Bloomberg Línea — In the race for electric vehicle development, Latin America can become a leader in the supply of lithium, a vital raw material for battery production, with at least 17 projects in operation or about to enter that stage in Argentina, Chile, Brazil and Bolivia, but the business environment is highlighted as a key factor to ensure the development of the industry, at the risk of losing investments to other regions.
Today, Australia, Argentina, Chile and Brazil concentrate 84% of the world’s lithium production and hold about 80% of global reserves, according to a survey by KPMG, while Bolivia also has enormous potential in the sector, with an estimated reserve of around 21 million certified tons of lithium, but which has so far not embarked on efficient exploration, the study points out.
KPMG’s energy and natural resources leader in Latin America, Manuel Fernandes, told Bloomberg Línea that, from a geographical point of view, the map of large lithium reserves has been changing. Iran recently announced the discovery of an estimated 8.5 million tons of the mineral in Hamedan province, while India has also reportedly discovered a major reserve.
“Lithium has gained a lot of importance, mainly with the trend of electric vehicle production, and the mineral now has a greater attractiveness and the projects are huge,” Fernandes said.
According to KPMG, Chile’s reserves are currently among the most largest in the world. Argentina, followed by Brazil, also stands out in this race.
Chile, Argentina and Bolivia make up the so-called “lithium triangle”, a geographical space in which most of the total global reserves of the mineral are concentrated.
However, KPMG pointed out that exploration in Bolivia is inefficient due to the lack of technology, specialized personnel, infrastructure and, mainly, due to restrictions imposed until recently by the country’s nationalization strategy regarding the mineral.
Fernandes pointed out that this should change, as China and Russia have committed to accelerating lithium carbonate production in the Andean country, with investments of more than $1 billion.
Within the fierce global competition, Sigma Lithium (SGML) CEO Ana Cabral-Gardner noted that the raw material itself is not rare. “All the world’s largest lithium producers have large reserves. What differentiates each one is the processing techniques and the business environment of the country,” she said in an interview with Bloomberg Línea.
According to Cabral-Gardner, respect for contracts, the regulatory environment and a predictable set of environmental rules are crucial to attracting investment.
“Predictability and regulatory and environmental speed are key in the competition between global lithium provinces,” she said. “Brazil is a great candidate to receive these investments,” she added.
Sigma is developing the Grota do Cirilo project in the Jequitinhonha Valley in Minas Gerais, with a total investment of 3 billion reais ($634.1 million), and has just started the company’s first shipment. Cabral-Gardner said the company is studying the feasibility of a fourth production line.
She added that the average time for a project to be developed from scratch is around nine years. “It is a competition between the super big [companies]. We put Brazil among the leaders.”
Studies by the Brazilian Geological Survey (CPRM) indicate the existence of 45 mineral deposits in the Jequitinhonha region with economic potential. In this context, the Minas Gerais government launched the Vale do Lítio project in May of this year on the Nasdaq index in New York to attract investment to the sector.
The so-called ‘lithium valley’ is made up of 14 cities. Currently, Companhia Brasileira de Lítio (CBL) is operating in Jequitinhonha, as well as AMG, which already produces lithium concentrate in the region. Other companies such as Latin Resources, Atlas Lithium and Lithium Ionic operate in the mineral drilling program.
For the manager of Ace Capital, Tiago Cunha, the Jequitinhonha Valley should begin to be known globally for having quality lithium, with a certificate of origin.
“This encourages responsible production, so that we do not have companies operating without this kind of concern. The initiative can attract serious investors,” he said.
The KPMG partner warned, however, of the need to ensure added value in the supply chain. In his view, it is also necessary to attract investments for lithium refineries and electric car battery factories.
“The country needs an industrial policy so we don’t run the risk of becoming just a commodity exporter, without benefiting from the end product,” he said. “We have to invest in refineries and create opportunities for battery production locally,” he added.
In the assessment of the CEO of Sigma Lithium, however, this may not be decisive. According to her, lithium refining is a highly complex business with low returns. “In addition to being a highly dangerous activity, it employs few people and has margins below 20%.”
Interested car makers
Like copper, lithium has attracted the attention of major carmakers in order to ensure a supply of raw materials for battery production. China’s BYD, one of the global leaders in electric car sales, is looking for mining assets on Brazilian soil.
