Rio decided not to proceed with an offer for Nutrien's 32 percent stake in Santiago-based SQM after studying information in a data room, according to the people. Other strategic bidders remain interested in the holding, one of the people said.
Nutrien's interest in SQM is worth about $US5 billion.
Nutrien, the Canadian firm formed through Potash Corp's recent merger with Agrium, is selling the holding to meet a condition imposed by Indian regulators when approving that combination. Rio last year sought advice from firms including Credit Suisse on a possible bid for the stake, people familiar with the matter said in November.
Lithium is a key element used in electric-vehicle batteries, and prices have tripled since 2015. BHP Billiton, the world's largest mining company, in September approved a $US43 million project to start producing nickel sulfate, a product needed for lithium-ion batteries. Glencore plans to double its production of cobalt in the next two years, another key battery component.
Representatives for Rio Tinto, Nutrien and SQM declined to comment.
The development came after Rio agreed to sell its Dunkerque aluminium smelter in France to Liberty House Group for $US500 million ($A700 million).
Mining companies need to remain wary of buying assets at over-inflated prices as they seek to tap forecast rising demand for battery raw materials, Evy Hambro, who manages BlackRock has previously warned.
Investors are urging the biggest miners not to repeat past mistakes on failed acquisitions, and major deals to add lithium would risk eroding trust as the commodity is likely at the top of its price cycle, Sanford C. Bernstein wrote in a January 5 report.
Rio is "well placed to benefit from the growth of EVs with our copper and aluminium offering," though is continuing to evaluate other opportunities, Chief Executive Officer Jean-Sebastien Jacques told investors at a Sydney forum last month. The company is studying development of a Serbian lithium project that could meet 10 percent of global demand and begin production as soon as 2023.
Rio's Ventures unit, led by former Xstrata Plc dealmaker Andrew Latham, is also reviewing investments and partnerships in commodities that are outside Rio's core portfolio and exposed to green technology. Nutrien CEO Jochen Tilk told analysts in October that the company had seen "significant interest" for its SQM stake as investors seek exposure to lithium assets amid expectations of a boom in electric vehicles.
While Nutrien is the biggest shareholder in SQM, Chilean businessman Julio Ponce controls the company via voting shares held through a series of holding companies. Ponce, who is engaged in a bitter contractual dispute with Chilean authorities who are pushing him to relinquish control, last month agreed to certain conditions in order to restart talks on SQM's main mining license in the Atacama salt flat.