Rio Tinto Confirms Interest In Arcadium Lithium, Shares Surge

7 Oct 2024

Yahoo Finance Australia

On Monday, Rio Tinto (NYSE:RIO) confirmed that it is in non-binding talks to acquire Arcadium Lithium (NYSE:ALTM), a major lithium miner formed from the merger of Livent and Allkem. Both companies clarified that the discussions are preliminary, and there is no certainty that a transaction will proceed.

Arcadium Lithium - Figure 1 — Photo Yahoo Finance Australia

If the acquisition goes through, Rio Tinto would become one of the largest lithium producers globally, behind industry leaders like Albemarle Corp (NYSE:ALB) and SQM (NYSE:SQM).

However, the company would have to pay a significant premium, as industry insiders value Arcadium between $4 billion and $6 billion—representing a potential 60% premium over the company's market value.

Still, even that premium would be far off Arcadium's $10.6 billion valuation in January when a merger between Alkem and Livent created the enterprise.

Since then, a prolonged slump in the lithium market has sent the shares down by more than 50%, making it an acquisition target. The company is also a diverse producer, with an operational footprint in nine countries and high-profile customers such as Tesla (NASDAQ:TSLA), BMW, and General Motors (NYSE:GM).

Michael Teran, deputy portfolio manager at Blackwattle Investment Partners, classified this move as an "opportunistic bid to take advantage of low lithium prices."

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," he said to the Financial Times.

Rio Tinto already has significant lithium projects in development, including the Rincon project in Argentina and the Jadar project in Serbia. The company has committed significant capital to developing Rincon, with plans to invest $2 billion in building a lithium carbonate production plant to ramp up production in 2025.

However, the Jadar project has faced considerable opposition from local communities in Serbia. They are concerned about environmental impacts and slowing progress on one of Rio's critical European ventures.

Owing to the mineral nature of the lithium there, the project could not even use Arcadium's advanced direct lithium extraction (DLE) technology, which the company has been refining. Still, it would be a valuable advancement for brine-based projects in South America.

The Australian listing of Arcadium Lithium rose 45.7% on the news, closing at A$6.09 ($4.13). The US premarket listing was up 30%, trading at $3.98 as of 6 AM ET.