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Why Pilbara Minerals and the rest of the lithium miners stormed higher today

The market may have sunk deep into the red today, but not all shares have been dragged lower.

One group of shares which is vastly outperforming the rest of the market on Thursday is the lithium miners.

Here’s the state of play in the industry this afternoon:

  • The AVZ Minerals Ltd (ASX: AVZ) share price is up 2.5% to 4.1 cents.
  • The Galaxy Resources Limited (ASX: GXY) share price is up 2% to $1.51.
  • The Kidman Resources Ltd (ASX: KDR) share price has rocketed 44% to $1.86.
  • The Orocobre Limited (ASX: ORE) share price has risen 2% to $3.45
  • The Pilbara Minerals Ltd (ASX: PLS) share price has raced 7% higher to 64.7 cents.

Why are the lithium miners on fire today?

Investors have been buying lithium miner shares after Kidman Resources received a takeover approach from Wesfarmers Ltd (ASX: WES) this morning.

Wesfarmers has made an offer to acquire Kidman Resources for $1.90 cash per share by way of a scheme of arrangement. This is a premium of 47.3% to the last closing price and values the lithium miner at approximately $776 million.

The conglomerate’s managing director, Rob Scott, explained that the acquisition will provide an attractive investment in a project which is set to benefit from the global uptake of electric vehicles.

He also stated his belief that the investment would generate attractive returns for Wesfarmers’ shareholders.

He said: “The proposed acquisition is consistent with our objective of deploying capital in areas where we can deliver attractive returns to our shareholders by leveraging our existing strengths and capabilities.”

Given how many of the lithium miners have been beaten down significantly over the last 12 months, I suspect this acquisition has boosted investor sentiment and is being seen as a vote of confidence for the lithium industry over the long term.

In addition to this, investors may be betting on other acquisitions being made in the near term. One to watch out for is Fortescue Metals Group Limited (ASX: FMG). It has its eyes on lithium and an acquisition of a company like Pilbara Minerals would arguably make a lot of sense.

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Motley Fool contributor James Mickleboro has no position in any of the stocks mentioned. The Motley Fool Australia owns shares of and has recommended Wesfarmers Limited. 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 Scott Phillips.

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