Rio Tinto's acquisition highlights M&A value of Lithium assets: Wells Fargo
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Investing.com -- Rio Tinto (NYSE:RIO)'s recent acquisition of Arcadium Lithium for $6.7 billion underscores the rising M&A value of lithium assets, according to Wells Fargo analysts.
The deal, which represents a 90% premium to ALTM's closing price on October 4, is expected to close in mid-2025 and values ALTM at approximately 14.4x trailing 12-month EBITDA.
The acquisition price also equates to around $89,000 per tonne of lithium production based on ALTM's current output of 75,000 tonnes of lithium carbonate equivalent (LCE).
Wells Fargo notes that this acquisition strengthens Rio Tinto's position in the lithium market, potentially making it the world's largest lithium resource base on a pro-forma basis.
The acquisition is seen as a move to expand Rio's Tier 1 lithium asset growth, with ALTM expected to double production by 2028, bringing down the cost per tonne to around $45,000.
Wells Fargo highlights Rio Tinto's positive long-term outlook on lithium demand, which is projected to grow at a compound annual growth rate (CAGR) of 10% through 2040.
They explain that by acquiring ALTM closer to the trough of the lithium cycle, Rio aims to position itself as a market leader in lithium processing and benefit from the future supply deficit.
Furthermore, the bank says that for Albemarle (NYSE:ALB), the transaction has broader implications.
Wells Fargo says the deal likely removes ALB from the list of potential acquisition targets, while also suggesting that ALB's production base is undervalued.
Based on the transaction's valuation metrics, Wells Fargo estimates Albemarle could be worth approximately $17.9 billion in an M&A scenario, reflecting its 2024 expected production capacity of 200,000 tonnes LCE.
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