The Rio Tinto Ltd. booth on the opening day of the Investing in African Mining Indaba in Cape Town, South Africa, on Monday, Feb. 6, 2023.
Dwayne Senior | Bloomberg | Getty Images
The world’s second-largest miner Rio Tinto said Wednesday it will acquire U.S. lithium producer Arcadium for $6.7 billion.
Rio Tinto said the deal would be an all-cash transaction for $5.85 per share, representing a premium of 90% to Arcadium’s Oct. 4 closing price of $3.08 per share.
Arcadium Lithium’s market value currently stands at $4.56 billion, according to LSEG data, with shares rallying 37% so far this week. Shares were up 30% in the premarket Wednesday at 4.50 a.m. ET time.
Rio Tinto’s London-listed shares dipped 0.5% in early deals Wednesday and have fallen 5% so far this week.
News of the transaction follows an announcement earlier this week that the two companies were in talks. If the deal goes through, Rio Tinto will become one of the largest suppliers of lithium, trailing only after Albemarle and SQM.
Rio Tinto CEO Jakob Stausholm said the purchase 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.”
Arcadium Lithium CEO Paul Graves said his firm was “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 move comes as mining companies seek to secure essential minerals for the global energy transition. Lithium prices have been under pressure as a result of Chinese oversupply. Prices of the benchmark 99.2% lithium carbonate have fallen over 20% year-to-date to $10,800 per metric ton, FactSet data shows.
Graves added that the deal would give the company “the opportunity to accelerate and expand our strategy, for the benefit of our customers, our employees, and the communities in which we operate.”
In the same sector in May, a mega merger broke down after BHP Group said it would not be making a firm offer for Anglo American, after the latter rejected a request to extend takeover talks. The bumper takeover proposal was part of an effort to create a copper mining juggernaut and to capitalize on the base metal’s critical role in the green energy transition.
In a Tuesday note that preceded the deal announcement, CreditSights’ analysts led by Wen Li said that M&A is “probably a better way to quickly gain exposure to lithium” for Rio Tinto, compared to spending billions on greenfield projects in high-risk jurisdictions “that may or may not work out.”
“The deal would allow Rio Tinto to not only add lithium assets but also quickly expand via brownfield investments,” the analysts said.
—CNBC’s Karen Gilchrist and Ganesh Rao contributed to this article.
Correction: This story has been updated with the correct current market value for Arcadium Lithium at the time of publication.