Mining giant Rio Tinto (ASX:RIO,NYSE:RIO,LSE:RIO) is reportedly exploring the potential acquisition of lithium producer Arcadium Lithium (NYSE:ALTM,ASX:LTM) amid slumping prices in the lithium market.
Arcadium was established earlier this year following a US$10.6 billion merger between lithium majors Allkem and Livent, forming a vertically integrated company with global lithium operations spanning hard-rock mining, lithium brine extraction and chemical processing.
The company’s broad resource base, with assets across Argentina, Australia, Canada and the United States, makes it a highly attractive target for Rio Tinto. The purchase would position the company for strategic growth in the case of an anticipated price rebound.
Reuters reported that both companies confirmed the talks in separate statements, but both declined to provide financial details.
One source told Reuters that the value of the deal could range between US$4 billion and US$6 billion, but some firms believe the valuation could, or should, exceed this figure.
Following the news, Arcadium’s US-listed and ASX-listed shares surged in price by more than 40 percent, triggering gains in other lithium-focused stocks.
M&A ramping up in the lithium industry
Rio Tinto’s move to acquire Arcadium reflects broader consolidation trends in the lithium industry, as major players seek to strengthen their market positions in anticipation of a ramping market geared towards the future.
Just this August, Pilbara Minerals (ASX:PLS,OTC Pink:PILBF), an Australia-based lithium company, announced plans to acquire Latin Resources (ASX:LRS,OTC Pink:LRSRF) in a deal valued at AU$560 million.
This acquisition would give Pilbara access to Latin Resources’ flagship Salinas lithium project in Brazil, diversifying its portfolio beyond its Pilgangoora operation in Western Australia.
Additionally, Mineral Resources (ASX:MIN) continued its growth in the sector in late 2023 by acquiring the Bald Hill lithium mine, which saw its first full production quarter in 2024.
MinRes is part of several lithium joint venture operations in Australia, including the Wodgina lithium mine, which it owns alongside Albemarle (NYSE:ALB), the world’s largest lithium producer.
Mergers and acquisitions have been a recurring theme in the lithium sector this year, as companies prepare for a future where demand for electric vehicles, and consequently lithium, will skyrocket.
Experts anticipate several more deals to take shape as companies seek to strengthen their footholds in key regions.
Lithium prices expected to recover from temporary slump
Overall, the lithium market has experienced significant volatility, with prices falling from their record highs seen in 2022. Analysts attribute this downturn to oversupply in the market, as well as macroeconomic factors such as high interest rates and slower-than-expected EV sales growth.
However, most experts believe the price slump is temporary, with demand for lithium set to rebound as EV adoption accelerates globally.
Rio Tinto’s interest in Arcadium follows continued downward price momentum for lithium this year.
Industry analysts view the timing of the potential acquisition as strategic, allowing Rio to capitalize on the downturn while positioning itself for future growth as demand for lithium is expected to rise significantly in the next decade.
Lithium-ion batteries are integral to the EV industry and demand is projected to increase as major automakers ramp up production of electric vehicles.
If successful, the acquisition would propel Rio Tinto into a leading position in the global lithium market, trailing only Albemarle and SQM in production capacity.
Analysts from Canaccord also estimate that a combined Rio Tinto-Arcadium entity could supply around 10 percent of the global lithium chemicals market by 2030.
Securities Disclosure: I, Giann Liguid, hold no direct investment interest in any company mentioned in this article.