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 GXY.ax, LI.v, ILC.v, ORE.ax, RM.v

Lithium M&A: Galaxy/Lithium One merger completed

Reuters:

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

Top Lithium Producers Report That Demand For Lithium Is Expanding ROC, FMC, SQM, ILC.v.

  Apparently, demand for Lithium is expanding, particularly from Asia, and we have the same confirmation from China for Lithium products:

"Ganfeng Lithium, as a leading lithium downstream products producer in Asia, has recently announced in the company's 2011 annual report USD75 million in sales revenue representing a 34% increase over the previous year. Currently Ganfeng consumes a significant volume of lithium raw material but taking into account projected business growth, sourcing a future supply of lithium becomes more and more important to support Ganfeng Lithium's core business. Increasing our share in International Lithium is part of our raw materials strategy." states Wang Xiaoshen, Executive VP of Ganfeng Lithium Co., Ltd.

  We are following here Ganfeng Lithium with its strategic stake in International Lithium Corp. among other Lithium developers. Rockwood Holdings has announced the new distribution strategy of Potash by-product directly to consumer markets. International Lithium's recent announcement about "Extensive High-Grade Potash Discovery at International Lithium's Mariana Brine Project" should be put now into perspective of fertiliser market in Argentina with import of 2 million tons of Potash annually.

  We have two powerful trends driving the performance of Lithium and Potash producers from brines in South America - Electrification of Transportation and growing demand from Agricultural business in South America and Asia.

Lithium Investing News:

Top Lithium Producers Report Mixed Earnings

By Dave Brown — Exclusive to Lithium Investing News

Two top lithium producing companies filed quarterly financial reports over the last week and another filed its annual report for the year ending last December. The three companies provided lithium investors with interesting details on their respective operations, and all seemed to indicate that demand for lithium is expanding.

This overall consensus provides a good context for industry stakeholders, investors, and lithium exploration projects, as demand and higher realized prices for the underlying resource should stimulate additional investment interest.

Rockwood Lithium

Rockwood Holdings, Inc. (NYSE:ROC), the parent of Rockwood Lithium and a global producer of specialty chemicals and advanced materials, reported strong earnings per share with continuing operations of $0.94 for the first quarter compared with $0.80 for the same period last year. This quarter is the first period that the company has reported segmented revenues for the lithium business.

During a conference call, Seifi Ghasemi, CEO of Rockwood, explained the company’s strategy within the lithium business unit. Last year the company made a tactical decision to build and operate a processing facility in order to distribute finished potash by-product directly to the consumer market, opting to no longer sell it exclusively in semi-finished form to a Chilean company. Rockwood believes that this will provide expanded profit margins and that the potash will be realized as a by-product of the company’s lithium operations.

The rest of the lithium business “grew by double digits in the first quarter” if potash sales are excluded. Another key point underscored in the conference call was that Rockwood’s battery-grade lithium sales in the first quarter more than doubled compared to the same period last year.

Outlook

Offering a positive outlook for the lithium industry in general, Ghasemi said, “[l]ithium products, especially battery grade lithium, should continue to show double-digit sales growth. In addition, we expect stronger volumes in our Surface Treatment business and expect to continue to benefit from productivity gains across our businesses. We expect our new lithium hydroxide plant in North Carolina to be operational in July of this year.”

FMC Corporation

FMC Corporation (NYSE:FMC) reported first quarter net income of $119.1 million, or $1.71 per diluted share, compared with $94 million or $1.30 per diluted share for the same period last year. First quarter revenue of $940.7 million was 18 percent higher than the previous year’s revenue of $795 million.

FMC President, CEO, and Chairman Pierre Brondeau explained challenges that the company’s lithium operations have faced, stating, “Specialty Chemicals’ results met our expectations with strong commercial performance in BioPolymer offset by higher weather-related operating costs in lithium and plant downtime effects associated with capacity expansion projects as we position both businesses for continued premium growth.”

Operational impediments for FMC’s lithium expansion plans provided a headwind as segment earnings of $44.3 million declined one percent. Higher selling prices in lithium primaries were more than offset by higher weather-related operating costs in lithium and downtimes related to capacity expansions. The weather-related issues included challenges to bring some of the equipment required to the operating sites as well as very significant dilutions of the ponds, which forced the company to operate with the brine which was less concentrated, with less product from the plant at a higher operating cost.

Outlook

In terms of guidance for the rest of the year, Brondeau was cautiously optimistic about the company’s lithium results, saying, “[w]e are seeing higher processing cost and a slightly lower ramping production volume as a result of the dilution. The impacts will be largely behind us by the end of the second quarter. Therefore, sequentially, we anticipate a significant pickup in lithium sales and earnings in the second half of this year compared to the first half.”

SQM

SQM (NYSE:SQM) reported strong results for last year with revenues from lithium sales amounting to $183.4 million, representing nine percent of the company’s total revenue. Expanded sales of 22.8 percent within the lithium business were due to higher volumes resulting from a “healthy demand…mainly driven by rechargeable batteries and also by uses related to construction, such as ceramic and glass.” The report also indicated that “other producers experienced some supply constraints during part of the year, allowing SQM

Asia demand rising

Lithium products were marketed to over 300 customers in approximately 50 countries, with increased exposure to Asian markets. This included 28 percent of total global sales in Europe, ten percent to customers in North America, and 61 percent to customers in Asia. Compared to the previous year, business in Europe and North America declined slightly from 34 and 12 percent respectively, while the customer base in Asia expanded significantly from 53 percent. The customer base was diversified, with no single customer responsible for more than 14 percent of sales. The ten largest customers represent less than 51 percent of sales.

Outlook

The company offered an optimistic outlook, commenting, “[w]e believe that Lithium production will increase in the near future. A number of new projects to develop lithium deposits have been announced recently, of which some could materialize in the short to medium term.

We estimate that worldwide sales of lithium chemicals expressed as lithium carbonate equivalent…amounted to approximately 135,000 metric tons in 2011.”

Securities Disclosure: I, Dave Brown, hold no direct investment interest in any company mentioned in this article."

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 here. Always consult with your qualified financial adviser before making any investment decisions