Bolivia's lithium is not as important as the country wants you to think

Let sleeping giants lie

27 October 2009 00:00  [Source: ICB]

Bolivia calls the potential of its lithium reserves a "sleeping giant" – but if it stirs and no-one pays attention, can it really be described as awake?

 

 Rex Features

SPURRED BY the importance of lithium-ion batteries to the upcoming generation of electric vehicles (EVs) and hybrid EVs (HEVs), there has been a lot written - some of it quite hyperbolic - about the importance of Bolivia's sizeable lithium resources.

Many of the articles used the phrase, "The Saudi Arabia of lithium," when describing the nation, although a few stories correctly referred to Bolivia's neighbor Chile by that sobriquet. Despite its potential, Bolivia has yet to start producing any lithium.

Bolivia's potential is "very exaggerated," says Eric Norris, global commercial director of the lithium division of US-based chemical producer FMC. "People are interested in Bolivia because of the size of its deposits, but if Bolivia does not enter the lithium market, it will have no impact."

There is plenty of the metal elsewhere, Norris notes, whether in the rest of South America, Australia or Asia.

Nor does US-based Rockwood Holdings, the parent of Germany-based lithium producer Chemetall, think Bolivia is the end-all.

"We believe there are substantial, proven reserves at other existing sites to supply the expected growth in demand that is likely to be created by the introduction of EVs," says Timothy McKenna, vice president, investor relations and communications, for Rockwood.

Further, Rockwood expects that lithium from the large batteries used in EVs will be recycled, creating an additional supply source.

Chile provides 61% of lithium exports to the US, with Argentina providing 36%, says the US Geological Survey (USGS), with Chile having estimated reserves of 3m tonnes, and Argentina about 400,000 tonnes. Bolivia's reserves, however, are projected at about 5.4m tonnes. The Andean areas between Bolivia, Argentina and Chile are referred to as the Lithium Triangle.

At the 2009 Lithium Supply & Markets conference, held in Santiago, Chile, in January, global lithium reserves and resources were estimated at nearly 30m tonnes, with 7.6m tonnes from mining, and 17.6m in continental brines. Other lithium producing countries include Brazil, Canada, China, Finland, Portugal, Serbia, the US (in Nevada) and Zimbabwe.

Lithium production via the brine method is much less expensive than mining, says John McNulty, analyst at global bank Credit Suisse. Lithium from minerals or ores costs about $4,200-4,500/tonne (€2,800-3,000/tonne) to produce, while brine-based lithium costs around $1,500-2,300/tonne to produce.

Melting snow from the Andes Mountains runs about 130 feet (39.6 meters) underground, into lithium deposits, then gathering into pools of salt water, or brine. The brine is pumped out from under salt flats such as Chile's Salar de Atacama, and spread among networks of ponds where the desert sun and high altitude provide a beneficial environment for evaporation.

It takes about a year for the brine to reach a lithium concentration of 6%, when it is shipped to a plant to be purified, dried and crystallized into lithium carbonate, which then is granulated into a fine powder for battery makers. Lithium stores a very large amount of energy for its volume, which makes it perfect for electronics.

In a mobile phone or PDA, there is about one-tenth of an ounce (0.284g) of lithium in the battery. But EV batteries are projected to contain about 20lbs (9kg) of lithium. Lithium sells for roughly $1/kg, or $3/lb.

The major producers, called the "Lithium Three" by analysts, are Rockwood/Chemetall (with reserves in Nevada and Chile), FMC (Argentina) and Sociedad Quimica y Minera (SQM), based in Chile and 32% owned by PotashCorp of Saskatchewan and 2% by Japan's Kowa.

Basically, none of these companies appear interested in Bolivia. "It is well-known that Bolivia has large deposits of lithium," says McKenna. "However, there are practical barriers to developing these deposits."

UK-based consultancy Roskill Information Services says the ratio of magnesium to lithium is much higher in Bolivia's Salar de Uyuni than at the Salar de Atacama in Chile, the Silver Peak operation in Nevada, or in Argentina's Salar de Hombre Muerto, which will lead to higher extraction and processing costs. The Bolivian salar is also at a much higher altitude, resulting in less efficient evaporation. Then there is Bolivia's limited infrastructure, compared with that of Chile, Argentina or the US.

"Any developer would have to factor the cost of these barriers into development and eventual production," says McKenna.

Also, the Salar de Uyuni floods seasonally - compared with Chile's Salar de Atacama, which has about one inch of rain every 13 years - further diluting the brine.

BIGGER THAN ITS BRITCHES
But Bolivia's biggest problem may be Bolivia itself. "Bolivia, the poorest country in South America, should not expect the derailment of oil-fueled vehicles to deliver an instant economic shot in the arm," warns US-based Latin America-focused think-tank Council on Hemispheric Affairs (COHA) research associates Andy Blair and Adam Bloom.

Bolivia has ruled out selling lithium as a raw material. Leftist president Evo Morales and his administration think that partners are welcome, as long as they use the lithium in Bolivia. In other words, partners must build battery factories and possibly EV/HEV assembly lines there.

At a press conference in March, Morales said: "The state doesn't see ever losing sovereignty over the lithium. Whoever wants to invest in it should be assured that the state must have control of 60% of the earnings."

