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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.
Rio’s chief executive Jakob Stausholm said the deal would create “a world-class lithium business alongside our leading aluminium and copper operations to supply materials needed for the energy transition”.
Lithium prices have plummeted this year on oversupply and lower-than-expected demand from electric vehicles. Arcadium’s share price has fallen more than 40 per cent since the start of this year.
However, Stausholm said that the acquisition was a “countercyclical” expansion and that it still believed lithium was a “high-growth, attractive” market in the long term.
Arcadium Lithium 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.”
The combined company will produce lithium in Argentina, Australia and Canada, and have significant processing operations in Quebec.
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.
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”.
The boards of both companies have unanimously approved the transaction, which will also require approval from 75 per cent of Arcadium shareholders.
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.
Deutsche Bank analyst Liam Fitzpatrick said in a research note that the combination was a “sensible, well-timed deal”, and noted “we are close to the bottom of the lithium cycle”.