By Dave Brown — Exclusive to Lithium Investing News
Argentina, Bolivia, and Chile; in the mining industry these three Latin American countries are commonly known as “the ABCs of Lithium,” as together they contain an estimated 70 to 85 percent of the world’s 13 million tons of known lithium reserves.
While Bolivia is believed to account for the majority of that figure, holding more than half of world reserves, its government’s mining policies are not at all friendly to foreign investment. In fact, President Evo Morales has aggressively worked to keep lithium exploration under the government’s control, leaving Argentina and Chile to lock horns over the top spot in the global lithium market. Both countries have received sizable amounts of foreign investment in lithium exploration.
For now, Chile continues to earn its distinction as “the Saudi Arabia of lithium” when compared to Argentina. Chile holds 25 percent of world lithium reserves, accounts for 44 percent of worldwide revenue, and provides 61 percent of lithium imports to the United States compared to its Latin American rival’s ten percent of world reserves, 11 percent of worldwide revenue, and 36 percent share of US demand.
However, antiquated mining laws have stood in the way of advanced production out of Chile, and new developments in Argentina as well as new projects in Australia and China, stand to threaten Chile’s status in the global lithium market. “In Argentina, at least three lithium projects are in a very advanced stage of development and probably will start producing within the next two years,” Daniela Desormeaux, economist and Chile-based lithium expert at SignumBOX, told Lithium Investing News.
Luckily for foreign mining companies operating in Chile, the nation is keen on holding tight to its top dog position. The Chilean government recently announced key changes to mineral classifications under a decades-old mining law in an effort to stay competitive in the global lithium market while still maintaining control of its resources in the national interest.
Chilean lithium mining laws revised
In 1982 the country’s lithium was classified as “strategic” by the State of Chile, and therefore deemed “non-concessible” under the Chilean Mining Code – meaning that exploitation of lithium reserves within Chile’s borders “can be performed only directly by the State of Chile, or its companies, or by means of administrative concessions or special operation contracts.” The government hasn’t released any new concessions or special operations contracts since then.
In August 2011, the Chilean government launched a package of regulatory reforms dubbed “The Boost Competitive Agenda.” As part of the agenda, on February 7, 2012, the Office of Competitiveness of the Ministry of Economy announced an initiative aimed at “re-launching the Chilean lithium industry” for the express purpose of “unlocking…restrictions and implementing mechanisms to improve competitiveness within the industry, promote further investment and protect the country’s market-share and standing in the world lithium market.”
These “mechanisms” include twenty-year Special Lithium Operations Contracts (CEOLs), which will allow foreign miners to produce 100,000 tons (approximately 530,000 tons of lithium carbonate equivalent) per year for an as yet undisclosed fee, plus a seven percent sales royalty paid to the Chilean government.
CEOLs open access to Chilean lithium resources
About five or six companies are exploring Salar brine deposits in Chile, says SignumBOX’s Desormeaux. Since most of these concessions were assessed after the implementation of the 1982 mining code, these exploration companies cannot extract lithium without the CEOLs. However, that’s soon to change, as the Ministry of Mining expects to open up bidding and auction the first CEOL by the end of this year.
Among the potential bidders is the Australia-based Talison Lithium Ltd. (TSX:TLH), the leading global producer of lithium. Other stakeholders include Li3 Energy, which together with its partner POSCO (NYSE:PKX) – the largest steelmaker in South Korea and the fourth worldwide – has a project in the Salar de Maricunga. Minera Copiapó linked to Samsung SDI and Francisco Javier Errázuriz, as well as Pan American Lithium Corp. (TSXV:PL) and Simbalik.
“The right to exploit around 100,000 tonnes of lithium for 20 years will be auctioned,” stated Chilean mining subsecretary Pablo Wagner, who also commented that the nation could earn as much as $350 million per project. “We know that if we delay a lot in developing this project we’ll lose competitiveness and we could halve our market share.”
Desormeaux believes that the impact of CEOLs on Chilean lithium production may not be fully realized until 2016.
Securities Disclosure: I, Dave Brown, hold no direct investment interest in any company mentioned in this article.