Why Arcadium Lithium Stock Soared Today

Arcadiu Litiu (ALT 35.39%) shares rose in trading on Monday. The lithium mining and processing specialist’s share price ended the day up 35.6% and rose as much as 42.9% earlier in the session.

Arcadium’s valuation rose following confirmation that the company is a potential acquisition target for Rio Tinto Group (RIO -0.11%) — the largest mining company in the world. Rio Tinto yesterday published confirmation that it had approached Arcadium about a potential purchase, but no financial details of the offer were disclosed.

Arcadium has officially become an acquisition target

Rio Tinto has made a non-binding offer to acquire Arcadium. Neither side mentioned financial details related to the offer, and both sides said they would not provide further comment until an update is appropriate.

Lithium is a key component of batteries used in electric vehicles and consumer electronics and has a strong demand outlook over the next decade and beyond. On the other hand, excess production from Chinese suppliers has pressured lithium prices in recent years. The acquisition of Arcadium would make Rio Tinto one of the world’s largest lithium producers.

What’s Next for Arcadium Lithium Stock?

Investors should approach Arcadium Lithium stock with the understanding that there is no guarantee that the company is about to be acquired by Rio Tinto. Additionally, the lack of financial specifics means there’s a risk the company could be acquired at a level that offers little or no upside compared to the lithium mining specialist’s current share price.

On the other hand, Rio Tinto or another mining player could end up paying a premium well above current valuation levels, even after today’s big run for Arcadium shares. It is also possible that Arcadium will continue to operate as a standalone business and continue to deliver strong returns for shareholders over the long term. The company anticipates 25% annual growth for combined lithium hydroxide and lithium carbonate sales volumes this year, and the recent acquisition provides likely signals that Rio is anticipating a favorable shift in lithium price trends.