MELBOURNE – During the financial crisis,  Rio Tinto Group needed cash and tried to unload its oldest mining business – one that began in 1872 hauling borates salts by mule from Death Valley to make US laundry soap. The company gave up on a sale because no one would pay the asking price. A decade later, the business is poised to be one of Rio’s most promising.

That’s partly because a borates deposit Rio discovered in the hills of Serbia contains a huge amount of another mineral that is becoming a hot commodity for the 21st century – lithium – used to make batteries that run electric cars and all sorts of mobile devices. London-based Rio, already a major producer of coal, aluminum, iron ore and copper, says the Jadar project could supply about 10% of global demand for the metal.

With sales expected to triple by 2025 to about $6-billion annually, lithium may exceed the size of the market for tin, a metal used widely in cans and steel. Jadar is so rich in lithium that it could make Rio a top-three producer while also providing a low-cost supply of borates, which have expanded their usefulness well beyond soap to parts for nuclear reactors and smartphones. Borates already deliver better profit margins than aluminum and coal.

“They would need to ensure that they could sell all the lithium they could make at Jadar, and then they would increase their profit in selling the co-produced borates,” said Jon Hykawy, president of Toronto-based consultant Stormcrow Capital “Jadar could be their lowest-cost source of borate chemicals.”

Rio declined 1.8% to A$66.60 at 11:41 a.m. in Sydney trading.

The borate project in Serbia comes amid forecasts of rising global demand for the mineral with a market valued at about $4.9-billion annually, according to researcher IndexBox Marketing And Rio, already the second-biggest producer, would stand to benefit if political turmoil disrupts exports from Turkey, the largest supplier, Stormcrow’s Hykawy said.

Expanding Rio’s share of the borates and lithium markets will have some appeal for investors, especially with the recent rebound in commodity prices, according to Jeremy Sussman, an analyst with Clarksons Platou Securities Inc. in New York.

DIVERSIFIED ASSETS
“Heading into last year, the theme was hunkering down and concentrating on what you did best,” Sussman said. “There’s an increased investor appetite out there for diversification.”

Profit margins on Rio’s borates unit were 34% in 2015, better than aluminum and coal operations and in line with returns from copper, company financial data show.

“Some of our assets may be smaller, but they are valuable and highly cash generative,” Chief Executive Officer Jean-Sebastien Jacques told investors at a Dec. 6 London seminar. “A good example is our borates business. We are happy to keep this broader perspective.”

Rio still has work to do before Jadar produces anything. The company says it will complete a feasibility study later this year. That includes a way of processing the Serbian deposit, which was discovered in 2004 about 140 kilometers (87 miles) west of Belgrade.

Jadar’s combination of borates and lithium is unique to geology, prompting scientists to give the ore a name – jadarite. The mineral has an almost identical chemical composition as the one given to kryptonite, the fictional material that weakens America’s first comic book super hero, Superman. Construction has begun on a pilot plant at Rio’s innovation center in Melbourne that’ll test technology needed to produce boric acid and lithium carbonate from the site’s ore.

Lithium prices in China are as much as three times higher than they were at the start of 2015, fueled by increased demand from battery makers, Galaxy Resources Managing Director Anthony Tse said last month in an interview. Battery-grade lithium carbonate will reach $9,800 a metric ton on average by 2025, a gain of about 24%, according to Roskill Consulting Group

Demand for borates is also poised for growth, driven by agricultural, ceramic and glass markets in Asia and South America, according to the US Geological Survey. Rio, which has exported borates to China for more than a century, increased output by 6% in 2016, the producer said in a Jan. 17 filing. Boric-acid prices may rise 10% from last year to $762 a ton by 2023, Stormcrow Capital estimated in a 2015 report.

ASIA GROWTH
“We believe that we are in the bottom of the price cycle,” said David Hall, business development manager at Orocobre , which produces borates from its Borax Argentina unit, acquired from Rio in 2012. “There are some good opportunities in agriculture globally and in the industrial sector,” including to make glass used in consumer electronics, he said. Rio’s Jadar is among the industry’s key growth projects, Hall said.