Chile Extends the Life of the World's Cheapest Lithium Basin

Chile's government recently announced a public-private partnership that will extend the lifespan of the world's cheapest lithium basin by 30 years. This basin is located in the Atacama salt flats, situated in the high Andean desert. Currently, local miner Sociedad Química y Minera (SQM) and U.S.-based Albemarle are responsible for producing 25% of the global supply of lithium for electric vehicle (EV) batteries. SQM's concession was scheduled to expire in 2030 but will now be extended to 2060 due to a new 50-50 joint venture with state copper giant Codelco.

The decision to extend the concession is seen as a pragmatic step taken by Gabriel Boric, Chile's president, who was known for his progressive reform agenda during his time as a student activist. This partnership aligns him with SQM's dominant shareholder, Julio Ponce Lerou, who is the son-in-law of the late dictator Augusto Pinochet. Ponce Lerou has faced legal troubles in the past, including a fine for his involvement in a stock manipulation scandal. According to Juan Carlos Guajardo, founder of the Plusmining consultancy in Santiago, this alliance is unexpected given the government's previous perception of Ponce Lerou.

However, Chile still faces challenges in fulfilling its lithium potential. The nation, home to 20 million people, boasts the world's largest proven reserves of lithium. However, exploration efforts have been limited due to a law enacted during the Pinochet era that designated lithium as a strategic metal, primarily due to its perceived importance in nuclear energy. The removal of this statute has been hindered by disagreements between supporters of a state-led approach and advocates of free-market principles in Congress. Francisco Acuna, a consultant with raw-materials specialist CRU, describes this situation as a "political paralysis around lithium."

As a result, Australia has overtaken Chile in lithium production, while neighboring Argentina is projected to surpass Chile by 2028, according to CRU. This has led to a decline in Chile's global market share of lithium, which is expected to shrink to 15%. To secure its position as a leading lithium producer, Chile will need to navigate these political challenges and find a way to unlock its vast lithium reserves.

The Unresolved Issues Surrounding the Atacama Lithium Deal

Plenty of questions persist regarding the Atacama lithium deal, which remains in the memorandum-of-understanding (MOU) stage. The current extraction method involves drawing lithium brine to the surface and allowing it to evaporate slowly over several months. However, this technique could deplete water resources within the next 35 years. Achieving sustainable exploitation will require unproven advancements such as brine reinjection or direct extraction from underground deposits. Unfortunately, the MOU provides only vague guidance on adopting new technologies.

Albemarle's concession, located in a different section of Atacama, extends until 2043 and is not a primary concern at the moment. SQM and Codelco, on the other hand, plan to combine their resources at a greenfield deposit called Maricunga. However, actual production at Maricunga is still years away, at best.

Argentina's lithium prospects benefit from the country's federal structure, which allows mining-friendly governors in two northern provinces to foster investment. One obstacle, as noted by Acuna, is the national government's complex currency controls that can hinder foreign investors from repatriating their profits. It remains to be seen whether newly-elected pro-business President Javier Milei can navigate these challenges. Acuna believes that it will take some time before Milei can effectively address this issue.

Meanwhile, consultant Guajardo is establishing an office in Melbourne, foreseeing that Australia will make the right decisions amidst the current mining boom while Latin American countries continue to struggle.

Chile's cost advantage may play an increasingly crucial role as the lithium market matures. Prices plummeted by 80% last year, reaching levels below $10,000 per ton. Guajardo predicts that they will stabilize around $20,000 to $25,000 per ton over the next decade, highlighting that lithium is not a scarce mineral. This revelation is promising news for manufacturers and drivers of electric vehicles.