South America Finds New Riches in Lithium Supply

Despite advances in battery technology, production is still dependent on three elemental metals: cobalt, graphite, and lithium. The amount of lithium actually used in batteries is relatively small as a percentage of their total weight. That is why, despite the rising cost of the commodity, battery prices are falling as production increases.

Companies, such as Tesla, depend on lithium and cobalt supplies for their cars and energy-storage products. Tesla is currently building a lithium-ion battery plant in Nevada capable of producing up to 500,000 lithium-ion vehicle batteries per year. The plant is expected to be able to finish battery packs directly from raw materials by the end of the year.

Lithium, the metal which is key to the performance and reliability of electric vehicles and most wireless electronics, is becoming an increasingly sought-after commodity. Its extraction is increasing worldwide and its price has risen more than 20% in the last five years. South American countries such as Argentina, Bolivia, and Chile have the largest deposits of the mineral, and lithium exports will become a significant part of their economies.

Mining cobalt is becoming a major challenge because the main deposits are in a war zone — the Democratic Republic of Congo (DRC) and neighboring areas. Importing it –both as a raw material or as part of a finished product–  is regulated as part of the Conflict Minerals rules both in the United States and the European Union. The DRC is currently producing half of the world’s supply of cobalt. Other countries, such as Australia and Cuba, could step up as an alternative suppliers as they have large reserves of the mineral. Chile could also supply cobalt as a byproduct of mining copper, currently its biggest export.

Chile is also the second biggest producer of lithium, after Australia, and the first US supplier of the metal, with 12,000 metric tons shipped last year. It has identified deposits of 7.2 million metric tons in its territory. Neighboring Argentina has identified reserves of two million metric tons. Recent reports estimate that, when prospected, both Argentina and Bolivia could have resources, from continental and geothermal brines, of over nine million tons of lithium each. Top producer Australia has only identified reserves of 1.6 million tons.

In this new economy, where lithium could be the new oil to fuel electric vehicles, Chile has an enormous advantage. The country has the mining technology and expertise from many years of extracting metals. Also, Chile is the only OECD member in South America, and the most stable democracy in the region. Some Chilean companies are already working in Argentina and Bolivia, forming new conglomerates to exploit the new fields.

How the new riches of lithium will impact those countries’ finances is difficult to forecast. For Bolivia and Argentina it could signify a new source of foreign currency, badly needed for their economies.

What is not up for debate is the importance of those metals in the new economy. The London Metal Exchange (LME) plans to launch futures contracts for battery metals in less than 18 months. According to David Hodari of the Wall Street Journal: “The LME will work with battery producers and car makers on contracts for minerals such as cobalt and lithium that are used in batteries that power electric vehicles. Manufacturers are trying to manage risk in the mining of cobalt in particular.” And “manufacturers will have to produce batteries that are more efficient, and use less of the minerals, to back projections for electric-vehicle growth.”

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