Mining Giant Rio Tinto Bets on Lithium Rebound With $6.7 Billion Acquisition

Rio Tinto excavated deep into its pockets Wednesday to place a wager on the future of lithium. 

The British-Australian mining giant announced plans to acquire US lithium miner Arcadium for $6.7 billion, a deal that would transform it into the world’s third-largest miner of the metal essential for everything from electric vehicles to mobile phones. The deal has the benefit of immediate customer relationships with General Motors and Tesla.

Buy the Dip

Only two years ago, lithium prices were at all-time highs, riding a wave of market enthusiasm for the metal’s essential place in the green energy transition or, more specifically, its place in rechargeable EV batteries.

But a dreaded one-two punch of oversupply by China — which US officials allege is a “predatory” attempt to wipe out competition — and a decline in electric car sales outside of China has sent prices tumbling roughly 80% in the last 12 months. Chris Ellison, the managing director of Australian miner Mineral Resources, told the Australian Broadcasting Corporation last month that this is one of the toughest times to be in the lithium industry. And now Rio is not just buying in, but at a heavy premium: The all-cash offer represents a 90% increase over Arcadium’s closing price on Oct. 4 and a 30% increase over its volume-weighted average price since it was established via a merger of Livent and Allkem in January. What gives?

• For one, Rio will add lithium mines and facilities in Argentina, Australia, Canada, and the United States, plus a fleet of prestigious customers including BMW, GM, and Tesla. The new capacity comes in handy for Rio, whose planned lithium mine in Serbia has sparked environmental protests; politicians are debating whether to shut it down.
• As a $112 billion global mining giant with a portfolio that includes iron, aluminum, copper, diamonds, and salt, Rio can afford to absorb and fund growth at Arcadium with little impact on its overall business. Arcadium is also relatively financially-efficient, with an adjusted EBITDA margin of 39% in the second quarter.

Secret Bargain? Blackwattle Investment Partners, an Arcadium shareholder, blasted Rio’s all-cash offer as “opportunistic” and said it believes the company is worth closer to $8 billion. The firm plans to vote against the takeover offer.