IGO shares have surged after the company secured the main equity funding needed to stage its entry into the lithium sector, all but confirming the second major piece of consolidation in a commodity class emerging from a period marred by oversupply.
IGO returned to trade after management told investors it had locked in $707 million in commitments from institutional investors paving the way for it to buy 49 per cent of Tianqi's interests in Australia, including a stake in the world's largest hard-rock lithium mine, Greenbushes.
IGO shares jumped 24 per cent from their previous close to end the session at $6.32, leaving the company 40.8 per cent higher over the three months since the middle of September.
Prices for the lithium spodumene concentrate produced from Australia's hard-rock mines is expected to rise from a low around $US400 before stabilising into 2021, according to IGO's investor materials.
IGO has agreed to pay $US1.4 billion ($1.9 billion) for a 24.99 per cent interest in Greenbushes and 49 per cent interest in Australia’s first lithium hydroxide plant Kwinana from Tianqi.
Pilbara Minerals' acquisition of the lithium production and processing assets of Altura Mining also progressed on Friday, after creditors voted in favour of the sale at a meeting convened by Altura's administrators.
Both the Altura and Tianqi asset sales stem from the enduring pressure on companies in the lithium sector following years of falling prices due to lower-than-expected demand and oversupply.
While Altura was tipped into administration bymanagement, the Chinese lithium giant Tianqi agreed to sell down its Australian assets after negotiating an extension with lenders over a $US1.9 billion repayment due at the end of last month.
But IGO has joined existing lithium producers in suggesting that the sector's fortunes have turned a corner, arguing that it is now at an "opportune point".
Following an initial wave of demand destruction in the electric vehicle market, COVID-19 has ushered in a series of commitments from governments across Europe and Asia seeking to align economic recovery initiatives with other longer-term objectives, including reducing the carbon intensity of transport.
The US presidential election result last month added to expectations for a broader adoption of measures that are expected to support the adoption of electric vehicles, despite the Democrats remaining unlikely to obtain a majority in the country's upper house.
That has added to surging demand in China over recent months, where policy initiatives and economic stimulus have helped push interest for lithium chemicals up by as much as 12 per cent in a month.
And while the latent supply capacity continues to loom over the sector, signs of confidence in the outlook for the battery material hardened when the country's largest super fund, AustralianSuper, was revealed to be a key investorbehind Pilbara Minerals' planned Altura acquisition.
The $200 billion manager will contribute $119 million toward the $240 million equity raise Pilbara Minerals needs to complete to fund the purchase of Altura’s Pilgangoora project.
While Australia's high-value, established iron ore sector has dominated attention as prices for the steel-making ingredient approach 2013 highs, shares in Australia's lithium companies have surged.
Pilbara Minerals shares are 161.2 per cent higher over the last three months after adding 4.2 per cent on Friday to reach 87.5¢.
Australia's two largest lithium producers have also outperformed. Shares in Brisbane-based South American producer Orocobre have climbed 60.2 per cent to $4.07 while Galaxy Resources shares have jumped 55.6 per cent to $2.11.
Shares in Tesla supplier Piedmont Lithium have soared 281.7 per cent since mid-September after closing at 35.5¢ on Friday.
PLS Price at posting:
87.5¢ Sentiment: Buy Disclosure: Held
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