Resource nationalism is back on the table for policymakers in Latin America and is focused heavily on critical minerals, in particular lithium—a flakey white substance needed for the great energy transition. International companies and investors often associate resource nationalism with seizures of their assets by leftist governments using angry nationalistic rhetoric. At the same time, many Latin American governments are being forced to manage a changing economic landscape that includes balancing climate change, energy security, and an equitable sharing of the bounty. The move to create new regulatory regimes for the mining of lithium (and other critical minerals and rare earth metals), along with refining and battery production, is going to be messy. It will also be different from country to country and overshadowed by geopolitics, especially between China, the heavyweight in the game, and the West playing catchup.
According to Bloomberg NEF forecasts, the value of mined lithium could hit $11 billion by 2035. However, the value added after refining, processing, and mixing with other minerals (like cobalt and nickel), the battery and battery packs containing these put into EVs and electricity-generating facilities, could be worth $7 trillion in the same year. Whoever leads the global lithium supply chain will very likely dominate the economically and strategically critical green energy transition. Today, this place belongs to China.
Although it mines only 13 percent of the world’s lithium, China controls 44 percent of global lithium chemical production and 70 percent of battery cell manufacturing. Moreover, China dominates the global Electric Vehicles (EV) market as well. It has over 300 EV manufacturing companies offering vehicles for an average of $35,000, a price tag significantly more competitive than Western automakers, the bulk of their offerings are luxury models averaging $60,000 in Europe and $70,000 in the United States.
The West lags well behind China in all of this. While considerable efforts and capital is being allocated in the United States to jumpstart lithium mining, refining, and battery making, only one mine is up and running. U.S. manufacturing needs in 2021 were met by imports from Argentina (51 percent of all imports), Chile (40 percent), China (4 percent), and others. Given its heavy external reliance on overseas sources, it remains imperative for the United States as well as for other Western countries to increase trade and cooperation with allies and partners to reduce disruptions. The critical nature of this was caught by U.S.-based EnergyX’s founder and CEO, Teague Egan who has been active in the lithium triangle: “For the U.S. the safeguarding of the supply chain for critical battery materials like lithium is pivotal for national security as these metals are central to the renewable energy transition and defense systems.”
The Lithium Triangle
In this context, the need to secure the global lithium supply chain puts Latin America in the spotlight. The region possesses some of the world’s largest reserves of critical minerals, copper (Chile and Peru), graphite (Brazil), and lithium. As for the last, the “Lithium Triangle”—a region comprising Argentina, Bolivia, and Chile—accounts for over 60 percent of lithium’s global reserves and 31 percent of global production in 2021. Though much remains to be seen, as the green energy transition accelerates and lithium demand increases, the regional regulatory regime map is starting to take form. From nationalization to public-private partnerships or more business-friendly models, governments across the region are moving fast and adopting different models to develop their national lithium policies.
In April 2023, Chilean president Gabriel Boric caught the attention of international mining companies when he announced that his government deemed lithium strategically important and was going to take a controlling stake in that sector, which some associated with nationalization. Boric was very careful to avoid using the word nationalization and emphasized that his motivation is to make lithium production more sustainable (and green) and generate greater revenues for the country. The mechanism envisioned would be a state-owned lithium company, based on the model of Codelco—Chile’s flagship state-owned copper company.
Despite the mixed reaction over Chile’s plans, the two largest companies already active in the lithium sector, U.S.-based Albemarle and Chile-based SQM (partially owned by China’s Tianqi Lithium Corp.), have indicated that they are talking with the government. Other companies have indicated an interest in entering the sector. That said, investors are more cautious with Chile due to concerns over having to renegotiate their contracts as well as the uncertainty as to the needed legislation in Congress.
Argentina is taking a different approach. Foreign investment in the lithium sector is more welcome, especially as it is one of the few shining lights in an otherwise deeply troubled economy. This is helped by cooperation from both the federal government and provincial governments. In 2022, Argentina’s mining exports rose to a historic high of $3.86 billion, powered by $700 million in lithium exports, which rose by a stunning 234 percent year-on-year.
