Rio Tinto Buys $ALTM for 90% Premium ($6.7bln) Because Why Not Overpay for The Struggling EV Future?

So, it appears Rio Tinto is out here doing what it does best–throwing around billions like it’s friggin pocket change. This time, the world's second largest-miner decided to pull out a whopping $6.7 billion to acquire the U.S.-based Arcadium Lithium. The best part? It’s a 90% premium on Arcadium stock price. Meaning if you’re wondering whether Rio’s execs had a few too many drinks before signing that deal, you’re not alone.

(Source: Giphy) 

In short, Rio Tinto wants to be more than just a company who could give two flying F’s to bulldoze indigenous heritage sites in order to get its dang dirty paws on some iron ore. Nope, in fact, they’ve got their eyes on lithium—the metal that powers your electric car dreams. And in buying Arcadium, Rio is now the third-largest lithium producer on the planet, right behind Albemarle and SQM. 

(Source: Reuters) 

Now with that said, sure lithium prices have been tanking lately, thanks to China flooding the market and EV sales slowing down. But Rio’s CEO, Jakob Stausholm, isn’t sweating it. He’s betting that by 2040, lithium demand is going to skyrocket, driven by electric vehicles and energy storage. So, while everyone else is panicking, Rio’s swooping in and grabbing assets on the cheap. At least, that’s the theory anyway. 

(Source: Giphy) 

However, while paying a 90% premium might sound like someone at Rio forgot to do the math… apparently, they have a plan to justify it. Stausholm likened the deal to a “reverse takeover,” with Rio folding their existing lithium assets into Arcadium’s portfolio. Translation: they’re not just buying mines—they’re buying processing facilities and a customer list that includes the likes of Tesla, BMW, and GM. Basically, they’re hoping to lock down the entire lithium value chain.

(Source: Mining.com) 

But, but, but… again, lithium prices are down, and Arcadium’s stock has been dragging, falling over 18.80% this year. Yet, despite the reality, in Stausholm’s world, this is all about long-term growth. He’s banking on a future supply shortfall, and when that happens, Rio’s gonna be sitting pretty with Arcadium’s Tier 1 assets. 

On the other hand, even though Stausholm’s preaching “long-term” talk, the haterade is real with this one. Meaning, not everyone is convinced this is a genius move. Some analysts think Rio might’ve overpaid—big time. After all, $6.7 billion is a lot to drop on a company whose share price was $3.08 just a week ago. But Rio’s got deep pockets and an even deeper conviction that the lithium market is gonna bounce back.

(Source: Giphy) 

Plus, Arcadium isn’t just some random lithium startup. They’ve got operations and deposits in Argentina, Australia, Canada, and the U.S., along with some of the most advanced processing facilities in the game. Throw in Rio’s existing lithium projects, and you’re looking at a massive lithium empire in the making.

The bigger picture? Rio is positioning itself as a major player in the energy transition commodities market. They’re already big in aluminum and copper, and now with lithium in the mix, they’re covering all the bases for a low-carbon future. 

(Source: Reuters) 

Which to be completely honest, isn’t a bad strategy. We all know about the mass amount of tree-huggers in Washington that are piling big bucks into the “energy of the future” - especially with these Florida Hurricanes being blamed on “climate change”. So with that, if you have something that fits that need of where the smart money is spending, why not max out the leverage, amirite? 

(Source: Stanford Report) 

So with that, what’s the takeaway here? Well, Rio Tinto is no doubt making a bold play for the future, still, are they just throwing money at a problem and hoping it sticks? The jury’s still out. On one hand, Stausholm’s got a point: the long-term demand for lithium is undeniable. On the other hand, overpaying in a down market is a risky move, even for a mining giant like Rio.

Either way, one thing’s for sure: Rio Tinto just made a $6.7 billion bet on the future of electric cars, and the stakes couldn’t be higher. Now of course, only time will tell how all this plays out…

(Source: Giphy) 

But in the meantime, keep an eye on both of these stocks, especially considering Arcadium Lithium has absolutely mooned 85.57% this week mostly off the news. Of course, do what you will with this information, and as always, stay safe and stay frosty, friends! Until next time… 

P.S. While most investors are clocking out this Friday, we have one massive opportunity brewing - and from the looks of it, it’s about to POP! Click here for the details asap before it’s too late.

Stocks.News holds positions in Tesla as mentioned in the article.