SYDNEY, May 30 (Reuters) - Galaxy Resources and General Mining on Monday agreed to a A$216 million ($155 million) merger to consolidate their lithium mines in Australia, Canada and Argentina, with prices for the metal soaring on growing demand for electric vehicles.
The offer, swapping one General Mining share for 1.65 new Galaxy shares, is the latest in a push by Australian-listed companies to mine lithium, essential in powering non-internal combustion engines and led by companies such a Tesla Motors , Nissan and BMW.
The deal, announced by both firms during a call with media, is also aimed at assembling an institutional investment-grade company capitalised at around A$700 million to provide large investors with a way into Australian lithium, where most players are little more than penny stocks.
Shares in Galaxy and General Mining have appreciated some 1,100 percent and 1,400 percent respectively over the past year on the back of the boom in lithium.
Australia has seen a stampede of proposals to mine lithium in the past 12 months, with more than 20 companies in various stages of development in the Pilbara region of Western Australia state alone.
Lithium prices have risen to over $20,000 a tonne from about $7,000 a tonne last September, according to metals consultancy CRU.
Industry website Asian Metal says lithium carbonate, the compound used in batteries, has jumped by 76 percent in the past 12 months.
"The price of lithium today is incentivising companies to produce," said Shaw and Partners analyst Peter O'Connor. "People are coming out of the woodwork with lithium."
General Mining Managing Director Mike Fotios said he did not see oversupply emerging anytime soon.
"The rate by which we see new projects coming onstream in Australia and Canada, we only see the market reaching something like equilibrium in the next four to five years," Fotios said.
Goldman Sachs estimates that a 1 percent rise in electric-battery consumption will increase lithium demand by 45 percent.
"More and more and companies see an opening in lithium and that's driving mergers and partnerships in Australia," said Michael Hannington, exploration manager for Metalicity Ltd , which is accelerating a A$1 million programme to find more lithium in Australia.
Pilbara Minerals last month raised A$100 million to pay for exploration for a new mine in northwestern Australia, while Orocobre Ltd expects to reach full production at a mine in Argentina by September.
Canaccord Genuity is the sole financial advisor on the Galaxy and General deal. ($1 = 1.3957 Australian dollars) (Reporting by James Regan; Editing by Joseph Radford)