Analysis: Rio Tinto's real prize: Arcadium's lithium extraction technology

International Battery Metals

11/10/2024 17:23

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      Rio's $6.7 bln Arcadium buyout brings access to lithium
technology
    

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      Direct lithium extraction could grow to $10 bln annual
industry
    

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      Rio CEO thinks DLE could supply much of world's lithium 
    

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      Analyst sees Rio paying premium for Arcadium's DLE
expertise
    

  
 (Adds comment from DLE technology developer in paragraph 16)
    By Ernest Scheyder and Clara Denina
       Oct 10 (Reuters) - Rio Tinto's  RIO.L  RIO.AX  $6.7
billion buyout of Arcadium  ALTM.N  will give it a suite of
lithium filtration technologies that are poised to revolutionize
how the metal is produced for the electronics and electric
vehicle industries.
    Arcadium's expertise in so-called direct lithium extraction
(DLE) is the real prize for Rio, analysts said, and vaults it
into contention with Eramet  ERMT.PA , Sunresin  300487.SZ ,
Exxon Mobil  XOM.N  and others aiming to make the technology
commonplace in coming years.
    The DLE industry is expected to grow to more than $10
billion in annual revenue within the next decade by supplying
lithium for EV batteries in hours or days, not months or longer
as with existing large, water-intensive evaporation ponds and
open pit mines.
    While DLE technologies vary, they are comparable to
filtration used by common household water softeners and aim to
extract about 90% or more of the lithium from brines, compared
to about 50% using ponds. 
    No one has launched a commercial DLE operation without
ponds, although multiple companies are racing to be first.
    Arcadium, through a predecessor company, was the first to
develop an early version of a DLE technology in the 1990s at an
Argentina lithium brine site that is still operational today. 
    While that site uses ponds in tandem with DLE, Arcadium's
decades-long experience with the technology makes it a
tantalizing prize for Rio as it aims to develop lithium deposits
in Chile, where officials are phasing out ponds and requiring
DLE, and elsewhere. 
    "It (DLE) is actually the solution to provide the lithium
that the world needs," Rio CEO Jakob Stausholm told investors on
Wednesday after announcing the all-cash deal. It values Arcadium
at a 90% premium to its share price before Reuters first
reported the companies were in talks last Friday.
    Arcadium's Argentina DLE operations are located near a DLE
project that Rio paid $825 million for in 2022, though that
project has yet to produce lithium. Arcadium's engineers have
already met with Rio's DLE team, Stausholm said.
    "There's a lot ahead of us and we haven't explored it fully,
yet it's the right technology," he said.
    Though Rio has long been a leader in hard rock mining, it
has far less expertise in the chemical processing at the core of
lithium production. 
    DLE, for example, is just one part of a complex process that
can involve more than 20 steps, including pre-treatment of a
lithium brine and crystallization. 
    Each brine deposit can also have different chemical
compositions - including various levels of calcium, magnesium
and other metals - that must be carefully analyzed. All of those
steps have been studied in depth for years by Arcadium.
    "The key to unlocking initial implementation of DLE tends to
be that know-how plus infrastructure," Arcadium CEO Paul Graves
told investors on Wednesday. "But once you have unlocked it,
it's incredibly quickly replicable."
    Arcadium, through a predecessor company, also holds a stake
in a subsidiary of EnergySource Minerals, a DLE developer that
licenses lithium technology to SLB  SLB.N  and others. When that
investment was announced last December, executives said it could
start commercial production by 2025.
    Samuel Moore, CEO of the EnergySource subsidiary ILiAD
Technologies, said in a statement that his company has enjoyed a
"strong working relationship with Arcadium" and looks forward to
working with Rio.
    "Rio Tinto is paying a premium for Arcadium in part for its
intellectual property around DLE technology," said Chris Berry,
an independent lithium industry consultant.
            
    DLE RIVALS
    Rio's bid to make DLE mainstream will face intense
competition, including from some of the very people who helped
make Arcadium a DLE leader. 
    Arcadium's Argentina DLE site, for example, was developed by
a scientist who is now chairman of International Battery Metals
 IBAT.CD , which has developed a modular DLE facility that
Exxon, Chevron  CVX.N  and others have considered licensing.
    Albemarle, the world's largest lithium producer, is also
testing DLE in Arkansas near its existing bromine operations and
in Chile. SQM, which is headquartered in Santiago, agreed with
Chile's government this year to a plan that will see its
production increase in part due to DLE.
    "DLE is about being a chemical processing expert. Companies
like Arcadium, Albemarle, SQM, they have a lot of expertise that
they can put to work in that area," Eric Norris, head of
Albemarle's energy storage business and a former executive at an
Arcadium predecessor company, told Reuters earlier this year.   
    Vulcan Energy  VUL.AX , privately held EnergyX, Standard
Lithium  SLI.V  and others are also advancing their own versions
of DLE technologies.

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BREAKINGVIEWS-Rio’s $6.7 bln lithium bet is a pricey slow burn  
  urn:newsml:reuters.com:*:nL8N3LL0G5
Rio Tinto goes all in on lithium with $6.7 bln Arcadium buy   
 urn:newsml:reuters.com:*:nL4N3LL0HL
FACTBOX-Arcadium deal to vault Rio Tinto into lithium supplier
big league     urn:newsml:reuters.com:*:nL4N3LL0RH
TIMELINE-Owners of Arcadium's lithium assets through the years  
  urn:newsml:reuters.com:*:nL1N3LJ0OI
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 (Reporting by Ernest Scheyder and Clara Denina; Editing by
Veronica Brown and Jamie Freed)
 ((ernest.scheyder@thomsonreuters.com; X: @ErnestScheyder;
+1-469-691-7667; Reuters Messaging:
ernest.scheyder.thomsonreuters.com@reuters.net))