Orocobre and Galaxy merge into a new mining company

Australian lithium miners Galaxy Resources (ASX: GXY) and Orocobre (ASX: ORE) have agreed on a merger that would create a $ 3.1 billion (A $ 4 billion) company that is the world's fifth largest manufacturer of Lithium chemicals will be the refined form of raw material that is used to make electric vehicle (EV) batteries. The business combination, the largest deal of the year in the mining sector to date, will unlock significant synergies for the new company, the miners said. "The logic of this merger is compelling," said Orocobre chairman Robert Hubbard, who will become vice chairman of the yet to be formally named new company, in the media statement. Orocobre produces lithium carbonate at its Olaroz operation in Argentina, while Galaxy has a mine in Australia and growth projects in Canada and South America. The deal valued Galaxy at approximately A $ 3.53 per share, a 2.2% discount from Friday's closing price, and is endorsed by the boards of both companies. Orocobre will offer 0.569 of its shares for each Galaxy share and will own 54.2% of the merged company while Galaxy will hold 45.8%. Orocobre was advised on the transaction by UBS, while Galaxy's advisor was Standard Chartered.  "The combination solidifies the combined group's position in Argentina and gives us significant operational, technical and financial flexibility to leverage the full value of our combined portfolio," said Martín Pérez de Solay, current Chief Executive Officer and Managing Director of Orocobre. "From a Galaxy perspective, we were looking for a partner with extensive Argentine experience in the country, and we have that in Orocobre," said Simon Hay, Galaxy CEO, who will serve as President of International Business at the new company becomes. The only lithium chemical companies that would have a larger market cap than the merged Orocobre and Galaxy are China's Ganfeng Lithium, Albemarle, SQM and Tianqi. The next largest companies are the Australian company Pilbara Minerals, the US company Livent and the Canadian company Lithium Americas. The news of the merger comes at a time when prices for the raw material used in EV batteries are skyrocketing. It also coincides with a change of heart about the outlook for the commodity by investment bank Macquarie (ASX: MQG). The bank's analysts said last week that they expect Lithium Prices to rise by between 30% and 100% over the next four years. Updates from both Orocobre and Galaxy Resources will also follow. Orocobre said last week that lithium carbonate production from the Olaroz lithium operation in Argentina will be sold out by the end of June 2022, although more will be available in the second half as an expansion goes live. Galaxy Resources, in turn, increased resource estimates for its Sal de Vida project in Argentina and submitted a detailed plan for the production of lithium carbonate at the facility. The deal, which is expected to close in mid-August this year, will set the merger's headquarters in Buenos Aires, Argentina, while the headquarters will be on the east coast of Australia.