Can lithium charge the Rio Tinto (ASX:RIO) share price higher?

Will lithium play a bigger role for Rio Tinto in the coming years?

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Key points

  • Rio Tinto is building its exposure to lithium. Can it help the Rio Tinto share price?
  • Rincon is a large undeveloped lithium brine project in Argentina
  • Jadar is one of the world’s biggest greenfield projects, based in Europe

The Rio Tinto Limited (ASX: RIO) share price has jumped 25% over the last two months amid a partial recovery of the iron ore price.

The mining giant pointed out that China is transitioning from tightening to easing policies after a slowdown in the last quarter of 2021, with mild pro-growth measures in place to support property, infrastructure and consumption. Rio Tinto expects China to continue to finetune its policies to balance multiple priorities.

Right now, iron ore makes up a large percentage of Rio Tinto’s earnings. However, can lithium play a bigger part in the company’s future?

Lithium plans

The mining giant is working on growing its exposure to lithium.

Rio Tinto acknowledges that the market fundamentals for battery grade lithium carbonate are strong, with lithium demand forecast to grow between 25% to 35% per annum over the next decade with a significant supply demand deficit expected from the second half of this decade.

Its latest move was announced in December. It has entered into a binding agreement to buy the Rincon lithium project in Argentina for $825 million.

Rincon is one of the largest undeveloped lithium brine projects in the world, located in the heart of the lithium triangle of Salta Province. Rio Tinto noted that the project will have a long life, capable of producing battery grade lithium carbonate. It has the potential to have one of the lowest carbon footprints in the industry.

Lithium carbonate is an important material used in large scale batteries for electric vehicles and storing renewable energy. Lithium could be helpful in the long-term for the Rio Tinto share price. Huge demand for lithium has already sent the lithium price soaring in 2021.

Work is going to be undertaken to determine the development strategy and timing, as well as go through a number of other steps needed to make progress on the Argentine project. This transaction is expected to be completed in the first half of 2022.

Jadar

Rincon is not the only lithium project that Rio Tinto is working on.

The Jadar project in Serbia is one of the world’s largest greenfield lithium projects. Jadar is a lithium-borates project. This project will produce battery grade lithium carbonate.

Rio Tinto has explained that this project could be particularly important for the European lithium market. It could position the ASX miner as the largest source of lithium supply in Europe for at least the next 15 years. It could supply enough lithium to power over one million electric vehicles per year.

On top of lithium, Jadar will produce borates, which are used in solar panels and wind turbines.

The initial plan was to ramp-up to full production in 2029. The mine is expected to produce around 58,000 tonnes of lithium carbonate, 160,000 tonnes of boric acid and 255,000 tonnes of sodium sulphate annually. This would make Rio Tinto one of the top ten lithium producers in the world.

However, there has been a hitch for Rio Tinto. As acknowledged in July 2021, Jadar remains subject to receiving all relevant approvals, permits and licences and ongoing engagement with local communities, the Serbian Government and civil society.

There have been protests in Serbia about the potential environmental impacts of Rio Tinto’s mining activities. This has caused delays to the approval of the ‘exploitation field licence’. First saleable production is now expected to be no earlier than 2027. It was previously 2026.

Analysts thoughts on the Rio Tinto share price

Brokers think that high lithium prices are going persist as demand outstrips supply.

Ord Minnett thinks that lithium could make up over 5% of Rio Tinto’s overall earnings by the end of the decade.

However, the iron ore price continues to be the biggest factor for the Rio Tinto share price. Ord Minnett currently rates Rio Tinto as a ‘hold’, but with a price target of $102.

UBS rates the Rio Tinto share price as a sell, with a price target of just $80 because of expectations that the iron ore price could drop.

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Motley Fool contributor Tristan Harrison has no position in any of the stocks mentioned. The Motley Fool Australia's parent company Motley Fool Holdings Inc. has no position in any of the stocks mentioned. The Motley Fool Australia has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Bruce Jackson.

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