Lithium’s dramatic price slump has mining heavyweights chasing takeovers of companies with early stage or pre-production projects. But one giant is warning that offering high premiums for smaller miners comes with risks.

Rio Tinto Group CEO Jakob Stausholm said he’s “cautious” about acquisitions at current valuations, despite the world’s second-biggest miner wanting to grow its nascent lithium business.

“It’s very difficult to justify to go in and buy at these high prices, unless you already know you can sell the lithium at a high price,” he told reporters in Perth on Thursday. “We have to make sure that it’s also in the interest of our shareholders and not just the selling shareholders.”

Prices of lithium carbonate, used in EV batteries, have plunged 70% from a peak in November. While that’s had a negative impact on the share valuations of some smaller players, companies are increasingly prepared to offer chunky premiums to grab a slice of the market for what promises to be one of the world’s hottest commodities.

From US miner Albemarle’s three unsuccessful bids for junior Australian prospect Liontown Resources, to Chinese producer Tianqi Lithium’s failed attempt to buy Essential Metals, M&A momentum is building. Iron ore giant Fortescue Metals Group is also getting in on the action with a surprise declaration it was looking for lithium assets in South America.

Tianqi offered a 45% premium for Australian explorer Essential Metals — and still fell short after failing to secure enough support from the target’s shareholders.

Albemarle’s latest A$5.5-billion ($3.7-billion) bid for Liontown represented an eye-watering 64% premium on the smaller company’s previous share price. The Perth-based miner has proved among the most attractive target for potential suiters, though Liontown this week denied media reports it had received a counter offer.

“There’s clearly a premium being paid compared to where the market thought fundamental value sat prior to the offer,” said Max Vickerson, an analyst at Morgans Financials. “It sounds like a strong premium will be needed” to buy Liontown, he said, while adding that showed “the importance of the industry in the long run.”

As well as betting that lithium prices will rebound despite a wave of new projects coming online in the next few years, would-be buyers are also wagering those mines will live up to their full output potential — no sure thing in an industry often beset by project delays, poorer-than-expected mineral grades and cost over-runs.

And despite the drop in prices this year, the refined EV-battery ingredient is still three times more expensive than in the middle of 2020.

The plunge in lithium prices and some company valuations falling to “less ridiculous levels” were “opening up the opportunity” for more takeovers, said Saul Kavonic, head of integrated energy and resources at Credit Suisse Group. “That said, it’s still early days in a very volatile market — that’s why there is still going to be quite a challenging path to get deals done.”

The offers are set to continue as most market-watchers remain optimistic about the long-term demand outlook. Governments around the world are trying to encourage a faster transition to cleaner energy sources, and BloombergNEF forecasts consumption will jump ninefold by 2050.

The race for lithium has also garnered interest from battery manufacturers and even automakers. Tesla Inc. has been weighing a takeover of Toronto-listed Sigma Lithium Corp., which is developing a large lithium rock deposit in Brazil.

Fortescue Chief Executive Officer Fiona Hick said Wednesday that Brazil, Chile and Argentina were the most promising countries for both deals and exploration for lithium, copper and rare earths. Mid-sized or smaller lithium producers, like Pilbara Minerals, are also seeing opportunities to bet big.

“It’s an incredible market and Pilbara always looks to capitalize on that,” MD Dale Henderson said. “We’re not holding back on our investment,” although the miner is in no hurry to pursue “inorganic growth,” he said. “As the market continues to go well, obviously the coffers will continue to fill, there will be the obvious questions around returns to shareholders,” Henderson said.