There was talk on here yesterday that Rio could soon be on the lookout for potential acquisitions during the lithium downturn. Read this article from a reputable mining publication with shines some light on the topic. It is opinion only though.
Shopper's Paradise in lithium for RioIt's a shopper's paradise for Rio Tinto as it sets about getting bigger in lithium. Arcadium Lithium, Pilbara Minerals, Patriot Battery Metals, Ioneer, Wildcat Resources, and so on are all in the frame for potential acquisition activity.
Rio boss Jakob Stausholm made that very clear in his musings last week on the potential for the company to add to its fledgling lithium portfolio in order to achieve ‘'meaningful'' diversification from its iron ore dependency.
As it is, Rio already distinguishes itself from the other major diversified miners by having lithium in its portfolio – the Rincon brines project in Argentina and the Jadar lithium-boron project in Serbia.
Rincon steps in to the spotlight later this year with the completion of a feasibility study in to a full blown development after three years of pilot test work for the direct lithium extraction method proposed.
It has come in to its own thanks to the package of incentives for projects costing more than US$200 million introduced by Argentina's anarcho-capitalist president Jaiver Milei, with Rio now keen to demonstrate its $825 million acquisition cost in 2022 was not over the top.
Rio is also more hopeful that opposition to the development of Jadar can eventually be overcome and that it can take its place in Europe's critical minerals supply response.
But both Rincon and Jadar would not meet lithium's meaningful criteria for Rio given the scale of its iron ore, aluminium, and copper interests.
Its why the usually coy Rio – when it comes to potential acquisitions of any sort – was as freewheeling on the subject as it gets when it came to letting the market in on its lithium growth ambitions.
"We might also add in a few other assets, then we have something of scale, something that is sizable at the group level, maybe not as big as our iron ore business, it's difficult to match that one, but something that actually will provide meaningful diversification, and this is important," Stausholm said last week.
It is a good time to be thinking about acquisitions in the lithium space, unlike the copper space where Rio thinks valuations remain too hot for M&A to work.
Current equity market valuations for the best lithium operations and undeveloped projects are at rock bottom in response to lithium prices being slammed due to what Rio and others think is a passing phase of over-supply.
Speaking at investor briefings after the release of Rio's June half profit, Stausholm emphasised he was talking about the long term outlook for lithium prices.
"It doesn't really matter what the lithium price is for us in the short term."
"We really have to think about what's going to be the average price over the next 10, 15, 20 years. I think it's fairly given that the world will need lithium because you do need lithium for at least high-performance batteries," he said.
"And the world needs more batteries."
There was more comfort from Stausholm for the currently struggling lithium sector. He said a different way of thinking was required when it came to lithium's outlook compared with iron ore, copper, and aluminium which are growing at 1%-3% a year.
"Lithium is growing at a double-digit number. And that means that it's not about the opex of the existing plants, because the existing mines cannot produce what the future requires."
"No, it has to be attractive to invest, to build new mines. And therefore, you have to look at the curve of cost, both capital and operational. And on that front, we have done a lot of studies of that," Stausholm said.
"And that's why it's not a matter of we want to be bigger in lithium, it's a matter of we would like to get into what will become future tier one assets in lithium, because there's definitely a difference."
It is why the companies mentioned above – Arcadium, Pilbara, Patriot, Ioneer and Wildcat – would rank highly on Rio's shopping list, amongst others.
Arcadium gets a guernsey for its Argentina exposure and processing expertise, as does Pilbara for its hard-rock scale in a part of the world Rio knows well, along with its firming integrated status.
Then there is the scale of Patriot's hard-rock project in the James Bay region of Canada and its gateway status for Rio in to the North American supply chain. The same goes for Ioneer with its government support for its project in Nevada, a lookalike of sorts to Rio's Jadar thanks to its co-product of boron.
Rounding out the list is the rising status of Wildcat's discovery in the Pilbara, again because of its emerging size and its location in Rio's backyard.
There are other projects out there that Rio would probably like to own. But other players like Chile's SQM, Albemarle of the US and our own Gina Rinehart have them locked up. They too are looking beyond the current noise to the long-term trend in lithium in demand and associated incentive pricing.
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