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Rio Tinto has agreed to buy Arcadium Lithium for $6.7bn 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 per cent premium to Arcadium’s closing price on October 4. It is the biggest-ever lithium acquisition and will make Rio Tinto the third-largest producer.
“What we are doing today is saying: We are committed to lithium,” Rio’s chief executive Jakob Stausholm said in an interview. The deal is “not transformative in terms of size, but it is more transformative in terms of how it shapes our portfolio”.
Rio Tinto, the world’s second-largest mining company, is a major producer of copper, aluminium and iron ore, and is investing heavily in lithium despite recent falls in its price.
It has dropped 55 per cent in China in the past year, driven by oversupply and lower than expected demand from EVs. Arcadium’s share price has fallen more than 40 per cent since the start of this year.
Stausholm defended the long-term outlook for lithium and said the deal was countercyclical. “[We have] a deep belief that the energy transition will happen, and that will require more batteries, and the physical composition of lithium just makes it perfect for batteries.”
The combined company will produce lithium in Argentina, Australia and Canada, and have significant processing operations in Quebec.
Richard Hatch, analyst at Berenberg, said the deal was “sensible” but that “the price will raise eyebrows”.
“This appears to be a fairly full valuation for a company in a sector which is on its knees due to weak lithium price performance,” he added.
Arcadium’s chief executive Paul Graves said: “We are confident that this is a compelling cash offer that reflects a full and fair long-term value for our business, and de-risks our shareholders’ exposure to the execution of our development portfolio and market volatility.”
Arcadium, which was formed from the merger of Allkem and Livent last year, has long-term supply agreements with carmakers including Tesla, BMW, Toyota and General Motors.
The boards of both companies have unanimously approved the transaction, which will also require approval from 75 per cent of Arcadium shareholders.
In a letter to shareholders, Arcadium’s chair Peter Coleman urged them to approve the deal, noting that the company was “facing challenging market conditions” with the outlook for lithium prices “continuing to remain depressed”.
Including Arcadium’s net debt of $250mn, the enterprise value of the deal would be nearly $7bn. It is expected to complete next year.
Analysts at RBC had expected a deal with a lower price premium of about 30 per cent and an enterprise value of $4.6bn. They calculated that lithium would account for about 4 per cent of Rio’s earnings in 2028, if the transaction completed.
Rio is also trying to build a giant lithium mine in Serbia, but public protests have hampered the start of construction and thrown its future into question.
Rio’s share price was flat at the London market open on Tuesday. Shares in Arcadium, which is listed in New York and Australia, jumped 50 per cent on Monday after the companies confirmed they were in talks.
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