Source-mining.com
Global mining giant Rio Tinto is in discussions to acquire lithium producer Arcadium Lithium, both companies confirmed on Monday. The talks come at a time when lithium prices have plunged due to oversupply, particularly from China, making the timing advantageous for Rio Tinto. If the deal proceeds, it would position Rio Tinto as one of the world’s top lithium suppliers, joining industry leaders Albemarle and SQM. The potential acquisition could value Arcadium between $4 billion and $6 billion, according to sources.
Although financial details were not disclosed, the companies confirmed that the discussions were in an early, non-binding stage, with no guarantee of a final agreement. The Australian-listed shares of Arcadium surged by up to 50%, while Rio Tinto’s shares dipped by 0.2% during a public holiday in Sydney. The sharp fall in lithium prices has impacted Arcadium’s stock, which has declined by over 50% since January. This drop, however, presents an opportunity for Rio Tinto, as lithium demand is projected to rise due to its essential role in electric vehicle (EV) batteries and energy storage systems.
Potential Strategic Benefits for Rio Tinto
Acquiring Arcadium would provide Rio Tinto access to crucial lithium deposits and facilities in several countries, including Argentina, Australia, Canada, and the United States. Arcadium’s client list includes major automakers such as Tesla, BMW, and General Motors, enhancing Rio’s market position in the EV battery supply chain. With lithium demand expected to surge in the coming years, this acquisition could drive significant growth for Rio Tinto. However, analysts caution that while the demand outlook is strong, long-term pricing for lithium remains uncertain.
Portfolio managers like Andy Forster from Argo Investments, who hold stakes in both companies, expressed concerns about high valuations, noting that Arcadium has several growth projects but lacks the financial strength to execute them independently. While some investors are cautious about Arcadium’s current financial health, others believe the timing is favorable for Rio Tinto to make the acquisition, especially with lithium prices expected to rebound.
Investor Concerns and Valuation Debates
The potential sale of Arcadium has sparked differing views among investors. Some believe Rio Tinto’s offer, if it comes in at the higher end of the reported $4 billion to $6 billion range, would likely close the deal. Analysts from TD Cowen expect Arcadium’s lithium production to grow significantly, forecasting a 78% increase in output over the next three years and projecting earnings of $1.3 billion by 2028. However, not all investors are convinced that the proposed valuation is fair.
Blackwattle Investment Partners, an institutional holder of Arcadium shares, argues that any offer in the reported range would undervalue the company. They suggest that Arcadium’s true worth is closer to $8 billion, given its potential for long-term growth and delayed project developments in Argentina and Canada. Blackwattle expressed concern that Rio Tinto might be taking advantage of the current market downturn, acquiring Arcadium at a low point before lithium prices recover.
With Arcadium well-positioned to ride out the current lithium price slump, the outcome of these negotiations will be closely watched by investors and industry observers alike.
