Kristie Batten: Rio goes all in on Argentine lithium

One of Australia’s top mining journalists, Kristie Batten writes for Stockhead every week in her regular column placing a watchful eye on the movers and shakers of the small cap resources scene.

Sentiment in the lithium space has improved this month, largely thanks to Rio Tinto’s (ASX:RIO) US$6.7 billion deal to acquire Arcadium Lithium (ASX:LTM) .

Macquarie believes lithium prices bottomed in early September.

“We note that prices appear to have found support after news that CATL suspended lithium operations and maintenance announcements by smaller lepidolite miners in Jiangxi province,” the bank said.

That, combined with the Arcadium takeover at a 90% premium, has resulted in a good month so far for lithium names.

“The timing of the transaction indicates a counter-cyclical investment by Rio as we believe lithium prices have reached structural support levels,” Macquarie said.

“Furthermore, we think potential Chinese fiscal stimulus aimed at the consumer may elicit corporate M&A activity for fear of missing the next cycle.”

All about Argentina

While Arcadium is incorporated in Jersey and listed in New York and Sydney, the bulk of its value is in Argentina.

It has only one producing asset outside Argentina, Mt Cattlin in Australia, which is likely to be put on care and maintenance next year.

Rio already owns the Rincon lithium project in Argentina where it is building a pilot plant.

CEO Jakob Stausholm said the company had looked at “every single” lithium project in the world this year.

“And that has given us the confidence about what we want to be part of and what we don’t want to be part of,” he said.

“And we became more and more clear that we were very keen on not just developing a spodumene business, but rather producing a battery grade lithium.

“We also realised that in Latin America, you probably find the lowest part of the cost curve, and therefore we like the brines, we like the more exposure to Argentina.”

Earlier this year, Argentina passed the RIGI legislation, targeting incentives for large foreign investments.

“And that’s going to help us not just in terms of an attractive tax scheme, but also in a downside scenario, it provides a lot of protections for our investments in Argentina,” Stausholm said.

Earlier this year, BHP indicated it was comfortable with Argentina when it announced a joint C$4.1 billion bid with Lundin Mining for Toronto-listed copper explorer Filo Corp.

Lack of projects

While Argentina is a hot spot for lithium, Aaron Revelle, managing director of Argentina-focused lithium explorer Pursuit Minerals (ASX:PUR) , highlighted a lack of projects.

‘In Argentina specifically, there are only a limited number of salars and projects, which increases the competition for assets,” he told Stockhead.

“Looking at the landscape, many of these projects are already consolidated or have complex ownership structures that would make acquisition rather difficult.”

Revelle sees Lithium Americas as a prime takeover target given its Olaroz/Cauchari project is just 5km from Arcadium’s Olaroz operation.

“However, Lithium Americas has joint venture interests with Gangfeng Lithium on their register which makes any takeover approach from a major likely to be complicated and force a takeover bid from Gangfeng itself,” he pointed out.

He further pointed to prospective assets including Eramet’s Centenario and POSCO’s Sal de Oro project, though both have large capital costs.

“With a very small number of projects available, there are very few options for the majors to enter the sector, and despite having not done so, we are seeing increasing commentary and calls for companies like BHP, South32 and Glencore to be entering the sector given the long-term prospects as outlined by Rio’s acquisition,” Revelle said.

“It’s the classic supply/demand crunch scenario. As lithium demand grows, which it has done so significantly in the last decade, there will not be acquisition options available for majors to enter the sector and they do run the risk of missing the boat, so to speak.”

Pursuit well positioned

Revelle said the market dynamics positioned Pursuit and its Rio Grande Sur project well.

Rio Grande Sur has an inferred resource of 251,300 tonnes of lithium carbonate equivalent at a grade of 351 milligrams per litre of lithium.

The company recently completed two diamond holes, which yielded lithium grades above 600mg/L lithium in the first hole and preliminary results above 500mg/L in the second.

Revelle said the company was targeting a resource update later this year, while completing works on a lithium carbonate pilot plant to enable samples of technical and battery grade carbonate to be sent to potential customers.

“Looking to next year, we will continue the work to move our plant from Salta to site at Rio Grande where we intend to establish a continuous 250tpa lithium carbonate operation, as well as drill more holes at our Mito tenement in the north of the salar targeting further resource upgrades,” he said.

Pursuit is progressing with studies to look at various commercial-scale operations, the first of which it expects to finalise in the March 2025 quarter.

“When looking at our peers, having a significant resource and the ability to produce lithium carbonate, even at a small scale, makes Pursuit an interesting option for large companies looking to enter the sector,” Revelle said.

At Stockhead we tell it like it is. While Pursuit Minerals is a Stockhead advertiser at the time of writing, it did not sponsor this article.