Rio Tinto buys Arcadium for $6.7 billion cash

The second largest miner is paying the United States-based lithium producer $5.85 per share, it said. The deal represents a premium of 90% to Arcadium’s closing price of $3.08 per share on October 4. 

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).

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.

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.

Ahead of the confirmation of the deal BMO Capital Markets analyst, Joel Jackson, noted a potential takeover 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.

The transaction value is ahead of market expectations which was pegged in the $4 billion to $6 billion range. “In our view, this [range] 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

Before the official announcement industry participants were supportive of the 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 would 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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