Analysis: Chile, once the world's lithium leader, loses ground to rivals

Wealth Minerals

30/05/2019 13:00

(Repeats for additional clients with no changes to text)
    By Dave Sherwood 
    SANTIAGO, May 30 (Reuters) - As automakers race to a
clean-energy future, Chile looked to be in the catbird seat.
    The South American nation possesses the world's largest
reserves of lithium, a lightweight metal crucial to
manufacturing batteries for electric vehicles. Chile's lithium
is high quality and cheap to produce.
    But the nation's output has barely budged in recent years.
Chile's two lone producers, SQM  SQMa.SN  and Albemarle Corp
 ALB.N , have struggled to boost production to capitalize on
strong global demand, which is widely expected to triple by
2025.
    Chile's government, meanwhile, has been slow to allow new
players to enter the market. And indigenous groups and activists
are opposing new projects, worried about environmental impacts.
    The upshot: Chile is losing ground to competitors. 
    Australia in 2017 surpassed Chile to become the world's top
lithium supplier. Neighboring Argentina is positioned to gain
fast, with at least a dozen projects in the pipeline. 
    While Chile remains an important producer, the market is
anxious and investors are looking elsewhere to boost supply,
analysts said.
    Chile "is disappointing the industry" and if expansion
projects there continue to stumble, it could cause "uncertainty
and complexity in supply chains," U.S.-based independent lithium
industry consultant Joe Lowry said.
    (For a graphic on global lithium production, see: https://tmsnrt.rs/2HLefGh)
 
    Chile´s Mining Ministry did not respond to multiple requests
for comment. Mining Minister Baldo Prokurica earlier this year
told reporters the government is doing everything possible to
"ensure lithium and other battery metals are being exploited."
    Santiago-based SQM saw its stock dive more than 6% on May 23
when it announced it would delay a planned expansion in Chile's 
Atacama salt flat until the end of 2021. That project would
allow the company to produce as much as 120,000 tonnes of
lithium carbonate, more than double its current
production. urn:newsml:reuters.com:*:nL2N22Z0ZU 
    Chief Financial Officer Gerardo Illanes told Reuters in an
email that the project, albeit delayed, would give the company
the "flexibility we need in a fast-growing market like lithium."
    Rival Albemarle, the world's No. 1 lithium producer, earlier
this month said its 2019 production would be roughly flat from
last year's levels. Eric Norris, Albemarle's lithium division
president, said the Charlotte, North Carolina-based company was
pushing forward with Atacama expansion projects and said "we
maintain a very strong, positive and active relationship with
Chilean regulators."  urn:newsml:reuters.com:*:nL2N22L0W2
    
    NO PLACE BETTER
    Some 1,150 kilometers (700 miles) north of Santiago, at SQM
and Albemarle´s operations in the Atacama, rows of giant,
rectangular holding ponds filled with metal-rich brine bake in
the scorching sun. Chile's lithium is found in underground
reservoirs of salty water. Miners have only to pump this
valuable liquid to the surface. Mother Nature does the heavy
lifting.
    The area's intense sunlight, low humidity and steady, hot
winds evaporate most of the water, leaving behind a slurry of
"white gold." Chile's perch on the Pacific Ocean makes it easy
to export.
    These advantages have given Chile a roughly 20% share of
global mine production for lithium, according to U.S. Geological
Survey figures. That is down from a 36% share just 4 years ago.
    The erosion stems in part from laws passed decades ago under
then-dictator Augusto Pinochet. His government declared lithium
to be a "strategic" resource because of its use in nuclear
fission. Chile requires private miners to either partner with
the state, as SQM and Albemarle have done, or obtain a special
permit known as a CEOL to mine lithium on their own.
    The problem, would-be miners say, is that the government has
yet to provide guidelines for obtaining a CEOL. Nor has it
announced a uniform royalty or tax scheme that would help
investors gauge the risks. 
    That lack of clarity has spooked a number of foreign
investors, according to Marcelo Awad, a Chilean executive with
Wealth Minerals Ltd  WML.V  of Canada. 
    "They say 'We still don't understand the rules of the
game,'" Awad said. 
    No new players have secured the permits needed to begin
production since lithium prices took off in 2014. Wealth
Minerals, which has obtained concessions in the Atacama and
other Chilean salt flats, has opted to partner with Chilean
state mining company Enami in a last-ditch effort to push
forward, Awad said.
 
