Since taking office last December, Argentine President Mauricio Macri has rapidly implemented changes to promote foreign investment in his country, including abolishing export duties and trade controls, and eliminating exchange rate and capital controls. The country’s mining sector is now set to take advantage of this “new” Argentinian market.
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With many of the reforms implemented early in Macri’s tenure in December 2015 and January 2016, the increase in foreign investment can already be seen, and many new mines will be required to help satiate the burgeoning demand.
The Lithium Triangle
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More than 70 percent of the world’s lithium reserves are concentrated in the lithium triangle—an area that covers North-Western Argentina, Northern Chile, and Southern Bolivia. The lithium largesse is split pretty much evenly between the three, although exact estimates are lacking.
Chile’s share of the world’s lithium market is shrinking despite having some of the best physical resources on the planet, mainly due to its poor government policies.
Bolivia, though it made a symbolic shipment of 10 tonnes of lithium carbonate to China last month, is even more hostile towards investors. With the construction of a single $19-million pilot plant yet to come online, Bolivia will be hard pressed to be more than a bookend in the next decade of Lithium.
This leaves Argentina, which, according to Argentine Mining Secretary Jorge Mayoral, might have resources upwards of 128 million tonnes.
Demand outstripping optimistic figures from 2015
10 months ago, analysts from Citi were expecting lithium spot prices to increase 20 percent in two years. Fast forward to today, and prices have tripled, with China driving demand.
As recently reported by ev-volumes.com, China is the latest country to pass the 2 percent mark for market penetration of plug-in electric vehicles (PEV) from all new car sales. Already from Q1 2016, the website revised its total expected PEV sales for 2016 to 430,000 up from 350,000. If this year’s trend continues, world electric car sales will break the 1 million mark by 2018 – a full two years earlier than Citi analysts reported. Related: Will Norway’s Oil Fund Pull Out Of Company Running Controversial Refugee Camps?
A seven-fold increase in electric vehicles in three years would have been unthinkable in 2014, but with 200+ mile vehicles for under $40k USD, the market is responding.
New Supplies Coming Up Short
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This type of demand will absorb all new supply; and with today’s sales already exceeding analyst’s expectations, the current supply pinch looks to be just a foreshadowing of what is to come. Related: China’s Teapot Refinery Tax Threatens Global Oil Demand
The northern parts of Argentina have become some of the most investor-friendly jurisdictions for lithium mining with the election of the new government. Its chemistries are the envy of the lithium world with high concentration, low impurity locations, and infrastructure available to move product to market – both to the Pacific and demand centres in China & California, and to the Atlantic and demand in Europe.
Two of the most promising lithium provinces are Salta and Jujuy, which have recently been given a boost with a newly operational rail line and more infrastructure investment to come, making lithium mining in Argentina more cost-effective and attractive.
The Salta province is undergoing a flurry of lithium activity by a handful of rising lithium stars, including Lithium X Energy Corp. (LIX-TSXV) and Millennial Lithium (ML.TSXV).
Investors have been pouring into this sector, according to Mayoral, who recently noted that “all the big auto makers have been present in Argentina trying to get a foot in lithium development,” including Toyota, Mitsubishi and Posco.
In 2013, French Eramet scooped up two deposits in Argentina’s Salta province covering some 200 square miles with more than 7 million tons of lithium carbonate equivalent.
Argentina may have gotten a bit of a late start in the Lithium game, but moving forward, there is every reason to believe that this is where the next lithium boom will be focused (and the same can be said for shale).
Until the new government came to power, we were looking at a significant lack of confidence in Argentina, particularly over export duties and ‘vulture funds’—two major obstacles that combine with a new investment-friendly government that appears keen to make the most out of its natural resources.
By Matt Slowikowski for Oilprice.com
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