Rio Tinto RIO has completed its previously announced acquisition of Arcadium Lithium for $6.7 billion on receiving the approval from the Royal Court of Jersey.  This will position Rio Tinto as a major lithium producer with one of the world’s largest lithium resource bases.  RIO aims to grow the capacity of its Tier 1 assets to more than 200,000 tons of lithium carbonate equivalent (LCE) per annum by 2028.

Arcadium Lithium - A Strategic Fit for RIO

Arcadium Lithium produces lithium hydroxide, a key component for manufacturing lithium greases, dyes, resins and other specialty applications. Its products are also used in making polymers in a wide range of applications, from fuel-efficient “green” tires to stronger, more flexible adhesives and other pharmaceutical applications. The company has operations across the world, with facilities and projects in Argentina, Australia, Canada, China, Japan, the United Kingdom and the United States. 

In its 2024 financial results, Arcadium Lithium reported revenues of approximately $1 billion and earnings per share of $0.14. It did not provide any outlook for 2025. However, at its Investor Day, held on Sept. 19, the company had outlined two waves of expansions across its large, high-quality and low-cost assets in Argentina and Canada.  

The first wave of the four existing projects is expected to be completed by 2028, which will take its production capacity volume from 75 KT LCE in 2024 to 170 KT in 2028. The second wave of projects is expected to boost capacity further to 295 KT beyond 2028.

Arcadium Lithium’s revenues are expected to witness a Compound Annual Growth Rate (CAGR) of 24% to $2.7 billion in 2028 (from the 2025 base level). EBITDA margin is projected to reach 48% in 2028, highlighting a 1000 basis point expansion from 2025. Margins will be supported by low-cost positions and multi-year customer agreements, higher volumes from expansion and pricing growth. 

Arcadium Lithium’s combination with Rio Tinto is expected to accelerate and enhance these growth opportunities.

Rio Tinto’s Efforts to Grow Lithium Portfolio

Lithium is a critical element necessary for a wide spectrum of applications. Lithium prices have declined 31% in a year due to an oversupplied market. Considering that lithium is expected to play an essential part in the transition to a low-carbon, clean-energy economy, the demand for the metal is expected to grow in the years to come. Rio Tinto is working on building its lithium portfolio to capitalize on this expected demand surge. 

In 2022, RIO acquired the Rincon lithium project in Argentina, and in December 2024, it announced a $2.5 billion investment in the project. Rincon has the capacity to produce 60,000 tons of battery-grade lithium carbonate per year. This includes a 3,000-ton starter plant and a 57,000-ton expansion plant. The mine's ore reserves are 60% higher than the company projected at the time of acquisition. It is expected to operate in the lowest quartile of the cost curve. It has an expected mine life of around 40 years. The construction of the expanded plant is scheduled to begin in mid-2025. First production is expected in 2028, followed by a three-year ramp-up to full capacity.

Rio Tinto also owns the Jadar project in Serbia. The project was put on hold due to environmental protests. However, Serbia’s top court lifted the ban in July 2024. The Jadar Project will now be subject to stringent environmental requirements in compliance with Serbian and EU regulations, including having to progress through an extended phase of legal, EIA and permitting procedures, as well as public consultation and business assessments before a final investment decision is made on its construction. The Jadar project has the potential to be a world-class lithium-borates asset.

Arcadium Lithium, with its top-tier assets, a wide range of products, focus on innovation, flexible network and solid growth plan, will play a key part in Rio Tinto’s growth plans. It will now be rebranded as Rio Tinto Lithium. 

This will position RIO as the largest lithium producer, following the likes of Albemarle ALB and Sociedad Quimica y Minera SQM. Albemarle is the world’s largest lithium producer, with a market cap of about $8.7 billion. Albemarle runs the only producing lithium mine in North America and also has operations in Chile and Western Australia. Chile’s Sociedad Quimica y Minera is the second-largest lithium producer, with a market cap of $11.41 billion. 

RIO Stock’s Price Performance

In the past year, shares of Rio Tinto have gained 2.4% against the industry’s 6.7% decline.

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Rio Tinto’s Zacks Rank & a Stock to Consider

The company currently carries a Zacks Rank #5 (Strong Sell).

A better-ranked stock from the basic materials space is Axalta Coating Systems AXTA, which currently sports a Zacks Rank #1 (Strong Buy). You can see the complete list of today’s Zacks #1 Rank stocks here.

Axalta Coating Systems has an average trailing four-quarter earnings surprise of 16.3%. The Zacks Consensus Estimate for AXTA’s fiscal 2025 earnings is pegged at $2.52 per share, indicating 7.2% year-over-year growth. Its shares have gained 7% in the last year.

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Rio Tinto PLC (RIO) : Free Stock Analysis Report

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