Rio Tinto Makes a Multibillion-Dollar Bet Against China
The mining giant pays a premium for a piece of the lithium market Beijing already dominates.
A lithium brine pumping station in Argentina.
Photographer: LUIS ROBAYO/AFPIn commodity markets, betting against China is rarely a good idea. And yet, that’s what mining behemoth Rio Tinto Plc is doing with a $6.7 billion all-cash deal to buy a lithium miner, its biggest transaction in nearly two decades.
Lithium is attracting headlines because it’s – at least for now – an indispensable mineral for the batteries that power electric vehicles1. An EV battery needs up to 85 kilograms (187 pounds) of lithium.
Rio’s purchase of New York-listed Arcadium Lithium Plc for $5.85 a share amounted to a whopping 90% premium to its undisturbed price last week. No matter how one looks at the deal — whether the premia paid or the ratio of enterprise value to underlying earnings — it’s clear that the acquisition is anything but cheap.
The risk for Rio isn’t about demand, as China certainly is building lots of electric vehicles, but supply. Overshadowed by the country’s gargantuan commodity consumption, it’s easy to forget that China is, too, a large supplier of some key raw materials. In some cases, it exploits its own domestic deposits; in others, its state-owned miners move overseas to exploit others.