Industry Trend Analysis - Lithium Output Take Off In 2019 On Deal-Making, Spending Ramp Up - FEB 2018

BMI View:Chile and Argentina's lithium sectors will attract significant investment over the coming quarters, as lithium-ion battery producers racingto secure supply keeps prices elevated. Based on project pipelines, we expect the bulk of new capacity to come online in 2019.

We have updated our lithium production forecasts for Chile and Argentina to reflect a relatively slower-moving project pipeline due to regulatory hurdles in the former and growing exploration efforts boosting long-term output in the latter. While we have revised down Chile's lithium production growth rate slightly in 2018, we maintain a quite positive outlook for the sector and expect both countries to drive global lithium production, along with Australia, over the next decade.

New Projects To Boost Output
Chile & Argentina - Lithium Mine Production ('000 tonnes)
e/f = BMI estimate/forecast. Source: USGS, BMI

Positive Outlook Following Pi n era Win, Foreign Investment Interest

Chile's strict control over lithium production levels and Codelco's delayed announcement of a partner with whom to develop lithium deposits will result in relatively slow project development progress over the coming quarters. Nonetheless, key investment opportunities in Chile's lithium sector will garner significant interest and the December 2017 presidential election of centre-right candidate Sebastian Pinera will prove broadly positive for economic growth, given Pinera's pro-investment policy preferences ( see ' Pinera Victorious, But Faces Challenging Road Ahead ' , December 18 2017). Positive developments include:

  • In December 2017, Chilean development agency Corfo announced it had received proposals from 6 companies to develop metallic lithium and lithium cathodes, including three Chinese firms, one Russian, one South Korean and one domestic. The projects, each estimated to cost between USD200-350mn, will be sourced with lithium concentrate from Albemarle Corp. The agency will reportedly release its selection in January 2018.

  • In September 2017, US-based Albemarle Corp announced the creation of a new technology that would enable it to sustainably increase Chilean lithium production to 125kt and has subsequently requested permission from Corfo to increase the firm's lithium quota. Pending regulatory permission and the commercial viability of the technology, Albemarle plans to build the additional lithium carbonate capacity by 2020.

SQM Dispute With Authorities Likely To Be Resolved, But Still A Downside Risk

Uncertainty surrounding the outcome of a dispute between Chile's top producer, Sociedad Quimica y Minera de Chile (SQM), and the development agency Corfo poses downside risks to Chile's lithium production forecast. Following the election results, SQM announced the beginning of a new 30 day conciliation process with Corfo, regarding allegations over unpaid royalties and taxes, environmental violations and illicit political financing. Importantly, SQM shareholder Julio Ponce, former son-in-law of dictator Pinochet, agreed to cede control of the company, paving the way for an agreement to be reached with authorities and Potash Corp's 32% stake to be sold. SQM plans to increase lithium carbonate capacity to 63kt by H218, from 48kt, which would require the firm to renegotiate its production quota with Corfo. Our forecast reflects a steady ramp up in production from SQM, implying the sides reach a solution to the dispute, however we highlight downside risks stemming from the sensitive political nature of the players involved.

Market Not Concerned By SQM Dispute As Lithium Goes Higher
SQM Share Price & Solactive Global Lithium Index
Source: Bloomberg

Argentina ' s Strong Project Pipeline To Overtake Chile Production By 2020

Despite Chile's more established lithium operations, we expect Argentina to become a larger producer by 2020, driven by a strong project pipeline, competitive operating costs, and supportive regulatory environment under President Macri. Several junior miners with exploration projects in the country will prove ripe for consolidation among larger foreign lithium players, and bring needed expertise to Argentina's nascent sector. In FY2017, Orocobre missed production guidance at the Olaroz project, reportedly due to a shortage of engineering expertise in addition to severe snowstorms. The firm's Olaroz operations produced 11.9kt of lithium carbonate in the fiscal year ended June 2017, and expects production of 14.0kt in FY2018. Key projects set to come online in 2019 include:

  • Lithium Americas and SQM are developing the USD675mn joint-venture, Cauchari-Olaroz, with estimated lithium carbonate production of 25kt.

  • As of Q317, Galaxy Resources has completed the test plant refurbishment and is conducting bench scale testing to produce lithium carbonate and lithium hydroxide at the Sal de Vida project.

  • In November 2017, US-based FMC Corp announced plans to spend USD300mn to double lithium carbonate output at the firm's Hombre Muerto operations in Argentina to 40kt by 2019.

Latin America - Key Lithium Projects
Country Company Mine Deposit Type Capex (USDmn) Notes
Source: Company announcements
Argentina Lithium Americas (50%), SQM (50%) Cauchari-Olaroz Brine 675 Estimated production 25kt; expected 2019
Argentina Neo Lithium Tres Quebradas (3Q) Brine 490 Estimated production 35kt annually, operating costs USD2,791/tonne lithium carbonate; Expected start 2021; October 2017 - raised USD30mn through private placement to fund project
Argentina FMC Corp Hombre Muerto Brine 300 Increase lithium carbonate production to 40ktpa
Mexico Bacanora Minerals Sonora Clay 244 Feasibility study expected Q117; estimated production 35ktpa
Argentina Lithium X (50%) Aberdeen International (50%) Sal de Los Angeles Brine 144-200 Indicated resources - 1.0mnt; estimated production 15-25ktpa; estimated operating costs USD1,519-1,486/tonne
Argentina Galaxy Resources Sal de Vida Brine 100 Estimated capacity 25ktpa; expected 2019
Chile SQM Salar de Atacama Brine 50 Expand lithium carbonate capacity from 48.0kt to 63.0kt by H218
Argentina International Lithium Corp, Ganfeng Lithium Mariana Brine 12 May 2016 - began drill programme
Argentina Orocobre (66.5%), Toyota Tsusho (25%), JEMSE - government of Jujuy Argentina (8.5%) Salar de Olaroz Brine - Expansion studies underway to increase production to 35-42.5ktpa from 2015 capacity of 17.5ktpa and lower operating cast costs from USD3,500/tonne to USD2,500/tonne; commissioning expected 2018
Argentina Orocobre (50%), Advantage Lithium (50%) Cauchari Brine - Inferred resources - 470kt
Argentina Orocobre (85%) Salinas Grandes Brine - Inferred resources - 239kt
Argentina Millennial Lithium Cauchari East Brine - Exploration stage
Argentina Millennial Lithium Pastos Grandes Brine - Measured and indicated resource estimate - 2.13mnt lithium carbonate equivalent; Production expected by 2020
Argentina Albemarle Antofalla Brine - Exploration
Argentina Eramet SA Centenario-Ratones Brine - Estimated production 20ktpa
Chile Albemarle La Negra - - Upstream operation (lithium carbonate and chloride salts); Estimated production 80ktpa
Chile Codelco Maricunga Brine - Development partner to be announced 2017
Chile Codelco Pedernales Brine - Development partner to be announced 2017
Chile LiCo Energy Metals Purickuta Brine - Estimated production 2-4ktpa
Mexico Alix Resources, Lithium Australia Electra - - -