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Bid by Rio Tinto for Stake in the World’s Largest Lithium Miner Shows Growing Interest by Majors

Lithium analyst are watching with interest as news of a bid by Anglo-Australian mining giant Riot Tinto for a piece of the world’s largest lithium miner, SQM, signals a shift that could put Rio right into the production side of lithium.

Lithium mining and production companies on the ground or looking to increase lithium reserves in South America include SQM (NYSE: SQM), Rio Tinto (NYSE: RIO), FMC (NYSE: FMC), and NRG Metals Inc. (TSXV: NGZ) (OTC: NRGMF).

Rio Tinto is said to be considering an investment in Chile’s Chemical and Mining Society (SQM), the world's largest lithium producer. This comes after Canadian PotashCorp. released news of the expected sale of its interest in SQM in order to fulfill the terms of an unrelated merger.

The news is good for the lithium business since Rio Tinto represents another long-term miner jockeying to find a position in lithium as demand for the mineral soars.

This would not be Rio’s only lithium interest; the company is also invested in its 100%-owned lithium and borates mineral project in Jadar, Serbia. However, Jadar is still in the early stages of development, whereas the interest in SQM puts Rio immediately in the lithium production end of the business.

Other lithium companies that could be buoyed by good news of strong mining interest in South America’s prolific lithium region include Sociedad Quimica y Minera de Chile (NYSE: SQM), the largest producer of lithium globally, as well as FMC (NYSE: FMC), the very large, diversified chemical company with significant lithium interest in the region.

Another junior miner is watching the outcome of the deal and its effects on the company’s lithium play. NRG Metals Inc. (TSX: NGZ) (OTCMKTS: NRGMF) is moving quickly to develop a potentially huge lithium brine project in Argentina.

RIO TINTO ENTERS THE FRAY

The news is not a surprise, but Rio Tinto’s timing for a jump to lithium production couldn’t be any better.

The company is said to be weighing its investment in Chile’s Chemical and Mining Society (SQM), based on several factors.

SQM, which has a market value at just over $15 billion, produced roughly 44 million tonnes of lithium carbonate last year and is developing new projects in Chile and Australia.

According to the Chilean news site El Mostrador, Rio is looking at the 32% interest in SQM that Canada’s PotashCorp. must sell in order to be allowed to merge with its smaller rival, Agrium.

PotashCorp is the world’s largest producer of the fertilizer by capacity. The Saskatoon-based company is working with Goldman Sachs and BofA Merrill Lynch to sell its stake in SQM. This sale would allow Potash to fulfill some of the conditions imposed by regulators in China and India required to approve the company’s friendly merger with Agrium.

Potash’s interest is estimated to be worth about $4.5 billion at current market levels.

The news site also suggested that Rio Tinto had already made a bid, which could potentially trump Chinese companies Sinochem, Tianqi and GSR Capital. Each have previously expressed interest in SQM.

Sources familiar with PotashCorp’s stake sale said in September that US chemical company Albemarle Corporation had also expressed its interest in acquiring a piece of SQM.

BEST LOCATION FOR LITHIUM

About two-thirds of proven reserves of lithium are concentrated in a small area of South America in the Lithium Triangle at the intersection of Argentina, Bolivia, and Chile.

Geographically speaking, about 70% of lithium production is based South America, focused mostly on this hotspot for the now widely in-demand metal.

SQM is there. FMC is there. NRG Metals is there. And now Rio Tinto wants to join the ranks.

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