Rio Tinto (ASX:RIO) is in discussions to acquire lithium producer Arcadium Lithium, both companies confirmed today.
The potential deal comes as lithium prices have plummeted, creating an opportunity for Rio Tinto to secure a significant position in the lithium market, which is crucial for electric vehicle (EV) batteries and clean energy storage.
There were reports on Friday that the two companies were negotiating a deal which would value Arcadium at between $4 billion and $6 billion, though no financial terms were disclosed in the formal statements.
Both companies stressed the non-binding nature of the approach, with Rio stating, "There is no certainty that any transaction will be agreed to or will proceed."
Shares of Arcadium surged 50% on the news, while Rio Tinto’s shares lost 2%.
The slump in lithium prices, driven by oversupply in China, had seen Arcadium’s shares fall more than 50% since January. However, demand for lithium is expected to rise later this decade, driven by the growing market for lithium-ion batteries.
This acquisition would bolster Rio’s lithium portfolio with Arcadium’s assets spanning Argentina, Australia, Canada and the United States, and boasting a customer base that includes Tesla (NASDAQ:TSLA), BMW and General Motors (NYSE:GM).
Market reactions have been mixed, with some investors concerned about high valuations.
Andy Forster of Argo Investments noted Arcadium's growth potential but questioned its ability to finance expansion.
Blackwattle Investment Partners argued that a sale price closer to $8 billion would be more appropriate, warning that the offer might undervalue Arcadium’s long-term potential.