Argentina doubles down on lithium to meet surging global demand
A bullish long-term outlook for lithium has resource-rich Argentina looking to incentivize bringing more projects into the country over the next three years to meet soaring global demand for the battery raw material
Speaking to Fastmarkets in London, Argentinian government officials explained how the government is doubling down on lithium as a pillar of the country’s growing mining sector. Supported by business-friendly initiatives to attract capital and a developing common framework for prospective developers, Argentina aims to strengthen its lithium output and processing capacity in the coming years.
“President Alberto Fernández and provincial governments are clear about its commitment to speed development of the country’s lithium resources; Argentina aims to be a mining country,” mining secretary Maria Fernanda Avila told Fastmarkets in London.
Argentina is situated in the so-called “lithium triangle,” alongside Bolivia and Chile, where more than 70% of the world’s lithium reserves lie beneath its salt flats. The northern Argentine provinces of Salta, Catamarca and Jujuy are where lithium operations from the incumbent and new developers are concentrated.
Argentina’s pivot toward lithium miners follows a bullish outlook for the material with electrification and decarbonization expected to generate long-term demand. Fundamentals are expected to remain firmly bullish in the coming years. Fastmarkets analysts are forecasting a global supply deficit of 89,000 tonnes of lithium carbonate equivalent (LCE) in 2023.
Fastmarkets assessed the price of lithium hydroxide, monohydrate LiOH.H2O 56.5% LiOH min, battery grade, spot, cif China, Japan & Korea at $52.50-55 per kg February 16, up almost 500% compared with a year earlier.
‘Important pillar’ of the economy
“Mining will be an important pillar of the Argentine economic future,” Flavia Royón, secretary of mining for the Argentine province of Salta, told Fastmarkets. “Argentina hasn’t [always] had a strong mining tradition, but because of laws that were set up already in the 90s, an advantageous framework was developed and we’re seeing that today.”
“Eighty percent of [the country’s mining potential] is undeveloped and unexplored,” she added.
While mining currently accounts for 0.6% of Argentinian gross domestic product, it has the potential to grow to around 3%, as per government estimates.
The country currently accounts for around 16% of global lithium output, Fastmarkets battery material research team estimates.
The two active producers with operations in the country, Livent and Allchem, are soon to be joined by an array of developing projects that are expected to come online over the next two to three years.
Canada-based developer Lithium Americas is planning to start operations at its Cauchari Olaroz brine site in Jujuy later this year, where it targets a commercial output of 20,000 tonnes per year of lithium carbonate.
In January, the company concluded the acquisition of Millenial Lithium, which owns the Pastos Grandes brine project in nearby Salta.
Last December, Rio Tinto agreed to acquire the underdeveloped Rincon brine lithium project in Salta.
Investment is flowing in not only for the exploitation of mining tenements but also aimed at downstream processing capacity.
Chinese mining firm Zijin earmarked $380 million to set up a lithium carbonate plant in Catamarca by 2023, targeting a 20,000 tpy capacity.
South Korea’s Posco has also announced plans to invest $830 million on a lithium processing plant in Salta with an annual production capacity of 25,000 tonnes of lithium hydroxide, due for completion in 2024.
Eramet and Tsingshan are also working to restart a mothballed lithium plant in Salta.
The number of deals underway and the growing global appetite for the mineral have fueled optimism.
“In my opinion, in five to seven years, northern Argentina could account for up to 300,000 tonnes of lithium output,” Royón said.
A federal system open to investors
One of the key differences with its neighbors is that Argentina’s federalist structure gives provinces original ownership of mineral rights, which they can exploit according to their own constitutions. The provinces in Argentina are “the owners of the mineral resources, rather than the central government,” Secretary Avila stressed.
This legislative framework is singled out by the officials as a buffer against resource nationalism, whereby authorities enact policies to restrict private companies’ access to mining resources.
Other lithium-rich Latin American countries, such as Bolivia, have so far operated under a strictly restricted framework.
In Mexico, President López Obrador recently announced his intention to nationalize lithium and create a state body to control the exploitation of reserves.
“Here each province sets the legal framework. We are not going to change our legislation,” said Avila on the topic, highlighting that the provinces in Argentina have ultimate say in how their resources are handled.
