Electric Vehicles Drive Lithium Deal Making

Orocobre Acquires Galaxy Resources

Orocobre is paying $3 billion for rival miner Galaxy Resources (GXY) as deal making in the lithium market heats up amid increased demand for electric vehicles and high-tech gadgets.

If the deal closes, the combined company will be the fifth-largest global lithium miner. Lithium is an important component in EV batteries, and there are growing concerns about lithium shortages as demand for EVs increases. This is driving the price of lithium higher and is spurring deal making. The all-stock deal gives Orocobre shareholders a 54.2% stake in the combined company while Galaxy stockholders will own the remaining 45.8%.

Lithium Prices on the Rise Amid EV Demand

The price for lithium is forecast to rise sharply in the next few years as demand for electric vehicles surges. Tesla (TSLA) is an early leader in the market, but many vehicle manufactures including Ford (F) and General Motors (GM) are pouring billions into the EV market and rolling out electric cars and trucks. Automakers are responding to consumers who want to lower their personal carbon emissions as well as government regulators looking to curb emissions.

Some analysts expect to see a shortage of lithium starting next year which could become more extreme as demand for electric vehicles rises. Lithium prices in China are already increasing in response to strong demand and supply disruptions from producers in Australia.

More M&A in the Works

Orocobre Chief Executive Martín Pérez de Solay will become the CEO of the combined company, while Galaxy Chairman Martin Rowley will become Non-Executive Chairman. The merger will give the two companies more diversification in the types of lithium they mine. The combined entity will also look for acquisitions which could expand its footprint globally. Orocobre’s lithium operation is in northern Argentina and Galaxy’s mine is in Australia. Galaxy also has projects under development in Argentina and Canada.

As demand for electric vehicles increases, there could be more M&A activity in the lithium industry soon.

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