Rio Tinto to join top lithium miners with Arcadium acquisition
Rio Tinto (ASX, LON, NYSE: RIO) has made an approach for Arcadium Lithium (ASX: LTM)(NYSE: ALTM), the two sides confirmed on Monday, following market speculation over the weekend and as the sector begins turning its attention back to growth.
The move would position Rio Tinto as one of the world’s largest lithium miners, behind only US-based Albemarle (NYSE: ALB) and Chile’s SQM (NYSE: SQM). This would happen because the acquisition would hand Rio lithium mines in Argentina and Australia, as well as processing facilities in the US, China, Japan and the UK. Its customer base would include major names, such as Tesla, BMW and General Motors.
Deal would hand Rio Tinto lithium mines in Argentina and Australia, as well as processing facilities in the US, China, Japan and the UK.
“The approach is non-binding and there is no certainty that any transaction will be agreed to or will proceed,” Rio said in its statement. Both companies said they would not comment further.
Rio Tinto is already a top producer of another coveted battery metal, copper, and has set as goal to produce one million tonnes of the metal annually within the next five years.
Arcadium was created in January from the merger of Philadelphia-based Livent and Australia’s Allkem. Its shares have fallen since, dragged by declining lithium prices, which in turn is a result of weaker demand from electric vehicle (EV) makers and Chinese oversupply.
On the news of Rio’s approach, Arcadium shares went ballistic, rising almost 46% on Monday in Sydney at A$6.09 each. In New York, the stock shot up 60% in pre-market trading, but pared some of those gains later to trade 30% at $3.08 apiece as of 8:00 am local time. That leaves the American lithium miner with a market capitalization of $3.3 billion.
BMO analyst, Joel Jackson, noted the announced deal has been part of market rumours for years. “Many investors believe that Arcadium (i.e., the Allkem/Livent merger) was completed to shake out interest from suitors like Rio,” he wrote.
While the parties did not disclose financial details, media reports have pegged the transaction value at $4 billion – $6 billion. “In our view, this figure would value Arcadium more like a mining company than a specialty chemicals firm, assuming a mid-cycle price range of $18,000–$19,000 per tonne of lithium carbonate equivalent (LCE), average selling price (ASP),” noted Jackson.
Industry actors support the potential deal. Vulcan Energy’s (ASX: VUL) founder and executive chair, Francis Wedin, said the company views the development as a favourable one for the broader lithium market, particularly because it shines a spotlight on Adsorption-type DLE (A-DLE) production, used by Arcadium since 1996 next door to Rio’s own A-DLE project in Rincon.
“The fact that Rio is joining Exxon and Equinor by focusing on A-DLE is a further indication of how the third wave of lithium’s growth is developing,” he said in an emailed statement.
Battery ambitions
Over the past six years, Rio has been expanding its footprint in the battery market. In 2018, it reportedly attempted to buy a $5bn stake in Chile’s SQM, the world’s second largest lithium producer.
In April 2021, the world’s second largest miner kicked off lithium production from waste rock at a demonstration plant located at a borates mine it controls in California.
Rio took another key step into the lithium market in 2022, completing the acquisition of the Rincon lithium project in Argentina, which has reserves of almost two million tonnes of contained lithium carbonate equivalent, sufficient for a 40-year mine life.
The company plans to develop a battery-grade lithium carbonate plant at Rincon with an annual capacity of 3,000 tonnes and has earmarked $350 million to invest in the project, with first production expected later this year.
It is also trying to revive one of its biggest lithium projects, the proposed $2.4 billion Jadar mine in Serbia. Rio had its mining licence revoked in 2022, following widespread protests against the proposed mine on environmental concerns.
The mining giant won a small, but key battle in July, as Serbia reinstated Rio Tinto’s licence to develop it, but the company will have to secure approvals to move towards production at the site. On Monday, however, the country’s parliament began debating a proposal to ban lithium and borate mining and exploration. If passed into a law, this would effectively put an end to the contested Jadar project.
With projected production of 58,000 tonnes of refined battery-grade lithium carbonate per year, Jadar s expected to be Europe’s biggest lithium mine.
The operation could supply enough lithium to power one million electric vehicles and meet 90% of Europe’s current lithium needs.
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