Rio Tinto is betting on lithium with a $6.7 billion takeover of Acadium

Rio Tinto has agreed to acquire Arcadium Lithium in a $6.7 billion (£5.1 billion) deal that will make the FTSE 100 group the world’s largest lithium producer.

The mining giant said it would buy the Philadelphia-based company for $5.85 per share, a 90 percent premium to Friday’s closing price.

Arcadium Lithium, formed in January from the merger of Allkem and Livent, operates mines and processing facilities in multiple countries, including China, Argentina, Australia and the US.

It currently produces 75,000 tonnes of lithium carbonate equivalent per year, but has plans to double capacity by the end of 2028.

However, the group’s market capitalization has more than halved from $10.6 billion to around $4.6 billion this year, amid a sharp fall in lithium prices.

Rio Tinto said the acquisition of Arcadium was the “right timing” given the significant drop in lithium prices and expectations that demand for the metal will increase.

The element’s price peaked at around $81,000 per tonne in November 2022, but has since plummeted by more than 90 percent due to a supply glut and weak demand for electric vehicles in key markets.

Lithium and its compounds are often used in rechargeable batteries for electric vehicles, making it a key element in the energy transition, along with copper and aluminum, both of which are heavily mined by Rio Tinto.

CEO Jakob Stausholm said the acquisition of Arcadium was a ‘significant step forward’ for the FTSE 100 company.

He added: ‘This is a counter-cyclical expansion that aligns with our disciplined capital allocation framework, increasing our exposure to a fast-growing, attractive market at the right time in the cycle.’

The acquisition is expected to close in mid-2025, subject to whether Arcadium Lithium investors representing at least three-quarters of all voting rights approve the deal.

Matt Britzman, senior equity analyst at Hargreaves Lansdown, said: ‘It’s a good time to shop for countercyclical assets, and this deal will help propel Rio’s lithium portfolio to new heights, with it already having exposure through its Rincon and Jadar projects.

‘This so-called white gold, a key component in the energy transition with applications in areas such as electric vehicles, is the material that distinguishes Rio from important rivals such as BHP.’

In May, Australia-based BHP abandoned its bid to take over fellow miner Anglo American after raising its bid from £31 billion to £39 billion.

It would have been the largest mining sector takeover deal in history if it had been successful and created a global player in metals such as copper, potash and iron ore.

Anglo objected to the proposed deal over concerns about its complexity and the demand to sell its South African platinum and iron ore divisions.

Rio Tinto shares were down 0.5 per cent to £50.20 on Wednesday morning, meaning they are down around 13 per cent since the start of the year.