Rio Tinto, recognized as the world’s second-largest mining company, has confirmed that it’s made a non-binding acquisition proposal for Arcadium Lithium, a U.S.-based lithium producer valued at around $3.3 billion. In a statement released on Monday, Rio Tinto acknowledged the proposal but emphasized that the likelihood of a successful transaction remains uncertain, without providing specific financial details. Following this announcement, shares of Arcadium saw a substantial increase.

This year has been challenging for lithium stocks, primarily due to an oversupply in the market and lower-than-expected demand from the electric vehicle sector. Arcadium, in particular, has underperformed relative to its peers, leading to widespread speculation about its potential as a takeover target in recent months. Early trading on Monday saw the company’s Australian-listed Depository Receipts surge by 50%, marking the largest rise since its debut last December.

Citi analyst Paul Taggart had suggested back in July that Rio Tinto should explore acquiring Arcadium, arguing that the company’s current valuation is significantly below its reset value. He noted that acquiring Arcadium would be a more cost-effective strategy than building new high-quality lithium assets from the ground up.

If the acquisition is successful, Rio Tinto would secure its position as the third-largest supplier of metals for electric vehicles, following behind Albemarle and SQM.

In an interview with CNBC, Saul Kavonic, head of energy research at MST Marquee, pointed out that Rio Tinto has been closely monitoring lithium prices in anticipation of a potential acquisition, with the aim of creating a globally scaled lithium division.

Investors in Arcadium, including Sydney-based Blackwattle Investment Partners, have expressed their opinions to the company’s board through a letter from portfolio managers Tim Riordan and Michael Teran. They indicated that while a potential acquisition at this stage may seem opportunistic, there is a pressing need for a significant premium to accurately reflect the company’s fair valuation. They warned that selling at this moment could greatly diminish value for shareholders, especially as the global lithium market appears to be stabilizing and the company’s valuation should approach $8 billion.

For Rio Tinto to finalize any deal, it must gain the approval of both Arcadium’s board and its shareholders.