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The price of lithium carbonate – a precursor compound used to make lithium-ion batteries – has been on a wild ride since investors began piling into the sector late in 2020 as electric vehicle sales took off in China, Europe and the US, and vehicle manufacturers scrambled to secure supplies of the mineral used to power long-life batteries.

Prices in Australia hit an all-time high of $130,191 a tonne in November last year after the left-leaning Chilean government moved to nationalise its lithium industry, which led to fears supplies from the world’s second-largest producer might be restricted. But demand has ebbed in China this year, lithium’s value crashed by 70 per cent, to a low of $35,911 in April.

The slump is encouraging consolidation and takeovers in the sector, making miners more attractive for buyers who want a share of minerals that will play a major part in the transition to cleaner energy.

US giant Albemarle is circling another Australian lithium miner, Liontown, offering investors $2.50 a share, at a 63 per cent premium to the stock’s price before the bid. Pilbara Minerals is also speculated as another takeover target.

Both Allkem and Livent’s chief executives pointed to the benefits of a merger, saying their companies were heavily invested in lithium projects in Argentina and Canada that were “geographically adjacent,” a factor that would help accelerate and de-risk their development.

“As a combined company, we will have the enhanced scale, product range, geographic coverage, and execution capabilities to meet our customers’ rapidly growing demand for lithium chemicals,” Graves said.

The merger is expected to create combined annual revenue of $US1.9 billion, adjusted EBITDA of $US1.2 billion, and enable one-off capital savings of $US200 million and pre-tax synergies of $US125 million, driven mainly by the proximity and co-development of their projects in Argentina and Canada.

Allkem’s operations span Australia, Argentina and Canada. It was once rumoured as a possible takeover target by Rio Tinto. Livent makes brine in Argentina, has a hard-rock lithium project in Quebec, and runs lithium refineries in the US and China. It also has a supply agreement with luxury German carmaker BMW.

The merger is expected to be finalised by the end of this year.