Rio Tinto to control third-largest lithium reserves with $6.7B Arcadium takeover

Rio Tinto Group will secure the world's third-largest lithium reserves and resources globally by acquiring Arcadium Lithium, according to S&P Global Market Intelligence data.

Both companies' boards have unanimously approved the all-cash transaction for $5.85 per share, announced Oct. 9, which values Arcadium's diluted share capital at about $6.7 billion. The deal is expected to close mid-2025.

Rio Tinto has struggled to get into the lithium market, with its Jadar project in Serbia running into local opposition, and the company holds the 16th-largest lithium reserves and resources. But the deal will catapult the deep-pocketed miner to third place, behind only Corporacion Minera de Bolivia, also known as COMIBOL, and Sociedad Química y Minera de Chile SA, also known as SQM.

"Arcadium brings the number one lithium resource base in the world; Rio Tinto helps unlock it," Rio Tinto CEO Jakob Stausholm said during an Oct. 9 investor presentation in London.

The deal 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," Paul Graves, Arcadium president and CEO, said in a same-day statement.

Arcadium Lithium formed in January following the merger of Livent and Allkem.

Huge scarcity

Arcadium has "huge scarcity for a western buyer" given its reserves potential and production, Howard Klein, founder and partner of the RK Equity advisory, told S&P Global Commodity Insights.

"In the still-immature lithium industry, it's simply not possible to find Arcadium's collection of majority-controlled, world-class, low-cost chloride, carbonate, hydroxide, metal and butyllithium production in Argentina, the US, Japan and China; its permitted, in-construction and shovel-ready spodumene assets in Inflation Reduction Act-compliant Quebec; and its tier-one customers Tesla Inc., Ford Motor Co., General Motors Co., Toyota Tsusho Corp. and BMW Group," Klein said.

Rio Tinto has committed to lithium production, in contrast to its two primary peers among large diversified miners, BHP Group and Glencore.

"Rio Tinto is the only major mining company that is actively investing in lithium," Alice Yu, S&P Global Commodity Insights' principal analyst of future energy metals, said in an email. "The bid reflects that Rio Tinto remains committed to the long term prospect of lithium and the electric vehicle transition, despite the current lithium market oversupply and slowdown in EV uptake growth in western markets."

For Arcadium, "the primary constraint for us clearly has been capital," Graves told the London gathering regarding the company's ability to execute on ambitions.

"We clearly are extremely keen to find ways to accelerate the projects that within Rio [Tinto] we can, that as a stand-alone company we cannot. And all other things being equal, of course, that will significantly enhance profitability over the next five years," Graves said.

Arcadium said in August that it would pause investment on its Galaxy spodumene project in Quebec. The company also outlined plans to revise the sequencing of its lithium carbonate projects at the Salar del Hombre Muerto operation in Argentina, and execute the Fenix Phase 1B and Olaroz Stage 1 carbonate plants sequentially rather than simultaneously.

Timing is right

Lithium has been in oversupply thanks to rising production and slower-than-expected sales for EVs in China and the US. But Rio Tinto believes the timing is right, and the company expects a compound annual growth rate of more than 10% in lithium demand through to 2040, leading to a supply deficit.

"With spot lithium prices down more than 80% versus peak prices, this counter-cyclical acquisition comes at a time with substantial long-term market and portfolio upside, underpinned by an appealing market structure and established jurisdictions," Rio Tinto said in the Oct. 9 statement.

Rio Tinto said it expects Arcadium's projected growth capital spending to represent about 5% of Rio Tinto's group capital expenditure of up to $10 billion for 2025 and 2026.

With facilities and projects across Argentina, Australia, Canada, China, Japan, the UK and the US, Arcadium's annual lithium production capacity across a range of products including lithium hydroxide and lithium carbonate is 75,000 metric tons of lithium carbonate equivalent (LCE), according to the companies' joint statement. Arcadium also has expansion plans to more than double capacity by the end of 2028.

Arcadium's attributable lithium production is estimated to reach 61,860 metric tons of LCE across three operations in 2024, Yu said. Output is forecast to rise further to exceed 100,000 metric tons of LCE by 2028 with two more assets earmarked to start production by then.

Rio Tinto, on the other hand, "faces social and technical challenges with developing lithium resources organically," Yu said.

"[Rio Tinto] is still years and billions [of dollars] away from honing commercial scale lithium production, including at its Jadar mine in Serbia, and the Rincon project in Argentina," Yu added. "The latter is targeting a small 3,000-metric-tons-of-LCE starter plant to start by end-2024."

Rincon can benefit from Arcadium's brine operating experience in Argentina, as well as the company's experience with applying direct lithium extraction-type adsorption technology at the Salar del Hombre Muerto site.