In a 3000-sq-km area traversing northern Argentina and neighbouring Chile and Bolivia lies the so-called “lithium triangle” an area estimated to hold over half the world’s lithium deposits. As demand surges for the products that use lithium-ion batteries – among them electric cars, cell phones and renewable energy projects – major electronics companies are looking to ensure their supply, buying up the most attractive mining projects around the world and making lithium mining a lucrative prospect.
Supply & Demand
At 9.8m tonnes, Argentina currently boasts the largest identified lithium reserves in the world, followed by Bolivia (9m), Chile (8.4m), China (7m), Australia (5m) and Canada (1.9m). However, in 2017 the country was only the third-highest producer, behind Australia and Chile, according to the US Geological Survey.
“At present, global production has reached 100,000 tonnes per year,” Daniel Meilán, the former national mining undersecretary, told OBG. “While, it’s a modest amount, we can take advantage of the sudden peak in interest around the metal to show that new mines can be built in Argentina.”
International market prices registered $16,000 per tonne at the beginning of 2018, with global consultancy Wood Mackenzie predicting that prices would average roughly $13,000 for the whole year. Demand forecasts for the metal tend to vary significantly, with some experts reporting demand to triple by 2025. Supply is also expected to grow rapidly, however, and in early 2018 separate reports by Wood Mackenzie and investment bank Morgan Stanley forecast notable dips in future pricing, with the former forecasting figures as low as $9000 by 2019, and the latter expecting prices to drop to around $7000 per tonne by 2021.
Nevertheless, the industry remains at the forefront of international investor attention. Lithium is key to many local economies, so much that both Bolivia and Chile treat it as a strategic mineral, keeping a tight control on the development of their domestic industry. Argentina is the exception and has an open-door policy to investment, treating lithium the same as copper or gold projects.
“I don’t think it’s in Argentina’s best interest to consider lithium a strategic resource,” Meilán told OBG. “There’s enough lithium in the world to last the next 400 years, and while we see a lot of potential in lithium mining for the next 10 to 15 years, it’s difficult to predict beyond then. It’s unlikely we’ll change our policy; the industry is just too large to be run as a cartel by producing countries.”
Latin American projects have an advantage over their principle competitor Australia. The lithium triangle area is characterised by its abundance of salares (salt flats) from which lithium can be extracted from brine. In Australia, China and North America, lithium is typically found in granites, and this type of extraction can cost over $4000 per tonne. While brine projects require a higher initial capital expenditure, the lithium can ultimately be produced at lower cost. Chile’s Sociedad Química y Minera and Canada’s Lithium Americas are expecting to produce lithium from their Cauchari-Olaroz project in Jujuy for $2495 per tonne.
The low-cost operating environment, combined with the new investor-friendly regime have encouraged an influx of dozens of junior mining firms and the signing of major long-term deals (see overview).
In 2017 Argentina had a production capacity of 38,000 tonnes of lithium carbonate, coming mostly from Australian firm Orocobre’s Olaroz project and from the US company FMC’s Feníx mine in Catamarca Province. There are 11 significant mines in the development stage, however, and – should they all move to production as planned – by 2022 Argentina will be able to push production capacity to 330,000 tonnes per year.
The total capital expenditure of the 11 development projects is expected to reach $4bn and create an estimated 3400 direct jobs in the key provinces of Salta, Jujuy and Catamarca. By 2025 domestic mining could generate $2.2bn in revenue per year, according to projections by the Ministry of Energy and Mining (Ministerio de Energía y Minería, MINEM).
The two most significant projects are the aforementioned Cauchari-Olaroz project and the Salar del Rincón development project in Salta province under Canadian company Enirgi Group. As the two largest projects, each will have capacities of over 50,000 tonnes per year upon completion.
Mining firms of all sizes continue to enter the country with exploration in mind. According to MINEM, over 30 firms arrived in Argentina in 2016 and 2017, investing over $200m in prospecting and drilling. In September 2016 US chemicals company Albermarle signed an exclusive exploration agreement for a project in Catamarca that could potentially yield the largest lithium resource in the country. More recently, new entrants have continued to arrive. In February 2018, following the sale of its Peruvian copper assets, Australian firm Latin Resources purchased exploration properties in San Luis Province close to historic lithium mines. In March 2018 Toronto Stock Exchange-listed company, Argentina Lithium and Energy, acquired new titles in Salta to take its total landholdings to over 14,000 ha. That same month Lake Resources, which is listed on the Australian Securities Exchange, added 45,000 ha to its Argentine landholdings, taking its total titled property to over 170,000 ha. The company’s CEO Stephen Promnitz told local press in March 2018, “this is one of the largest land holdings in one of the prime brine basins of the world… the leases are in the same basin as [existing projects] which have proven an excellent lithium grade and are either in production or heading that way.”
In the Pipeline
Unlike industrial metals and other commodities, lithium is rarely sold on the spot market, which makes prices susceptible to hedging and volatility. Instead, major technology firms lock-in supply through long-term contracts. Junior miners finance their exploration work through risk capital on foreign exchanges, but they tend to rely on strategic investors to supply the capital expenditure for the initial construction of mines.
In January 2017 Canadian firm Lithium Americas sold a 19.9% stake in their Mariana lithium brine project for $48.1m in cash and $125m in financing to Chinese battery giant Jiangxi Ganfeng Lithium. Ganfeng also received an off-take entitlement for 70% of the mine’s production. In March 2018 French firm Eramet stated it would invest $380m to bring a lithium facility in Salta to production by 2020. The facility will have a capacity of 20,000 tonnes of lithium carbonate equivalent.
Markets are expected to be ready for the country’s output. In early 2018 Galaxy Resources, which owns of the Sal de Vida project in Catamarca Province, was sited as the likely source for German carmaker BMW, which announced in February 2018 that it was close to securing a long-term deal for lithium and cobalt. “Our target is to make sure we have supply for at least five and better 10 years. For us it’s very important to make sure that our plans won’t suffer from a lack of supply,” Michael Rebstock, spokesman for BMW, told the Financial Times. According to Galaxy, the project needs a $100m capital investment to produce annual revenues of around $215m.
Up the Value Chain
In addition to ramping up production and exploration, moves to manufacture batteries in Argentina are under way. One such example is Jujuy Litio, a joint venture between Italian firm Ceri and the provincial government of Jujuy. Juan Carlos Abud, president of the company and minister of economic development and production for Jujuy, told local press that it would first start by assembling batteries, then move to building its own cells as part of a $120m investment. Meanwhile, a second domestic battery project under local firm Litarsa is exploring setting up a production facility in Salta.
While neither company is looking to compete with high-tech Asian and US firms for the production of batteries for cell phones and tablets, they could find a niche developing batteries for hybrid cars or for storing energy from solar or wind projects. To further the projects and attract outside expertise, Mario Capello the undersecretary for mining development, welcomed Indian firms to invest in mining and battery production projects in Argentina while on a trip to India in March 2018.
A Bright Future
Argentina’s pro-investment strategy has positioned the country as one of the leading destinations for lithium production. Even with a dozen projects already under way, the country continues to attract new entrants. The aggressive development of the industry bodes well for the economic growth of the country’s northern regions.
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