The proposed $6.7 billion purchase indicates that the global mining giant foresees a lithium market rebound.

On Oct. 9, Rio Tinto announced plans to acquire lithium producer Arcadium, boosting Arcadium's value and enhancing Rio Tinto's lithium market exposure, crucial for electric vehicle growth.

What does this investment say about the future outlook for the lithium market?

Rio Tinto CEO Jakob Stausholm has maintained an attitude of "cautious optimism" in interviews, demonstrated by the company's shrewd and steady forward momentum, as well as a willingness to push back and both speak and act decisively in everything from business relationships with China to the repatriation of manufacturing back to the U.S. and EU.

There has been constant press concerning lithium oversupply and its flagging prices. Rio Tinto's willingness to pay a premium of $6.7 billion to become a major global player in lithium seems to indicate that the global mining company believes we may be at the bottom of the market for lithium and foresees an overall upward trajectory of battery metals as a whole.

The Arcadium purchase will allow Rio Tinto to continue to diversify its revenue sources and be an even bigger player in the global energy transition metals markets – the company has also expanded its aluminum and copper businesses.

Rio Tinto's investment in next-generation direct lithium extraction (DLE) technologies, the development of a 3,000-ton-per-annum lithium carbonate starter plant in Argentina, and continued overtures on its embattled Jadar lithium project in Serbia show that the company is determined to have a strong foothold in the global lithium market, however ugly it is today.

Rio Tinto already maintains several well-established commercial relationships with customers, including Tesla, Panasonic, BMW, General Motors, and Ford. Further establishing itself with a diverse product range and robust supply network will help cement the company as a promising partner of choice for major lithium consumers globally.

Meanwhile, in a presentation of the proposed purchase, focus was put squarely on several key ingredients of lithium-ion batteries.

"Beyond lithium, Rio Tinto supplies aluminium, copper, and the iron ore for steel production – which make up over 40% of the material content of the battery. Indeed, we are the western world's largest producer of aluminium and we are expected to account for 25% of the growth in global copper supply in the next 5 years," said Stausholm. "By shaping our portfolio with a focus on these materials, we are delivering on our purpose of finding better ways to provide the materials the world needs."

In a world where economics and mining intersect, a balance will need to be found between keeping stockholders happy today and keeping an eye on the long-term viability of the business. For Rio Tinto management, buying Arcadium before there is another runup in lithium prices makes good business sense.

"If we just use current prices, the acquisition multiple does make it look expensive – but this doesn't tell the full picture given the expectations of a market recovery for the metal," said MKP Advisors CEO Mark Kelly. "[T]here will be holders who share Rio's view that the current weakness in underlying markets is just a phase, and a strong recovery is ahead."

"This is the kind of deal you'd expect a mining company to do, and the right timing for it," said Kelly, who also warned there was more than just financial risk and reward at play. "The transaction will also need approval by Chinese regulators – given the EU/US and Canada have all imposed aggressive tariffs on Chinese EV's in recent weeks, the underlying topic here is a sensitive one and the market will worry that the approval of a transaction such as this could get politicised."

While the Western electric vehicle market has seen a slowdown, its growth is constant, and the long-term outlook is undeniably positive. The majority of vehicles will eventually be electric or hybridized, and with that surety, the demand for lithium will continue to grow.

This is the crux of investing in products of the energy transition, specifically critical minerals. By their very nature, their criticality belies high risk, high reward. Banking on their necessity plays a long game, fraught with unanticipated upheaval.

However, with the very real worldwide deadlines of 2030-2050 established for reaching net-zero emissions targets, the market also enjoys a rare clarity of vision: a future in which world powers collectively agree, more or less, on the intended outcome. In that sense – though its shape is rapidly evolving, and the bulk of technologies are as yet unimaginable for today's investors and industry leaders – banking on the core building blocks of the future is a good bet.