Rio Tinto takes big battery metal step with Arcadium Lithium purchase

Mining giant Rio Tinto is to buy US-based Arcadium Lithium in a deal worth some $6.7bn (€6.11bn). This is seen to be a step towards strengthening the former’s lithium offerings, with the company aiming for a bigger share of the battery metals market as the transition towards green energy continues.  

The deal has been made on an all-cash basis, with Rio Tinto paying Arcadium Lithium $5.85 (€5.34) per share, above Arcadium’s share price at the time of writing, which was $4.24 (€3.87). 

Rio Tinto’s key products at the moment are copper, aluminium and iron ore mining, with projects spread out across Australia, Canada, the US, Mongolia, South Africa and more. 

Conversely, Arcadium Lithium is well-established in the lithium chemicals extraction and manufacturing business, with operations in conventional brine extraction, hard-rock mining and direct lithium extraction.

The company has projects in Australia, China, Argentina, Canada, the US, Japan and the UK. 

Regarding the acquisition, Rio Tinto’s chief executive officer (CEO) Jakob Stausholm said in a press release: “Acquiring Arcadium Lithium 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 is an outstanding business today and we will bring our scale, development capabilities and financial strength to realise the full potential of its Tier 1 portfolio. This is a counter-cyclical expansion aligned with our disciplined capital allocation framework, increasing our exposure to a high-growth, attractive market at the right point in the cycle.”

Arcadium Lithium’s CEO Paul Graves also said: “We are 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 Lithium is a leading global lithium producer with the widest offering of lithium chemical products and a world-class manufacturing network, backed by a broad technology portfolio and expertise in all aspects of the lithium value chain. 

“This agreement with Rio Tinto demonstrates the value in what we have built over many years at Arcadium Lithium and its predecessor companies, and we are excited that this transaction will give us the opportunity to accelerate and expand our strategy, for the benefit of our customers, our employees, and the communities in which we operate.”

Mining companies seek to consolidate

Rio Tinto’s move is the latest in the recent flurry of mining company mergers seen this year, with miners trying to consolidate their position as the energy transition gains momentum. Lithium is especially important for the green transition, being heavily used in electric vehicles (EVs), laptops, mobile phones, digital cameras and coolants.

However, the battery metal’s prices have plunged recently, as the market faced oversupply, making Rio Tinto’s acquisition of Arcadium Lithium all the more timely. 

Russ Mould, investment director at AJ Bell, said in an email note: “Rio Tinto paying a 90% bid premium for Arcadium shows it is serious about bolstering its exposure to lithium and it is prepared to dig deep to secure the assets.

“There is none of the usual toe in-the-water cheeky bid at an opportunistic price. Instead, Rio Tinto appears to have gone in with a serious offer, priced accordingly, in the hope that will be enough to get the deal done without any song and dance.

“The fact the deal is also structured purely in cash suggests Rio has learned from others’ mistakes.

“Quite a few takeovers have hit a stumbling block in recent years due to having a cash and shares structure. Investors want cold, hard cash in their hands. Being offered some cash and some shares might not fit their needs, particularly if the acquirer’s shares are quoted in a different country than those of the target company.”