Australian and British mining giant Rio Tinto has agreed to acquire US lithium maker Arcadium in an all-cash transaction for the New York Stock Exchange (NYSE) and Australian Securities Exchange (ASX) listed firm at $5.85 per share.
The deal represents a premium of 90% to Arcadium’s closing price of $3.08 per share on October 4,, a premium of 39% to Arcadium’s volume-weighted average price (VWAP) since Arcadium was created on January 4, 2024, and values Arcadium’s diluted share capital at approximately $6.7 billion.
Arcadium was formed through the all-stock merger of Allkem and Livent, after prices and demand came under pressure; together the two firms had combined revenues of $1.9 billion in 2022.
The deal will bring Arcadium’s lithium business into Rio Tinto’s portfolio, helping to create a global leader in energy transition commodities – from aluminium and copper to high-grade iron ore and lithium, according to a media release.
Arcadium has capabilities in lithium chemicals manufacturing and extraction processes, including hard-rock mining, conventional brine extraction and direct lithium extraction. Arcadium’s current annual lithium production capacity across a range of products including lithium hydroxide and lithium carbonate is the equivalent of 75,000 tonnes of lithium carbonate, with expansion plans in place to more than double capacity by the end of 2028.
Arcadium’s global operations, comprising approximately 2,400 employees, include facilities and projects in Argentina, Australia, Canada, China, Japan, the UK and the US.
Rio Tinto chief executive officer Jakob Stausholm said: “Acquiring Arcadium Lithium is a significant step forward in Rio Tinto’s long-term strategy, creating a world-class lithium business alongside our leading aluminium and copper operations to supply materials needed for the energy transition."
He added: “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. We look forward to building on Arcadium Lithium’s contributions to the countries and communities where it operates, drawing on the strong presence we already have in these regions. Our team has deep conviction in the long-term value that combining our offerings will deliver to all stakeholders.”
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."
He added: This agreement with Rio Tinto demonstrates the value in what we have built over many years at Arcadium Lithium and its predecessor companies, and we are excited that this transaction will give us the opportunity to accelerate and expand our strategy, for the benefit of our customers, our employees, and the communities in which we operate.”
Arcadium is one of the world’s leading global lithium platforms, with diversified production and processing capabilities, a range of lithium products, growth projects, and long-term blue-chip customer relationships. Its Tier 1 assets have maintained high margins through-the-cycle, and its resource base is expected to support around 130% capacity growth by 2028 within Rio Tinto’s existing geographies, the release said. Rio Tinto’s and Arcadium’s combined assets will represent the world’s largest lithium resource base and make Rio Tinto one of the leading lithium producers globally on a pro-forma basis.
Rio Tinto and Arcadium have complementary footprints and experience in Argentina and Quebec, where "Rio Tinto expects to establish world-class lithium hubs" with clear opportunities for sharing skillsets and reducing costs, according to the media release.
The aim of the deal is to combine Rio Tinto and Arcadium’s technological leadership in lithium extraction to become a market leader in lithium processing.
The company said that the deal should contribute to significantly higher EBITDA and free cash flow in the outer years, before anticipated synergies." Rio Tinto expects Arcadium’s projected growth capital expenditure to represent approximately 5% of Rio Tinto’s group capital expenditure of up to $10 billion across 2025 and 2026.
Rio Tinto said it is confident in the long-term outlook for lithium, with more than 10% compound annual growth rate in lithium demand expected through to 2040 leading to a supply deficit.
He company said that "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."
The deal has been unanimously approved by both the Rio Tinto and Arcadium Lithium boards of directors. The deal which will be implemented by way of a Jersey scheme of arrangement, is expected to close in mid-2025. Conditions for the closing of the deal include approval of Arcadium Lithium shareholders and the Royal Court of Jersey. In addition, the deal is subject to receipt of customary regulatory approvals and other closing conditions.
Goldman Sachs and JP Morgan are acting as financial advisors to Rio Tinto and Linklaters is acting as lead legal advisor. Gordon Dyal & Co. is serving as lead financial advisor and UBS Investment Bank as financial advisor to Arcadium Lithium, and Davis Polk & Wardwell LLP is serving as legal counsel.
Analysts at Fitch’s CreditSights’ said: “The transaction makes strategic sense, as it allows Rio Tinto to quickly increase exposure to lithium without the undue risk of undertaking greenfield projects in high-risk jurisdictions.”
The analysts added: “Arcadium is a bite-sized acquisition for a company of Rio Tinto's scale, with pro forma net leverage increasing to 0.5x from 0.2x. While Rio Tinto has more than sufficient liquidity to fund the acquisition ($9.26 billion in cash and $7.5 billion in available credit facilities at the end of Q2 2024), we suspect the infrequent issuer may look to the debt capital market at some point to replenish its liquidity following the transaction.”
