Rio Tinto Isn’t Tesla; It Should Hold Fire On a Lithium Bet – by Nathaniel Taplin (Wall Street Journal – November 24, 2017)

Mining is an industry of big upfront investments and long periods of pain or gain, depending on whether the digger bets right or wrong.

It’s understandable, therefore, that Rio Tinto’s reported interest in acquiring a big stake in Chilean lithium-miner Sociedad Quimica y Minera is causing butterflies in the stomachs of some investors.

The miner’s interest in lithium makes sense strategically. Rio is more heavily dependent on iron ore than some of its competitors, and slowdown in Chinese demand seems likely. Boosting their exposure to lithium, a battery component and probable linchpin of an increasingly renewable and electric future, isn’t a bad idea. The problem is price.

Rio has a history of buying into bubbly mineral plays at exactly the wrong time. The company’s $38 billion purchase of aluminum firm Alcan in 2007—the height of the commodities bubble—is widely panned as the worst mining deal of all time.

A potential bid for Potash Corp. of Saskatchewan ’s 32% stake in SQM would be worth about $4.7 billion at current prices, far less than the ill-fated Alcan bid. But there are some worrying similarities.

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