About $4b of hidden Arcadium Lithium synergies needed for Rio Tinto to get its money’s worth: analyst

Rio Tinto needs to materialise about $US2.7 billion ($4b) of unapparent value from Arcadium Lithium to make the blockbuster $US6.7b takeover worth it, according to one analyst. A deal was struck on Wednesday for Rio to pay $US5.85 per Arcadium share — a 90 per cent premium to the miner’s last undisturbed trading price. Arcadium has a suite of lithium assets in Argentina, but they are not close enough to Rio’s own Rincon project in the country to justify immediate operational synergies. RBC Capital Markets analyst Kaan Peker said Rio’s heavyweight balance sheet allows Arcadium’s growth initiatives across the globe to be fast-tracked, unlocking extra value, but he believes there is still a gap. “If we include the acceleration of Arcadium’s growth pipeline this adds an incremental $US0.4b to $US0.6b (on) our Arcadium net asset value, leaving $US2.7b of “synergies” required to justify the transaction,” he said. The synergies so far “appear mostly technological in nature — especially around direct lithium extraction (DLE)”, according to Morgan Stanley analyst Alain Gabriel. DLE is the extraction process for lithium brine projects, a vastly different process than what is used at the hard rock lithium mining operations in Australia. Rio’s Rincon project is lithium brine and so are Arcadium’s Argentinian mines. “Although cost and revenue synergies appear limited, Rio Tinto sees opportunities in sharing ‘knowledge’ around DLE, where Arcadium has been the market leader,” Mr Gabriel said. “This may help improve the parameters of the company’s own Rincon DLE project.” Rincon is poised for maiden production by the end of this year. Rio’s shares were up 0.2 per cent on Thursday morning.