Analysts say Rio’s Argentinian lithium acquisition offers future growth options

A lithium pivot offers Rio growth options as the market heats up, analysts say.

Rio Tinto chief executive Jakob Stausholm. Picture: Colin Murty

Analysts have given a cautious tick of approval to Rio Tinto’s $US825m ($1.14bn) acquisition of the Rincon lithium project in Argentina, saying it positions the company well for growth as a battery minerals supplier, despite some doubts about the cost of the project.

Rio Tinto has doubled down on its swing towards lithium this week, sealing its first major project acquisition since its ill-fated $US3.7bn buyout of Riversdale Mining and its Mozambique metallurgical coal assets in 2011.

The deal with private equity firm Sentient Equity Partners will see Rio pay $US825m for Rincon, with the total cost of developing the 50,000 tonnes a year lithium carbonate tipped at about $US770m, on Sentient’s projections.

While JP Morgan resources analysts described the asset buy as “relatively expensive” on Wednesday, Bank of America metals and mining analyst Jack Gabb told clients the price Rio had agreed to pay for Rincon was “cheap” compared to other recent transactions in the lithium space.

“The vast majority of acquisitions have been for pre-production assets, however, based on stated targets, we estimate an average acquisition multiple of $US25,000 per tonne of planned annual LCE production in 2021, with Rio’s acquisition ‘cheap’ at $US16,500 per tonne,” he said.

The addition of Rincon to Rio’s planned $US2.4bn Jadar lithium mine in Serbia means the company could be producing close to 110,000 tonnes of lithium carbonate equivalent from 2026, with analysts noting the company will enter the market as the gap between supply and demand widens.

“While both projects have significant development risk, we view exposure to lithium positively given projected supply-demand balances and note the Rincon acquisition is at the low end of acquisition multiples,” Mr Gabb said.

Macquarie analysts said that Rincon’s previously reported mineral resources and reserves positioned it as one of the largest lithium brine deposits available globally – although they noted that lithium grades were lower than other major South American projects.

Rio shares closed down 13c to $99.22 on Thursday.