Why Arcadium Lithium Stock Exploded 30% and Pushed Piedmont and Standard Lithium Higher Today

Well, that was fast! Just five days ago, Arcadiu Litiu (ALT 30.66%) the stock began an impressive rise on rumors that the British mining giant Rio Tinto Group may be interested in buying the company. (Or maybe buying Albemarle instead — no one was 100% sure.) On Monday, the stock jumped 36% more when Rio Tinto confirmed that Arcadium was its target.

And now, less than a week after the first rumors surfaced, the deal is done: Rio Tinto has agreed to acquire Arcadium Lithium — and will pay $6.7 billion for the privilege.

Arcadium Lithium stock is up 30.5% as of 10:10 a.m. ET today in response. Other lithium mining stocks follow Arcadium on the rise, with notable performances including Standard lithium (SLI 9.19%) and Lithium Piedmont (PLL 12.57%)increasing by 11.5% and 18% respectively.

Rio Tinto buys Arcadium Lithium

Rio Tinto clearly wanted to get this merger done quickly, and money was no object. The deal is expected to close in mid-2025. Rio will pay $5.85 per share to own Arcadium Lithium, or more than twice the $2.80 Arcadium’s shares were going for before Australian first reported last week that a deal could be in the works — and Rio Tinto will pay all in cash.

The valuation works out to a substantial 30x trailing 12-month earnings of Arcadium Lithium and an even more troubling 7.4x trailing-12-month sales. For comparison, Piedmont only costs 3.7 times sales. (But then again, Piedmont isn’t profitable, and Arcadium is. Standard Lithium, by the way, has no sales at all.)

On the other hand, much larger lithium stocks such as Albemarle and Chile Sociedad Química y Mineraor SQM, sells for significantly lower multiples of just 1.6x sales and 2.2x sales, respectively.

Is It Time to Buy Lithium Stocks?

At $5.55 a share today, there’s only about a 6% difference between what Arcadium costs now and what Rio Tinto plans to pay for it. That being the case, buying Arcadium stock right now might not make much sense given that the potential gains are so small and the risk of the trade not going through and the gains evaporating relatively higher.

On the other hand, there i am plenty of other lithium stocks to consider.

In making the bid for Arcadium Lithium, Rio Tinto immediately said its plan was to buy a “countercyclical expansion in a high-growth market.” Which means Rio Tinto believes the cyclical lithium market has bottomed out and is ready to bounce back.

Simply put, despite the unattractive valuation figures, Rio Tinto believes it is buying Arcadium at a bargain price, and that will become evident as sales grow and profits grow even faster.

The bottom line for lithium investors

As I stated earlier, this smacks of a market timing strategy that Rio is adopting. But Rio Tinto has been in the mining business for more than 150 years. If anyone can time this market accurately, you have to figure it’s Rio. And with lithium prices down 87% from their November 2022 record high, even if Rio is wrong about this being absolute the bottom of the market, you must realize that we are approaching.

However, with Arcadium Lithium shares off the market, what’s the best bet that Rio Tinto is right that the cycle has turned? I can’t say for sure, but you can start with SQM stock. Valued at 2.2 times sales, it is one of the cheapest large lithium miners and probably the cheapest. profitable miner. Although earnings are down right now, analysts have SQM stock pegged for a valuation of just 7.5 times what it expects to earn next year.

If lithium prices have truly bottomed out, SQM stocks could be a great way to profit when they come back.