The automaker has signed a memorandum of understanding to invest 3 billion reais in Ford’s factory in Camaçari, Bahia, to produce electric cars. According to BYD’s advisor in Brazil, Alexandre Baldy, the company also plans to invest in lithium in the country.
“The investment package is based on a few pillars, and this includes lithium extraction. The company is looking at existing mines and also greenfield projects either as a direct investor or not,” said the executive, and who was the minister for cities in the 2016-18 Michel Temer government, in an interview with Bloomberg Línea.
Baldy said that BYD is already in talks with lithium companies in Brazil to invest or sign contracts to supply the raw material. “This is an alternative if the extraction itself does not prosper.”
The Chinese company already operates a battery module factory in Manaus (in Amazonas state), intended for the assembly of the brand’s electric buses manufactured in Campinas.
“The battery factory will continue in Manaus, there is no intention to take production to Camaçari,” said Baldy. The expectation is that BYD’s electric vehicle production will be “end-to-end”, that is, from lithium exploration to the manufacture of the final product in Brazil.
Also in February, Stellantis (STLA), which owns the Fiat, Jeep, Peugeot and Citröen brands, announced an investment of $155 million in a copper project in Argentina, with an eye on the supply of raw materials for electric cars.
Stellantis’ president for South America, Antonio Filosa, said the group is looking for lithium assets in the region. “Like copper, lithium is also of great interest to us in the future. We are looking ‘360 degrees’ at opportunities,” he told Bloomberg Línea shortly after the acquisition.
Tesla, meanwhile, is reportedly evaluating a purchase of Sigma Lithium, according to people with knowledge of the matter told Bloomberg News in February.
“Automakers don’t have many ways out. Europeans have committed to banning combustion cars from 2025, but the region’s automakers don’t have the sources to electrify their fleet quickly. The automotive industry will need to invest much more to ensure supply for electric batteries,” said the KPMG partner.
KPMG’s Fernandes noted that Brazil has not seen so many investments in the exploration phase of the mining industry - the first and riskiest stage of all - in the midst of the expansion of lithium assets.
“A mining project does not cost less than 3 billion reais and involves not only the production process itself but also other complex systems such as transportation from the mine to the port. These projects require a lot of capex [investment],” he said.
Political decisions
As demand for lithium increases sharply, a long-standing issue is emerging among governments in the region: greater state involvement in mining projects.
Chile, the world’s second-largest lithium producer behind Australia and responsible for 30% of global output, recently announced that it is to promote changes to its regulatory framework for the mineral.
Currently, the royalty paid for lithium extraction in the country is 40% of the export price, considered one of the highest in the world.
President Gabriel Boric has announced that the country will nationalize the lithium industry, transferring existing operations to a state-owned company in the future. Last year, the government of Mexico also announced the nationalization of its lithium deposits.
In the eyes of Sigma’s CEO, governments need to work on improving the rules of the sector, giving predictability and speed to the processes. Gardner cites as a positive example in this regard Decree 11,120/2022, which made lithium exports and imports in Brazil more flexible.
Previously, foreign trade operations of the raw material depended on prior authorization from the National Nuclear Energy Commission (Cnen). “Brazil has been doing a good job since last year and companies are already settling in the Jequitinhonha Valley,” Cabral-Gardner said.
According to the KPMG study, Argentina is the country in Latin America that, at first glance, shows better prospects to guarantee the region’s leading role in the lithium market, “even if Brazil presents greater economic stability and a more favorable business environment”.
According to the consultancy, Argentina has been resilient and its rich reserves of minerals and natural resources have been attractive to local and foreign capital.
In Argentina, the Salar del Hombre Muerto, in Catamarca province, and the Salar de Olaroz, in Jujuy province, are currently the geographical areas where public and private capital is applied for mineral extraction.
According to KPMG, the Argentine government maintains many projects in different stages and it is expected that, in the future, the activity can contribute significantly to the economy, keeping the country among the main producers and exporters of the mineral in the international market.
“The mining industry has gone through a delicate moment, today it is more difficult to obtain an environmental license for the activity, this happens in the sector as a whole. We need more predictability, agility and vision about the environment to explore lithium,” says KPMG’s Fernandes.
