Rio Tinto purchases Arcadium Lithium at a cost of $6.7bn

Rio Tinto struck a $6.7billion deal to acquire a lithium miner, making it the third largest producer in the world of this key ingredient for electric vehicle batteries.

The London-listed company is paying $5.85 per share in cash. This represents a 90% premium over Arcadium Lithium’s closing price on October 4, which was $3.08, before announced that the two companies were in takeover discussions.

Rio has access to lithium deposits, processing facilities, and mines in Argentina, Australia and Canada, as well as a client base that includes Tesla and General Motors. Arcadium, which has 2,400 staff members, was created by the merger between Livent (an American lithium technology specialist) and Allkem in Australia.

Arcadium’s shares have fallen by 39 percent since the beginning of the year, mainly due to a sharp decline in lithium prices. This was partly caused by an oversupply in China and a fall in demand for electric vehicles. The company was left vulnerable to an acquisition.

Jakob Stausholm said that although it was difficult to predict the future of lithium prices over the next two years, the demand for the metal was expected to increase at a rate of 10% per year until 2040. This would lead to a shortage of supply.

Stausholm stated that the deal would increase Rio’s exposure to “a market with high growth and attractiveness at the right time in the cycle”.

Paul Graves said that the offer from Arcadium Lithium was “compelling” and “reflects a fair and full long-term value of our business, and de-risks the exposure of our shareholders to market volatility and the execution on our development portfolio”.

Rio has two projects in lithium, Rincon, in Argentina, and Jadar, in Serbia. However, neither project has an exact date of production. Jadar has faced delays due to environmental protests. The combined annual output of both mines will be around 58,000 tonnes.

The brine pool at Cauchari Olaroz in Argentina is used for lithium extraction

Arcadium produced 20100 tonnes of Lithium hydroxide, and Carbonate, during the first half of the year, and 53 500 tonnes of Spodumene Concentrate, which is a major source of lithium.

Analysts at RBC Capital had expected $4.6 billion when they confirmed the approach on Monday.

Blackwattle Investment Partners has reacted to the offer by calling it “opportunistic”, as the assets of Arcadium are “not easily replicateable”. The Australian investment company has said that it will vote against the deal as it is currently drafted, insisting on a price closer to $8 billion.

Stausholm (56), denied that the bid was opportunistic, and claimed that investors “voted with their foot” by selling shares before the group’s offer emerged.

Arcadium will account for approximately 5 percent of Rio’s projected total capital expenditure between 2025 and 2026, which is up to $10 billion.

Stausholm confirmed the company’s commitment to its existing dividend policy of paying between 40-60% of earnings as dividends to shareholders.

A number of miners are looking to make deals in order to secure metals that will be needed to transition to low-carbon sources. BHP attempted to acquire Anglo American by making a unsuccessful £39 billion bid in May. Copper is used for green technologies such as electric vehicles, windmills, and energy networks.

Stausholm stated that the copper market was still attractive but the high premiums on the assets were “a problem” when it came to making acquisitions.

Arcadium Lithium shares in New York were 31% higher at lunchtime, $5.55. Rio Tinto’s shares in London closed 4p or 0.1 percent higher at £50.48.