Lithium
At the heart of the salars triangle
Some 1500 km north of Santiago lies Atacama, the driest desert in the world and the home to 80% of Chile's lithium reserves. Chile mainly produces lithium carbonate, followed by lithium hydroxide and lithium chloride. Lithium carbonate holds the highest commercial transaction value and can be produced by either hard-rock mining extraction, the technique primarily used in Australia, or by extraction from bine. In Chile, Argentina and Bolivia, also known as the South American 'lithium triangle', lithium is mined through extraction from bine, which is easier and more cost-effective.
There are two types of salars in South America: Andean and pre-Andean, the latter holds a higher concentration of lithium. Chile is home to multiple pre-Andean salars, namely Atacama, Punta Negra, Pedernales and Maricunga. However, the Atacama Salar is the only one hosting significant operations, led by Chile's two lone producers, Santiago-based Sociedad Quimica y Minera de Chile (SQM) and Albemarle.
Even though the lithium industry is smaller compared to copper or gold, its dynamics are exciting in the near future as it is to witness rapid growth as a result of the projected sharp increase in the demand in the upcoming years. The metal's high density and excellent conducting properties make it the number one choice in battery production for electric vehicles (EVs). Demand for the white metal did not grow as expected for 2020 as a result of the global downturn. However, according to a research study by Facts and Factors, the EV market is expected to grow at a compound annual growth rate of 22% between 2019 and 2026. As a result, demand for lithium is projected to increase from 310-315,000 mt/y to 900,000-1 million mt/y by 2025, according to SQM.
"The lithium market is poised to experience growth in the foreseeable future, and we expect it to oscillate around US$10,000 per tonne," explained Marcelo Awad, executive director of TSXV-listed Wealth Minerals, a junior mineral resource exploration company with interests in Chile. "The key drivers of this are the expansion of the global electric vehicles fleet, and the corresponding forecasted increase in lithium-ion battery production."
By 2023, Chilean lithium production will more than double, from 96,000 mt to 230,000 mt of lithium carbonate, according to Reuters. At the 11th Lithium Supply & Markets 2019 conference, then Minister of Mining Baldo Prokurica announced an investment pipeline for lithium projects valued at more than US$1.8 billion. The upcoming projects include Albemarle’s US$300 million expansion of La Negra plant phase 3, the US$527 million Blanco project and SQM expansion initiatives.
"The lithium market is poised to experience growth in the foreseeable future, and we expect it to oscillate around US$10,000 per tonne. The key drivers of this are the expansion of the global electric vehicles fleet, and the corresponding forecasted increase in lithium-ion battery production."
Marcelo Awad, Executive Director, Wealth Minerals
Gerardo Illanes, chief financial officer of SQM, explained the company's upcoming US$400 million investment plan to expand their production capacity of lithium carbonate, which currently stands at 70,000 mt/y to 120,000 mt/y by the end of 2021. "By 2023, we will expand production in Chile to 180,000 mt/y. On the other hand, lithium hydroxide production will increase from 13,500 mt/y to 30,000 mt/y by 2023," he added.
SQM is set to account for 73% and 74% of the increase in Chile's lithium carbonate and lithium hydroxide production capacity, respectively by 2028.
Meanwhile, Albemarle started the La Negra expansion project, notwithstanding the 15% year-on-year decrease in its sales for 2020. The North-American company's US$300 million expansions in Chile are being carried out in waves, and will result in an increase in Albemarle's lithium carbonate capacity by 42,700 mt/y at a low cost.
Environmental concerns: water
Lithium production through brine extraction requires a considerable amount of water, which South American countries have only recently started measuring. To extract lithium, mining companies must drill in the salt flats, then pump the mineral-rich brine to the surface. The liquid then evaporates in huge pools, raising the concentration of lithium from 1% to 6%.
Lithium production through brine extraction requires a considerable amount of water, which South American countries have only recently started measuring. To extract lithium, mining companies must drill in the salt flats, then pump the mineral-rich brine to the surface. The liquid then evaporates in huge pools, raising the concentration of lithium from 1% to 6%.
Even though the process is relatively cheap and effective, it is problematic because it sparks conflict with indigenous communities, especially the farmers and the government, over the allocation of water in one of the driest regions on the planet, since the process can use up to approximately 500,000 gallons of water per tonne of lithium, according to the Institute for Energy Research (IER). There is also potential for air contamination and for the leakage of toxic chemicals from the evaporation pools into the water supply.
Lithium operators are therefore investing in new more sustainable technologies of lithium brine extraction and setting strict targets to minimize their environmental impact. Illanes of SQM explained: "Our ambitious goal is to reduce our water consumption by 40% by 2030 and 65% by 2040. In the caliche ore operations, we will rely on the use of seawater. SQM will also reduce brine extraction by 50% by 2030 in the Salar de Atacama, which will be a challenge as we plan to quadruple our lithium production."
The lithium industry in Chile shares the same challenges as copper and gold regarding access to water, communities' interests and trying to strike a balance between ensuring sustainable yet profitable operations. However, the industry's unique challenge lies in the lack of clear operational rulebooks. The guidelines of operating in Chile's pre-Andean salars should be revised from an economic and environmental perspective to set the standards for future development.
The Chilean government launched multiple initiatives, showing its awareness of the industry's challenges and potential. For example, the Ministry of Mining and the Nuclear Energy Commission (CCHEN) are working on documents to present their case for lithium commercialization quotas. The Ministry is also working alongside the Inter-American Development Bank (IDB), preparing a study for sustainable lithium brine exploitation in the lithium triangle.
Image courtesy of Josefina Di Battista on Unsplash