Rio Tinto announced the acquisition of Arcadium Lithium, a US company, for $6.7 billion.
Arcadium’s value is $5.85 a share in the all-cash deal, which represents a 90 percent premium over its October 4 closing price of $3.08.
Rio Tinto has made a strategic purchase to strengthen its position within the sector of energy transition materials, and in particular lithium. Lithium is essential for electric vehicles (EVs) batteries, as well as renewable energy storage system.
Rio Tinto’s Arcadium purchase marks a significant step towards securing the lithium supply
The acquisition of this company comes as global mining companies race to obtain essential minerals for the energy transition.
Arcadium Lithium’s stock has risen 37% in the past week, according to LSEG. The company has a $4.56billion market cap.
Rio Tinto is now a major player in the world of lithium, only second to Albemarle, and SQM – the two global leaders.
Rio Tinto shares on the London Stock Exchange fell 4.7% in one week. The announcement of the deal was seen as an important step towards the long-term goal to build a world class lithium operation.
The addition of this new operation will strengthen its portfolio, allowing it to better meet the demand for clean energy materials.
Rio Tinto’s purchase impacts the market in light of Chinese oversupply
Lithium prices are under pressure from China’s oversupply, which is causing them to fall.
FactSet reports that the benchmark 99.2% Lithium Carbonate price has fallen by over 20 percent year to date, and is currently at $10,800 a metric ton.
Rio Tinto hopes to reduce this market volatility by acquiring Arcadium. This will ensure a constant supply of lithium, regardless of the fluctuations in the market.
The acquisition of this company is part a wider trend by mining giants who want to protect their supply chain for essential minerals.
As the world moves to renewable energy and electric vehicles, the demand for lithium will increase dramatically. This makes lithium one of most desired commodities worldwide.
Rio Tinto moves to consolidate leadership in green materials
Arcadium Lithium’s CEO Paul Graves has expressed his confidence in this deal. He said that it is a good offer to shareholders, and reduces the risk of them being exposed to volatility on the market.
Graves said that this deal will accelerate Arcadium’s strategic plan, benefiting its customers, staff, and communities in which it operates.
Rio Tinto CEO Jakob Stausholm shared this view, and highlighted the acquisition as an important milestone in Rio Tinto’s efforts to transition from fossil fuels to renewable energy sources.
Rio Tinto’s position on a market that is rapidly changing, and where lithium, as well as other important materials, are becoming more significant, has been strengthened by adding Arcadium assets to the portfolio.
The mining industry faces challenges after a failed merger
The deal follows a mega-merger that failed earlier in the year, also within the same industry.
BHP Group pulled out of a possible acquisition by Anglo American in May after that company refused to continue takeover talks.
This deal’s failure was a stark reminder that major mergers are difficult to secure in an industry under pressure from the government and other stakeholders who want the sector to provide essential raw materials for the transition towards greener energy.
Rio Tinto Arcadium Lithium Acquisition: Key Takeaways
Rio Tinto has acquired Arcadium to become a global leader in energy transition. The demand for lithium and other critical minerals is growing.
Rio Tinto has secured its lithium supply chain with the $6.7 billion purchase. This will help it navigate volatile markets and meet future demands.
The company is committed to investing in renewable energy and materials, which is reflected by this acquisition.
As new information becomes available, this post Rio Tinto acquires US lithium producer Arcadium for $6.7 billion may change.
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