Rio Tinto’s ‘bite-sized’ Arcadium acquisition makes sense – CreditSights
Diversified major Rio Tinto’s move to acquire Arcadium Lithium in an all-cash transaction of $8.85 a share makes strategic sense, allowing the major to quickly increase exposure to the key energy transition material.
This is according to analysts at CreditSights, who state that through Arcadium Rio Tinto will grow its exposure to lithium without the undue risk of undertaking greenfield projects in high-risk jurisdictions.
“Arcadium is a bite-sized acquisition for a company of Rio Tinto’s scale,” analysts Wen Li, Michael O’Brien and Shreyas Namppthiri note.
Rio Tinto plans to fund the $6.7-billion deal, formally announced on Wednesday, through its existing cash reserves and available credit facilities.
The transaction represents Rio Tinto’s biggest deal since 2007 and marks a significant expansion in its lithium business.
Rio Tinto CEO Jacob Stausholm has stressed the counter-cyclical nature of the transaction, as it comes at a time when the lithium market is experiencing an oversupply and declining prices.
Lithium carbonate prices in China are down more than 85% from their peak in 2022.
In a conference call, Stausholm has said that Rio Tinto believes the market will be under-supplied by the end of the decade, particularly if prices remain in a slump.
Paul Graves, Arcadium CEO, has noted that it is difficult to bring low-cost resources on line from scratch. With Arcadium in its portfolio, Rio Tinto will have the advantage of low-cost lithium production. “We feel very confident there is plenty of scope for more rapid and larger expansion of a low-cost resource like ours,” he says.
The transaction is subject to approval by Arcadium's shareholders and regulatory authorities and is expected to close by mid-2025.
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