Rio Tinto Ltd (LSE:RIO, ASX:RIO, OTC:RTNTF) should abandon plans to develop the Jadar lithium project in Serbia and instead buy Aussie-listed Arcadium (LTM), or so believes Citi.
The US bank had previously noted that Arcadium was trading well below replacement value, which might make it a more economical option than its own plans.
“On our scenario modelling, acquiring LTM at a 30% premium would achieve a ~16.4% IRR [internal rate of return] - a superior investment option to Jadar with a ~12% IRR.
“In our base case modelling, acquiring Arcadium would see ~3% NPV accretion and contribute ~US$1.9bn (or ~7%) to RIO’s underlying earnings [EBITDA] in 2020.
"Aside from value accretion, we believe Arcadium could deliver Rio Tinto lithium scale (~top 5) in jurisdictions where it is familiar and exposure to IRA-critical (US Inflation Reduction Act) minerals."