- The merger of Galaxy Resources and Orocobre, effective 25 August 2021, indicates the potential for a Top 5 global lithium chemicals company.
- The merger is expected to offer opportunities for growth and enhance the merged entity’s positioning in Argentina.
- ORE has made notable operational progress and attained a total production of 12,611 tonnes of lithium carbonate during FY21.
Two ASX-listed global lithium producing giants, Galaxy Resources Limited (ASX:GXY) and Orocobre Limited (ASX:ORE), have successfully implemented the scheme of arrangement concerning the merger of the two entities.
As per the agreed terms, all the shares in GXY have been transferred to ORE, and the Scheme consideration of 0.569 new fully paid ordinary shares in ORE has been issued to qualifying shareholders for every GXY Share held by them on 18 August 2021 at 5PM (Perth time).
Merger indicates opportunities
Other key developments in tandem with the merger include the retirement of Mr Anthony Tse and Mr Peter Bacchus from the Board of GXY, effective 25 August 2021.
ORE believes that the merger has resulted in the creation of a business that has the capability to achieve a place among the Top 5 global lithium chemicals companies. This is based on the synergetic portfolio of assets providing geographical as well as product diversification across brine, hard rock and vertical integration throughout the supply chain.
Anticipated deliverables from the merger (Source: ORE Announcement 25/08/2021)
Moreover, the merger enhances the financial position to boost and potentially expedite the advancement of upcoming projects with the capability to secure additional downstream value. This forms the basis for the merged entity to have an industry-leading growth profile.
The merger enhances the positioning of the combined entity in Argentina while offering the opportunity to develop a strong platform in the country and across borders, including Australia, North America and Japan.
ORE’s FY21 performance
Notwithstanding the dislocations due to the COVID-19 pandemic and weaker market situations during the first half of FY21, ORE has been consistent in delivering positive operating margins. These are driven by solid sales performance and an emphasis on managing costs and operating excellence.
ORE’s FY21 full-year Net Loss After Tax stood at US$89.5 million, primarily driven by US$74.9 million worth of Argentine tax rate amendments and the impact of inflation and devaluation on deferred tax balances and tax losses.
However, there has been a notable improvement in lithium prices, indicating robust market and customer demand.
During the year, ORE’s total production of lithium carbonate clocked at 12,611 tonnes, indicating a growth of 6% on the pcp, regardless of COVID-19 adversities. Moreover, the production of battery-grade lithium carbonate accounted for 66% of the overall production for the June quarter and 48% for the full year, compared to 24% in FY20.
Source: © Zuki70 | Megapixl.com
The Olaroz Lithium Facility has delivered favourable operational enhancements, including the following:
- 12% year-on-year decline in the full-year costs of US$3,860/t, while Olaroz is still among the lowest-cost producers of lithium chemicals globally.
- Gross operating cash margins were at 23%, equal to US$1,123/tonne, in spite of softer prices.
- Very high customer satisfaction ratings stemming from major quality enhancements.
Besides this, ORE has completed major work concerning the Naraha Lithium Hydroxide Plant and is close to conclude 60% of work regarding the Stage 2 Expansion of the Olaroz Lithium Facility.
ORE expects to conclude Olaroz Stage 2 in FY22 and is anticipated to generate a significant decline in cash costs, and step up in volumes.
ORE’s cash balance on a 100% Group basis stood at US$258.3 million as of 30 June 2021.
Lithium prices have been soaring due to robust demand for lithium in China, and underlying fundamentals are expected to facilitate robust demand into the future. Moreover, a surge in global EV adoption is further pushing the demand for high-purity lithium.
In the upcoming time, the way two entities synergise to deliver new supply in meeting the forecasted demand shall be worth watching.
The ORE stock closed at AU$9.220, up by 0.435% on 25 August 2021.