“The time to buy is when there’s blood in the streets.”
– Baron Nathan Rothschild
Whether or not Rothschild actually said those famous words is debatable. But pretty much every investor has heard them and knows what they mean.
The best time to get into an investment is when nobody else wants to.
Modern day guru Warren Buffett basically agreed when he said, “You pay a very high price in the stock market for a cheery consensus.”
Stepping into the breach when an investment is no small feat. But it can be a signal that a change in direction is on the horizon (remembering, of course, that “the market can stay irrational longer than you can stay solvent”).
In any case, a recent “blood in the streets” development may be shaping up these days. And mining investors should be aware of it…
Here’s the story…
The Rise and Fall of “White Gold”
Throughout 2021 and 2022, driven largely by China’s EV boom, the price of lithium soared by a factor of 10x — rallying from around $8,000 per metric ton to over $80,000.
Among all the battery metals that enjoyed the ride, lithium was the star. Everyone wanted in. In March 2022, mining giant Rio Tinto bought the Rincon lithium mine — a project with an estimated 40 year mine life — in Argentina for $825 million.
But like all markets that explode on the back of an investment hype cycle, someone has to buy the high. That someone looked to be Rio Tinto.
One year later, the price of the “white gold” had plummeted back nearly to where it started and now trades around $10,000 per MT.
And Rio Tinto rode its investment all the way down.
But this past month, despite a nearly 90% drop in lithium’s price (and the mine’s value), Rio is making a move to build out its investment.
In December, the company announced…
Source: Rio Tinto
The plan is to build a lithium processing plant at their Rincon mine in Argentina with a production capacity of 60,000 metric tons of lithium carbonate per year. Construction is expected to begin in mid-2025 and go into production in 2028.
If that weren’t enough, they’ve signed an agreement to buy Arcadium Lithium for $6.7 billion.
With the pending purchase of Acradium, Rio gets access to lithium mines in Argentina and Australia; processing facilities in the US, UK and Asia with a production capacity of 75,000 metric tons AND “a customer base including Tesla, BMW and General Motors.”
Is this Rio Tinto’s “blood in the streets” bid on lithium?
3 Reasons This is a Play to Watch
Any investor who buys a stock and then watches its value plunge by 90% would likely consider dumping it somewhere along the way. But resource mining companies don’t think that way,
A major mining company like Rio Tinto takes the long view for any major investment.
Lithium prices collapsed as a result of an imbalance of supply and demand caused by China’s over production of lithium carbonate. China has since dialed back.
A rebalancing of supply and demand would lead to a rebound in prices. And the International Energy Agency (IEA) has gone so far as to project a possible lithium shortfall by 2030.
So while $85,000 per metric ton may not be in the foreseeable future, higher prices are still a good bet
Rio Tinto CEO Jakob Stausholm has confirmed this strategic vision:
“The attractive long-term outlook for lithium driven by the energy transition underpins our investment in Rincon. We are dedicated to developing this tier 1, world-class resource at scale at the low end of the cost curve.”
In addition, Arcadium’s operations — which process lithium brine — can currently produce lithium carbonate for roughly $5,500 per metric ton so even at current prices the project is economically viable.
[We should point out the Rio Tinto/Arcadium buy out is not a done deal. It requires 75% of shareholders to agree to it. And currently a number of shareholders have filed suit “alleging misrepresentation and negligence linked to Rio Tinto’s $6.7 billion takeover.”]
They’ve got the support of the country of Argentina as well.
Argentine President Javier Milei’s new administration has established major incentives for companies to invest in the country:
An incentive regime for large investments known by the acronym RIGI includes tax, customs and exchange incentives for a company developing a project of at least $200 million in the agribusiness, infrastructure, forestry, mining, oil and gas, energy or technology sectors.
The benefits outlined in the administration’s incentives will also be guaranteed for 30 years.
There’s no doubt the lithium market has taken a beating for the past two years. But this “blood in the streets” move by Rio Tinto may be indicating that the bottom is close at hand.
And that’s something to watch for…
