Rio Tinto has made an approach to acquire Philadelphia-based chemical firm, Arcadium Lithium.

The American firm was formed in January in a merger between Livent and Australian company, Allkem. It has mining operations in Argentina and Australia, as well as processing facilities in the US, China, Japan and the UK.

Both firms have stated that the approach is "non-binding" and that there is no certainty that the transaction will be agreed or will proceed.

The FT has stated that the potential deal is the latest sign of consolidation in the global mining industry as firms look to secure materials that are crucial to energy transition.

However, lithium prices have dropped this year due to a “supply glut”, and Arcadium’s share price has fallen 60% since the beginning of the year.

One of Arcadium’s shareholders, Blackwattle Investment Partners, told the FT that Rio would need to offer around $8bn (£6.12bn) in order to make the deal attractive to shareholders.

Investment director at AJ Bell, Russ Mould, said: "Rio Tinto appears to have learned from its mistakes in the commodities boom a decade ago where it overpaid for assets at the top of the market.

"The move on Arcadium Lithium suggests Rio has finally got the memo to buy low, not high. The lithium market has been going through a bad patch of late, depressed by Chinese oversupply and weak demand for the battery material as the adoption of electric vehicles has been slower than expected. That’s depressed shares in Arcadium and created an opportunity for Rio to pounce while the target is down on its luck.

"Rio Tinto will be taking a long-term view of lithium by making this takeover approach. The demand and supply dynamics might be unfavourable now, but longer-term they are expected to improve. Rio Tinto will no doubt want to beat its top tier rivals and become one of the world’s key sources of lithium so as to capitalise on the structural shift to electric vehicles and ongoing demand for consumer electronics. That means securing the best assets now before the market improves."

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