At the start of October, the government-run Bolivian Mining (Comibol) revealed its plan to invest about $400m to build a lithium carbonate plant at Salar de Uyuni. The facility's capacity is projected at 20,000 tonnes/year, roughly 30% of current global supply. Bolivia says the site will be producing by 2014, but the government wants total control of the resource, and has turned away any offers for partnership.

Construction was started on a smaller processing facility in March 2008, and Bolivia says the plant will be completed by the end of 2009. The cost of this unit has risen from its initial estimate of $5.7m, to $8m, and was delayed by two months because of the lack of workers, as well as bad weather.

At a Madrid press conference for his September visit with King Juan Carlos of Spain, Morales said: "Companies that respect Bolivian norms will be welcomed. We're looking for investment, be it from private or state sector. We want partners - not owners of our natural resources."

In 2006, Morales nationalized the oil and gas industry, something that has made foreign gas companies stop investing there.

And with lithium, investors have been burned before in Bolivia. In 1990, US-based Lithco had planned to invest $46m in Salar de Uyuni, but hunger strikes and massive protests forced the company out, despite pro-capitalism former Bolivian president Jaime Paz Zamora's protests.

Lithco eventually set up operations at Argentina's Salar de Hombre Muerto, and eventually became part of FMC.

COHA warns that "processing raw lithium carbonate into lithium-ion batteries will be a protracted task due to Bolivia's anemic economy."

Bolivia's recent history has been tumultuous. A series of military coups from 1978 to 1980, and then a major economic crisis in the mid-1980s "shattered" the country, says COHA. The economic crisis culminated in 1985 with an inflation rate of 24,000%, which effectively crippled the government and raised the country's foreign debt to $3bn, "over which Bolivia is still struggling to recover."

And if Bolivia could solve its infrastructure and debt problems, would anyone still want their lithium? "The Bolivians are spending about $400m on the plant by the salar, but FMC, Chemetall and SQM can increase capacity at a fraction of that cost," claims FMC's Norris.

Each of the Lithium Three can add roughly 25% more capacity with a $40m-50m investment, says Credit Suisse's McNulty.

Bolivia forgets that growth to date has been driven by consumer electronics. "As of today, lithium is not being used in the vehicles on the road," points out Norris. "These cars, while scheduled, are all under development."

    

POTENTIAL DEMAND
Lithium supplies from existing and expanded operations are more than sufficient to meet potential demand for 500,000 lithium-powered vehicles in 2015 and could meet demand for up to 2m lithium-powered EVs and HEVs in the same period, says US-based consultancy and financial services provider Gerson Lehrman Group.

With China's capacity, including Tibet's, adding another 10,000 tonnes/year of production capacity by the early 2010s, and several Canadian companies entering the market, "oversupply might be a more pressing question than lithium availability," says the firm.

During the Deutsche Bank Alternative Energy Conference in June, Rockwood CEO Seifi Ghasemi noted that the world had "more than adequate" lithium production capacity to reach the auto industry's goals regarding batteries. "If the US market were 100% converted to EVs, the Salar de Atacama lithium resource in Chile could supply market needs for at least 100 years. At the 10% market penetration level, the Salar could satisfy market needs for 216 years."

The Atacama resource is shared between Rockwood and SQM.

And then, at the start of October - when Bolivia made its announcement about lithium production - SQM dropped a bomb when the company said it would be reducing prices by 20% for lithium carbonate and lithium hydroxide to drive demand growth "in what we believe is an attempt to gain share," says McNulty. SQM is also increasing capacity by 40,000 tonnes/year.

US bank BB&T Capital Markets managing director Frank Mitsch says: "While this lack of discipline bodes unfavorably for the competitive landscape," SQM's actions drive "long-term development of the lithium market."

"We believe SQM may be seeking to forestall new production capacity from being developed," says David Begleiter, analyst at Germany's Deutsche Bank.

SQM has flooded the market before. In the late 1990s, lithium prices approached $4,000/tonne, and lithium from mining operations, as opposed to brine operations, became economically viable. These producers were starting to enter the market when SQM flooded it, forcing prices down to roughly $1,400/tonne, effectively driving the new producers out. Given the weak economy and capacity expansion, the lithium market "is way oversupplied," emphasized McNulty. "Pricing in the near term will be under significant pressure."

NEW APPLICATIONS DRIVE GROWTH
Demand before the global recession had been growing at about 5–7%/year, but in 2009, the lithium industry contracted by about 30%, says Norris. However, "we see demand returning to those pre-2009 levels in another couple of years, with new applications, including car batteries, driving growth."

Traditional markets will only see single-digit growth long-term, cautioned McNulty during Credit Suisse's early October EVs conference call. He predicted that the lithium industry would enjoy a compound annual growth rate (CAGR) of 7.2% from 2009-2015. But incremental demand connected to lithium-ion batteries in EVs will push the CAGR from 2009-2020 to 10.3%, he noted.

"Currently, demand for lithium from automobiles is essentially zero," said McNulty during the conference. "But by 2015, demand from EVs will be about 10,000 tonnes, expected to increase to 81,000 tonnes by 2020."

The analyst added, though, that with SQM's "recent lapse in discipline and the recent hype around lithium, we think the market expectations may have gotten a little bit frothy. We think they need to calm down a little bit."

Bolivian president Evo Morales wants a 60:40 split with investors

Read the ICIS chemicals and the economy blog


By: Ivan Lerner
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