Argentina’s federal structure is also more attractive to investors – the officials claimed – compared with countries where lithium exploitation is fully controlled by the state, which can lead to bottlenecks in permitting and a longer process for new projects to take off.
In neighboring Chile, all new lithium projects require approval through the Chilean Economic Development Agency state body.
“The Chilean model has its limits,” said Alfredo Fierro, director of trade and investment at the British Embassy in Buenos Aires.
The Fastmarkets research team is currently following six junior projects of interest in Argentina, while only one in Chile. The latter did recently offer five new quotas for exploration, so there might be developments there in the future, although Argentina has to date shown a more active setup for developers.
In a bid to streamline existing and prospective developers, the nation’s three lithium-rich provincial governments of Jujuy, Catamarca and Salta set up the so-called Mesa Nacional del Litio late last year – a table of cooperation to agree a common way forward.
“The goal is for the three provinces to jointly set out regulations for mineral exploitation and industrialization [of lithium deposits] within a sustainable, environmental and federal perspective,” Secretary Avila told Fastmarkets.
ESG opportunities and risks
In addition to financial incentives, Argentina is hoping it can help producers meet environmental, social and governance (ESG) credentials by producing lithium in the country.
As original equipment manufacturers (OEMs) increase scrutiny of their supply chains following stricter ESG parameters, localization of supply is set to continue to be an important topic for corporations. Large automotive producing countries such as the United States are also looking to tap into their own reserve to ensure closer-to-home, traceable raw material supply.
On a carbon emission basis, the country hopes that its portfolio of renewable energy can attract producers looking to showcase lower carbon footprints.
Prospective producers might be able to tap into what Royón called the “best zone for solar energy” and highlighted the La Puna and Altiplano solar park on the border of Salta and Jujuy, which has a capacity of more than 200 megawatts.
Lithium producers may also invest in renewable energy plants to power their facilities.
The government used the example of China’s Ganfeng, which is going to invest in a 120-megawatt photovoltaic system to generate electricity for a lithium extraction plant in Salta’s Salar de Llullaillaco.
There are other projects like this, and the mutual interest from both renewable energy companies and miners to develop further projects in the off-grid mining sector can play in Argentina’s favor since the country’s wind and solar infrastructure is accelerating.
Argentina’s mining representatives said there is room for producers to highlight the social aspect of ESG through cooperation with the provincial governments.
Prospective producers will sit at a “social table”, which consists of the producers and local community stakeholders, to discuss impacts of developments.
The projects will be intrinsic to bring benefits from jobs in the community (a certain share of the workforce or suppliers must be sourced locally, according to provincial laws) to investments in public services.
“All society takes the risk, and all society reaps the benefits,” Royón said.
But there are also inherent environmental risks to the exploitation of local resources.
As for neighboring Chile, concerns revolve around the use of water and potential availability shortages. According to the World Bank, Argentina has “water security gaps” in certain areas. With roughly 500,000 gallons of water needed in the production of one tonne of lithium, the scale of the new projects has created opposition among communities.
There have been a number of protests in Catamarca and Jujuy, which led to exploration halts in some cases.
Environmentalists and local communities demand that, before projects get off the ground, priority is given to determining exactly what impact it would have on water availability in the area.
The provincial secretary said that water resources are there, and new basins are in development, adding that the government is producing an industry-focused hydric stress study for Argentina.
“This will tell us what the hydric stress of mining across the country is,” said Royón.
“We have to ensure there is constant monitoring of the resources to understand what the availability and the consumption is,” Royón added.
Argentina’s macroeconomic situation has been a source of concern to foreign lenders and investors.
The Argentine economy has faced numerous economic challenges in recent years, including an unsustainable build-up of debt, rapid depreciation of its currency, steep economic contraction and a level of inflation that hit 50% in 2021.
On January 28, Argentina struck an agreement with the International Monetary Fund over a new set of measures and deadlines to restructure its $44.5 billion debt.
But this time, unlike in the past, austerity is not a condition imposed by lenders. The deal would allow for spending increases on infrastructure and science and technology, where mining plays a key role.
“It’s far from ideal, but it was the best agreement possible,” said Nicolas Carlos Abad, second secretary at the UK embassy of Argentina. “It shows our commitment to repay the debt. [With this deal] we have shown that Argentina is not going to default.”
“The fact that mining companies like Rio Tinto have announced investment plans in Argentina shows that there is no risk,” he concluded.