Allkem, one of Australia’s largest lithium producers backed by the world’s biggest car group Toyota, has struck a merger deal with US rival Livent in the latest sign of consolidation in the booming sector.
The all-share merger will value the combined business at $10.6bn with Brisbane-based Allkem’s shareholders owning 56 per cent of the merged entity.
The deal, which creates a company projected to be the industry’s third-largest producer by 2027, comes as the US and Australia step up efforts to cut reliance on China’s supply of critical minerals.
The two companies combined would become the industry’s fourth largest and produce 7 per cent of the world’s lithium, according to Fastmarkets.
Lithium is a key component in batteries for electric vehicles and will be pivotal as the auto industry switches from combustion engines to EVs over the next couple of decades.
Lithium supply is one of the uncertainties for the car industry because of the predicted chronic shortages of the silvery-white material due to the expected rapid shift to battery power.
Peter Coleman, chair of Allkem, whose largest shareholder is Toyota Tsusho, the trading arm of the Japanese carmaker, told the Financial Times the combination of the companies was a “natural fit” because it accelerated their strategies to expand their resource base and processing capacity.
The merger is the clearest sign yet that the industry’s largest groups are aiming to increase scale after a period of sky-high lithium prices lined the pockets of the world’s largest producers.
Albemarle, the world’s largest producer, has in recent months approached Australian producer Liontown Resources — one of Australia’s most promising lithium start-ups — but has been rebuffed.
The combination will create a company centred on lithium resources in Argentina, Australia and Canada, as well as processing in countries including China, the US and Japan.
It will bring together Allkem’s flagship Olaroz mine in Argentina and Mt Cattlin hard-rock project in Western Australia with Livent’s lithium resource also located in the Latin American country that collectively generated $1.9bn of revenue last year. The two companies also have assets under development in Canada.
“Now is the right time to do this,” Coleman said, noting that the recent drop in the lithium price had created a “landing space” for the two businesses to match their respective values and agree a deal.
The consolidation of the lithium sector comes as prices of the battery metal have crashed by more than half from heights of $80,000 per tonne at the end of last year to below $30,000 on weak Chinese EV sector demand, according to Benchmark Mineral Intelligence.
The deal is expected to save $200mn of capital expenditure and unlock $125mn of annual cost savings.
The two companies are set to have a production capacity of 250,000 tonnes of lithium carbonate equivalent by 2027, which would make it the industry’s third-largest player behind the US’s Albemarle and Chile’s SQM, the two companies estimate.
The merger agreement comes as momentum grows for dealmaking in the mining sector after Australia’s Newmont made a $19.5bn bid for Newcrest and Glencore is vying with a Canadian consortium to take over Canada’s Teck Resources.
Rio Tinto wants to grow in lithium but has warned against the risk of overpaying for takeovers.
Reg Spencer, analyst at Canaccord Genuity, said the “timing is suggestive of a defensive move” given that Allkem was set to triple production by 2025 and had yet to have that fully priced into its shares.
Coleman said talks with Livent had started “some time ago” and that the merger was not driven by a defensive move against a larger group preparing to pounce.
The Australian government has identified lithium as one of the key elements in its critical minerals strategy, which includes an attempt to move up the value chain by establishing refining operations in the country.
The joint company will be based in North America with Livent’s chief executive Paul Graves set to take the top job, while Coleman retains his position as chair. It will list on both the New York Stock Exchange and Australia’s ASX.