Rio Tinto Ltd (ASX: RIO) (LON: RIO) (NYSE: RIO) is making a serious bid to acquire Arcadium Lithium (NYSE: ALTM) (ASX: LTM) and drastically increase its footprint in the lithium sector.
Announced on Monday, the successful acquisition would put the new combined company squarely in third place in terms of lithium production behind North Carolina’s Albemarle Corporation (NYSE: ALB) and Chile’s SQM (NYSE: SQM).
The acquisition would give Rio control of lithium mines in Argentina and Australia, along with processing facilities in the US, China, Japan, and the UK. It would also expand its customer base to include major companies like Tesla, BMW, and General Motors.
Rio Tinto already ranks as a top producer of copper and aims to produce one million tonnes annually within the next five years.
Arcadium formed in January through the merger of Philadelphia-based Livent and Australia’s Allkem. Its shares have since been pulled down by falling lithium prices. This market-wide condition stems from weaker demand from electric vehicle (EV) makers and an oversupply from China.
There had been rumours circulating about a potential merger for years, according to BMO analyst, Joel Jackson.
“Many investors believe that Arcadium, the the Allkem/Livent merger, was completed to shake out interest from suitors like Rio,” said Jackson.
Arcadium shares surged on news of Rio’s approach, jumping nearly 46 per cent on Monday in Sydney to A$6.09 each. In New York, the stock soared 60 per cent in pre-market trading before trimming some of those gains. The American lithium miner is presently sitting at a market capitalization of USD$3.3 billion.
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Long-term lithium demand expected to rise with EV demand
Current market conditions are marked by a downturn in lithium stocks due to oversupply and weaker demand. This makes potentially fertile ground for for acquisitions. Analysts point out that lithium assets are currently undervalued, making it more advantageous for Rio Tinto to buy rather than build.
This aligns with CEO Jakob Stausholm’s comments about acquisitions being cheaper than constructing new assets.
Despite these short-term fluctuations, long-term demand for lithium is expected to rise as the adoption of electric vehicles (EVs) continues to grow. Rio Tinto’s move can be seen as a bet on this future demand. The company is securing resources at lower costs now for potential gains when the market rebounds.
Lithium holds geopolitical significance as a critical mineral used in many technologies. Rio Tinto could gain geopolitical leverage through control of its supply chain, especially as the global push towards reducing carbon emissions through electrification intensifies.
Rio has steadily expanded its presence in the battery market over the past six years. In 2018, it reportedly made an attempt to acquire a USD$5 billion stake in SQM. Later on in April 2021, Rio began producing lithium from waste rock at a demonstration plant located at its borates mine in California.
Furthermore, Rio completed the acquisition of the Rincon lithium project in Argentina. The project holds nearly two million tonnes of contained lithium carbonate equivalent, enough to support a 40-year mine life.
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Rio Tinto also reviving Jadar mine in Serbia
The company plans to develop a battery-grade lithium carbonate plant at Rincon with an annual capacity of 3,000 tonnes. It has allocated USD$350 million to invest in the project, with first production expected later this year.
Rio is also working to revive its USD$2.4 billion Jadar mine project in Serbia. The mining giant won a victory in July when Serbia reinstated its licence after it was revoked in 2022 following environmental protests. However, Rio will still need to secure additional approvals before moving toward production at the site.
Once operational, Jadar is expected to produce 58,000 tonnes of refined battery-grade lithium carbonate annually. This will make it Europe’s largest lithium mine. The mine could supply enough lithium to power one million electric vehicles and meet 90 per cent of Europe’s current lithium demand.
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joseph@mugglehead.com
