Mining giant Rio Tinto is currently in discussions to acquire Arcadium Lithium, a New York-listed lithium producer, as part of its strategy to strengthen its presence in the rapidly growing lithium market.
This mineral is essential for electric vehicle batteries and clean energy technologies, making it a priority for Rio Tinto’s growth plans.
Rio Tinto aims to reshape its business model to focus on metals anticipated to be in high demand in the coming years. Currently, the company generates a significant portion of its profits from iron ore, primarily used in steel production. However, the demand for lithium is expected to rise sharply, driven by its critical role in electric vehicles and large-scale batteries that can store and release electricity.
Chief Executive Jakob Stausholm indicated last year that expanding the company’s lithium operations was a key focus. However, he also noted the importance of not overpaying for acquisitions. Arcadium Lithium was formed earlier this year through a merger between Livent, based in Philadelphia, and Australia’s Allkem, and it has a market capitalization of approximately $3 billion.
On Monday, Rio Tinto announced that it had made a non-binding takeover proposal to Arcadium Lithium, although it emphasized that there is no certainty a deal will be reached. Arcadium Lithium confirmed this approach but stated that it is concentrating on its own growth initiatives and would not provide further comments at this time.
The negotiations were first reported by Reuters, which noted a significant surge in Arcadium’s stock, with shares rising 35% after hours on Friday following the news. If the acquisition proceeds, Rio Tinto would become one of the world’s largest lithium producers, second only to Albemarle and SQM. The deal would also grant Rio Tinto access to lithium mines and processing facilities across four continents, positioning the company to meet increasing demands for essential minerals amid the global energy transition.
Currently, lithium prices are under pressure due to an oversupply from China, with the benchmark lithium carbonate price dropping over 20% year-to-date. Saul Kavonic, head of energy research at MST Marquee, indicated that Rio Tinto had likely been eyeing Arcadium for years but waited for more favorable market conditions to pursue a merger or acquisition that would elevate its lithium production capabilities.
Rio Tinto is also facing challenges with its planned Jadar lithium-borates project in Serbia, where local residents have raised environmental concerns. Meanwhile, Arcadium Lithium projects a 25% increase in sales volumes of lithium hydroxide and lithium carbonate for 2024 compared to the previous year, and it aims to boost production in Argentina.
As both companies evaluate the potential acquisition, analysts suggest that the outcome will largely depend on Rio Tinto’s willingness to offer a competitive price and its long-term outlook for lithium pricing. Other lithium stocks in Australia also saw gains amid the news, with companies like Liontown Resources and Mineral Resources experiencing significant increases in share prices.
With input from CNBC, Market Watch, the Wall Street Journal.
