Pimagine a country South America is good for business, attractive to foreign capital, and offers political stability for long-term investment. Most people think of Chile. But when it comes to mining lithium, a lightweight salt-like metal used in batteries for electric cars and cellphones, the country is its dysfunctional neighbor, Argentina.Known for triple-digit inflation and anti-economy International Monetary FundArgentine officials have launched a charm offensive from Washington to London with an encouraging message: The mining industry is open for business.
Your browser does not support
The transition to green energy has made lithium one of the world’s most sought-after metals. Lithium carbonate price (LCE), the raw material used in lithium-ion batteries, has soared from a five-year average of around $14,000 a ton to more than $80,000 this year.According to consultancy Benchmark Mineral Intelligence, as sales of electric vehicles grow, the LCE That will rise to 2.4 million tons by 2030, up from around 600,000 tons this year. Although lithium resources are abundant, supply has struggled to keep up. Benchmark’s Daisy Jennings-Gray said there were 10 mines around the world that could produce battery-grade lithium. The global scramble to find cheap deposits and build mines to meet rising demand has begun. Argentina can benefit from this.
Nearly two-thirds of the world’s lithium is produced in the Andean plains that straddle Argentina, Chile and Bolivia – collectively known as the “Lithium Triangle”. Bolivia, which has some of the world’s richest resources, has failed to keep production going. The state owns all the lithium deposits and companies can only mine them through an agreement with the publicly traded Yacimientos de Litio Bolivianos. Political turmoil and a lack of technical know-how didn’t help either. In 2016, the deputy interior minister was beaten to death by miners.
Chile used to be the world’s largest lithium battery country. Overtaken by Australia in 2017, it became the world’s largest supplier. Chile now accounts for 26% of the total supply. Lithium mines there are also state-owned and contracted to private companies.Two companies, Albemarle and square meter, leading the industry. In 2016 and 2018, the government renegotiated contracts and introduced new rules forcing companies to sell up to 25% of their metals domestically at below-market prices to encourage local industry. Additionally, royalties are tied to global prices that may fluctuate. The mining company has also agreed to use some of the proceeds for development projects in the communities where it operates, quelling protests from local activists and potentially creating jobs. That, while reasonable, may have some investors looking beyond the Andes.
In contrast, lithium is not considered a strategic resource in Argentina. The state plays a small role. Instead, the constitution gives the country’s 23 provinces the right to manage minerals on their lands and grants concessions to businesses. A 1993 law provided mining companies with tax breaks and barred their businesses from facing new taxes for 30 years from the date they submitted a feasibility study to the federal government. Royalties are capped at 3%, compared with 7-40% in Chile.
All this attracts capital. Some 40 lithium projects are currently in various stages of exploration, more than in any other country. JPMorgan Chase expects Argentina to surpass Chile as the world’s second-largest lithium producer by 2027. Argentina could supply 16% of the world’s lithium by 2030, up from 6% in 2021 (see chart). Anglo-Australian mining giant Rio Tinto bought a lithium mine for $825 million in March. PohangA South Korean company is investing $4 billion in a lithium project.
Chinese companies are particularly keen on this. In July, Ganfeng Lithium, a large Chinese producer, announced plans to buy a plant for nearly $1 billion. Argentina’s macroeconomic mismanagement — the country has about a dozen different exchange rates, and inflation is close to 100 percent — puts off many Western companies. For Chinese companies, however, “the focus is not on finances, but on strategy,” says Carlos Freytes of Fundar, an Argentinian think tank. “It’s about geopolitical ambition. They want to guarantee supplies.” Six of the nine projects closest to production in Argentina involve Chinese companies, according to data compiled by Fundar.
Argentina’s mining law was passed during a short window of free market reforms. They are difficult to change because the constitution devolves power to the provinces that control the Senate. The governors of the three northwestern provinces where Argentina’s lithium resources are located – Salta, Catamarca and Jujuy – have not feared fighting back against the government.When the foreign ministry said in October it was in talks with Bolivia and Chile to create a “lithium OPECProposals to set regional prices for the metal are on hold, as governors complain. They hope foreign investment can help their provinces grow. The World Bank estimates that lithium production and processing could increase in a best-case scenario gross domestic product The fiscal revenue of these provinces is increased by 10%.
However the problem remains. Conflicts with indigenous communities living on land where lithium is extracted are likely to increase. These have held back projects in Bolivia and Chile and closed other mines in Argentina. A 2019 study in Chile found that lithium mining exacerbated drought in surrounding areas, which in turn angered locals. Argentina’s low royalty rates could mean most of the profits end up in the pockets of foreigners rather than state coffers, which could spark a political backlash. “It’s looting, plain and simple,” said Enrique Viale, an environmental lawyer in Buenos Aires. On Nov. 10, the lower house of parliament discussed a law that, if passed, could impose stricter environmental checks on wetlands, including land on which lithium mines are built. The law was introduced a decade ago but failed due to opposition from the provinces and the mining lobby.
Argentine politicians may dampen investor enthusiasm. The state oil company recently expanded into lithium; the federal government could try to give it privileges over private companies. Stricter export controls could halt production. “No single sector can save Argentina from this quagmire,” notes Benjamin Gerdan of the Wilson Center, a think-tank. But in a country with a struggling economy, lithium remains a rare hope for now. ■
