The Rio Tinto Limited (ASX: RIO) share price is currently down after announcing the acquisition of a lithium project for $825 million.
Rincon Mining acquisition
Rio Tinto has entered into a binding deal to buy the Rincon lithium project in Argentina.
Management said that this acquisition demonstrated the miner’s commitment to grow its battery materials business and strengthen its portfolio for the global energy transition.
What is Rincon?
Rincon is a large undeveloped lithium brine project located in the ‘lithium triangle’ in the Salta Province of Argentina, an emerging hub for new projects.
Rio Tinto described it as a long life, scalable resource with the potential to have one of the lowest carbon footprints in the industry that can help deliver on Rio Tinto’s commitment to decarbonise its portfolio.
Mining process and lithium market
Rio Tinto said that the direct lithium extraction technology proposed for the project has the potential to significantly increase lithium recoveries compared to solar evaporation ponds. A pilot plant is currently running at the site and further work will focus on continuing to optimise the process and recoveries.
The miner said that the market fundamentals for battery grade lithium carbonate are strong, with lithium demand forecast to grow by 25% to 35% per year over the next decade with a significant supply demand deficit expected from the second half of this decade.
Management comments
Rio Tinto CEO Jakob Stausholm said: “This acquisition is strongly aligned with our strategy to prioritise growth capital in commodities that support decarbonisation and to continue to deliver attractive returns to shareholders.
“ It is expected to be a long life, low-cost asset that will continue to build the strength of our battery materials portfolio, with our combined lithium assets spanning the US, Europe and South America.”
Summary thoughts on this deal and the Rio Tinto share price
I think it makes sense for Rio Tinto to continue to diversify away from iron ore. The Serbian lithium project Jadar is now looking a little uncertain with protests, but this project is a good way to increase exposure to lithium. Time will tell if it was a good price or not.
With the Rio Tinto share price down 25% from its high in August, I think it’s not a bad option for cyclical dividends as one of the blue chip ASX dividend shares.
