Galaxy Resources Limited (ASX: GXY) is set to merge with General Mining Corp Ltd (ASX: GMM), creating a diversified lithium company with a large wholly-owned portfolio of lithium assets in multiple locations.

The two miners have seen their share prices soar in the past 12 months – along with most other lithium-related shares on the ASX. Galaxy’s share price is up 1,028% and General Mining up 1,064% since a year ago.

The combined company will have the Mt Cattlin project, is developing the Sal de Vida brine project in Argentina and also has the James Bay hard rock project in Quebec, Canada. (Lithium can be sourced from either brine (think salt lakes) or rocks.

The merger will also create Australia’s second-largest lithium play, with a combined market cap of over $657 million – behind Orocobre Limited (ASX: ORE), which has a market cap of around $900 million.

Under the offer, General Mining shareholders will receive 1.65 new Galaxy shares for each General Mining share – around a 10% premium to the 10-day volume-weighted average price (VWAP). Based on Galaxy’s pre-offer closing price of 39.5 cents, the offer values each General Mining share at 65.2 cents – they last traded at 71 cents. However, Galaxy’s share price did close at 44 cents yesterday, valuing General Mining shares at 72.6 cents – so we could see a slight rise in the share price today. There’s unlikely to be another offer or another bidder, so share prices should track each other (roughly).

Mt Cattlin is forecast to begin maiden production of spodumene concentrate (source of lithium) and tantalum in the 3 rd quarter of 2016, which should generate significant cash flow to fund the combined entity’s other projects.

Lithium is used in a wide variety of products, but its biggest growing sector is in rechargeable lithium-ion batteries – thanks to demands for energy storage – particularly in electric cars such as the Tesla models, and a whole new breed of electric cars from several manufacturers.

Foolish takeaway

The formation of one entity from Galaxy and General Mining makes sense given their share of a number of projects and certainly simplifies things for shareholders. Investors looking for lithium exposure can now choose Orocobre or Galaxy as producers or near-producers, or a host of explorers.

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Motley Fool writer/analyst Mike King doesn't own shares in any companies mentioned. You can follow Mike on Twitter @TMFKinga

The Motley Fool Australia has no position in any of the stocks mentioned. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Bruce Jackson.