Rio Tinto Ltd (ASX: RIO) shares are in focus this week after the mining giant confirmed its interest in acquiring Arcadium Lithium PLC (ASX: LTM).
Arcadium shares have also surged following the announcement, as market speculation suggests Rio Tinto is willing to spend big to secure the deal.
If successful, this acquisition would expand Rio Tinto's position in the lithium market, potentially making it the third-largest lithium supplier globally.
Rio Tinto shares are sitting at $119.32 at the time of writing, up 12% in the past month. But is this a good move for the mining behemoth? Let's see what the experts think.
Image source: Getty Images
Rio Tinto shares in focus on Arcadium play
Rio Tinto's interest in Arcadium Lithium aims to expand its lithium operations. Currently, Rio Tinto owns the Jadar lithium project in Serbia and the Rincon lithium brine project in Argentina.
Arcadium owns assets across Argentina, Canada, and Australia. By acquiring it, Rio Tinto would drastically increase its exposure to lithium without having to open its own operation from scratch.
The combined entity is expected to supply 5% of the world's lithium, a figure that could grow to 6% by 2028.
But is it good for Rio Tinto shares?
Many experts agree that the acquisition of Arcadium would be a strong strategic move for Rio Tinto shares.
Analysts from RBC Capital Markets described Rio Tinto's approach as "opportunistic" and "counter-cyclical," taking advantage of lithium's current price downturn to secure strategic assets.
Lithium prices have fallen over 90% since their peak last year, making this a prime moment for Rio Tinto to expand its battery metals footprint.
It also raised its price target for Arcadium by a third following the deal's announcement, according to The Australian.
Macquarie also liked the deal and the outcomes it could bring Rio Tinto down the line. According to The Australian Financial Review, it noted the "flexibility in project capex spend" in the current lithium market. It said the deal "aligns to Rio's strategy".
Meanwhile, Wilson Asset Management also supported the transaction. Wilson said Arcadium's assets would thrive under Rio Tinto's stewardship. It holds both Arcadium and Rio Tinto shares in one of its strategies.
What's next?
Rio Tinto shares haven't exactly rallied from the announcement, but then again, the company will need some time to prove its success to the market.
This acquisition could mark the largest deal of the current CEO's tenure, following Rio Tinto's U$S3.3 billion buyout of the Oyu Tolgoi mine.
However, there is no guarantee the deal will go ahead, with Rio Tinto stating that the discussions are still in the early stages and non-binding.
Furthermore, the price of lithium is also a topic of discussion. Prices were hit this year as supply came onto the market and demand for electric vehicles waned.
A stronger lithium price would arguably help the deal's success, all else being equal. Time will tell what it does from here.
Foolish takeaway
Rio Tinto's potential acquisition of Arcadium Lithium could prove to be a savvy one. But it relies on lithium prices strengthening and actually making the sales.
Many experts believe the transaction will benefit Rio Tinto, and that it will successfully pull it off. Rio Tinto shares are up 6% in the past year.
