Rio Tinto, China's private equity prepare to bid for lithium producer SQM

LONDON/VANCOUVER (Reuters) - Rio Tinto <RIO.AX. RIO.L, Canada's Wealth Minerals and Chinese private equity firm GSR Capital are considering a bid for a stake in Chilean lithium producer SQM (Sociedad Quimica Y Minera) SQMa.SN, banking sources told Reuters.

An aerial view shows the brine pools and processing areas of the Soquimich (SQM) lithium mine on the Atacama salt flat, the world's second largest salt flat and the largest lithium deposit currently in production, with over a quarter of the world's known reserves, in the Atacama desert of northern Chile, January 10, 2013. REUTERS/Ivan Alvarado

Canada's Potash Corp of Saskatchewan POT.NPOT.TO must divest its 32 percent stake in the Chilean company as part of its merger with rival Agrium Inc AGU.TO.

Given SQM’s market capitalization of around $15 billion, according to Reuters data, this would give a value to the stake of $4.8 billion.

Potash Corp declined to comment and GSR Capital and Wealth Minerals were not immediately available to comment.

Rio Tinto, which sources said is using Credit Suisse to advise on the deal, declined to comment.

SQM said it has received significant interest from potential aquirers as demand rises for lithium, essential for batteries used in electric vehicles.

Beijing is promoting electric vehicles to combat air pollution and help domestic carmakers leapfrog the combustion engine to build global auto brands, making battery and lithium producers attractive assets for Chinese firms.

GSR Capital agreed to buy Nissan’s electric vehicle battery business in May.

Rio Tinto has a potentially huge lithium project in Serbia, but that is not expected to start producing before 2023.

Industry sources say the mining major is keen to develop its understanding of the lithium market by, for instance, acquiring stakes in producers.

But the size of the SQM stake would not provide operational control, which some analysts said undermined the logic of any deal for Rio Tinto.

SQM is being advised by Goldman Sachs and BAML in New York.

Reporting by Clara Denina and Barbara Lewis in London and Nicole Mordant in Vancouver; additional reporting by Rod Nickel and Kane Wu; Editing by Louise Heavens