Tomorrow Investor

Aussie Lithium Stocks Up Following $10.6 Billion Merger


A recent merger between lithium mining firms Allkem Ltd and Livent proved to be a boon to lithium miners listed on the Australian Stock Exchange as it boosted hopes for greater consolidation among firms specializing in the mineral most sought after by the global electric vehicle (EV) battery manufacturing sector.

Indeed, the $10.6 billion merger which was finalized on Wednesday, May 10th, will essentially create an entity that will be the world’s third-largest lithium producer. This is a timely development as demand for battery-grade lithium is expected to boom to five times the current rate by 2030, mostly driven by the push towards greener, more sustainable energy sources.

During trading hours following the announcement of the merger, Allkem’s share price went up by around 18.6%. Livent’s, on the other hand, gained 5.2% overnight in New York.

Domino Effect

Other Australian mining firms also gained following the merger, as the country’s largest lithium production company Pilbara Minerals saw its own share value go up by 8%.

Lake Resources, a mining development firm that uses the same methods for lithium extraction as Livent in its mines in Argentine, noted an increase of 13%. 

Meanwhile, firms Core Lithium, Liontown, and Sayona Mining saw their share prices rise by around 2% to 5% after rallying earlier in the trading day.

What’s Driving the Surge

Experts say that greater cash inflows following the surge in commodity prices last year are the prime driver of deals within the Australian resources sector, with lithium producers leading the pack for two years running as the price of the mineral shot up six-fold. The price of lithium, however, dropped sharply earlier this year.

But such a large amount of ready cash within the industry means mining firms have more than enough capital to spend on expansion, particularly big-ticken ventures like chemical conversion plants. This also leaves a lot left for dividends or even takeovers.

According to David Lennox whose private wealth management firm Fat Prophets holds a number of Allkem shares, the industry has seen the price of lithium stay within the range of record highs for some time now. This means that producers remain well-funded and, as demand for battery-grade lithium remains high and everyone wants in on the action, it is highly possible that a number of mergers or takeovers are already in the offing.

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