Rio Tinto’s Acquisition Highlights M&A Value of Lithium Assets, According to Wells Fargo

Investing.com — Rio Tinto’s recent acquisition of Arcadium Lithium for $6.7 billion highlights the increasing value of lithium assets in mergers and acquisitions, according to analysts at Wells Fargo.

This deal, which represents a 90% premium over Arcadium Lithium’s closing price on October 4, is expected to finalize in mid-2025 and values the company at approximately 14.4 times its trailing twelve-month EBITDA.

The acquisition price translates to around $89,000 per tonne of lithium production, based on Arcadium’s current output of 75,000 tonnes of lithium carbonate equivalent (LCE).

Wells Fargo emphasizes that this acquisition enhances Rio Tinto’s position in the lithium market, potentially giving it the largest lithium resource base globally on a pro forma basis.

This move is part of Rio’s strategy to expand its Tier 1 lithium asset portfolio, with expectations for Arcadium to double its production by 2028, which would lower the cost per tonne to about $45,000.

Wells Fargo also has a positive long-term outlook on lithium demand, forecasting a compound annual growth rate (CAGR) of 10% through 2040.

The analysts note that by acquiring Arcadium at this point in the lithium cycle, Rio Tinto seeks to establish itself as a leader in lithium processing and take advantage of the anticipated future supply deficit.

Additionally, the transaction has broader implications for Albemarle. Wells Fargo suggests that the deal likely removes Albemarle from the list of potential acquisition targets and indicates that the company’s production base may be undervalued.

Based on the valuation metrics from this transaction, Wells Fargo estimates that Albemarle could be worth about $17.9 billion in a mergers and acquisitions scenario, reflecting its expected production capacity of 200,000 tonnes LCE in 2024.