A riverbed in the Jadar Valley, near Gornje Nedeljice in western Serbia, where Rio Tinto plans to mine and process lithium on a vast scale, on Aug. 12.Vladimir Zivojinovic/The New York Times News Service
A wave of takeovers is poised to reshape the lithium mining industry, with global giant Rio Tinto Ltd. projected to become the dominant producer of an essential metal in a decarbonized economy.
With analysts predicting acquisitions are coming, how is the Canadian government that’s previously pledged to build a domestic critical mineral industry to going to react when foreign buyers begin circling a handful of domestic lithium producers? Based on deals done so far, Ottawa will sign off on any acquisition that doesn’t involve a China-based buyer.
Pure-play lithium producers have become takeover targets because short-term issues in the sector outweigh its long-term potential.
Lithium stocks are in a prolonged slump, after the price of the metal tanked over the past year, in part because of slower-than-expected demand for electric vehicles and their lithium batteries. At the same time, lithium miners spent significant sums developing properties and many are now scrambling to pay down debt.
The downturn represents an opportunity for deep-pocketed Rio Tinto, already dominant in critical minerals such as copper and aluminum. The miner, chaired by former Canadian ambassador to China Dominic Barton, makes no secret of its desire to be a major supplier of EV batteries.
Demand for lithium is expected to more than double by 2030, even with the slowdown in EV sales, according to analyst Ben Isaacson at the Bank of Nova Scotia. In a report, he said: “Rio Tinto is in the business of cyclical commodities and understands the importance of not losing sight of mega-trends like we’re seeing in lithium.”
Rio Tinto already owns a lithium project in Serbia, with reserves large enough to supply 90 per cent of European demand, along with a property in Argentina. However, Serbia’s Jadar development faces protests over potential pollution of farmland and river systems and Mr. Isaacson said it may never receive “the social licence needed to operate.” He predicts Rio Tinto will turn to acquisitions “to achieve its ambitions in the lithium space.”
Canadian-headquartered lithium miners, with mines outside the country, are already on the block. Vancouver-based Sigma Lithium Corp., which has a $1.6-billion market capitalization and properties in Brazil, has been up for sale since launching a strategic review last September. In February, the company grabbed a financial lifeline by signing supply agreements with Glencore PLC, one of the world’s largest miners.
Ottawa tightens rules for approving large mining deals involving critical minerals
Vancouver-based Lithium Americas Corp. also secured a lifeline last year, from a major customer. Automaker General Motors Co. took a US$650-million equity stake to help the miner develop the US$2.2-billion Thacker Pass project in Nevada. Over the past 12 months, Lithium America’s stock price dropped 79 per cent and the company now has a $712-million market capitalization.
Rio Tinto’s most likely target, according to Mr. Issacson, is Arcadium Lithium plc, a mid-sized miner with two properties in Quebec and 10 in Argentina. Arcadium is on the cutting edge of research into processing critical minerals after buying the lithium metal business of Markham, Ont.-based Li-Metal Corp. last month for US$11-million.
Arcadium’s stock price is down 67 per cent over the past 12 months. The Philadelphia-based company’s market capitalization of U.S.$2.6-billion is equal to just 60 per cent of the book value of its assets. Mr. Isaacson said: “Arcadium offers Rio Tinto the full package – a diverse/flexible portfolio of operational mining and refining assets and growth projects in low-risk jurisdictions.”
How would the federal government react to Rio Tinto taking over Arcadium, with its two Quebec projects, or bids for a miner with a Canadian head office and foreign properties? Past experience shows regulators will green-light any acquisition of a junior or mid-tier miner, as long as the buyer isn’t a Chinese state-controlled entity.
In 2022, Industry Minister François-Philippe Champagne ordered Chinese companies to divest stakes in three junior miners – Power Metals Corp., Lithium Chile Inc. and Ultra Lithium Inc. – and said investments by state-owned entities in Canadian critical minerals companies would only be approved on an “exceptional basis.”
However, Arcadium’s Canadian assets changed hands last year, when the company sprang out of the merger of Australia’s Allkem Ltd. and Philadelphia-based Livent Corp., without a whiff of government opposition. Rio Tinto, Glencore and other major miners can expect the same government treatment when bidding for Canadian-headquartered companies developing critical mineral plays outside the country.