The world's largest iron ore producer is transforming itself into a processor of high-end, low-carbon raw materials essential to the energy transition.
Multinational mining company Rio Tinto has agreed to buy US company Arcadium Lithium for US$6.7 billion, it announced on Wednesday, a deal that will catapult it to become the world's third-largest miner of the metal used in electric vehicle batteries.
Already the world's largest producer of iron ore, Rio is transforming itself into a processor of high-end, low-carbon raw materials essential to the energy transition.
The market is currently oversupplied with lithium, but Chief Executive Jakob Stausholm said Rio is confident long-term demand will be strong.
Rio said it would pay $5.85 a share in cash for Arcadium, a premium of nearly 90% to its closing price of $3.08 a share on Oct. 4, the day Reuters exclusively reported the potential deal.
London-listed Rio shares were down 0.4% at 1054 GMT. Shares in U.S.-listed Arcadium jumped around 40% on Monday after the companies confirmed the talks.
Rio would gain access to lithium mines, processing facilities and deposits in Argentina, Australia, Canada and the United States to fuel decades of growth, as well as customers including Tesla, BMW and General Motors.
Lithium prices have been hit by a Chinese supply glut and slowing sales of electric vehicles, making the metal's miners attractive takeover targets.
Rio's Stausholm told investors that by the end of the decade the company expects a supply deficit, with demand growing at a compound annual growth rate of more than 10% through 2040, driven by electric vehicles and energy storage.
The current market weakness is an opportunity to acquire high-quality assets at the right price, Stausholm told Reuters .
"We really want lithium for batteries, meaning for processing as well. And then of course we like to be an operator, and if you take those criteria, you get to Arcadium very quickly," he said. "The way you have to think about it is kind of a reverse acquisition. It's not about cutting costs. It's about building faster and better," he added.
The deal will not make a material difference to Rio's current investment plans of up to $10 billion in 2025 and 2026, Stausholm said.
The acquisition will make Rio the third largest producer of this metal for battery manufacturing, behind Albemarle and SQM.
Arcadium Chairman Peter Coleman said Rio will be able to bring its execution expertise and strong balance sheet to help develop Arcadium's assets.
"They don't have capital constraints... For us, we know that growth plans are still dependent on price improvement over the next two to three years, which is a pretty significant improvement from where we are now," he told Reuters.
