22nd Dec 2021 21:45
(Alliance News) - Rio Tinto's acquisition of the Rincon lithium project in Argentina for USD825 million is an interesting one, Berenberg said on Wednesday.
Late Tuesday, the miner said the deal to buy the large undeveloped lithium brine project underscores its commitment to build its battery materials business. The project is a long life, scaleable resource capable of producing battery grade lithium carbonate, Rio Tinto flagged.
"The market fundamentals for battery grade lithium carbonate are strong, with lithium demand forecast to grow 25-35% per annum over the next decade with a significant supply demand deficit expected from the second half of this decade," the FTSE 100 constituent said.
Berenberg said the deal is a reflection of Rio's intent to gain more exposure to battery metals.
"Given a compelling initial [net present value], this looks like a sensible deal, although ensuring that the process works on a commercial scale and that costs are accurate is a key risk," the German bank said.
Once bought, Rincon will be subject to studies to confirm the resource, and work will be done to determine the development strategy and timing. The deal is expected to complete in the first half of 2022.
"This acquisition is strongly aligned with our strategy to prioritise growth capital in commodities that support decarbonisation and to continue to deliver attractive returns to shareholders," said Chief Executive Jakob Stausholm.
"The Rincon project holds the potential to deliver a significant new supply of battery-grade lithium carbonate, to capture the opportunity offered by the rising demand driven by the global energy transition," said Stausholm. "It is expected to be a long life, low-cost asset that will continue to build the strength of our Battery Materials portfolio, with our combined lithium assets spanning the US, Europe and South America."
Even if capital expenditure and operating costs creep, Berenberg said Rio Tinto can "comfortably" afford the acquisition and it still appears to present a low-cost and scalable project in an attractive commodity.
"We view the deal as a small positive for Rio," said Berenberg.
The news comes a few months after Rio decided to plough USD2.4 billion into its Jadar lithium-borates project in Serbia in a bid to bolster its position in battery materials.
First saleable production is expected in 2026 with ramp-up to full production in 2029. Lithium demand is forecast to grow 25% to 35% per year over the next decade, Rio Tinto noted at the time.
Shares in Rio closed down 1.2% at 4,844.60 pence in London on Wednesday, with the stock down 11% since the start of 2021.
By Lucy Heming; [email protected]
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