Rio Tinto PLC (LSE:RIO) shares fell after its lithium exploration licence in Serbia was revoked on environmental grounds.
Serbian prime minister Ana Brnabić announced that the government has abandoned plans for the Jadar lithium mine, following weeks of protests over the potential environmental harm of the project.
“We have fulfilled all the demands from the environmental protests and have put an end to Rio Tinto in the Republic of Serbia,” Brnabić said in a televised address.
The government's U-turn comes ahead of a general election in April and follows deteriorating relations between Serbia and Austrialia after the deportation of Serbian tennis star Novak Djokovic from Australia over its COVID-19 entry rules.
The decision is a major setback for Rio Tinto, which had intended to invest US$2.4bn in the project as part of a move to build its battery materials business.
“Rio Tinto is reviewing the legal basis of this decision and the implications for our activities and our people in Serbia,” the company said in a statement.
Rio shares ended the day down 4.1% in Australia, having fallen by as much as 5.1% at one point. The shares fell by 3.08% to 5,408p in early Friday trade in London.
The Australian government said it regrets Serbia's decision to revoke Rio's licences.
"We note the strong economic benefits of the significant investment by Rio Tinto in Serbia. Australian resources companies have an outstanding reputation around the world, particularly when it comes to their expertise," it said in a statement to Reuters.
The Jadar mine was expected to produce up to 58,000 tonnes of refined battery-grade lithium carbonate a year, making it Europe's biggest lithium mine by output.
Reuters reported that the world's shortage of lithium had been forecast by experts to last for another three years at least, but with the cancellation of the Jadar project, the shortfall would now last for several years.