In early afternoon trade the Rio Tinto Limited (ASX: RIO) share price is higher by around 1% to $71.44 following reports that the mining giant has its eye on an acquisition.
What's happening?
According to Bloomberg, Rio Tinto has its eyes on Sociedad Química y Minera de Chile (SQM).
But the lithium miner, which has a US$110 million joint venture with Kidman Resources Ltd (ASX: KDR), would not come cheap. Based on today's share price, the 32% stake held by Potash Corp which Rio is rumoured to be interested in is worth approximately US$4.8 billion.
Perhaps especially worrying, though, is Rio Tinto's track record with acquisitions. The mining giant has a habit of making acquisitions when commodity prices peak.
It did this with its acquisitions of Canada's Alcan (aluminium) and Riversdale Mining and Coal and Allied (coal). Both commodities were hot at the time of acquisition and soon after slumped significantly.
Will the same happen with lithium?
That's the million dollar question. As a Galaxy Resources Limited (ASX: GXY) shareholder I remain confident that lithium supply will remain tight until at least 2020 due to the electric vehicle boom.
This should mean that the lithium miner's continue to enjoy high prices for the metal for some time to come, allowing them to generate significant free cash flow.
So perhaps this will be an acquisition that finally pays off for the mining giant.
