Rio Tinto Limited (Rio Tinto, the Group, ASX; RIO) is the world’s second largest metals and mining corporation behind BHP. It was founded in 1873 when a group of investors purchased a mine complex on the Rio Tinto, in Huelva, Spain, from the Spanish government. Today the Group operates in 35 countries, employs 57,000 people and produces iron ore, copper, aluminium and critical minerals, with a shifting focus to materials needed for the global energy transition, including lithium.

Transaction Details

Rio Tinto and Arcadium Lithium plc have definitively agreed the terms of a friendly merger where Rio Tinto will acquire Arcadium Lithium in an all-cash transaction for US$5.85 per share. The price represents a 90 percent premium to Arcadium’s closing share price of US$3.08 per share on 4 October 2024 and a 39 percent premium to Arcadium’s volume-weighted average share price since its listing on 4 January 2024.

Arcadium was created from the merger of US-based Livent and Australia’s Allkem, and its shares are listed on both the ASX and the New York Stock Exchange. Arcadium has expertise in in all aspects of the lithium value chain from hard-rock mining, conventional brine extraction and direct lithium extraction to lithium chemicals manufacturing and long-term, blue chip customer relationships. The customer base includes Tesla, Ford, BMW, Toyota, and General Motors.

The agreed purchase price of US$6.7 billion is financially immaterial to Rio Tinto which has a market capitalisation of US$117 billion. Rio expects Arcadium’s projected growth capital expenditure to represent just 5 percent of its total capital expenditure of up to $10 billion across 2025 and 2026. However, the transaction is strategically significant to Rio given its counter-cyclical expansion plans to unlock the full potential of Arcadium Lithium’s Tier 1 resource base, in a high-growth market.

Strategic Rationale

Rio’s intending purchase of one of the world’s leading global lithium platforms with established production and processing capabilities will position Rio Tinto as the owner of the world’ largest lithium resource base and as one of the leading lithium producers globally. Lithium is one of the cornerstone materials for the energy transition, with demand forecast to grow at 10 percent per annum out to 2040.

Following implementation of the merger, Rio will own and have access to lithium mines, processing facilities and deposits in Argentina, Australia, Canada and the United States to fuel decades of growth, as well as a customer base comprising the world’s largest manufacturers of electric vehicles.

As one of the largest lithium producers in the world, Rio anticipates increasing demand for

lithium by the end of the decade as the world moves to a sustainable energy solution. Rio now considers itself as global leader in energy transition commodities – from aluminium and copper to high-grade iron ore, and now lithium.

The merger is well-timed and opportunistic on two fronts. Firstly, once considered the hottest metal in the commodity sector, lithium has crashed since peaking in late 2022, plunging by almost 90 percent, following an excess of production and slower than expected sales of electric vehicles which use lithium in their batteries.

Secondly, after two years of low prices, Arcadium needs funds to execute on and expand its development portfolio and accelerate the full potential of its Tier 1 resource base. Rio Tinto’s merger effectively de-risks Arcadium shareholders’ exposure to the execution of its development portfolio and market volatility.

Looking Ahead

Lithium demand is forecast to surge later this decade from growth in lithium-ion batteries. In the interim period, the price outlook for lithium is poor. Rio Tinto Chief executive Officer, Jakob Stausholm, says he is looking well into the future and is focused on the market over the next two decades. The market is expected to be in supply deficit from 2030 with the deficit accelerating at least out to 2040.

Analysts consider with the merger complete, the combined Group could account for about 10 percent of global lithium chemicals supply by 2030.

After several years of small moves and development delays, Rio is now firmly positioning itself as a globally significant lithium business at the optimal point in the cycle. Combined with its leading aluminium and copper operations, Rio Tinto shareholders are set to benefit from the Group’s increasing exposure to the supply of materials needed for the energy transition.