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Rio Tinto is in talks to buy Arcadium Lithium, setting the stage for a potential deal to make it one of the world’s largest producers of the key battery ingredient as the mining sector steps up investment in the energy transition.
The Anglo-Australian miner has been on the hunt for lithium deals, according to its chief executive Jakob Stausholm, as it tries to gain a stronger foothold in a growing market for the mineral, which is used in electric vehicles. Last month Stausholm said the company would remain “disciplined” on any mergers and acquisitions.
Both parties said the approach was “non-binding” and did not disclose any financial details of the offer.
The potential transaction is the latest sign of consolidation in the global mining industry as it races to secure materials crucial to the energy transition. Lithium is a key ingredient in EV batteries and will be essential as the car industry switches from combustion engines.
However lithium prices have plummeted this year due to a supply glut, and Arcadium’s share price was down 60 per cent since the beginning of the year before Monday’s announcement, with its market capitalisation standing at $3.3bn before news of the takeover emerged.
One of Arcadium’s shareholders, Blackwattle Investment Partners, an Australian asset manager, said it was concerned that Rio’s move was an “opportunistic” bid to take advantage of low lithium prices.
Michael Teran, deputy portfolio manager at Blackwattle, said Rio would need to offer about $8bn to make the deal value accretive to shareholders, adding that lithium prices had already bottomed out and could improve by the end of next year.
“Most investors in the stock have already had a lot of pain or are there for the longer term, so they are looking through the cycle to see where this could end up,” Teran told the Financial Times.
Arcadium was formed by the merger of Allkem and Livent last year, in an all-share deal that valued the combined company at $10.6bn at the time.
Projected to be the world’s third-largest lithium producer by 2027, Arcadium produces lithium in Argentina, Australia and Canada, and has processing facilities in China, the US and Japan.
Its customers include carmakers Tesla, BMW, Toyota and General Motors.
Lithium supply is one of the uncertainties for the car industry because of predicted chronic shortages of the silvery-white material due to the shift to battery power.
Arcadium’s secondary shares in Australia were up over 45 per cent during early trading on Monday. Rio Tinto’s stock price fell 2 per cent in early trading in London.