Lithium miners surge as Allkem-Livent tie up fuels M&A hopes (updated)

Toyota Tsusho

11/05/2023 06:17

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      Top shareholder Toyota positive on Livent deal - Allkem
    

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      More takeovers expected in the lithium mining sector
    

  
 (Recasts, adds detail on share price rises, sector
consolidation)
    By Melanie Burton
       MELBOURNE, May 11 (Reuters) - Shares in
Australian-listed lithium miners jumped on Thursday after a
$10.6 billion merger in the sector raised expectations for more
consolidation among producers of the key metal in electric
vehicle batteries.
        The tie up between Allkem Ltd  AKE.AX  and Livent
 LTHM.N  announced on Wednesday will create the world's
third-biggest producer of lithium for which demand is expected
to soar more than five-fold by 2030 amid the energy transition.
 urn:newsml:reuters.com:*:nL4N37729F
        Consolidating disparate lithium producers may lead to
smoother supply chains for carmakers such as Tesla Inc.
 TSLA.O , General Motors  GM.N  and BMW  BMWG.DE  that are
increasingly hungry to secure supplies.
        Allkem shares rallied as much as 18.6%, while Livent
gained 5.2% in New York overnight, leading a strong sector
advance that saw Australia’s biggest independent lithium
producer Pilbara Minerals  PLS.AX  rise as much as 8%. 
    Developer Lake Resources  LKE.AX , which specialises in the
same type of lithium extraction technology in Argentina as
Livent, rallied 13%. Others including Liontown  LTR.AX , Core
Lithium  CXO.AX  and Sayona Mining  SYA.AX  were up between
2%-5% after rallying earlier.
    Miners flush with cash after last year's surge in commodity
prices have been driving deals in Australia's resources sector.
Lithium producers in particular have been printing money over
the past two years as prices rose six-fold before falling
sharply earlier in 2023.
    "We saw the lithium price remain not far from record highs
for some time which means producers are reasonably cashed up,"
said David Lennox of private wealth manager Fat Prophets, which
holds Allkem shares. 
        "There will probably be a few more takeovers in the
sector. Given the demand expectations, everyone wants to get on
board." 
  
        
  
        BROADER OFFERINGS
  
        Large cash reserves mean miners are well capitalised for
heavy spending on expansion projects such as chemical conversion
facilities with leftovers for dividends or takeovers, said RBC
analyst Kaan Peker in Sydney. 
  
    "M&A is set to continue" in the sector, Peker said, adding
that miners that expand in size and scale could provide broader
offerings to their customers and secure market share as well as
rein in costs. 
    Allkem CEO Martin Pérez de Solay cited the broader range of
lithium products it would be able to offer key customers such as
Toyota, which also holds 6.16% of Allkem shares through its
trading unit, as a key rationale for merging with Livent. 
    He said in an interview that Toyota is "quite positive" on
the deal.
        "We are all looking forward jointly with them on a
larger and deeper business relationship with the Toyota group,"
he said.  
  
    Historically, original equipment makers (OEMS) like
automakers have shied from taking upstream risk in miners
because it's not their core competency, but they can't be
counted out as buyers in this round of M&A, RBC's Peker said. 
    "The tightness in the feedstock market is definitely a
concern for them. If one breaks rank it's possible that OEMS do
acquire upstream assets, something a bit more meaningful than
small company stakes, with significant offtake where they can
control their destiny," he said. 
    Volkswagen  VOWG_p.DE  said in March it plans to invest in
mines to bring down the cost of battery cells, meet half of its
own demand and sell to third-party customers.
    Takeover approaches in Australia's lithium sector this year
include Albemarle's $3.7 billion bid for lithium developer
Liontown and Tianqi-Igo's approach for lithium explorer
Essential Metals Ltd  ESS.AX . 
    

 (Reporting by Melanie Burton and Yuka Obayashi; Editing by
Christian Schmollinger)
 ((melanie.burton@thomsonreuters.com Twitter: @MelanieMetals;
+613 9286 1421; Reuters Messaging:
melanie.burton.thomsonreuters.com@reuters.net))