Rio Tinto Getting Ready to Bid for Stake in SQM

The diversified miner is reportedly working with bank advisors on an offer for a 32-percent stake in top lithium producer SQM.

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Mining giant Rio Tinto (ASX:RIO,LSE:RIO,NYSE:RIO) is working with bank advisors on a bid for a stake in Sociedad Quimica y Minera de Chile (NYSE:SQM), one of the world’s top lithium producers.

Sources familiar with the matter told Bloomberg that the diversified miner is aiming to buy the 32-percent interest in SQM that Canada’s Potash Corporation of Saskatchewan (TSX:POT, NYSE:POT) has to sell in order to complete its merger with Agrium (TSX:AGU,NYSE:AGU).

At current prices, the stake held by PotashCorp, the world’s largest potash producer by capacity, would be worth about $4.8 billion. Rio is said to be working with Credit Suisse Group (NYSE:CS) and Rothschild (EPA:ROTH) to present the potential offer. According to the news outlet, if Rio wins the bid, it would be the company’s biggest acquisition since its $38-billion takeover of aluminum miner Alcan.

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Rio’s current lithium production comes from its Jadar asset, an early stage development project in Serbia. Meanwhile, SQM has brine assets in Chile, where it is one of only two companies allowed to mine for lithium; Albemarle (NYSE:ALB) is the other company. Rio’s current capacity is set at 48,000 MT of lithium carbonate and 6,000 MT of lithium hydroxide.

SQM is currently in a legal dispute over its lithium lease with Corfo, Chile’s state-run development agency, with a decision on the arbitration expected by the end of 2017.

The Chile-based company is also developing the Cauchari-Olaroz lithium project in Argentina in partnership with Lithium Americas (TSX:LAC). Most recently, SQM signed a joint venture deal with Kidman Resources (ASX:KDR) to develop the Mount Holland lithium operation in Australia.

SQM’s share price has doubled since the beginning of the year, driven by the positive demand outlook for lithium. The metal is key element in the lithium-ion batteries used to power electric cars.

It is worth noting that Rio is not the only company interested in SQM’s lithium production. The company has reportedly also attracted interest from China’s GSR Capital, Sinochem International (SHA:600500), battery firm Ningbo Shanshan (SHA:600884) and Tianqi Lithium Industries (SZSE:002466).

On Monday (November 20), SQM’s share price was trading down almost 8 percent in New York, at US$54.94. Meanwhile, Rio Tinto’s share price closed neutral in Sydney at AU$70.80.

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Securities Disclosure: I, Priscila Barrera, hold no direct investment interest in any company mentioned in this article.

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