Merger details: Galaxy Resources (ASX: GXY) recently announced that it has agreed for the merger with its joint-venture partner General Mining Corporation in a deal value of $ 216 million, resulting in a jump in the shares of both the companies. The offer from Galaxy entails General Mining shareholders receiving 1.65 new GXY shares for every share of General Mining and the combined operation will own hard-rock and brine-based projects in lithium located in Australia, Canada and Argentina. Producers are rushing to bring new supplies to the market as prices are surging and growth in electric vehicle sales should result in a doubling of demand over the next five years. Electric vehicle production in China using lithium ion batteries has jumped immensely in 2015.
 

GXY Daily Chart (Source: Thomson Reuters)
 
Potential Outcome: The merger is expected to significantly enhance the potential of future growth opportunities in a rapidly developing market. Prices of lithium carbonate may stabilise, starting from the second half of the year as a result of new supplies coming online, and global supply could exceed 460,000 metric tons by 2020 compared to the production of 189,000 in 2015.
 
Among the highlights of the merger are the creation of a leading and diversify global company with a substantial wholly owned portfolio located in multiple regions and a leading growth profile with the development of the Sal de Vida brine project in Argentina as well as the James Bay hard rock project in Quebec, Canada. The merged company is in a strong position to become a major supplier of high-quality lithium reserves the growing demand from applications for energy storage. The financial position is robust and the strong pro forma balance sheet and growing cash flow generation to sustain confusion of project expansion and development and take advantage of future opportunities. The enhanced profile will provide a combined pro forma market capitalisation of more than $ 700 million to support the considerable growth potential.
 

Lithium producers and developer landscape (Source: Company Reports)
 
The strategy rationale for the merger is the creation of a leading global producer, which is well positioned for continuing expansion and development of projects and taking advantage of new opportunities. It is a market leadership development project pipeline with attractive and wholly owned diversify asset portfolios. The initial production of spodumene and tantalum is scheduled for the third quarter of 2016, leading to significant and rising cash flow generation.The flagship development is the world-scale Sal De Vida Project in Argentina with superior brine chemistry and significant expansion potential while the James Bay Project in Canada has the potential potential to be a valuable future supplier for the rapidly expanding North American market. The simplified ownership structure and operating management of assets will greatly benefit the efficiency of the operation.
 
Martin Rowley, the chairman of Galaxy, said that he's extremely pleased that the joint-venture has resulted in a merger proposal, which makes for sound strategic sense and shareholders of both companies will get the opportunity to take advantage of the upside of the merger. The merger is said to result in significant benefits for the shareholders of both companies, with the possibility of a rerating from the equity and capital markets. Both companies have a successful track record of substantial value creation and this focus is expected to continue.

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