Two major trends have developed in the past few years that are now driving significant investment in lithium production expansion and Greenfield exploration activities in Argentina.
The first significant change has been a shift in the Argentine political climate. Until 2015, Cristina Fernandez, a populist president, controlled Argentina and deterred investment in the country’s natural resource sector. Factors that contributed to the lack of foreign investment included: high levels of inflation, currency control, restrictions on the bidirectional movement of capital, and the government’s move to nationalize certain resource assets.
The second change was the announcement of the global automotive community going electric in the years to come. In 2017, the Chinese government announced that automakers that produce more than 30,000 vehicles per year must shift to 10 percent electric by 2019 or purchase credits from other automakers.
The Puna Plateau is a region of the Andes Mountains spanning 1,800km across Argentina, Bolivia, and Chile. This region houses the largest proven deposit of lithium on the globe but, at present, only Chile is a major producer of the white metal. Bolivia, with its nationalistic view and poor lithium chemical grades, has been exceptionally slow to respond to the increase in global demand for lithium.
Chile has been a long-time producer of lithium but is challenged due to ongoing political issues, which has delayed the expansion of its lithium assets. Although Chile is expected to increase its annual output, it is clear that this will not occur in the mid-term, which provides an opportunity for other countries that are capable and willing to invest in this strategic metal to increase supply.
Australia has been the most rapid to respond by quickly moving to increase hard-rock supply into China. Although there are still processing bottlenecks for the exported hard-rock material, it is a step in the right direction for Australia and the entire battery supply chain.
Due to the change in political landscape and increase in global lithium demand, Argentina is now well-positioned to benefit from production expansion at existing facilities and Greenfield projects. In recent years, FMC, a multinational chemical company, has expanded its production capabilities at Salar de Hombre Muerto. The expansion saw an increase in annual output from 17,000 tonnes of lithium carbonate equivalent (T LCE) to 22,000 T LCE.
Australian-based Orocobre has successfully brought into production its Olaroz lithium extraction and processing facility, and has announced its intention to expand Olaroz into Stage 2. That second stage will see a new capital investment of over $150 million, allowing for annual production to increase from 17,000 T LCE to 35,000 T LCE.
In 2016, Argentina attracted $1.5 billion in lithium investments, primarily leading to an increase in production of 60 percent. Looking into the years ahead, the country views lithium exploration, extraction, and processing as a strategic opportunity to draw foreign direct investment. It is expected that annual production rates will increase to 145,000 T LCE in 2022.
Lithium Americas, a junior lithium exploration company operating in the same basin as Orocobre, has reached terms with a group of companies to bring their lithium asset into production over the next year. SQM, a major lithium production company operating in Chile, made a cash purchase into Lithium Americas’ project while committing to bring its expertise in lithium brine asset development and management.
Ganfeng, one of the world’s largest integrated lithium producers located in China, has committed to provide Lithium Americas with the financial capital to move the project forward. In addition to providing project financing, Ganfeng has secured access to a portion of the lithium carbonate produced, which will then be used in the manufacturing process.
Between Orocobre’s expansion project at Olaroz and Lithium Americas’ Greenfield project at Cauchari, Argentina is set to significantly expand output production.
On the exploration side, in the past two years, dozens of junior exploration companies have raised capital and flocked to Argentina to secure land rights and undertake initial drilling programs. Although most of these companies lack the technical expertise to bring lithium brines from exploration to production, some of them will move forward due to the global undersupply that is expected to last over the next half decade.
In December, NextView, a Chinese mineral investment company, purchased Toronto-based lithium exploration company Lithium X. Prior to the $350 million acquisition, Lithium X was developing its flagship asset in Salta, Argentina, which had resource estimates of over 2 million T LCE. The value of the acquisition will ensure that junior exploration companies continue to move forward with the development of their assets. Market valuations for lithium exploration companies operating in Argentina have exploded over the past two years as retail shareholders continue to speculate on the prospects of the Argentine lithium market.
Although there is still significant risk around the long-term geopolitical situation in Argentina, the country could not be better positioned to capitalize and contribute to the energy revolution. It is now clear that the Chinese are aggressively shifting to an electric future, which has spurred the entire battery supply chain, putting pressure on the global lithium markets to increase production of the white metal. So far, response from the supply side has been slow. The development of Argentina’s lithium economy will be a key theme in 2018 and beyond.