melanie burton
MELBOURNE (Reuters) – Rio Tinto is in talks to buy lithium producer Arcadium Lithium, the companies confirmed on Monday. Global mining companies are surging on the back of weak prices for ultralight metals essential to the world’s clean energy transition.
If the deal goes through, Rio will become one of the world’s largest lithium suppliers. albemarle (NYSE:) and SQM aim to supply essential metals for EV batteries and power storage.
Reuters exclusively reported on Friday that the two companies were in talks and that Arcadium could be valued at $4 billion to $6 billion or more.
The approach was confirmed by both parties in separate statements on Monday, but financial details were not disclosed. This follows a sharp fall in lithium prices and months of speculation over a possible deal.
“This approach is non-binding and there is no certainty that a transaction will be agreed or will proceed,” Rio said in a statement.
Australia’s Arcadium shares rose 50% to A$6.29, triggering a rise in other Australian-listed lithium companies, with shares up 2% to 10%. However, Rio Tinto (NYSE:) shares fell 0.2% due to the Sydney public holiday.
The recent slump in lithium prices, caused in part by China’s oversupply, has seen Arcadium’s share price drop more than 50% since January, making it an attractive target. However, lithium demand is expected to surge in the second half of this decade due to growth in lithium-ion batteries.
By acquiring Arcadium, Rio gains access to lithium mines, processing facilities, and deposits in Argentina, Australia, Canada, and the United States, fueling decades of growth while also increasing the value of Tesla (NASDAQ:), It will acquire a customer base that includes BMW (ETR:). ), General Motors (NYSE:).
Andy Forster, portfolio manager at Argo Investments, which owns shares in both companies, said Arcadium has many growth projects but doesn’t have the balance sheet in place to build them. He expressed a cautious view on valuation.
“The long-term price economics of lithium are different,” he said.
Another Arcadium institutional investor said that if Rio bids at the top of the reporting range, “the deal would be done.”
Analysts at TD Cowen highlighted that Arcadium’s production is expected to increase by 78% over the next three years, with revenue expected to reach $1.3 billion in 2028.
“We do not believe there is a need to sell ALTM, but valuation discussions will need to start at $5 per share or above,” the companies said on October 4, after a Reuters report on talks in Rio. mentioned in the memo of the day. Arcadium stock’s closing price on October 4 was $3.08.
However, Blackwattle Investment Partners said in a letter to Arcadium that an offer in the range reported would “significantly undervalue” the lithium company.
“In our opinion, LTM’s sale price should be close to $8 billion, and LTM should be willing to refrain from making opportunistic offers,” Blackwattle said.
Michael Teran, partner at Blackwattle Investment Partners, said Arcadium has the means to delay the development of some projects in Argentina and Canada and secure new financing opportunities for existing projects. It said it was well-positioned to weather the price storm, which appears to be heading for a recovery.
“One of our biggest concerns is that someone like Rio comes in and misses out on all the upside when the stock is already at its lowest point and the stock is already falling,” Teran said. ” he said.
($1 = 1.4717 Australian Dollar)
