Argentina's lithium boom
A number of international mining companies are investing in the sector on the basis of two key assumptions. Firstly, that global demand for lithium will triple in coming years because of the world's growing need for battery power, particularly in the development of electric vehicles (EVs). And secondly, that for geological and economic policy reasons, Argentina will be one of the most cost-effective sources of the metal.
Argentina looks to ride a wave of global demand
Prospects for global lithium demand and prices are encouraging. At present Australia is the world's largest lithium producer, followed by Chile and then Argentina in the number three slot. Australia produces around 18,700 tonnes/year (t/y), followed by Chile with 14,100 t/y, and Argentina some way behind with 5,500 t/y. (China sits in fourth position with 3,000 t/y). Healthy demand has helped to push up prices. Lithium carbonate prices rose from about US$4,000/tonne five years ago to around US$14,000/t in October.
Based on its supply of lithium, Argentina has the potential to be the world's leading producer. Along with Bolivia, and closely followed by Chile, the country has the largest identified lithium resources in the world, at 9m tonnes (at end‑2017). Extracting lithium by evaporating brine in the northern salt flats is cheaper than mining it from hard rocks, the prevailing method used in Australia and China. New cost cutting technologies also hold promise.
Argentina's vast lithium resources, combined with strong long‑term global demand projections, weak global supply and an improving regulatory framework in Argentina, is finally producing something of a lithium rush. According to data from the Secretary of Mining, investment in mining projects has increased tenfold in the past five years, driven almost entirely by lithium. Only two projects are currently in production as yet, but there are a total of 60 projects in train—including five that are close to coming on stream—as a range of companies seek to position themselves to capture market share.
The two already in production are Fenix (owned by a US company, FMC Lithium) and Olaroz (owned by Australia‑based Orocobre). Projects in the construction stage include Centenario‑Ratones (a 20,000‑t/y project owned by France's Eramet), Salar del Rincón (a 25,000‑t/y project owned by Australia's Argosy Minerals), Pastos Grandes (a 25,000‑t/y project owned by Canda's Millennial Lithium) and Sal de los Angeles (a 15,000‑t/y project owned by China's NextView New Energy). Based on the value of current investments, the government estimates that by 2023 Argentina could be producing 290,000 t/y of lithium, challenging both Australia and Chile in the fight to become the world's largest lithium producer.
More work on red tape, competitiveness and infrastructure
For the Mauricio Macri administration to realise such lithium ambitions, it will need to ensure continued progress on the regulatory framework, competitiveness issues and infrastructure development. There has been clear progress already. The government has reinstated a Federal Mining Council to elaborate a common agenda, and the provinces have recently agreed a mining code that seeks to streamline procedures and standardise the royalties that they apply. Broader reforms to reduce corporate income tax and to lift capital controls; commitments to improve transport infrastructure and reduce energy costs; and work to simplify the mining permit process should all be supportive of the sector's development.
More broadly, Argentina has some big potential advantages over Chile and Bolivia. Chile has a more mature industry, but with that comes a complex tariff regime, a slow approval process and stringent environmental regulations. Bolivia is at a much earlier stage; its left-wing and nationalist government has ambitions of capturing more value‑added, potentially by requiring lithium miners to help to set up in‑country battery or even EV assembly lines. Argentina, in contrast, might be able to offer the right, relatively light‑touch, regulatory balance.
However, concerns over the potential for volatility in long-term conditions, amid high political risk (related to Mr Macri's re‑election bid in October 2019) and an incomplete economic normalisation process, will persist. This was highlighted by the unexpected introduction of new export taxes in September as part of the government's efforts to narrow the fiscal deficit amid a currency crisis. The temporary duty has been set at 3‑4 Argentine pesos per US dollar of value exported, and will be in place until December 2020. In an immediate reaction, the Australian‑owned Orocobre, one of Argentina's main lithium miners, saw its shares (which are listed in Germany) drop by 6% in value.
As more details of the tax emerged, these worries were attenuated, with Orocobre saying that the overall impact on its operation would be almost immaterial. Many projects currently under development will, in fact, not start production until after the tax expires at the end of 2020. To the extent that Argentina's economic adjustment process remains incomplete, however, risks to Argentina's lithium development will remain a cloud over the industry's otherwise good prospects.