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Rio Tinto expands lithium exploration efforts in Western Australian outback

Rio Tinto (ASX:RIO) is intensifying its search for hard rock lithium in the Western Australian outback by extending an exploration partnership near Sandstone for the third time in two years.

The company aims to bolster its exposure to the crucial battery material as demand for lithium-ion batteries and electric vehicles continues to surge.

Rio Tinto CEO, Jakob Stausholm, has been vocal about the company’s pursuit of lithium assets. In 2022, Rio finalized the $1.2 billion acquisition of the Rincon project in Argentina, near Orocobre’s Olaroz operations.

Additionally, the mining giant produces lithium from waste rock at a Californian mine and has partnered with Canadian spodumene producers in Quebec.

Despite having its licenses revoked in 2022, Rio remains optimistic about its $2.4 billion plan to build Europe’s largest lithium mine in Serbia’s Jadar Valley.

Rio Tinto Exploration, a subsidiary of the company, will begin a drilling program to assess reserves at the Rover Project near Sandstone.

The announcement led to an 11% rally in shares of ASX-listed lithium hopeful Everest Metals, as Rio Tinto Exploration has a binding term sheet with the company and has shown continued interest in non-gold minerals exploration.

Furthermore, Rio recently signed a deal with Canada’s Azimut Exploration, potentially selling a stake in its Corvet and Kaanaayaa lithium properties in exchange for funding from the Australian mining major to support the development of those projects.

Western Australia is the world’s largest source of hard rock lithium, with Rio Tinto generating over 70% of its earnings from iron ore in the region.

Meanwhile, South America leads in brine-based lithium production.

Although Rio Tinto is actively seeking lithium assets, high price tags, even for developments within Western Australia, have deterred the company from engaging in mergers and acquisitions. Rio’s CEO all but ruled out such activity, exemplified by Albemarle Corporation’s failed $5.5 billion bid for emerging lithium miner Liontown Resources.

Australia’s lithium industry has experienced significant growth in the past eight years, driven by rising demand from lithium-ion battery and electric vehicle manufacturers.

The majority of Australian lithium is exported as spodumene concentrate, a lower-priced product with around 6% lithia content, compared to lithium hydroxide.

According to UBS, lithium prices are rebounding after a five-month decline of over 70% following China’s reduction in electric vehicle subsidies earlier this year. The bank predicts that Australian lithium spodumene concentrate prices will average $3,750 per tonne in the six months leading up to December 31.

UBS expects prices to reach $3,500 per tonne in 2024, $3,000 per tonne in 2025, $2,500 per tonne in 2026, and stabilize at a long-term price of $1,300 per tonne.

As commodity prices continue to recover, eyes are now on Chinese electric vehicle sales, which will play a crucial role in determining the future trajectory of the lithium price in the near term.