Rio Tinto is making a $6.7 billion bet on lithium, inking a deal for a major producer just as sluggish electric vehicle sales have sapped demand for the once-hot commodity.
Why it matters: It's a long-term bet on a volatile asset by one of the world's largest miners, part of a plan to shore up capacity in so-called "energy transition commodities."
State of play: Lithium prices are down more than 80% from their 2022 peak when soaring demand for EVs triggered global shortages of the key material in rechargeable batteries.
The Global X Lithium & Battery Tech ETF, an index that tracks the stocks of companies involved in the industry, is down over 50% from its peak in November 2021.
Between the lines: "This is a counter-cyclical expansion ... increasing our exposure to a high-growth, attractive market at the right point in the cycle," Rio Tinto CEO Jakob Stausholm said in a statement.
Yes, but: The company isn't necessarily getting a steal, the FT noted.
It will pay $5.85 per share for U.S.-based Arcadium Lithium. That's a 90% premium to Arcadium's closing price on Friday.
Meanwhile, the lithium industry is very young, making forecasting more difficult. "We have a short history of data to rely on in anticipation of what will happen next," energy data firm Wood Mackenzie noted in April.
The big picture: It's a bet Rio Tinto was prepared to take, telling investors that it sees "substantial long-term market and portfolio upside."
