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ECONOMY | 10-05-2023 13:43

US$10.6-billion lithium deal to create world’s number three producer

Two lithium-producing firms active in Argentina announce merger; Allkem and Livent, which operate in Catamarca and Jujuy, launch new US$10.6-billion firm.

Australian lithium miner Allkem Ltd agreed to acquire US rival Livent Corp in an all-stock deal that will create a US$10.6-billion producer as the sector continues consolidating amid surging demand for batteries used in electric vehicles.

The two lithium producers said in a statement Wednesday that they’ll combine in a so-called merger of equals, establishing a new company that will have its primary share listing in New York. Upon completion of the transaction, expected by year end, Allkem shareholders will own about 56 percent of the merged company and Livent investors will hold the rest.

The combination will create a lithium producer with mines in Argentina and Canada with output equivalent to about seven percent of global supply in 2023. The new entity will become the world’s third-biggest lithium producer in terms of estimated capacity by 2027, the companies said in a presentation.

A slump in prices of lithium carbonate, a semi processed form of the key metal used in EV batteries, is fuelling a boom in merger activity as it is seen as an effective way to expand capacity rather than developing new projects from scratch. The drop in share valuations for some miners is making them more attractive to buyers who want to grab a slice of a market that’s a major part of the transition to cleaner energy.

The world’s top producer Albemarle Corp is pursuing Australia’s prospect Liontown Resources Ltd, while Chinese producer Tianqi Lithium Corp recently made an unsuccessful attempt to acquire Essential Metals Ltd Iron ore giant Fortescue Metals Group Ltd. said last week it’s looking for lithium assets in South America.

“Lithium producers need to get much bigger, have far more ambition than has been shown to date, and become the next generation of major ‘commodity’ houses,” Simon Moore, head of consultancy Benchmark Mineral Intelligence, said in a LinkedIn post.

Livent Chief Executive Officer Paul Graves will lead the new company, while Allkem director and former Woodside Energy Ltd head Peter Coleman will be chairman. Allkem CEO Martín Pérez de Solay will provide consulting services to help facilitate the integration.

“As a combined company, we will have the enhanced scale, product range, geographic coverage, and execution capabilities to meet our customers’ rapidly growing demand for lithium chemicals,” Graves said in the statement.

The deal is expected to bring an estimated US$125 million in annual pretax savings and one-time capital savings of US$200 million.

Allkem has operations in Australia, Argentina and Canada and was rumoured to be a potential takeover target of Rio Tinto Group. Livent has brine production in Argentina, a hard-rock based lithium project in Quebec and lithium refineries in the US and China. The company also has a supply agreement with automaker BMW AG.

 

Strengthened position

The merger will strengthen their position in Argentina and Canada “and consolidate global sales at a time when the lithium market is correcting from last year’s dramatic upturns,” said Susan Zou, an analyst at Rystad Energy. She likened the deal to the 2021 merger of Galaxy Resources Ltd and Orocobre Ltd that created Allkem.

Gordon Dyal & Co is Livent’s financial adviser, while UBS Group AG and Morgan Stanley advised Allkem.

The tie-up may have been partially driven by the US Inflation Reduction Act, which specifies a certain percentage of minerals in the EV battery have to be extracted from or processed in countries that have free-trade deals with the US. That’s prompting the industry to search for supplies from countries that could benefit from the tax credit, which would include Canada. It’s possible that Washington may do a critical minerals deal with Argentina at some point.

The Livent-Allkem combination will enable the miners to share production methods such as direct lithium extraction or DLE — a process that aims to speed up output while reducing water usage, according to Jordan Roberts, battery raw materials analyst at Fastmarkets NewGen.

Livent has been using such technology for 15 to 20 years so Allkem’s brine operations will benefit from the combination, Roberts said. Livent’s project in Quebec — Nemaska Lithium — will also gain from Allkem’s expertise in extracting lithium from hard rock, he said.

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by Yvonne Yue Li, James Fernyhough & Annie Lee, Bloomberg

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