Rio Tinto analysts at Barrenjoey have placed a valuation on its takeover target Arcadium Lithium of $5.3bn after the mining giant confirmed in a statement to the market on Monday it has made an approach to buy the business.
Rio Tinto said the approach was non-binding and there was no certainty any transaction will be agreed to or will proceed.
It comes after DataRoom first flagged the talk in the market on October 3 that Rio Tinto could be looking at the Australian and New York dual-listed miner Arcadium Lithium, as it was shaping up to embark on a major transaction.
The other possible target was Albemarle.
DataRoom reported at the weekend talks were afoot with the Australian and US-listed Arcadium Lithium in a deal shaping up to be worth at least $US4bn ($5.9bn).
Rio Tinto, which is one of the largest miners in the world, has a market value worth of almost $47bn on the ASX.
Arcadium Lithium’s market value was about $US3bn before reports of a looming deal.
Arcadium operates in the same jurisdictions as Rio, including Argentina where Rio Tinto has the Rincon Lithium project, and has hard rock lithium in Canada where Rio has operations in commodities iron ore and mineral sands.
It is the result of the $US10bn merger last year between the US-listed Livent and the Australian listed Allkem, with the combined group renamed Arcadium Lithium.
Shares on Monday have so far soared 44 per cent on the ASX on the confirmation by Rio Tinto.
The shareprice was at $6 at midday trade, taking its market value to $4.45bn.
Analysts at Barrenjoey say the move is not surprising, as Rio Tinto has spoken about its desire to build a lithium business with brine the preferred route.
Arcadium Lithium’s share price is down 63 per cent since January, and they believe the target is worth $4.96 per share (equating to a market value of $5.3bn).
But this excludes the value for unapproved projects outside of James Bay in Canada, given its concern over its ability to fund the projects.
Additional resource development could add about $4 a share to the analyst’s net present value.
“Based on consensus net profit, a potential deal is seen to be accretive up to 4 per cent in 2027 post assumed synergies,” the analysts said.
Arcadium Lithium is a global lithium chemicals producer with a diversified product offering, including spodumene, carbonate, hydroxide and lithium chemicals.
It has a presence in three major lithium geographies, including the South American “lithium triangle”, Western Australia and Canada, and a globally significant lithium deposit base.
The merger of Allkem and Livent promised combined production capacity of 250,000 tonnes per annum of Lithium Carbonate Equivalent by the end of 2027.
But the rapid decline in lithium prices through 2023 forced Arcadium to re-evaluate its capital spending projections, future expansion timelines and production estimates to match market conditions, supply chain challenges, and local labour market capabilities.
The latest reset at the Strategy Day in New York on 19 September had capacity at 170,000 tonnes per annum LCE by 2028.
Barrenjoey’s $4.96 per share price is based on long-term spodumene and chemical prices of US$1,500 a tonne and US$18,000 a tonne respectively.
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