However as he outlined the rationale for the deal on Wednesday, Rio CEO Jakob Stausholm pressured he’s not essentially betting that lithium costs are heading again to the sky-high ranges seen when electric-vehicle gross sales took off lately. Reasonably, in an atmosphere the place low costs are forcing some suppliers to close down, the enchantment lies in the truth that Arcadium is among the lowest-cost producers on the planet.
Rio’s concentrate on large-scale, low-cost mining has confirmed vastly profitable in a lot bigger markets like iron ore. That enterprise has reliably pumped billions of {dollars} in revenue for Rio shareholders even in periods of weak costs and oversupply. These circumstances are likely to flush smaller higher-cost producers out of the market, leaving Rio to reap the rewards when costs rebound.
“One factor that is essential — that’s the mantra of Rio Tinto by many years — is we consider in the associated fee curve,” Stausholm stated. “I do assume it’s going to be very tough to mission the lithium value, but when you consider it, the decrease it goes within the subsequent quick time frame, the upper it should go in a while.”
An ongoing value hunch has seen lithium producers curbing output, suspending enlargement tasks and reining in capital expenditures. With analysts anticipating the market to stay in a surplus for the subsequent couple of years, the bearish sentiment can be weighing on the inventory costs of producers equivalent to Arcadium and Albemarle Corp.
The acquisition will make Rio the No. 2 lithium producer with the most important useful resource base, in keeping with a workforce of Citigroup Inc. analysts together with Paul McTaggart and Kate McCutcheon.
Arcadium’s attraction for Rio additionally lies in chemical experience, with the previous being one of many few world gamers with capabilities to supply battery-grade lithium merchandise utilized in EVs, in keeping with Citigroup. It is usually considered one of simply two lithium-hydroxide producers within the US.
Arcadium’s publicity to 3 top-tier sources in Argentina is one other attraction for Rio, the analysts wrote in an Oct. 9 observe.
(By Mark Burton and Yvonne Yue Li)