Wednesday, August 29, 2012

Lithium M&A: Who Will Be Next? Battery demand fuels Rockwood's Talison Lithium buy

  As we have mentioned before, in this mega trend of Energy Transition driven by Peak Oil multiplied by Inflation - it is very important to cut all the noise fueled by Oil lobby and look what people with money and vision are really doing and not only what they are talking about.  China, Japan and Korea are all over the place making investments in Lithium developers for the last few years. There are only few credible companies left now for this consolidation stage and with every next deal the strategic nature of crucial supply of Lithium to fuel the Green Mobility revolution will be more and more apparent. By that time, when general public will be chasing everything with the word Lithium again - it will be the right moment to Sell. 
  Now, when lithium developers are  only trying to get their heads up from the Sell Off dust - it is time to study the story and pick up your own collection of lithium juniors. As usual, it will be very important to separate pump and dump from the real players. NRs about OTC traded "Lithium Companies" which are issued almost every day just to hit the search engines with the right key words will be the very good indications about what NOT to touch even with the very long pole. 
  What to look for? It is the same old values - Projects, Management and Partners to develop the next Lithium Targets. Capital is very scarce now for the juniors and who is backing the companies will be the most crucial at this stage.
  Just a few years ago, when we started to write about the Next Big Thing we had three major producers on our radar screen: SQM, FMC and Rockwood Holding. All of them are diversified chemical companies with majority of revenue coming from Potash and other fertilisers and speciality chemicals and some lithium. They were all quite a stretched proxy to play the Lithium game. Then Talison joined our party - as the most advanced pure lithium play with its hard rock lithium production in Australia. Juniors enjoyed the first crazy run in 2009 - 2010 with major industry players taking positions in the most promising projects.     

  We are writing here only about what we are following and do not have the intention to cover the comprehensive history of the lithium sector with all its investment opportunities. 
  Canada Lithium and Western Lithium were on our radar screens for a while - Canada Lithium has attracted interest of Japanese Mitsui, but management issues in that company at that time and Western Lithium's untested production from clay as source of Lithium moved our attention to Brines in Latin America and, particularly, Argentina. 

  We were not alone in our interest - Orocobre has secured investment from Japanese Toyota Tsusho; Talison has bought Salares Lithium to get Lithium Brine exposure;  Lithium Americas had investors from Japan - Mitsubishi and Magna from Canada; Lithium One had investment from Korean Kores and later J/V with Galaxy Resources from Australia; Pan American Lithium has attracted POSCO from Korea, Rodinia Lithium sold a stake to Chinese Shan Shan and then International Lithium was launched by TNR Gold with Ganfeng Lithium from China as Strategic investor.
  Now, after all major producers have increased Lithium prices lately, this acquisition of Talison by Rockwood Holding opens the doors to further consolidation among our junior lithium developers. From our personal collection Lithium One was taken out by Galaxy Resources this spring already.
  We are looking at the smaller players which could be subject to the M&A activity - we have a total disconnect between the asset value and the market valuation of these companies now. The risk is that they will never get enough capital to develop their project - the reward is the price multiple on those who can make it.

  Out of our favorite: International Lithium, Rodinia Lithium, Lithium One and Orocobre - Lithium One is taken out by the Galaxy already. Orocobre could become the consolidator in this junior development space and International Lithium and Rodinia Lithium could become the forgotten darlings for M&A dreams. Rodinia Lithium is more advanced with resource estimation, small stake from Shan Shan and recent creative financing of its Potash side of story. International Lithium enjoys increased stake of its strategic partner - Ganfeng Lithium, has found the highest in Argentina Potash grade on its Mariana Lithium-Potash Brine and announced financing and J/V LOI on its Ireland Lithium project. Talison buyout brings new angle on Lithium hard rock mining and can create the new opportunities for International Lithium with its projects in Ireland and Canada.

International Lithium Corp. Options Blackstairs Project Further Strengthening Ties With Chinese Lithium Producer Jiangxi Ganfeng ILC.v, TNR.v

Consolidation Potential for Lithium Juniors, LI.v, ILC.v,, RM.v

Lithium M&A: Galaxy/Lithium One merger completed


Battery demand fuels Rockwood's Talison Lithium buy

By Maneesha Tiwari and Bhaswati Mukhopadhyay
(Reuters) - Chemicals producer Rockwood Holdings Inc (ROC.N) agreed to buy Talison Lithium Ltd TLH.TO for C$724 million ($729 million) to expand in Asia and boost its output of lithium used in batteries for electric cars and cellphones.
Demand for lithium batteries has risen in recent years as they are more efficient and help cut carbon emissions. The rising popularity of smartphones, which need longer-running batteries, has also helped.
Talison supplied about 80 percent of lithium demand in China, the world's biggest autos market, the company said in January.
"The rationale for everything we do in lithium is to be ready for expected growth in electric vehicles that run on lithium batteries. There is also power tools like power drills and pharmaceuticals," Timothy McKenna, a spokesman for Rockwood, told Reuters.
Rockwood, whose peers include Kronos Worldwide Inc KRO.N, Sensient Technologies Corp SXT.N, WR Grace and Co (GRA.N) and Valhi Inc VHI.N, has said it expects battery-grade lithium products to show double-digit sales growth this year.
Lithium business accounted for 14 percent of Rockwood's June quarter sales of $905.6 million. Perth, Australia-based Talison's sale of lithium concentrate rose 8 percent to 365,545 metric tons (402,944 tons) in the fiscal year ended June 30.
Rockwood will control 55 percent of global lithium supply once the deal closes, David Davidson, an analyst at Paradigm Capital wrote in a note to clients. Talison had a 32 percent share of the global supply market, he said.
Princeton, New Jersey-based Rockwood said on Thursday it will pay C$6.50 per Talison share, a 53 percent premium to the stock's Wednesday close on the Toronto Stock Exchange.
"The premium reflects the quality of Talison, a pure-play lithium concentrate producer with a strategic asset and customer base, that either met or exceeded our own modeled expectations on essentially every metric quarter on quarter," Davidson said.
Talison shares rose 52 percent to an 18-month high of C$6.47. Rockwood fell about a percent to $47.09 in noon trade on Thursday on the New York Stock Exchange.
Rockwood plans to finance the acquisition -- its biggest deal till date -- using cash on hand and new debt financing.
Lazard advised Rockwood while Talison was advised by Macquarie Capital in Australia and Canada.
(Editing by Joyjeet Das and Sriraj Kalluvila)"

Please, do not forget, that we own stocks we are writing about and have position in these companies. We are not providing any investment advise on this blog and there is no solicitation to buy or sell any particular company
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