PERTH (miningweekly.com) – Lithium miners Orocobre and Galaxy Resources have struck a merger of equals agreement to create the fifth largest global lithium chemicals company.

Under the terms of the proposed A$4-billion merger, Galaxy shareholder would receive 0.569 Orocobre shares for each of their shares held, with Orocobre shareholders to own 54.2% of the fully diluted share capital of the combined entity, while Galaxy shareholders would own the remaining 45.8%.

The agreement has been unanimously recommended by the board of Galaxy, with the company’s directors stating their intention to vote in favour of the merger agreement.

“This transaction has the potential to be a significant value-creating opportunity for Galaxy and Orocobre shareholders. The scheme provides shareholders of Galaxy with the opportunity to share in the significant benefits of being part of a larger diversified group and the synergies expected to be available to help enhance and progress our portfolio of world class assets,” said Galaxy chairperson Martin Rowley.

“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.”

The merger is expected to create a top five global lithium chemicals company with assets across a diversified geography, lithium sources and end products, and would combine two complementary, large scale tier-one assets in the form of Orocobre’s Olaroz mine, in Argentina, and Galaxy’s Mt Cattlin mine, in Western Australia.

The combined company would also have a significant portfolio of upstream and downstream growth projects, with the growth pipeline evenly balanced between production optimisation, construction, advanced projects, brownfield expansions and early-stage projects.

“The logic of this merger is compelling. Both Orocobre and Galaxy shareholders will benefit from the diversification, growth and scale of a top five global lithium chemicals company. I take this opportunity to re-iterate the group's ongoing commitment to the principles of delivering the highest level of transparency of our environmental, social and governance performance, the foundations upon which our assets have and will continue to be developed,” said Orocobre chairperson Robert Hubbard.

The transaction is subject to a number of conditions, including Galaxy shareholder approval, and an independent expert concluding that the merger was in the best interest of Galaxy shareholders. The merger would also be subject to court approvals.

The two companies on Monday said that the implementation date for the merger was currently targeted for mid-August.

Meanwhile, Galaxy on Monday also reported that lithium production from its Mt Cattlin operation had reached 46 588 t during the quarter ended March, with 29 917 t of lithium concentrate shipped during the quarter.

At the end of the quarter, the miner was debt free with cash and financial assets worth $217-million.

The miner earlier this month also delivered a definitive feasibility study for its Sal de Vida brine project, in Argentina, which found that the Stage 1 operation is expected to require a capital investment of $153-million to develop a production capacity of 10 700 t/y of lithium carbonate, with 80% of the production at battery grade quality.

The Stage 1 operation is expected to have a pre-tax net present value of $809-million, at an 8% discount rate, and a pre-tax internal rate of return of 43%, with a pay-back period of under two years from the start of commercial production.

The study also contemplated a two-staged expansion with the design based on a replication of the Stage 1 project, to deliver a targeted production of some 32 000 t/y of battery grade lithium carbonate once all three stages are in full production.

The project’s mine life has been estimated at 44 years, based on the current brine reserve estimate of 1.3-million tonnes lithium carbonate equivalent.

The Stage 2 expansion will commence immediately after Stage 1 project milestones have been achieved, while Stage 3 development is targeted for 2026, bringing the project to full production by 2028.

Orocobre for its part on Monday also released its quarterly report for the three months to March, with the ASX- and TSX-listed company producing 3 232 t of lithium from its Olaroz facility.

Production in the March quarter was up by 18% on the previous corresponding period, but down 13% quarter-on-quarter, mainly owing to a nine-day planned maintenance programme undertaken in February and an increase in the proportion of battery grade product.

Sales volumes for the March quarter reached 3 032 t, up 18% on the previous corresponding period, but down 30% on the previous quarter, after record sales were reported in the December quarter as part of efforts to clear inventory.

Sales revenue for the March quarter was up 7% quarter on quarter, Orocobre said, to $17.7-million.

The miner continued to advance work on the Stage 2 development at its Olaroz project, which will be completed in the first half of 2022, and will start production in the second half of next year.

The Stage 2 production would ramp up over a two-year period, until full capacity of 25 000 t/y of primary grade lithium carbonate is achieved by the second half of 2024.

At the end of the March quarter, Orocobre had some $241.6-million available in cash, of which some $11.5-million and $85.5-million had been set aside as a pre-completion guarantees for the Naraha debt facility and for the expansion debt facility, respectively.