Rio Tinto bets on lithium with the acquisition of Acadium for 6.7 billion dollars

Rio Tinto has agreed to acquire Arcadium Lithium in a $6.7bn (£5.1bn) deal, which will make the FTSE 100 group the world’s largest lithium producer.

The mining giant said it would buy the Philadelphia-based company for $5.85 per share, a 90 percent premium to its closing stock price on Friday.

Formed in January from the merger of Allkem and Livent, Arcadium Lithium operates mines and processing facilities in several countries, including China, Argentina, Australia and the United States.

It currently produces 75,000 tonnes of lithium carbonate equivalent per year, but has plans to double capacity by the end of 2028.

However, the group’s market capitalization has more than halved, from $10.6 billion to around $4.6 billion this year, amid a sharp drop in lithium prices.

Rio Tinto said the acquisition of Arcadium was the “right time”, given the significant drop in lithium prices and the expectation that demand for the metal will increase.

The price of the item peaked at around $81,000 per ton in November 2022, but has since plunged more than 90 percent due to oversupply and subdued demand for electric vehicles in key markets.

Lithium and its compounds are commonly used in rechargeable batteries for electric vehicles, making it a key element in the energy transition, along with copper and aluminum, both of which Rio Tinto mines intensively.

Jakob Stausholm, its chief executive, said the acquisition of Arcadium was an “important step forward” for the FTSE 100 company.

He added: “This is a counter-cyclical expansion aligned with our disciplined capital allocation framework, increasing our exposure to an attractive, high-growth market at the right time in the cycle.”

The acquisition will be completed in mid-2025, pending Arcadium Lithium investors representing at least three-quarters of all voting rights approving the deal.

Matt Britzman, senior equity analyst at Hargreaves Lansdown, said: “It’s a good time to buy countercyclical assets, and this deal helps boost Rio’s lithium portfolio to new heights as it already has exposure through its Rincon projects. and Jadar.”

“This so-called white gold, a key component in the energy transition with uses in areas such as electric vehicles, is the material that differentiates Rio from key rivals such as BHP.”

In May, Australia-based BHP abandoned its bid to acquire fellow miner Anglo American after raising its offer from £31bn to £39bn.

It would have been the largest acquisition in the history of the mining sector if it had been successful and created a global player in metals such as copper, potash and iron ore.

Anglo opposed the proposed deal due to concerns about its complexity and demands to sell its South African platinum and iron ore divisions.

Rio Tinto shares They were down 0.5 per cent at £50.20 on Wednesday morning, meaning they have fallen around 13 per cent since the start of the year.