Orocobre to acquire Advantage Lithium in all-share deal
Orocobre (TSX: ORL; ASX: ORL) owns 34.7% of Advantage Lithium's (TSXV: AAL; US-OTC: AVLIF) common shares, and the two companies are joint-venture partners on Advantage Lithium's Cauchari lithium project in northern Argentina's Jujuy province.
Orocobre owns 25% of the Cauchari project and Advantage Lithium 75%, and the lithium project is just 20 km south of Orocobre's Olaroz lithium facility, which entered production in 2015.
So it's not entirely surprising that Orocobre and Advantage Lithium have signed an agreement under which Orocobre will acquire all of the shares in Advantage Lithium it doesn't already own.
"With Advantage/Cauchari being acquired by Orocobre, the likely path to production is through the Olaroz plant at some time in the future when the lithium market can support more production," Matthew O'Keefe, a mining analyst at Cantor Fitzgerald commented in a research note to clients, adding that he does not expect a competing bid.
"With this deal Advantage Lithium shareholders are receiving quality paper from an established lithium producer at a time when lithium prices appear to have bottomed, allowing them to maintain exposure to an expected improvement in lithium prices."
Advantage Lithium's Cauchari lithium property in Argentina. Credit: Advantage Lithium
Orocobre's Olaroz - the newest brine-based global lithium carbonate supplier in more than two decades - has a mine life of more than 40 years based on measured and indicated resources of 6.4 million tonnes of lithium carbonate equivalent contained in the Salar de Olaroz brine, which contains high concentrations of lithium and potash brine.
Under the all-share deal, Advantage Lithium's shareholders will receive 0.142 common share of Orocobre for each share in Advantage Lithium they own. The offer represents a 24% premium to Advantage Lithium's closing share price on Feb. 14 and a 35% premium based on the trailing 20-day volume-weighted average price.
A prefeasibility study on Cauchari, announced in October 2019, outlines an operation producing 25,000 tonnes per year of battery-grade lithium carbonate over a 30-year mine life.
Preproduction capital is estimated at US$446 million, including a 20% contingency. Steady-state operating costs are forecast at US$3,560 per tonne battery-grade lithium carbonate.
Based on a weighted average price of US$12,166 per tonne battery-grade lithium carbonate over the life of the operation, the study estimates a US$671-million base case, after-tax net present value at an 8% discount rate, with a 20.9% internal rate of return.
In addition to its 75% ownership stake in the Cauchari project, Advantage Lithium has three lithium exploration properties in Argentina - Antofalla, Incahuahsi, and Guayatayoc.
Orocobre's Olaroz lithium facility recently achieved record half-year production of 6,679 tonnes as lithium brine feedstock concentration and the production process achieved improved stability. At the end of December, its Stage 2 expansion was 25% complete and work will continue throughout the year and into 2021. "This will deliver an additional 25,000 tonnes of capacity just as demand from European emissions regulations is expected to encourage a shift towards electric vehicles," Andrew Barber, Orocobre's chief investor relations officer, told The Northern Miner via email.
For shareholders of both companies the transaction provides a strong base from which to participate in the ongoing electrification of the transportation sector, Barber noted.
Advantage shareholders "will gain exposure to the Olaroz lithium facility that is producing both battery and industrial grades of lithium carbonate," he said. "Overhead expenses will also be minimised which means Advantage shareholders avoid dilution by future capital raises that would otherwise be needed."
As for Orocobre shareholders, they will "benefit as we will maximise the long-term productive capacity of the world class Olaroz/Cauchari basins and gain access to high quality resources located immediately adjacent to our existing leases."