Galaxy to Merge with Canada's Lithium One

Apr 02, 2012 21:00 JST

Source: Galaxy Resources Limited

Merger to Result in a Vertically Integrated Lithium Company of Global Significance

HONG KONG, Apr 02, 2012 - (ACN Newswire) - Galaxy Resources Ltd (ASX: GXY) (Galaxy) is pleased to announce it has entered into an agreement to effect a merger of Galaxy and Canadian lithium and potash exploration and development company Lithium One Inc. (TSX-V: LI) (Lithium One).

Highlights
-- Merger will result in a vertically integrated lithium company of global significance
-- Galaxy to acquire all Lithium One shares via a Plan of Arrangement
-- Scrip offer comprising not less than 1.8 Galaxy shares for each Lithium One share
-- Galaxy's resource base will grow significantly through Lithium One's world class Sal de Vida lithium-potash project in Argentina
-- Offer values Lithium One at approximately C$1.55 per share, or C$112 million on an undiluted basis
-- Offer price of C$1.55 represents a 27% premium to Lithium One's 30 day VWAP up to and including 15 March 2012, the date Galaxy submitted its offer
-- The merger is unanimously recommended by both the Lithium One and Galaxy Boards
-- Lithium One Directors and officers holding 13% of Lithium One (fully diluted), and Galaxy shareholders holding 16% of Galaxy shares (undiluted) have executed binding commitments to support the merger

Lithium One owns 70% of the Sal de Vida lithium and potash brine project in Argentina (Sal de Vida) and 80% of the James Bay lithium pegmatite project in Quebec (James Bay), Canada. Galaxy has an existing 20% stake of the latter project under a farm-in arrangement.

Galaxy Managing Director, Iggy Tan, said a merger with Lithium One represented an excellent opportunity for Galaxy to boost its global lithium resource base and become a major lithium company.

"Galaxy has spent the last 18 months searching the world for a high quality, undeveloped lithium brine deposit and we believe Sal de Vida fits that criterion. The Sal de Vida brine chemistry is highly favourable, with high levels of lithium and potash, and low levels of magnesium and sulphate impurities. Sal de Vida is located adjacent to FMC Lithium's El Fenix lithium operation in the Salar del Hombre Muerto, which has been in operation for the last 15 years."

"Galaxy will require more lithium resources over the next few years, and Sal de Vida along with James Bay will significantly add to our existing Australian resource inventory and gives us ample resources to continue to grow the lithium business and drive the long term value of the company. The merger is not only a good strategic fit for Galaxy, it also represents an opportunity for Lithium One shareholders to become part of a lithium producing company with hard rock and brine assets around the world."

"With Galaxy's expertise across project development and lithium mining, processing and marketing, we would be able to fast track development of Sal de Vida as we did at our Mt Cattlin lithium mine and Jiangsu lithium carbonate plant. In addition, Galaxy plans to retain Lithium One's current management team and incorporate it into Galaxy's successful business."

"The Galaxy Board of Directors unanimously support the merger and recommend that Galaxy shareholders vote in favour of it at the Annual General Meeting, which is intended to be held on 17 May 2012," Mr Tan said.

Lithium One Chairman, Martin Rowley, said this offer represented an outstanding opportunity for Lithium One shareholders to realise the value of their investment.

"The Lithium One Board and management have done an outstanding job in building a successful lithium exploration and development company within a short period of time, which is reflected in the attractive offer received from Galaxy. By combining the assets, we will be a major player in the lithium sector. We look forward to joining the Galaxy team. The merger is unanimously supported by the Lithium One Board of Directors, who recommends that Lithium One shareholders vote in favour accordingly."

Merger Metrics

Under the agreement, Galaxy will acquire 100% of the outstanding securities of Lithium One via a Plan of Arrangement whereby Lithium One shareholders will receive Galaxy shares in exchange for their Lithium One shares ("Offer").

Lithium One shareholders will receive not less than 1.8 Galaxy fully paid ordinary shares for each Lithium One common share (see note 1). This exchange ratio was set based on the 30 day volume weighted average price ("VWAP") of Galaxy shares up to and including 15 March 2012 (when the non-binding offer was submitted to Lithium One) of A$0.829 and a CAD:AUD exchange rate of 0.962, and values each Lithium One share at C$1.55, or C$112 million on an undiluted basis. This represents a premium of 27% to Lithium One's 30 day VWAP of C$1.217, and a premium of 36% to its 10 day VWAP of C$1.141, up to and including 15 March 2012. Lithium One has a current cash balance of approximately C$10 million.

Galaxy Equity Raising

As an agreed pre-cursor to the transaction, Galaxy intends to undertake an equity raising of A$50 million (before costs) to strengthen the merged entity's ("Galaxy Mergeco") balance sheet and increase its financial flexibility to progress its development plans and pursue additional growth opportunities. Galaxy will consider oversubscriptions based on demand. Funds raised will be used for working capital for the Mt Cattlin and Jiangsu projects, to accelerate development of Sal de Vida; debt servicing, capital raising fees and merger costs. The finalisation of the capital raising is not conditional on the merger with Lithium One proceeding. Both companies are committed to the success of the merger, however, in the event it does not complete, Galaxy will use the residual funds to pursue acquisition of other lithium related properties.

The equity raising is expected to be completed before the merger is completed, through an equity placement and share purchase plan. Assuming this is successful, the merged entity ("Galaxy Mergeco") will have a market capitalisation of just under A$0.5 billion making it the largest lithium pure play company in the world. Galaxy anticipates making a further announcement regarding the capital raising shortly.

