The good news. The metal that fires up your iPhone and iPod will be the power source for all electric cars including the increasingly popular Toyota Pirus, Telsa Roadster, Nissan Leaf and GM’s hybrid Volt. The bad news. It is estimated the demand for lithium will outstrip supply in less than 10 years unless new sources are found. In fact, Byron Capital Markets predicts a 40 percent increase in demand for lithium from 2009 to 2014.
Enter Bolivia, Chile and Argentina.
Over half of the world reserves for lithium lies under the Bolivian Salar de Uyuni. The two largest lithium exporters are Chile and Argentina. According to the United States Geological Survey (USGS), Chile provides 61% of lithium exports to the U.S. and Argentina is the source of 36%. Chile has a reserve of an estimated 3 million tons and Argentina weighs in with 400,000 tons, while Bolivia’s reserve is calculated as being about 5.4 million tons.
Will South America become the Saudi Arabia of lithium? The challenge lies in the cost efficient exploitation and transportation of the mineral as well as the regional politics.
The cost of extracting lithium from Bolivia’s Salar de Uyuni is unknown. Its ratio of magnesium to lithium – 30:1 units against 6.5:1 in Chile’s Atacama Desert – could put extraction costs at about USD $5,000 a tonne, compared with USD $1,500 in Chile. Currently, lithium is not traded as a commodity so investors are looking into companies which sell the metal. One company that is traded on the NYSE is the Chilean firm, Sociedad Quimica y Minera de Chile (SQM), which has been creating quite a buzz throughout the financial world.
As for the regional politics, Bolivia’s president Evo Morales has a strict agenda of natural resource nationalization. While regarded as populist by the United States government, this political agenda aims to end of the decades of plunder, epitomised by the faded city of Potosi, where hundreds of thousands died in the silver mines that funded Spain’s Armada. To this effect, Bolivia has ruled out private investment in producing lithium – however it has left the door open to alliances for value-added products in which the government retains a 60% stake. Any partner would be required to build a plant to make lithium-battery powered cars. This approach will test Bolivia’s state owned national mining company Comibol ability to raise funding and manage such a large scale project.
The stakes for Bolivia’s Evo Morales are considerable. By taking advantage of these substantial natural resources, he can realistically lift his country out of poverty and increase its role as a significant player on the global market. Even prior to increased demand for lithium, the Bolivia’s mining industry was producing significant gains for the country, leading to a 9.4% increase in its GDP.
However for South America to proposer from lithium it must not strive to become the Saudi Arabia of lithium. Instead it should seek its own sustainable long-term democratic plan, focus not only on exploitation but the recycling of lithium from used batteries. More importantly, politicians and economists but ensure the indigenous people of South America, the rightful owners of these resources, are part of the process and the economic benefits.
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