I have reviewed the announcements and Rio presentation (link below) on its circa A$9.9 billion takeover of Arcadium. Massively positive in my view:
https://cdn.prod.website-files.com/66fe9e93ebe5e8d4a0f32ee3/6706193c4011b737e733a2f3_Acquisition%20of%20Arcadium%20Lithium.pdf1. Rio is going large and long on Lithium - they are believers in Lithium
2. 90% premium to current valuation - underpins long term positive view for sector
3. I am calling bottom of the Lithium cycle (reckon that was a month ago) - this transaction is an indicator that sentiment will turn positive from here
4. Rio is buying 5% of global production today - but prepared to invest Rio capital faster to deliver growth plans (WA hard rock produces ~25% of global production...Rio will need to consider WA if they want a dominant global supply position)
5. A $50 billion Rio writing a $10 billion cash investment in Lithium should not be understated - they are all in
6. Rio are inately analytical and considered - affirms their strong belief in the Lithium sector
7. I really like the chart which compares to the cost curve of Lithium to Copper and the similarities - the supply chain will mature and the suppliers with low cost assets will dominate over the long term, its early days still
8. Rio only want Tier 1 assets
To keep it balanced, some caveats for hard rock consideration...Rio are pinning their flag to brines mostly - and believe they are buying low cost production - counter is Tabba Tabba will be first quartile hard rock mine so ok for Cat. They are especially positively inclined to Direct Lithium Extraction (DLE) and the likelihood of lower cost production from brines; respectfully that still feels some time off (5-10yrs for commercialisation?).
Rio are also pinning their ears back on Argentina and a new Government more favourably inclined to the mining sector and the economy. That bet feels binary to me, and remains a medium to long term risk they will face, which again suggests they ultimately need to look back to WA hard rock as an option for growth/acquisition.
I remain happy to be a long term WC8 holder - tier 1 hard rock asset, on a mining lease, close to port, low cost development and operating. And sitting smack bang in the Pilbara's 25% global production with multiple parties who would benefit from owning the Tabba Tabba ore body to extract cost and operating synergies.
Bring on the resource announcement, bring on a PFS team Cat!
(20min delay)