Rio's Stausholm bets big on windfall from lithium shortfall by 2040
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More news: Arcadium shares rose 31% in New York to as much as US$5.56 ($8.28) per share after the announcement of the deal, which was pitched as a countercyclical move in a joint investor briefing by the bosses of both companies.
Conversely, Rio Tinto shares in London fell as much as 1.26% to £4.98 per share.
The deal would make Rio a top three producer of the battery-making metal after Albemarle and SQM, giving it control of over 5% of the global lithium supply with lithium operations in Argentina, Australia, Canada and the US.
Rio's Stausholm told investors the current oversupply and weakness in lithium prices will turn into a supply deficit by the end of the decade, with demand projected to grow at a compound annual growth rate of over 10% through 2040, driven by the increasing need for electric vehicles and energy storage.
At the investor call, Stausholm and Arcadium’s Graves were pressed for details about synergies from the deal. The executives responded by explaining how the proximity of Rio's lithium assets to Arcadium’s, including its projects in Argentina and Canada, would create geographic and operational synergies, which the executives had not quantified publicly.
They said Rio’s financial strength would allow it to accelerate the development of Arcadium’s growth projects, which had been previously slowed amid the fall in lithium prices.
What they said: “We see value in creating lithium hubs in Argentina, where Arcadium’s assets are located near Rincon, and in Canada, where we have significant presence through our aluminium, iron ore and titanium businesses,” Stausholm said.
“This transaction will ensure a reliable, low-cost and sustainable supply of a commodity that is critical to the energy transition.”
“We paid a full and fair value, it’s good news for the Arcadium shareholders but we can create (value) over and above that. The full potential of this portfolio, if it’s executed well, I have no doubt that it will generate a lot of value to the Rio Tinto shareholders.”
When pressed about synergies, Stausholm added: “This is not a kind of merger where you bring two companies together and talk about synergies by taking out a lot of people. No, we need everyone here together to actually accelerate the development, accelerate technology.”
Arcadium’s Graves said: “Lithium demand globally is probably about 1.3 to 1.5 million tonnes, by the end of the decade it's going to be 3-3.5 million tonnes.
"I know there’s the thinking that accelerating our projects is somehow or somewhere going to add more supply. That market is going to be undersupplied by the end of the decade… and the cost curve we believe is only going to get steeper.
"The advantage we have to bring on low-cost while the rest of the industry is going to have to bring on high-cost, we feel very confident there’s plenty of scope for more rapid and larger expansion of low-cost resources like ours.”
Rio Tinto to acquire Arcadium Lithium for $9.9b
The news: Rio Tinto has announced that it will acquire Arcadium Lithium for $9.9 billion.
The numbers: The deal consists of an all-cash transaction for USD5.85 ($12.70) per share, representing a 90% premium of Arcadium’s closing price of USD3.08.
The context: The acquisition will bring Arcadium’s lithium business into Rio’s portfolio as it looks to grow its position in energy transition commodities.
While both boards have approved the transaction, it will be subject to the approval of Arcadium's shareholders and the Royal Court of Jersey, along with regulatory approvals.
Arcadium was formed last year through the merger of Australian producer Allkem and its US peer Livent. Its shares have plummeted more than 46% so far this year amid a slump in lithium prices, making it an attractive takeover target.
What they said: Rio Tinto chief executive Jakob Stausholm said: “Acquiring Arcadium Lithium is a significant step forward in Rio Tinto’s long-term strategy, creating a world-cass lithium business alongside our leading aluminium and copper operations to supply materials needed for the energy transition.
“... This is a counter-cyclical expansion aligned with our disciplined capital allocation framework, increasing our exposure to a high-growth, attractive market at the right point in the cycle.”
Arcadium Lithium CEO Paul Graves said: “We are confident that this 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”.
The sources: ASX announcement, Investor and analyst briefing
