A 50% rise in the price of a downtrodden lithium producer has boosted investor hopes that a revival in the battery metal is possible after two grim years of oversupply and low prices.
Arcadium Lithium rocketed up from $2.85 late last week to $4.36 yesterday on the New York Stock Exchange, with a similar rise for its Australian listed shares.
South American lithium drying ponds. (Photo by MARTIN BERNETTI/AFP via Getty Images)
Driving the price surge was confirmation that the company was in the takeover sights of British-based mining giant Rio Tinto.
For Arcadium, which was created less than 12-months ago from the merger of U.S.-based Livent and Australia’s Allkem, the interest of Rio Tinto comes at critical time with funds needed to finalise a long list of expansion projects.
For Rio Tinto, Arcadium could be its answer to creating a globally significant lithium business after several years of small moves and development delays.
Once the hottest metal in the commodity sector, lithium has crashed since peaking in late 2022, plunging by close to 90% thanks to a combination of excess production and slower than expected sales of electric vehicles which use lithium in their batteries.
Poor Price Outlook
Rio Tinto’s interest in lithium is not shared by rivals such as BHP and Anglo American which are concerned about the outlook for the price over the next few years.
BHP chief executive, Mike Henry, has said that there are not any lithium mining projects which fit its investment profile with the value in the business in processing, a field in which BHP lacks expertise.
Rio Tinto boss Jakob Stausholm says he is looking well into the future saying earlier this year that he couldn’t care less about the lithium price over the next 12-months, preferring to focus on the market over the next two decades.
Rio Tinto chief executive, Jakob Stausholm, at the China Development Forum in Beijing in March. … [+]
But Stausholm’s vision has been obstructed by a political impasse over the proposed Jadar lithium mine in Serbia which has government support but has become a lightning rod for environmental activists.
Another project, Rincon in Argentina, is a small to development for a big company.
Arcadium, on the other hand, has a long line of assets either in production or soon to be, covering the full range of the lithium business from production of raw material to processing and refining.
Balance Sheet Risks
The other appeal of Arcadium is that it is focused on the North American market with mines in Canada along with processing facilities in Canada and North Carolina.
An ambitious undertaking at a time of weak prices for lithium Arcadium has put its balance sheet under pressure which led to a warning from Goldman Sachs last week that “balance sheet risks remain if lower lithium prices persist.”
The pressure on Arcadium has seen it announce the closure of one of its oldest lithium mines in Australia.
It’s the tough trading conditions which led to a steep fall in Arcadium’s share price, which peaked at $7.11 in New York earlier this year before falling to a low of $2.26 last year.
The start of merger talks with Rio Tinto, which have not yet led to any comments about the terms of a possible deal, has lifted the stock back to $4.17.
Read More: Arcadium Merger Talks Light Up The Downtrodden Lithium Market