 45.8% of the new entity.
Galaxy board recommends deal
The Galaxy board has unanimously recommended the deal subject to no superior offer being made and a recommendation from an independent expert that the merger is in the interests of Galaxy shareholders.
Galaxy adds geographical diversity to the new company with its operating Mt Cattlin hard rock mine in Western Australia and its James Bay hard rock project in Ontario, Canada, which is at the preliminary economic assessment stage.
But it is the brine potential of Argentina that is the key to this deal — where both companies have large projects.
Orocobre has the Olaroz operation while Galaxy brings its Sal de Vida project to the table.
Olaroz is operating at the rate of 42,500 tonnes of lithium per annum and has a resource of 12.7 million tonnes of lithium carbonate equivalent (LCE).
Sale de Vida is at the feasibility stage with expected production capacity of 32,000tpa and a 6.2 Mt LCE resource.
The merger will join two complementary Tier 1 assets in the Lithium Triangle.
Orocobre said the combined entity is expected to be included in the ASX 200 index and approach the threshold for addition to the ASX 100 index.
Lithium Triangle for global players
The Lithium Triangle is fast becoming a place for big players — it contains more than half the world’s known lithium resources.
New York-listed Livent Corp has been producing lithium carbonate for 20 years.
Other players include America’s Albermarle Corporation, South Korea’s giant conglomerate POSCO and Chile’s Sociedad Quimica y Minera de Chile, or SQM.
In February 2019, a Chinese consortium signed a joint venture deal with the Bolivian state lithium producer YLB. A year earlier, China’s Tianqi Lithium bought just under a quarter of SQM.
A notable ASX-listed player exploring in the Lithium Triangle is Galan Lithium (ASX: GLN), which last year reported a significant increase in its Hombre Muerto West lithium brine resource to 2.3Mt.
The company’s entire resource in the Hombre Muerto Basin now totals 3Mt LCE, making it the third largest deposit in the Argentine salt basin.
Recent test work on Galan’s brine evaporation process also bolstered its lithium chloride concentrate grade to 6% lithium or 32% LCE.