Rio Tinto is seeking to bolster its lithium portfolio with the acquisition of Arcadium Lithium in an all cash deal after a period of weakness Arcadium shares.
The $5.85 per share deal presents a 93% premium to Arcadium Lithium’s share price 4th October.
Arcadium has built an attractive vertically integrated lithium business with assets ranging from the Salar del Hombre Muerto lithium salt brine facility in Argentina to the Naraha facility in Japan that converts lithium carbonate feedstock into purified battery-grade lithium hydroxide.
Although some may see the deal as opportunistic, it is fascinating in as far as Rio Tinto is one of very few diversified miners to make big in roads into lithium.
“This is a classic attempt to buy the dip for Rio, snapping up some high-quality Lithium assets when spot prices are around 80% down on their highs. It’s a good time to shop for counter-cyclical assets, and this deal helps propel Rio’s lithium portfolio to new heights, with it already having exposure through its Rincon and Jadar projects,” said Matt Britzman, senior equity analyst, Hargreaves Lansdown.
“This so-called white gold, a key component in the energy transition with uses in areas like electric vehicles, is the material that differentiates Rio from key rivals like BHP.
“The price will be scrutinised, at a touch under 20% of where Arcadium was trading when the company was formed in January, it’s not quite a bargain, and investors in the commodity world tend to take a dim view of M&A at the best of times. Arcadium is currently free cash flow negative, due to low prices and high investment in new projects, so Rio will have some work to do if it wants to turn this into an accretive buy – and that won’t happen immediately.”