Why has the Rio Tinto share price dropped today?

Posted: 22 December 2021 12:09 pm

Shares in mining giant Rio Tinto are down more than 15% in the last 6 months continuing to fall in Wednesday's trading.

Shares in mining giant Rio Tinto (ASX: RIO) are among the most traded stocks on the ASX on Wednesday but the stock was the only one among the big miners that is trading deep in the red.

At the time of writing, RIO shares were down 1.5% at $99.92.

What is weighing on the RIO stock price?

The Anglo Australian miner announced overnight it would buy the undeveloped Rincon lithium brine project in Argentina from private equity owners for US$825 million (AUD$1.15 billion).

The project sits in the middle of South America’s so-called "lithium triangle" that hosts several operating and emerging lithium projects.

Rio Tinto said it will update Rincon’s feasibility studies and mineral resource estimates to comply with Australian reporting standards before releasing further details of its plans for the project.

According to an early-stage feasibility study published by Rincon’s private equity owners, the project would require a total outlay of over US$1.5 billion (AUD$2.1 billion) for a 50,000-tonnes a year lithium carbonate production operation.

Rio Tinto is already looking to develop the US$2.4 billion lithium mine in Serbia, which has attracted protests by environmentalists who say it will pollute land and water. The new investment indicates its seriousness about a push into the global lithium market.

Capital intensive

The move comes at a time when lithium is in strong demand globally as a key material used in batteries for electric cars, but also amid increasing pressure on the top miners to cut their exposure to fossil fuels and highly polluting commodities as part of reducing their carbon emissions.

Investors have been somewhat nervous about miners like Rio Tinto pushing ahead into a phase of capital intensive greenfield development in battery minerals at a time when their cash cow iron ore business has seen prices retreat in recent months.

Rio Tinto’s chief executive Jakob Stausholm shrugged off such concerns, saying his company would continue to pump growth capital into commodities that supported decarbonisation of global energy networks.

“The Rincon project holds the potential to deliver a significant new supply of battery-grade lithium carbonate, to capture the opportunity offered by the rising demand driven by the global energy transition,” he said in a statement to the ASX.

Rio Tinto said a pilot plant has already been commissioned to test a novel technology that would extract lithium directly from the brine, with results expected by the end of the year.

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