    ENVIRONMENTAL CONCERNS
    Another major challenge is water. To remain viable for
mining, Chile's underground lithium reservoirs must be recharged
by snow and rainfall from the Andes mountains. No one is certain
how much can be safely pumped from under the sprawling Atacama,
home to as much as 80% of Chile's lithium reserves. 
    A government study last year found that more water and brine
were leaving the system than coming back, prompting the
government to announce new restrictions. That has led to
increased scrutiny of water use by SQM and Albemarle on the
flat.  urn:newsml:reuters.com:*:nL2N1VQ0M4 
    Albemarle recently ditched plans for the final and most
ambitious stage of its expansion, from 80,000 tonnes to 145,000
of lithium carbonate, after Chilean regulators questioned its
use of water-saving technology and took issue with its
environmental studies.  urn:newsml:reuters.com:*:nL2N1XO0PF
    The company said the decision was prompted by falling market
demand for lithium carbonate, its top Chile product, versus the
lithium hydroxide it produces elsewhere. 
    SQM has also wrangled with regulators over allegations it
had overdrawn water from the salt flat. That spat ended with SQM
agreeing to a compliance plan that requires the world's No. 2
lithium miner to reduce its pumping and subject its operations
to increased scrutiny.  urn:newsml:reuters.com:*:nL1N1Z7117 
    In addition, Chile's DGA water authority has acknowledged it
does not know whether lithium mining could impact separate
freshwater reservoirs beneath the Atacama salt pan that provide
drinking water to local communities.  urn:newsml:reuters.com:*:nL2N1VG07J  urn:newsml:reuters.com:*:nL2N1VE17Y 
    A state water study, which was expected to be completed last
year, has been delayed for technical reasons until late 2019,
government officials told Reuters.  urn:newsml:reuters.com:*:nL1N1Z80CO
    Uncertainty has hardened the resolve of indigenous
communities whose adobe homes dot the volcanic foothills around
Atacama. 
    Sergio Cubillos, president of the Atacama Indigenous Council
(CPA), which represents 18 communities, told Reuters it will
move to block any new mines on the salt flat amid a lack of
understanding of their impact.
    Resistance may have already brought down at least one
potential lithium project. 
    Earlier this year, Canada-based LiCo Energy Metals Inc
 LIC.V  scrapped its Purickuta project in the Atacama, citing
"immense and widespread" opposition from the local indigenous
community.
    In all, setbacks in Chile could require battery makers and
the electric vehicle industry to prepare a Plan B, said Howard
Klein, a lithium analyst and partner with New York-based RK
Equity.  
    "The best brines in the world are in Chile. But production
is flat when it should be growing," Klein said. "If it’s not
coming from Chile, then it has to come from more expensive or
riskier areas, which, from an economic perspective, is less than
ideal."
     

    <^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^
Chile lithium producer SQM delays Atacama expansion amid price
slump     urn:newsml:reuters.com:*:nL2N22Z0ZU
Albemarle touts new project to boost its Chilean lithium output
by 30 percent     urn:newsml:reuters.com:*:nL2N22L0W2
A water fight in Chile's Atacama raises questions over lithium
mining     urn:newsml:reuters.com:*:nL1N1V000X 
Chilean regulators reject Albemarle's plans to boost lithium
output -     urn:newsml:reuters.com:*:nL2N1XO0PF
Chile okays lithium miner SQM's plan to remedy water violations 
   urn:newsml:reuters.com:*:nL1N1Z7117 
In Chilean desert, global thirst for lithium is fueling a 'water
war'     urn:newsml:reuters.com:*:nL2N1VG07J
Chile says to clamp down on water rights in lithium-rich Salar
de Atacama -Reuters News     urn:newsml:reuters.com:*:nL2N1VE17Y 
SQM and Chile reach lithium deal, but Atacama water woes
continue     urn:newsml:reuters.com:*:nL1N1Z80CO
Global lithium production    https://tmsnrt.rs/2HLefGh
    ^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^>
 (Reporting by Dave Sherwood; Editing by Marla Dickerson)
 ((dave.sherwood@thomsonreuters.com; +56 9 9138 1047, +56 2 2370
4224; Reuters Messaging:
dave.sherwood.thomsonreuters.com@reuters.net))