GXY GMM forge alliance for
multi- project push
![](http://investorintel.com/wp-content/uploads/2016/05/Merger.jpg)
The Australian lithium scene has been reshaped with the partners in the Mt Cattlin mine,
Galaxy Resources (ASX: GXY) and
General Mining Corp (ASX: GMM) agreeing to a merger. Now they will work together on Galaxy’s other projects in Argentina and Canada.
To me the key point is this: the pro-forma market capitalization of the merged entity will be in excess of A$700 million, giving it the potential to become an ASX/S&P 200 company and also giving it the opportunity for re-rating, vital for capital raising.
There is another interesting note in the release announcing the deal: the chance for “further industry opportunities”. In other words, they will not settle for just three lithium projects.
The two companies have agreed to a merger by way of an off-market takeover. The market seemed to like the idea: Galaxy shares rose by 11.39% to A$0.44 and General Mining stock was up 15.45% to $A0.705. (Given that both stocks have already seen huge rises in recent months, these additional jumps are significant.)
Galaxy and General Mining have already been working together to bring the Mt Cattlin mine in Western Australia back into production; now they’ll combine their resources to advance the Sal de Vida brine project in Argentina and the James Bay hard rock resource in Quebec. The new entity will be an even stronger lithium play with critical mass. Sydney–based analyst Warwick Grigor of Far East Capital recently cautioned investors about the flood of junior companies into the lithium sector, (some with market capitalizations of less than A$10 million, I would add), saying that the geological and metallurgical complexities of lithium were such that they would be beyond the financial capacities of many of these start-ups. A A$700 million company, with the ability to tap the sort of development capital needed for a lithium project, would seem to be quite a different proposition.
Many, many years ago, when I was first taking a journalistic interest in junior mining companies, and learning that many of them were in poor shape (one with less than A$50,000 left in the bank and little chance of getting any boost to that from scared investors), I asked one director who was on the boards of a few juniors, and advisor to several others, why they all went their separate ways. Why I asked, in my naivety, didn’t they pool their stretched resources – why for example, two juniors with neighbouring gold properties in Western Australia, or two with adjoining tenements on a single, clearly defined, mineral body, did not see that together they could have achieved more than if separate.
The answer was one word: “Ego”.
In other words, these management teams wanted to keep their own company, and not surrender any authority or power.
In those cases I cited above, the two companies in the latter case are still non-producing juniors. What might they have achieved had their managers seen the sense of working as one team, raising money as combined entity, seeking end-user customers as a combined entity, remains an unknown. What is known if that they continue to struggle today (with a combined market capitalization of just A$27 million), a story writ large in the junior mining sector.
Galaxy and General Mining are clearly cut from different cloth.