Copper is crucial to the ongoing green energy transition, as is lithium which is used extensively to make batteries for electric vehicles. It is more ubiquitous and its price has been under the hammer for about 18 months.
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While there are hopes that the price has stabilised, there has been a wave of mine closures around the world this year. This gives Rio a lot more leverage to execute an acquisition despite offering a price that some would say is opportunistic at best.
The emergence of a vocal shareholder warning of a backlash if any takeover premium is too skinny heralds that Rio won’t have it all its own way.
“Arcadium Lithium’s share price has fallen 63 per cent this year on weak lithium markets and reached an all-time low last month,” said Blackwattle’s portfolio managers, Tim Riordan and Michael Teran. Any offer would have to be at a “significant premium” to realise the company’s growth potential.
Clearly, Rio boss Jakob Stausholm wants to bulk up the company’s relatively small investment in lithium by buying an existing company with mines and processing assets for a cheaper price than developing it from scratch.
Not only does the deal make sense for Rio, but even if it paid well over $6 billion, the mining giant would hardly be betting the whole farm. In the rarefied world of the world’s giant miners like BHP and Rio, a price tag of $6 billion doesn’t really move the needle very far.
Rio Tinto is expected to start producing lithium from its Rincon project in Argentina before the end of 2024.
Over the past few years, under the auspices of a more thoughtful Stausholm, Rio has been in a fix-it mode, and the play for Arcadium represents the first significant sign of it moving into a more aggressive phase.
And there is nothing to stop Stausholm from attempting to pick off additional lithium assets while the metal’s price is in distressed territory. However, it will be a very big bet from him on lithium prices roaring back to recovery over the long term.
With the takeover dance between Rio and Arcadium now officially kicking off, a fresh round of lithium games can begin. And Rio will be hoping to get one over BHP in the takeover stakes.
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