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Arcadium's lithium assets span Quebec, Argentina and

Australia

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Rio Tinto and Arcadium in talks for potential $4 billion

to $6

billion deal

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Analysts support Rio's ability to boost Arcadium's

production

By Ernest Scheyder, Clara Denina

Oct 8 (Reuters) - From northern Quebec's tundra to

Argentina's Andes Mountains and the plateaus of Western

Australia, Arcadium's lithium portfolio, brought

together over almost 40 years, has lured Rio Tinto

as it bids to be a top producer of the EV battery metal

at an advantageous point in the market cycle.

Arcadium's mix of active mines, lithium deposits filled with

decades of supply, and some of the industry's most advanced

processing facilities would complement Rio's output of copper,

iron ore and other critical minerals and help the Anglo-American

mining giant expand its footprint in the global energy

transition.

So far the market is working in Rio's favor, as plunging lithium

prices since January, pressed in part by lower-than-expected

electric-vehicle sales and Chinese oversupply, have stymied

Arcadium's growth plans and forced it to mothball some

operations just to survive.

Rio - which produces no lithium currently - and

Philadelphia-based Arcadium are in talks about a potential deal.

Both companies have said they will not comment further.

The potential buyout's cost-saving measures are winning

support from some analysts, as well as Rio's ability to

"un-constrain Arcadium's production growth," said RBC Capital

Markets analyst Kaan Peker, referring to the lithium company's

need to balance growth against funding requirements.

Given the market malaise, negotiations have begun with what

some investors have criticized as a low deal range of $4 billion

to $6 billion or higher for Arcadium, sources told Reuters.

Arcadium had been signaling since it was formed in January

that it had a top bench of assets not fully appreciated by

markets.

The company's stock had dropped more than 50% before last

Friday as it typically trades in tandem with lithium prices - as

do the shares of many commodity producers - frustrating

Arcadium's leadership.

"We don't believe the portfolio we operate can be found

anywhere else in the industry," Arcadium CEO Paul Graves told

investors during a three-hour presentation to investors on Sept.

19.

Some Arcadium investors are pushing for negotiations to

focus on a higher deal range, arguing that the global reach of

Arcadium's portfolio is unmatched even by industry leaders

Albemarle and SQM and saying that lithium

demand is projected to surge later this decade.

Arcadium expects its adjusted earnings to nearly triple from

2025 to 2028, for example.

Yet if the lithium market weakens further in coming months,

Arcadium risks watching its expansion plans grow even more

expensive and become further delayed, investors and analysts

said.

Rio's balance sheet could easily fund growth without

straining the miner's existing operations, investors and

analysts said.

"Arcadium's portfolio boasts long-life, low-cost projects

... that would enhance Rio Tinto's lithium growth ambitions in

the long run," said Morgan Stanley analyst Alain Gabriel, who

estimates lithium could grow to become about 4% of Rio's annual

revenue should the Arcadium deal go through.

'STRATEGIC RATIONALE'

For Rio, much of the appeal starts in Argentina, where it is

already developing the Rincon lithium project.

Arcadium operates two nearby lithium mines and has three others

under development. The company is also an expert in direct

lithium extraction given its use in the country of a technology

expected to be a growth area in coming years.

In Canada, Arcadium has two hard rock lithium deposits ready

to be developed - yet the company lacks the cash to do so. Rio

could help unlock production there to be ready to meet an

expected surge in demand early next decade, analysts said.

Arcadium flew a contingent of investors to its Quebec lithium

processing site from New York after the September investor day.

"We can see the strategic rationale and potential positives

for Rio," said Bank of America Securities analyst Jason

Fairclough.

Arcadium also controls Australia's Mt. Cattlin lithium mine

as well as processing facilities in Japan, the United States,

the United Kingdom and China. Importantly for Rio, much of

Arcadium's existing revenue comes from Asia, leaving growth

potential across the Western Hemisphere.

"The scale and the quality of these assets allows us to

pursue a program of growth that really can be measured in

decades," Graves told the investor day.

Graves became the CEO of lithium producer Livent in 2018 when it

was spun out of FMC, which had itself in 1985 bought

Lithium Corp of America, which traces its roots back to World

War Two. Graves retained the CEO role when Livent merged earlier

this year with Australia-based Allkem, which had been formed in

2021 when Orocobre bought smaller rival Galaxy Resources and

changed its name.

The merger between Allkem and Livent has proved tense at

times as the legacy Allkem members of Arcadium's board have

clashed over strategy with the legacy Livent members, according

to one source with direct knowledge of the board's

deliberations.

Both sides have an equal number of seats on the board, and

disagreements have fueled stalemates that have proven difficult

in some cases to overcome, the source said, adding that an

acquisition could help solve the stalemate and secure funding

for project expansion.