Like other Latin American lithium producers, Argentina needs foreign capital and expertise in developing its industry. It also wants to be part of the value-added supply chain, which is beginning to materialize with the creation of Latin America’s first battery factory, a venture launched by the state-owned energy research company, Y-TEC, which will be supplied by lithium produced locally by the U.S. company Livent. The battery factory plans to start operations in September 2023.
Argentina holds national elections in October 2023 and lithium is part of the debate, with a number of voices favoring some type of nationalization and others preferring an open investment regime. Considering the problematic nature of the country’s economy (with inflation at 7.3 percent in June and with a projection for a 142 percent annual rate and unemployment close to 7.0 percent), there may be a reluctance to tamper with a sector that is rapidly expanding. There are also questions as to whether the battery plant will continue if a more market-friendly coalition of parties wins.
The last country in the Lithium Triangle is Bolivia, which since the 2006 nationalization of the country’s natural gas industry has followed a statist development model. In 2008, leftist President Evo Morales nationalized Bolivia’s lithium industry and eventually created the state-owned enterprise, Yacimientos de Litio Bolivianos (YLP). YLP mandate’s is to undertake the full chain of lithium production, including exploration, development, industrialization, and marketing. Despite the company’s creation, Bolivia has botched efforts to attract foreign companies, lithium mining has been negligible, and the country’s battery business has failed to launch. YLP funding and technical challenges have forced the government to permit some type of private-sector engagement.
Three lithium deals were struck earlier in 2023 between left-wing President Luis Arce government with Chinese and Russian companies, with a combined total of $2.8 billion in new investment. These companies have a massive challenge to capture the envisioned 100,000 tons of lithium carbonate annually by 2025 and to construct a battery plant as well as a possible EV plant. Bolivia exported a minimum 617 tons of lithium in 2022, and there are substantial technology questions and local resistance to mining.
The Other Lithium Players in the Americas
While Argentina, Bolivia, and Chile are the major players in lithium production, Mexico is moving into the sector and making certain that the metal remains under state control. In 2019, a large deposit was found in Sonora, a project undertaken by China’s Ganfeng Lithium. In April 2022, President Andrés Manuel López Obrador (AMLO) declared that he would “not allow foreigners to exploit lithium,” passing a law that proclaimed the country’s lithium deposits as national property and established a state company, LitioMex. However, the full extent of Mexico’s lithium reserves is not known, the country lacks the expertise to extract lithium from clays (as in Sonora) in a cost-effective way. Questions remain with LitioMex concerning the considerable capital needed for exploration and reaching the extraction stage.
Brazil and Peru, which account for just 2.9 percent of Latin America’s lithium resources, are actively seeking to develop the sector. Both countries are considered investor-friendly.
In Brazil, President Lula da Silva’s government expects to transform Jequitinhonha Valley—home of 85 percent of the country’s lithium reserves and one the poorest municipalities located in the northeast state of Minas Gerais—into the face of Brazil’s emerging lithium industry. Brazil has also launched a “Lithium Valley”—a joint initiative with foreign investors to attract investments to develop lithium mining and processing industries and advance social development goals in the region.
Peru’s mining sector is central to the economy and has attracted companies like American Lithium, which is ironically a Canadian mining company. The company has agreed to invest $700 million in Falchani, a lithium project located in the Puno district near the Bolivian border. However, Peru’s ongoing political instability, some of which has spilled over into mining regions, is making other investors more cautious.
There are four factors likely to dominate the lithium policy environment over the next several years.
First and foremost, demand for lithium is going to increase, driven by greater demand for batteries and EVs. According to Statista, in 2022 the world produced only 130,000 tons, and it is estimated that between 250,000 to 450,000 tones will be needed for an electrified U.S. economy. No matter how much production is added from places like Africa, Latin America still has the world’s largest concentration of lithium reserves and is likely to remain strategically important. Moreover, Latin America has a comparative advantage over African production as its sector is either up and running or in the state of start-ups; according to the International Energy Agency, lithium mines that started operations between 2010 and 2019 took an average of 16.5 years to develop. Africa may have lithium, but the operations are not up and running—and will not be for a while.