The Lithium Sector Surge Is Poised to Ignite a Deals Bonanza

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(Bloomberg) -- The tripling in lithium prices over three years is poised to fuel a multi-billion dollar rush of deals as major players jostle for dominance to supply the metal needed for the electric vehicle battery revolution.

China’s expected to lead a mergers and acquisition bonanza as companies seek to wrest more control of the market from Western rivals. The Asian nation accounted for more than half of global electric vehicle sales last year, which exceeded 1 million for the first time. And that’s just a taster of what’s to come as the government targets 7 million vehicles by 2025.

“You’ll see elevated activity this year driven mainly by the Chinese,” Chris Berry, a New York-based analyst on energy metals, and founder of House Mountain Partners LLC, said in an email. “The consolidation necessary in the space will start to happen now.”

China’s biggest supplier, Ganfeng Lithium Co., aims to deploy proceeds from a planned Hong Kong listing to extend an acquisition spree. It could raise about $1 billion, according to a person with knowledge of the details, who asked not to be identified because the information is private. The number of shares and proceeds haven’t been finalized pending approvals from the regulators, a company official said Tuesday.

Suitors including Tianqi Lithium Corp. are weighing offers for Nutrien Ltd.’s $4 billion stake in South America’s lithium giant Soc. Quimica & Minera de Chile SA. Tianqi has been considering a a Hong Kong share sale that could raise as much as $500 million, people with knowledge of the matter said earlier this month. Shaanxi J&R Optimum Energy Co. has held talks on a potential takeover of a new Australian miner.

Albemarle Corp., the world’s top producer, said this month it also has the firepower for potential purchases. Philadelphia-based FMC Corp. is planning to spin off its lithium business, a top five producer of the metal, in the third quarter of this year in a deal the company has said could value the unit at $3 billion.

Already, China’s Ganfeng and Tianqi have grown rapidly in recent years to challenge the trio of producers that have long dominated the market -- Albemarle, SQM and FMC. “There will be one or two new players in the oligopoly,” said Tom Hodgson, chief executive officer of Vancouver-based Lithium Americas Corp.

The chase for deals is raising competition concerns. Earlier this month, Chile’s government agency Corfo filed a request with the National Economic Prosecutor asking antitrust authorities to block the sale of the SQM stake to any Chinese state-owned company.

End-users are also entering the fray. Toyota Group’s trading unit in January took a 15 percent stake in Orocobre Ltd., which produces lithium in Argentina, while Australia’s Pilbara Minerals Ltd. has won investments from South Korea’s Posco and China’s Great Wall Motor Co.

Read More: Race for Lithium Sees Quarter Billion Investment From Toyota

Galaxy Resources Ltd. has said it’s seeking to add partners as it advances the Sal de Vida project in Argentina and has held informal talks with auto makers and battery suppliers including Panasonic Corp. Representatives from Galaxy, Tianqi, Pilbara and about seven other lithium producers and developers, including Rio Tinto Group, are scheduled to address a two-day conference in Perth starting Wednesday.

Some smaller companies are seeking to sell assets amid a crowding field of planned mines and on concerns that prices are peaking, House Mountain’s Berry said. Morgan Stanley last month sent shock waves through lithium producers when it forecast that prices would almost halve by 2021, while Wood Mackenzie Ltd. also expects prices to fall sharply.

A price collapse remains unlikely as new projects will face challenges in delivering planned output, according to Bloomberg New Energy Finance. Forecasters are continuing to underestimate the extent of demand in both China and South Korea, Pilbara CEO Ken Brinsden said in an interview Wednesday. Prices of battery grade raw materials will continue to be supported by the buoyant demand, he said.

Operators of new projects that are successfully entering production remain wary of predators. Altura Mining Ltd. said this month it’s been approached over a potential change of control, while Tawana Resources NL, which has begun output at its Bald Hill mine in Western Australia, said last month it sees an increasing risk it will become a target.

The prospect of consolidation shows the lithium sector is maturing after its most recent price boom, according to Simon Moores, London-based managing director of consultant Benchmark Mineral Intelligence. “The industry is growing up," he said. “Now is the time for majors to be making decisions.”

(A previous verison of this story corrected the date of an interview in the 12th paragraph.)

©2018 Bloomberg L.P.

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