Advantage Lithium Jumps on Orocobre Acquisition News

Shares of Advantage Lithium (TSXV:AAL,OTCQX:AVLIF) jumped more than 15 percent following news that lithium producer Orocobre (ASX:ORE,TSX:ORL) will acquire the junior explorer. 

Orocobre, which is producing lithium carbonate at its Olaroz facility in Argentina, currently owns 34.7 percent of Advantage Lithium and has agreed to buy all the remaining issued and outstanding shares.

“For Advantage shareholders, they can now be part of something bigger without the challenges junior companies face when moving from exploration to development and onto production,” Orocobre Managing Director and CEO Martín Pérez de Solay said.

“For Orocobre shareholders, we will consolidate our position in the Olaroz/Cauchari basin which will give us significant flexibility as we deliver additional growth to our existing business.”

Under the terms of the deal, Advantage Lithium shareholders will receive 0.142 shares of Orocobre per Advantage Lithium share that they own. That translates to a value of C$0.42 per Advantage Lithium share ― a 24 percent premium to the company’s closing price on Friday (February 14) and based on Orocobre’s closing price on the ASX on Tuesday (February 18).

The Vancouver-based explorer owns 75 percent of the Cauchari lithium project in Jujuy, Argentina, and has 100 percent interests in the Antofalla, Incahuasi and Guayatayoc exploration properties.

The resource at Cauchari, which lies between Orocobre’s producing Olaroz lithium facility and the Cauchari-Olaroz project, owned by Lithium Americas (TSX:LAC,NYSE:LAC) and Ganfeng Lithium (SZSE:00246,HKEX:1772), currently stands at 4.8 million metric tons measured and indicated and 1.5 million metric tons inferred.

Last October, the company released a prefeasibility study for Cauchari that points to a production capacity of 25,000 metric tons of lithium carbonate per year at an initial capital cost of US$446 million, with average operating costs estimated at US$3,560 per metric ton.

The report also shows an after-tax net present value at an 8 percent discount of US$671 million and an after-tax internal rate of return of 20.9 percent.

With the acquisition, Orocobre is hoping to further consolidate its position as a low-cost producer within the South American region. Earlier this year, the company reported it was reducing operating costs at its Olaroz facility after experiencing challenging market conditions.

The dual-listed company expects weakness in the lithium market to remain in the short term, but with potential improvement in the second half. Orocobre will release its half-year financial results on Friday (February 21).

On Tuesday, shares of Advantage Lithium closed up 13.43 percent at C$0.38. Meanwhile, Orocobre closed down 1.5 percent on the ASX at AU$3.29.

Image courtesy of Orocobre. 

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Securities Disclosure: I, Priscila Barrera, currently hold no direct investment interest in any company mentioned in this article.