Novonix shares fall despite Lithium Energy merger and IPO plans

These two companies are planning to merge their graphite operations.

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Novonix Ltd (ASX: NVX) shares are edging lower on Wednesday despite some big news.

In morning trade, the battery materials and technology company's shares are down 0.5% to 93 cents.

What's going on with Novonix shares?

Novonix shares are falling today after broad market weakness appeared to offset the release of an announcement.

That announcement reveals that Novonix has signed an agreement with Lithium Energy Ltd (ASX: LEL) to merge their adjoining Queensland Graphite Assets into a spin-out company through an initial public offering (IPO).

The spin-out will be known as Axon Graphite Limited and will be a dedicated ASX-listed vertically-integrated mine to battery anode material (BAM) product manufacturing company.

The release highlights that Novonix's Mt Dromedary Graphite Project is directly adjoining to Lithium Energy's Burke Graphite Project, and by merging the two it will create a substantial, world class inventory of high-grade natural graphite.

It also notes that the combination of the two adjoining high grade graphite deposits creates the potential for significant operational synergies and economies of scale.

IPO details

Axon Graphite plans to raise $20 million through the IPO, with a minimum subscription of $15 million and oversubscriptions of up to $5 million at an issue price of $0.20 per share. Eligible Lithium Energy and Novonix shareholders will be entitled to participate in a pro-rata priority offer.

If everything goes to plan, Lithium Energy and Novonix will each hold a 25% cornerstone equity holding in Axon Graphite.

Management commentary

Novonix's CEO, Dr Chris Burns, believes the merger and IPO will highlight the value of its graphite assets. He said:

The growth opportunity in the electric vehicle and energy storage systems battery markets for anode materials and high-grade graphite products is significant over the next decade. We believe the combination of the Mt Dromedary and Burke assets will enhance the scale and economics of these resources and provide the focus for the development of a substantial natural graphite mine and business.

We believe a stand-alone vehicle provides the opportunity to attract new development capital to enable the development of the resource and production of highly refined grade natural graphite for EVs and ESS. It will also highlight the value of these assets for NOVONIX shareholders.

This sentiment was echoed by Lithium Energy's executive chair, William Johnson. He adds:

The consolidation of the adjacent high quality Burke and Mr Dromedary graphite deposits will create a world-class inventory of high-grade graphite to support plans to develop an Australian-based, vertically integrated battery anode material (BAM) business. We expect significant operational synergies and economies of scale will be gained from the consolidation of these adjacent graphite deposits.

The prospectus for the Axon Graphite IPO is expected to be lodged within the next 6 to 8 weeks.

Motley Fool contributor James Mickleboro has no position in any of the stocks mentioned. The Motley Fool Australia's parent company Motley Fool Holdings Inc. has no position in any of the stocks mentioned. The Motley Fool Australia has no position in any of the stocks mentioned. 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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