London listed mining giant Rio Tinto today moved to secure a major foothold in the global supply of lithium, a key component in electric car batteries, with a $6.7 billion (£5.1 billion) takeover of one of America’s biggest producers.
Rio is paying $5.85p a share in cash for Arcadium Lithium, a 90% premium to its $3.08 closing price on October 4.
News of the transaction confirms an announcement earlier this week that the two companies were in talks. If the deal goes through, Rio Tinto will become the third largest supplier of lithium, behind only after Albemarle and SQM.
Rio Tinto CEO Jakob Stausholm said the purchase is a “significant step forward in Rio Tinto’s long-term strategy, creating a world-class lithium business alongside our leading aluminium and copper operations to supply materials needed for the energy transition.”
Arcadium Lithium CEO Paul Graves said his firm was “confident that this is a compelling cash offer that reflects a full and fair long-term value for our business and de-risks our shareholders’ exposure to the execution of our development portfolio and market volatility.”
Arcadium's current annual lithium production capacity across a range of products including lithium hydroxide and lithium carbonate is 75,000 tonnes lithium carbonate equivalent with expansion plans in place to more than double capacity by the end of 2028..
It global operations, comprising approximately 2,400 employees, include facilities and projects in Argentina, Australia, Canada, China, Japan, the United Kingdom and the United States.
Matt Britzman, senior equity analyst, at investment manaager Hargreaves Lansdown, said: “This is a classic attempt to buy the dip for Rio, snapping up some high-quality Lithium assets when spot prices are around 80% down on their highs. It’s a good time to shop for counter-cyclical assets, and this deal helps propel Rio’s lithium portfolio to new heights, with it already having exposure through its Rincon and Jadar projects. This so-called white gold, a key component in the energy transition with uses in areas like electric vehicles, is the material that differentiates Rio from key rivals like BHP.
“The price will be scrutinised, at a touch under 20% of where Arcadium was trading when the company was formed in January, it’s not quite a bargain, and investors in the commodity world tend to take a dim view of M&A at the best of times. Arcadium is currently free cash flow negative, due to low prices and high investment in new projects, so Rio will have some work to do if it wants to turn this into an accretive buy – and that won’t happen immediately.”
