The ASX lithium share sector jumped higher today following news that Rio Tinto Ltd (ASX: RIO) is interested in a potential deal to buy Arcadium Lithium CDI (ASX: LTM).
Looking at some of the gains for the ASX lithium industry today:
The Pilbara Minerals Ltd (ASX: PLS) share price climbed approximately 2%.
The Liontown Resources Ltd (ASX: LTR) share price went up by around 19%.
The Mineral Resources Ltd (ASX: MIN) share price rose by 4.6%.
The Sayona Mining Ltd (ASX: SYA) share price climbed approximately 13%.
The IGO Ltd (ASX: IGO) share price climbed more than 2%.
Arcadium Lithium shares rose by 47% today following the approach by Rio Tinto.
Image source: Getty Images
What did Rio Tinto say?
As reported by my colleague James Mickleboro, the actual ASX announcement by Rio Tinto was very brief.
All Rio Tinto confirmed was that it had made an approach to Arcadium Lithium to buy the ASX lithium share. Rio Tinto said the offer is non-binding and there is no certainty that any transaction will be agreed or will proceed.
In its reporting of today's events, the Australian Financial Review noted some interesting comments that Rio Tinto CEO Jakob Stausholm made in July. He said:
It's not easy to justify big premiums, and we are definitely not in the M&A game in order to be bigger. We are only in the M&A game if we can create shareholder value.
I couldn't care less about what the lithium price is in the next 12 months. I am more thinking about how will the market and demand be over the next decade or two.
This suggests that Rio Tinto does not want to pay a hugely inflated price to increase its lithium exposure, though the miner is optimistic about the commodity. A takeover price will need to be attractive enough for Rio Tinto to want to proceed with an acquisition. However, Arcadium Lithium shareholders will want a premium large enough to justify handing control of those lithium projects to Rio Tinto.
Why is this boosting the whole sector?
It's a good sign for the lithium industry if a large player like Rio Tinto is willing to pay a much higher price than what Arcadium Lithium shares were trading for last week.
However, it doesn't necessarily mean that a takeover offer is coming for any other ASX lithium share.
Of course, if Rio Tinto is unsuccessful with its Arcadium pursuit, then it may well be interested in looking at another ASX lithium share. However, not all of them have operating projects at the moment.
What next?
Rio Tinto said it "will not make further comment until or unless an update is appropriate." So, investors will have to wait to hear about the size of the offer and what premium Rio Tinto is willing to pay.
For the ASX lithium share sector as a whole, it could take a sizeable recovery of the lithium price to excite the market, which is mainly dependent on supply and demand. Rio Tinto is making a brave move to attempt a multi-billion acquisition while the lithium market is still weak.