RATIONALE FOR THE MERGER

Both companies believe there are a number of compelling reasons for a merger of Galaxy and Lithium One, and that the proposed transaction provides a strong value proposition to both companies' shareholders.

Both companies' shareholders will have the opportunity to become part of a vertically integrated lithium company of global significance. With enhanced scale, Galaxy Mergeco will have a portfolio of production and development assets located in four continents, comprising hard rock and brine resource projects and processing facilities, including:

- The Mt Cattlin Mine, an operating lithium mine which contains the third largest JORC-compliant (or similar) hard rock lithium Ore Reserve globally;
- The Jiangsu Lithium Carbonate Plant, which will be the largest and most modern hard rock lithium carbonate plant in the world;
- The Sal de Vida project, a large, high quality brine development project located adjacent to one of the world's largest existing lithium producers;
- The James Bay project, a longer term development project which presents a future opportunity to supply the North American market; and
- The Jiangsu Lithium Battery Project, a value adding downstream project to supply lithium-ion batteries to the rapidly growing electric bicycle and electric vehicle market.

Galaxy Mergeco will have a combined resource base of 1.2 Mt of Lithium Carbonate Equivalent ("LCE") in hard rock projects and 7.2 Mt of LCE in brine projects, with potential production capacity of 42,000 tpa of lithium carbonate once Sal de Vida is brought on line.

Galaxy and Lithium One's current shareholders will diversify their risk by holding shares in a company with multiple operations, whilst continuing to enjoy exposure to Lithium One's development projects.

In addition, Galaxy Mergeco shareholders will obtain near term exposure to rising lithium prices through Galaxy's production assets and have an investment in a company that is becoming a lithium producer.

Galaxy has a liquid and well-covered equity base. The shareholder register has major institutional and strategic investors with ongoing commitment to the Company's future.

Galaxy Mergeco will have a unique opportunity to capitalise on favourable industry dynamics through the strong position Galaxy has developed:

- Demand for lithium carbonate is growing strongly, driven by the electric vehicle industry. Existing producers and first movers, such as Galaxy, will be best positioned to take advantage of the growth;

- Galaxy believes electric vehicle manufacturers will prefer batteries and battery components made from higher quality lithium carbonate to deliver higher power output and longer battery life. Galaxy has developed a proprietary process to produce lithium carbonate with grades of 99.9% and above through re-crystallization;

- Lithium One's projects will be de-risked by access to Galaxy's strong corporate, resource and chemical teams, which have significant development and operating experience. Galaxy achieved spodumene concentrate production at the Mt Cattlin Mine within 11 months from groundbreaking and expects to achieve lithium carbonate production in just 3 years; and

- Galaxy Mergeco will benefit from Galaxy's marketing expertise and existing customer relationships. Galaxy's marketing team has already secured offtake agreements for all of the expected lithium carbonate production from the Jiangsu Lithium Carbonate Plant with Mitsubishi Corporation (5,000 tpa) and 13 Chinese lithium cathode producers (combined 12,000 tpa) and has also established markets for its by-products in Australia and China.

Lithium One Shareholder Support

The directors and senior officers of Lithium One, holding in aggregate approximately 13% of the fully diluted share capital of Lithium One, have entered into voting agreements with Galaxy, pursuant to which they have agreed to vote their securities (including Options) in favour of the transaction, in the absence of a superior proposal. In addition, certain convertible note holders, representing approximately 100% of the principal value of the outstanding notes, have agreed to support Galaxy's offer, in the absence of a superior proposal.

Galaxy Shareholder Support

Galaxy shareholders holding approximately 16% of the undiluted issued capital of Galaxy have, in the absence of a superior proposal, confirmed their intention to vote in favour of the transaction at the Galaxy shareholder meeting.

Galaxy Mergeco Board

Immediately following completion of the proposed merger, Lithium One Chairman Martin Rowley and CEO Paul Matysek will be appointed to Galaxy Mergeco's board of directors as non-executive directors, and all current Galaxy directors will remain on the board of Galaxy Mergeco. Galaxy's current Chairman, Craig Readhead, and Managing Director, Iggy Tan, will retain their existing positions. Galaxy proposes that key Lithium One management wishing to continue with Galaxy Mergeco be offered ongoing positions.

Indicative Timetable

The table below contains an indicative timetable for the merger to be implemented. It should be noted that these dates are indicative only and are subject to change.


Announcement of Arrangement                       30 March 2012
Completion of Circular                            20 April 2012
(including pro-forma financials)
Record Date                                       20 April 2012
Interim Court Order (Lithium One)                 23 April 2012
Mail Circular and Meeting Materials to            25 April 2012
Registered Security Holders
Galaxy Shareholder Meeting                        23 May 2012
Lithium One Shareholder Meeting                   25 May 2012
Final Court Order (Lithium One)                   28 May 2012
Pre-closing                                       30 May 2012
Closing Date                                      31 May 2012

Contact:

Corporate	 			
Iggy Tan 				
Managing Director 					
Galaxy Resources Ltd	   			
Tel (office): +61-8-9215-1700    				
Email: ir@galaxylithium.com

Australia Media Contact 
Jane Grieve 
FTI Consulting
Tel (office): +61-8-9386-1233
Tel (mobile): +61-488-400-248 				
Email: jane.grieve@fticonsulting.com

Hong Kong Media Contact
Cindy Lung
Strategic Financial Relations Limited
Tel (office): +852-2864-4867
Tel (mobile): +852-9282-4640
Email: cindy.lung@sprg.com.hk

Source: Galaxy Resources Limited
Sectors: Metals & Mining, Daily Finance