Rio Tinto announced on Monday that it is in discussions to acquire lithium producer Arcadium in a deal that analysts estimate could exceed $5 billion. The potential acquisition comes as Rio Tinto aims to capitalize on a significant decline in lithium prices, positioning itself to become one of the world’s leading producers of the metal essential for electric vehicle (EV) batteries.
Both companies confirmed the talks in separate statements but did not disclose financial details. The negotiations follow a sharp drop in lithium prices that has seen Arcadium’s shares plummet by more than 50% since January. This market downturn presents an opportunity for Rio Tinto to strengthen its foothold in the lithium sector, trailing only industry giants like Albemarle and SQM.
Arcadium currently holds extensive lithium reserves across Argentina, Australia, Canada, and the United States. Unlike some competitors that diversify into fertilizers or other products, Arcadium focuses solely on lithium, making it an attractive acquisition target. For Arcadium, Rio Tinto’s substantial financial resources could accelerate the development of its assets to meet the anticipated surge in global lithium demand in the coming decade.
Market reactions have been swift. Arcadium’s Australian shares surged 46% on Monday, with U.S.-listed shares increasing by 35% in morning trading. Meanwhile, Rio Tinto’s shares dipped by 2%. The structure of the proposed deal remains unclear, whether it will involve cash, stock, or a combination of both. A stock-based offer might appeal to Arcadium shareholders concerned about recent market volatility.
Analysts at Canaccord suggest that the combined entity could supply approximately 10% of global lithium chemicals by 2030. The acquisition would grant Rio Tinto access to a robust customer base, including automakers like Tesla, Ford, BMW, and General Motors.
However, some investors express caution over Arcadium’s valuation. Andy Forster, portfolio manager at Argo Investments—which holds shares in both companies—noted Arcadium’s numerous growth projects but highlighted its limited capital for development. “The economics of long-term pricing for lithium is not what it has been,” Forster commented.
TD Cowen analysts believe negotiations would likely start at a share price of $5, implying a premium of at least 60% over Arcadium’s October 4 closing price of $3.08. Conversely, Blackwattle Investment Partners argues that such offers undervalue the company. “In our opinion, a sale price for Arcadium should be closer to $8 billion, and Arcadium should be willing to walk away from an opportunistic offer,” the firm stated in a letter over the weekend.
Michael Teran of Blackwattle emphasized concerns about selling at the market’s low point. “This is one of our biggest worries—that someone like Rio comes and takes it right at the bottom, and you miss out on all of the upside when stocks have already taken a beating,” he said.
Rio Tinto’s existing lithium projects include the Rincon project in Argentina, expected to commence production later this year, and the Jadar project in Serbia, which may require at least two years to secure necessary permits.
Source: Reuters
