Financial Associated Press, August 11 (Editor Xiaoxiang) Located in Chile's Atacama Salt Lake, often known as the "Saudi Arabia" of the lithium industry, this California-sized area accounts for about 55% of the world's known lithium metal deposits. This silvery-white metal is now a key component of electric vehicle batteries.
However, as Chinese electric vehicle giant BYD has felt in recent months, it has always been a daunting challenge for global companies to properly develop and use this key local resource.
Earlier this year, after BYD won a government contract to mine lithium, the local indigenous community appealed that the bidding scheme violated the principles of environmental protection and economic development, and finally the Chilean court suspended the project in June on the grounds that "the bidding is controversial".
In the South American "Lithium Triangle" region, which covers the Salt Lake of Atacama, there are many setbacks such as BYD that global car companies and lithium producers have encountered.
The "lithium triangle" region of South America is located at 18° to 27° south latitude and 65 ° to 70 ° west longitude - just at the junction of Chile, Argentina and Bolivia, the Cenozoic Andean tectonic movement formed a dense distribution triangle of salt lakes, unique arid climate and rich lithium sources make the salt lake contain a large number of exploitable lithium resources.
From the perspective of reserves, the "lithium triangle" in South America is indisputable and the region with the richest lithium resources in the world. In the blueprints of many pioneers of the electric vehicle revolution, this area with rich mineral resources should also become the biggest helper and boost of this scientific and technological revolution. However, the current situation is obviously quite "bone"...
Lithium production in south America has been severely hampered by leftist governments in South America looking to tighten control over minerals and gain a greater share of profits, as well as numerous protests by local Andean communities over environmental concerns. Residents of these indigenous communities also fear that while outsiders borrow lithium to get rich, they are likely to get nothing.
In this regard, some industry analysts have worried that in the context of the explosive growth of global lithium demand, resulting in a 750% surge in lithium prices since the beginning of 2021, the supply prospects of the "lithium triangle" in South America are unclear, but may become the main bottleneck of the current rapid growth of the electric vehicle industry.
The former lithium industry "boss" Chile still wants to "close the country"
Just a few years ago, Chile was the world's largest producer of lithium, but today, the country's lithium production is far weaker than Australia's.
Although Chile has expanded its existing lithium capacity by 80 percent since 2016 to about 140,000 tons per year, the country has not opened a new mine for about 30 years. According to the U.S. Geological Survey, Chile currently produces only about half of Australia's lithium production, which has quadrupled in the last five years.
Much of what has caused Chile to lose its global leadership in lithium mining is the country's strict industry regulations since the 1970s. The Chilean government, then under the military dictatorship of Admiral Augusto Pinochet, declared lithium a strategic resource because it was part of the fusion material used to produce nuclear bombs.
At present, Chile's lithium resources are mainly in the hands of two private companies, Chilean Mining and Chemical (SQM) and The United States Yabao (ALB). But they also only lease land from Chilean state institutions, which limits their production. Exports also require special permission from government agencies.
In fact, even The world's largest lithium producer, Yapal, has not had an easy time entering the Chilean lithium industry, and in order to expand production, the U.S. lithium giant signed a new contract in 2016 and was required to pay up to 40% royalties, the highest royalty level in the industry. The Chilean government also wants to extract more lithium that can be processed domestically than just export raw materials, so it requires Arpel to provide up to 25% of its lithium production to local processing companies at a lower market price, and Yabao also needs to provide some of its sales to indigenous communities.
And after the new Chilean president, Gabriel Boric, took office in March, the government intended to tighten policies further. The New Left government, led by Boric, after criticizing past privatizations of raw materials as a mistake, planned to create a state-owned lithium company. If the new constitution is passed in a referendum in September, it will also strengthen environmental regulations and indigenous peoples' rights to mining.
In 2017, Tim Fernback, chief operating officer of LiCo Energy Metals, was optimistic about his lithium project in Chile. At that time, Chile was also more welcoming to foreign mining companies to mine copper and other metals. The company acquired part of the minerals of Atacama Salt Lake, a vast salt marsh surrounded by snow-capped volcanoes.
Fernback said he initially met with locals to explain the company's plans and offered to build a factory to provide clean drinking water, which he thought went well at one point. However, when the operation to drill the surface of the salt shell was launched, local residents blocked the road in protest on the grounds of environmental problems. Deeming the project hopeless, LiCo eventually abandoned its Chilean operations in 2019.
"It felt like stabbing a knife in the back," Fernback said, "and we went there and spent a lot of money to build everything and then we had to leave." Who else would want to do that?"
The bitter lesson of Bolivia's lithium nationalization
Unlike oil, which is common in many countries around the world, lithium is not common.
