Does $10.6B Lithium Mining Merger Make Sense?
Allkem and Livent will combine to form the fifth-largest lithium producer, with plans to grow.
As electrification grows and becomes more mainstream, the number of “boutique” manufacturers of electric vehicles (EVs) will decrease as they burn through their financing or are absorbed into larger legacy automakers. Likewise, because the demand for the lithium used in lithium-ion batteries will increase dramatically, some smaller lithium producers will be bought by the industry giants or will combine to form new companies that can compete in the ever more competitive raw materials market. An example is the recently announced $10.6 billion merger of Australian company Allkem and the U.S.-based Livent Corporation.
Sal de Vida is a globally competitive project with superior brine chemistry that readily upgrades to battery-grade lithium carbonate. Image courtesy of Allkem
The all-stock combination of two large-scale mining companies will result (by capitalization) in the fifth-largest lithium manufacturer, behind Albemarle in the U.S. and Chilean Sociedad Química y Minera de Chile (SQM), and Chines companies Tianqi Lithium and Ganfeng Lithium.
Lithium Price Rollercoaster
Lithium prices have been on a rollercoaster for the past two years, surging by a factor of ten after being fairly stable for almost a decade. However, prices dropped by more than 60 percent at the beginning of this year. Since May, the price of the metal has increased by nearly 10 percent. This price instability has impacted lithium company share prices, which have dropped more than 10 percent this year despite the increasing demand as more EVs enter the market.
Lithium price assessment. Image courtesy of Benchmark
Does the Allkem-Livent Merger Make Sense?
In many ways, the Allkem and Livent linkup makes sense. In Argentina, both companies run lithium brine operations just 6 miles apart. Both companies are developing hard rock lithium mines in Quebec less than 60 miles apart. Allkem also operates a hard rock lithium mine in Australia and a chemical conversion facility in Japan.
Livent started in the 1940s and was the supplier of lithium to Sony for the birth of commercial lithium-ion batteries in 1991. Although the company has contractual arrangements to supply lithium to companies like Tesla, BMW, and General Motors, the growth of newcomer companies like Tianqi and Ganfeng has kept Livent from growing, particularly in Australia, where it has hoped to begin hard-rock lithium mining. The merger with Allkem will provide that access and allow Livent to meet contractual obligations while looking for more opportunities to supply the EV industry. The goal is for the combined company to become the third-largest lithium producer by 2027.
Combining the two companies (each with a market capitalization of around $5 billion) will result in each Allkem shareholder receiving one share in the combined company for each share of Allkem they own, while each Livent shareholder will receive 2.406 shares in the combined company. Eventually, Allkem will own 56 percent of the newly combined company, which will be headquartered in the U.S. and listed on the New York Stock Exchange.
North American Needs
Satisfying the requirements of sourcing EV battery materials in North America or by approved trading partner countries in the 2022 Inflation Reduction Act has companies scrambling to find new sources for lithium that don’t rely on China. Hard rock mining in Canada and lithium from brines and clay materials in California and Nevada are possible sources. Allkem has done pioneering work in direct lithium extraction (DLE) to filter lithium out of brine sources—a process that eliminates the two-to-three-year solar evaporation process currently used in countries like Chile and Argentina.
In the coming battles to sew up the world’s supply of lithium, neither Allkem nor Livent would have been large enough to survive and would have been absorbed by much larger companies. By combining, they can grow and compete, particularly if they successfully exploit North American lithium resources.