Mining giant Rio Tinto has made a counter-cyclical move in the face of a global lithium slump, paying nearly $10 billion for Arcadium Lithium to position itself as a leader in the key energy transition commodity.
Just three days after confirming it had approached Arcadium with a non-binding offer, Rio has sealed an all-cash deal to acquire the New York-listed miner and lithium processor.
Rio Tinto chief executive Jakob Stausholm.Credit: Bloomberg
“When you suddenly see there’s an opportunity, you have to be able to act fairly quickly,” Rio Tinto chief executive Jakob Stausholm said.
“When rumours go [out] and we have to come out with a statement, everybody is incentivised to figure out, ‘Are we going to do this? Are we not going to do it?’ If we’re going to do it, we’re going to get it done quickly.”
The swiftness of the deal’s conclusion is in stark contrast to another big Australian miner’s efforts earlier this year, when BHP attempted a $75 billion takeover of UK-listed Anglo American.
That deal ended when BHP walked away after its third and twice-sweetened offer was rejected.
Lithium is a key ingredient in the high-energy batteries that drive electric vehicles and provide storage and stability to integrated electricity grids.
The commodity has been on a roller coaster ride with prices hitting record levels before plunging into oversupply and being undermined by slowing global sales of electric vehicles.
Rio’s buyout was accepted by Arcadium’s board at $US5.85 per share, a 90 per cent premium on the miner’s closing share price on October 4 that puts the company’s value at about $US6.7 billion ($9.9 billion).
“Arcadium Lithium has high-quality assets, a winning commercial strategy and robust growth plans,” Arcadium’s chairman Peter Coleman said in a note to shareholders justifying the board’s decision to back Rio’s bid.
“We are also facing challenging market conditions with the outlook for lithium prices continuing to remain depressed.
“The immediate and substantial cash offer provides shareholders with certainty and liquidity, allowing shareholders to realise the full value of our investment without the ongoing risks associated with potential future market fluctuations,” Coleman said.
He said the deal means shareholders will avoid the “unprecedented price volatility” that is being driven by changing global supply and demand dynamics in the sector.
China is a dominant global producer of lithium and is by far the world’s largest and best-resourced manufacturer of lithium batteries.
Arcadium is a global lithium chemicals producer with facilities and projects in Argentina, Australia, Canada, China, Japan, the UK and the US that includes manufacturing, hard-rock mining, conventional brine and direct lithium extraction.
Rio already has a foothold in the lithium sector, but it is a small one.
Its proposed $US2.4 billion lithium mine in Serbia is generating fierce opposition from politicians and environmentalists despite being on the doorstep of the European Union, which is clamouring for local supplies of the key component for electric vehicles.
Stausholm said the deal will expand Rio’s business into lithium chemical products and a global manufacturing network, backed by technology and expertise.
“Our current portfolio is just not very big, and with the acquisition of Arcadium Lithium, we are actually going to be the ones with the largest resource base, and that will give us an enormous optionality.”
He said Rio was looking past the sector’s current volatility.
“We are dealing with commodity that will grow around 15 per cent a year in this decade and 10 per cent a year until 2040. That’s fairly unique,” he said.
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