Feb 21

Orocobre Rides Electric Car Battery Plans in $1.4 Bn Deal

Stephen Bierman
Apr 21, 2021
Image: CHUTTERSNAP via Unsplash

Orocobre Limited, the Australian lithium miner, is set to merge with lithium mining company Galaxy to become a top-five producer of the mineral key to manufacturing electric car batteries.

Orocobre will provide its own shares to Galaxy holders to acquire 100% of Galaxy. Upon completion, Orocobre shareholders will own 54.2% of the combined diluted shareholding with Galaxy holders owning the remaining 45.8%.

The shares provided are worth $1.38 billion, according to Reuters. The joint statement called it a $4-billion Australian dollar ($3.13 billion) merger of equals. The new company will have hard rock, brine and chemicals assets across Australia, Argentina, Canada and Japan.

Orocobre shares hit a one-year high following the announcement, as did those of Galaxy Resources.

‘’The merged entity’s growth opportunities in both brine and hard rock position it uniquely to take advantage of expected rising electric vehicle demand for lithium,” Galaxy Chairman Martin Rowley said in a joint statement.

Governments around the world are developing carbon reduction plans to fight global warming, in which electric vehicles play a prominent role. Lithium is a key element to the manufacture of electric car batteries.

At the same time, Covid-19 hit auto manufacturing hard in 2020. The reduced production played across to battery demand. The pandemic took its toll on production as well, with Orocobre reporting work stoppages at facilities during lockdowns and limitations following re-openings.

As a result, Orocobre reported a net loss of $67.1 million last year amid lower lithium prices. Yet the company remained optimistic in its annual report, calling the long-term outlook “very positive” as electric cars are incorporated into government’s fiscal stimuli.

Germany provides up to 9,000 euros for purchasing an electric car, while France, the U.K. and other major European driving markets are offering programmes to support the manufacture and use of electric and hybrid vehicles, according to the Orocobre report.

And the lithium maker has a point. Major oil producers from Royal Dutch Shell to Total to BP have begun energy transition strategies that focus on a future of increased power generation linked to electric cars.

Those major energy companies are jumping into rapidly expanding wind and solar generation on one hand. On the other hand, they are shifting their own petroleum portfolios to emphasize natural gas production, which is used to fuel power utilities.

Finally, they are allowing declines in the production of oil, which is mainly used as gasoline and diesel in automobiles.

It adds up to a growing future market for the lithium necessary for electric car batteries. Orocobre and Galaxy have decided to seek greater scale together to ensure a piece of that market.   

Stephen Bierman

Stephen Bierman is a finance and energy reporter with over 15 years of experience, including at Bloomberg News and Energy Intelligence.

Tweets at: @StephenBierman1

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