Argentina: Awaiting the lithium boom?
December 8, 2017
Lithium mining activity is growing in north-western Argentina. Demand is rising and expected to surge further as the world begins to convert to electric vehicles using lithium batteries. Could this help kick-start the country’s mining sector?
Companies extract lithium carbonate from ore by an evaporation process using large pools of brine. This produces lithium carbonate, for which the price on international markers has soared by 30% so far in 2017 to reach US$12,000 a tonne. Half of the world’s known lithium reserves are located in an area known as the ‘lithium triangle, which straddles Argentina, Chile, and Bolivia. One of the questions now is which of the three countries will attract most new investment and production. Chile remains ahead, but some analysts argue that Argentina may overtake it by offering new incentives to mining companies.
According to Richard Seville of Orocobre, an Australia-based mining company, “There is a real potential that Argentina will leapfrog Chile in terms of production in five years’ time. It is going to be a very important player.” Orocobre currently produces 14,500 tonnes a year of lithium carbonate, and the company says that in partnership with Toyota Tsusho Corp it intends to more than double its production in Argentina to 35,000 tonnes by 2019. Australia is currently the world’s largest lithium miner, producing some 76,000 tonnes per annum, followed by Chile with 70,000 tonnes. Argentina is in third place with around 30,000 tonnes per annum.
Various analysts suggest that the more market-friendly stance taken by the Mauricio Macri government, which took office two years ago in Argentina (December 2015), will help boost investment and production. Already, there are at least five lithium mining projects in development in Argentina that could add some 45,000 tonnes of production annually by 2019, with more due after that.
“The shift in mindset around looking at Argentina more favourably has happened very quickly over the last couple of years and obviously has a lot to with politics” says Chris Berry, an executive at Canadian-owned Lithium Americas, which is investing US$425m in the Cauchari-Olaroz mine, near Orocobre.
Changes introduced by Macri include eliminating a mining export tax and ending a ban on profit repatriation. In June this year, Macri signed a federal mining agreement with 12 of the country’s 23 provinces to apply a uniform policy on royalties and minimum environmental standards. The government says it expects lithium exports to grow from US$191m last year to US$800m over the next few years.
Over many years, there have been attempts to expand Argentine mining on the eastern side of the Andes, to emulate the size of the industry on the Chilean or western side of the mountain range, usually with limited success. But the Macri government thinks it can now make real progress. The president has set a target of attracting US$30bn in new mining investment into the country. There are still obstacles to overcome.
For example, there is still little consensus on the right balance between mining development and environmental protection, an issue which has held up a number of big projects in the more mature industry in Chile. Seven Argentine provinces ban open-pit mining or the use of cyanide or other hazardous substances. Enrique Viale of the Argentine Association of Environmentalist Lawyers notes that “the social movement against mining is one of the best organised and most powerful in Latin America”. The 2010 Glacier Protection Law bans mining in glacier areas and calls for the creation of a national inventory of glaciers. Neither the former nor the current government have created the inventory, meaning that the law cannot yet be practically applied, something that creates uncertainty the precise location of any ‘no-go areas’.
In the meantime, the industry as a whole is growing at relatively modest rates. Mining exports rose by 6% to US$3.62bn in 2016. In the first eight months of 2017, they contracted by 0.8% to US$2.186bn. However, Javier Cao of consultancy Abeceb says with some big mines coming to the end of their lifetime, the numbers are not that bad, and show that the government has had some success in preventing a sharper fall, for example by helping extend the life of the Alumbrera copper mine.
Argentine officials also have high hopes that they may be able to attract significant Chinese mining investment. Earlier this year, China’s Shandon Gold bought a 50% stake in the Veladero gold and silver mine in San Juan province for US$960m. Veladero, operated by Barrick Gold of Canada, has been criticised for repeated cyanide spills.
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