South America, Australia and China are the regions with the most abundant lithium resources. Outside of South America, lithium is almost always extracted from hard rock. In South America, lithium is widely present in salty groundwater, and the cost of lithium production in South America is lower through the way lithium is extracted from salt lakes, but miners say the disadvantage is that the construction time is much longer, about 8 years.
Industry analysts said that if the strict requirements of the South American government make it too expensive and difficult for overseas investors with professional technology and capital to build lithium mines, then this is tantamount to a gamble for them and may lead to the derailment of global lithium production. At the same time, in a region where state-owned enterprises have long been mired in corruption and nepotism, public enterprises are at risk of mismanagement of resources.
Benjamin Gedan, a Latin American expert at the Woodrow Wilson Center, is closely following the lithium industry in South America. "Latin America often kills the 'golden goose' that lays its eggs, and one of the fastest ways to do that is through resource nationalism," he said. With bad policies in place, that boom could soon turn into a depression. ”
Bolivia, he said, was the ultimate cautionary tale.
Bolivia remains one of the poorest countries in the world. In 2008, under the leadership of former President Evo Morales, Bolivia came up with the slogan "100 percent owned" – the salt marshes must be completely controlled by Bolivian technicians. Morales has promised to turn the country into a mining powerhouse that produces batteries and electric vehicles. The government also created a state-owned company, Bolivia's State-Owned Lithium Mining Company (YLB).
Bolivia spent about $900 million to build a factory and other infrastructure to extract lithium from the wind-gullible Uyuni salt marshes in the Potosí region. Potosí was the poorest state in Bolivia, where the Spanish Empire plundered silver.
The plant opened in 2013, but after many years, it is still barely able to bring in any production. According to the YLB, Bolivia produced only 540 tonnes of lithium carbonate in 2021, equivalent to Chile's one-and-a-half-day production.
Juan Carlos Zuleta, an economist who briefly ran the YLB in 2020, said the company could only recover about 9 percent of its lithium extracted from brine due to a lack of expertise and technology, making the company completely unsustainable commercially. The two existing lithium mines in Chile have recovery rates of about 50% or more.
"The government spent almost 14 years trying to develop lithium in the country, but failed," Zuleta said, "and I'm sure Bolivia missed a fantastic opportunity as a result." ”
At present, the new Bolivian government, which will come to power in 2020, is clearly planning to "put the chaos right". Bolivian President Luis Arce launched a public tender for international companies to submit technical proposals. The following year, 8 companies were shortlisted for cooperation.
At the beginning of June this year, two of the eight companies had been excluded from the list. The remaining 6 include four Chinese companies, including CATL, Shenzhen Juneng Yongtuo, TBEA and CITIC Guoan, as well as Russia's Uranium One and American startup Lilac Solutions. The Bolivian government plans to prepare the proposal for the company to consider by the end of October and reach a final agreement by the end of December. Eventually, one or more companies will be selected to work with YLB to mine lithium.
Will Argentina be expected to "come in the ascendancy"?
At present, in the South American "lithium triangle", the biggest growth point of lithium production in the future may be Argentina. The country has so far been more open to private investment for the simple reason that it is a much-needed source of foreign exchange for the cash-strapped Argentine government.
Argentine officials have offered companies tax stability agreements and eased some currency controls that have stifled other industries, according to some lithium companies operating there.
The Argentine government has decided to invest $4.2 billion to stimulate lithium production, making Argentina the world's third or fourth largest producer of lithium.
Therefore, the Argentine lithium market has also recently welcomed a large number of investors, such as Rio Tinto, Ford Motor and so on. Up to now, many Chinese companies such as Guoxuan Hi-Tech, Ganfeng Lithium, Tibet Everest, Shengxin Lithium Energy, Zijin Mining and so on have also participated in the development of lithium projects in Argentina.
Lukasz Bednarski, a lithium mine analyst at London-based consultancy IHS Markit, said Argentina could have 19 lithium mines by 2031, compared to just two so far. The Argentine government says annual production could reach 230,000 tonnes by the end of the decade, about six times more than it is now.
"We have seen a boom in mining investment, and this will continue," said Matías Kulfas, a former Argentine minister of production development.
Of course, as a fragile emerging economy that has been plagued by debt in recent years and has even had to turn to the IMF for help, the lithium investment of overseas companies in Argentina is not entirely risk-free.
Emily Hersh, chief executive of exploration company Luna lithium, said that while the country is struggling to address fuel shortages, it is still far behind in terms of the energy infrastructure needed to power new lithium projects.
Hersh noted that the country's prolonged economic turmoil will also affect the development of the lithium industry. "I hope that any company operating in Argentina will fully absorb the impact of the economic disaster at all times and be prepared to deal with it," she said. ”
This article originated from The Financial Associated Press Xiaoxiang