Rio Tinto has agreed to acquire US-based Arcadium Lithium for US$6.7 billion, making it the world's third-largest miner of lithium, a key metal in electric vehicle batteries.

Rio Tinto is the second largest mining company in the world and is already a major player in copper, aluminium and iron ore mining. The company is investing heavily in lithium, despite a recent 55% drop in lithium price in China due to oversupply and lower-than-expected demand for electric vehicles. Arcadium shares have also seen a significant decline, falling more than 40% since the beginning of the year.

The acquisition will give Rio Tinto access to lithium mines, processing facilities and reserves in Argentina, Australia, Canada and the United States. Arcadium's customers include major automakers such as Tesla, BMW and General Motors.

Rio will pay $5.85 per Arcadium share, a nearly 90% premium to the closing price of $3.08 per share on Oct. 4, when Reuters reported a possible takeover.