Argentina encourages new lithium projects to serve high demand

By IM Staff
Published: Friday, 22 April 2022

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. Cristina Belda, Davide Ghilotti and Justin Yang report.

Speaking to Fastmarkets in London in February 2022, 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 their commitment to speeding-up development of the country’s lithium resource. Argentina aims to be a mining country," mining secretary Maria Fernanda Avila told Fastmarkets.

Argentina is situated in the so-called "lithium triangle," alongside Bolivia and Chile, with more than 70% of the world’s lithium reserves beneath its salt flats. The northern Argentine provinces of Salta, Catamarca and Jujuy are where lithium operations from incumbent and new developers are concentrated.

Argentina’s move 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 $52.50-55.00 per kg on February 16, up by almost 500% compared with a year earlier.

Important economic pillar

"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 1990s, an advantageous framework was developed and we’re seeing that today," she added. "Eighty percent of [the country’s mining potential] is undeveloped and unexplored."

While mining currently accounts for 0.6% of Argentina’s gross domestic product, it has potential to grow to around 3%, according to government estimates. The country currently accounts for around 16% of global lithium output, Fastmarkets battery material research team estimates.

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 or 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 Millennial 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 $4 billion on a lithium processing plant in Salta with a capacity for 25,000 tpy of lithium hydroxide, due for completion in 2024. Executives from Posco met with President Fernández on March 21, with the company beginning construction operations to set up a lithium hydroxide plant in the north of the South American country.

Eramet and Tsingshan are also working to restart a mothballed lithium plant in Salta.

The number of deals under way and the growing global appetite for the mineral have fuelled optimism. "In my opinion, in five to seven years, northern Argentina could account for up to 300,000 tpy of lithium output," Royón said.

Rights ownership structure

One of the key differences from 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," Avila said.

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 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," Avila said, highlighting that the provinces in Argentina have ultimate say over 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," according to 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, but 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 developments, the nation’s three lithium-rich provincial governments of Jujuy, Catamarca and Salta set up the so-called Mesa Nacional del Litio late in 2021 – 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," Avila told Fastmarkets.

ESG opportunities, risks

In addition to financial incentives, Argentina is hoping that it can help producers meet environmental, social and governance (ESG) credentials by producing lithium in the country.

With original equipment manufacturers (OEMs) increasing 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 reserves to ensure closer-to-home, traceable raw material supply.

On a carbon emissions 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 capacity for more than 200MW.

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 120MW photovoltaic system to generate electricity for a lithium extraction plant in Salta’s Salar de Llullaillaco.

There are other projects similar to 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 as the country’s wind and solar infrastructure accelerates.

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" consisting of the producers and local community stakeholders, to discuss the effects of developments.

The projects will be intrinsic to bringing 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. In 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 for the production of one tonne of lithium, the scale of the new projects has created opposition among communities.

There have been some protests in Catamarca and Jujuy, which led to exploration stoppages in some cases. Environmentalists and local communities demand that, before projects progress, priority is given to determine what effect they would have on water availability.

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," Royón said. "We have to ensure there is constant monitoring of the resources to understand what the availability and consumption are."

Macroeconomic uncertainty

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 on science and technology, where mining plays a key role.

"It’s far from ideal, but it was the best agreement possible," Nicolas Carlos Abad, second secretary at the UK embassy of Argentina, said. "It shows our commitment to repay the debt. [With this deal] we have shown that Argentina is not going to default."