By Ernest Scheyder and Clara Denina
(Reuters) – Rio Tinto is in talks to acquire lithium miner Arcadium, according to three sources familiar with the negotiations. If the deal goes through, Rio would become the third-largest producer of the electric vehicle battery metal.
Following the news of the potential acquisition, Arcadium’s shares surged 36% in extended trading on Friday.
The negotiations have been ongoing, with discussions continuing in London during the LME Week conference this week, one of the sources revealed. An official offer is expected to be made soon, according to the second source. However, the sources cautioned that talks are still in progress and may not necessarily lead to a final agreement.
Philadelphia-based Arcadium could be valued at $4 billion to $6 billion or even higher, stated the third source. None of the sources were authorized to discuss the negotiations publicly.
If the deal goes through, Rio would significantly boost its position as one of the world’s major suppliers of lithium, trailing behind Albemarle and SQM. This move comes at a time when the demand for lithium-ion batteries used in electric vehicles and consumer electronics is expected to soar in the coming years.
The recent drop in lithium prices, partly due to oversupply from China, has made Arcadium an attractive target for acquisition, with its shares declining more than 50% since January.
The specifics of the potential transaction, whether it would involve cash, stock, or a combination of both, remain unclear. Arcadium has reportedly engaged two investment banks to assist in negotiations with Rio, as per the second source.
By acquiring Arcadium, Rio would gain access to lithium mines, processing facilities, and deposits across four continents, positioning itself for substantial growth. Additionally, Rio would inherit a customer base that includes Tesla, BMW, and General Motors.
Both Arcadium and Rio Tinto declined to comment on the ongoing discussions.
Rio Tinto is already a major player in the mining industry, producing materials like aluminum, iron ore, and other metals.
Arcadium, with around 2,400 employees across nine countries, generates 84% of its revenue from Asia, a region with high demand for lithium. This presents growth opportunities as electric vehicle projects gain momentum, especially in the Western Hemisphere.
However, Rio is facing opposition in Serbia for its proposed Jadar mine, which has the potential to supply a significant portion of Europe’s lithium needs. Local communities have been pressuring Belgrade to halt the project, but Arcadium believes the Serbian project may never come to fruition, as per the second source.
Rio could also benefit from Arcadium’s expertise in direct lithium extraction, a technology that aims to extract lithium from brines without the need for evaporation ponds. Arcadium has been using this method successfully since the 1990s in Argentina.
Rio previously invested $825 million in a direct lithium extraction project in Argentina, although the project has not yet started production.
“THE FULL PACKAGE”
Arcadium was formed through the merger of U.S.-based Livent and Australia-based Allkem in January. Speculation about a potential Rio-Arcadium tie-up has been circulating for some time.
Analysts at Scotiabank highlighted the synergy between Arcadium and Rio, stating that Arcadium offers Rio a comprehensive package, making a buyout a compelling option.
At a recent investor presentation, Arcadium outlined its ambitious growth strategy to triple its adjusted earnings by 2028 by developing lithium projects globally.
Rio’s interest in Arcadium comes amidst a wave of deal activity in the mining industry, particularly for critical minerals essential for the global energy transition.
Earlier this year, BHP, the world’s largest miner, made an unsuccessful bid for Anglo American. Glencore, BHP, and other major players are also eyeing critical minerals projects for potential acquisitions.