Rio Tinto to buy Arcadium Lithium for $6.7 billion

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Rio Tinto has agreed to buy Arcadium Lithium for $6.7 billion in cash, in a deal that highlights how mining companies are positioning themselves for the growth of electric vehicles.

The Anglo-Australian group said it would pay $5.85 per share, a 90% premium to Arcadium’s closing price on October 4. It is the largest lithium purchase ever and will make Rio Tinto the third largest producer.

Rio chief executive Jakob Stausholm said the deal would create “a world-class lithium business alongside our leading aluminum and copper operations to deliver the materials needed for the energy transition”.

Lithium prices have fallen this year due to oversupply and lower-than-expected demand from electric vehicles. Arcadium’s share price is down more than 40% since the start of this year.

However, Stausholm said the acquisition was a “countercyclical” expansion and that he still believes lithium is a “high-growth, attractive” market over the long term.

Arcadium Lithium chief executive Paul Graves said: “We are confident that this is a compelling all-cash offer that reflects full and fair long-term value for our business and de-risks our shareholders’ exposure to the execution of our development portfolio and our market. volatility.”

The combined company will produce lithium in Argentina, Australia and Canada and have significant processing operations in Quebec.

Arcadium, which was formed following the merger of Allkem and Livent last year, has long-term supply agreements with carmakers including Tesla, BMW, Toyota and General Motors.

In a letter to shareholders, Arcadium chairman Peter Coleman urged them to approve the deal, noting that the company “faces difficult market conditions” with the outlook for lithium prices “continuing to remain depressed.”

The boards of directors of both companies have unanimously approved the transaction, which will also require the approval of 75% of Arcadium’s shareholders.

Including Arcadium’s net debt of $250 million, the enterprise value of the deal would be nearly $7 billion. It is expected to be completed next year.

Analysts at RBC had expected a deal with a price premium of less than about 30 percent and an enterprise value of $4.6 billion. They calculated that lithium would account for about 4% of Rio’s earnings in 2028 if the deal went through.

Rio is also trying to build a huge lithium mine in Serbia, but public protests have prevented construction from starting and called its future into question.

Deutsche Bank analyst Liam Fitzpatrick said in a research note that the combination was a “rational, timely deal” and noted that “we are near the bottom of the lithium cycle.”