Why Chile’s Lithium Mining Is At A Crossroad

Why Chile’s Lithium Mining Is At A Crossroad

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This is what lithium mining looks like in Chile. Here in the Salar de Atacama, in a region of the world known as the Lithium Triangle, nearly one third of the world's lithium is produced from brines. So from this plant here, how many electric vehicles are you powering? Today about 50,000. And we should be able to get up to 75,000 EVs every single year. With demand for electric vehicles and the lithium-ion batteries that power them at an all-time high, Chile's vast salt flats have become a vital national resource. They contain the largest and some of the highest quality lithium reserves in the world.

This, the Salar de Atacama, represents the best lithium brines in the world because it has about 2,000 parts per million of lithium concentrated in it. This is also the most cost-effective place to produce lithium in the world. In the brine mining process, extremely salty water from an underground reservoir is pumped to the surface and evaporated in large, extravagantly colored ponds, leaving high concentrations of lithium behind. The demand for it is skyrocketing. The price of it is skyrocketing. And the capacity that Chile has to exploit this resource is almost limitless.

But Chile is actually losing market share to Australia, where lithium is mined from hard rock, and Argentina, where the country is welcoming international investment. Many say that Chile must act fast to ramp production before other countries beat them to it or new battery tech is developed. It's not clear how big a window of opportunity Chile has to take advantage of this white gold. Now Chile's president, Gabriel Boric, has announced a long-awaited state-led plan for the development of the country's lithium industry, in which private companies will be required to partner with the government to further develop the country's vast resources. Lithium stocks slumped on the news as many fear that the plan will deter private investment.

When you are asked to make the investment, to take all the risks but without control of the profits and without control of the company, that's not the way people used to do business. But Boric has a lot of considerations to balance, as the effect of brine mining on ecosystems and water supply is a constant concern and open question, as there's just not enough research to fully understand its impacts. Chile's indigenous communities, though, have traditionally opposed mining.

I know that lithium is necessary for the world, but at the cost of drying up our land, our place. The salt flat is like a great tree of life for us. It is like a heart where all the surface and underground waters flow into our little overheated sea and it is being affected. There are only two lithium companies operating in the country today, North Carolina-based Albemarle, the largest lithium producer in the world, and SQM, the second largest producer.

CNBC visited Albemarle's lithium plant in the Salar de Atacama, where we spoke with the company and community members alike about this pivotal moment in Chile's history. Mining has helped drive the Chilean economy for centuries. The country is by far the largest copper producer in the world, producing 29% of the global total. But as of late, Chile's lithium industry has taken center stage. In 2022, the exports of lithium were around $7.7

billion, which is more than eight times the exports that we had during 2021. That's not because Chile is exporting that much more lithium, but because the price of the metal rose so high last year. Here in the salt flats of northern Chile, near the border with Argentina and Bolivia, lithium has been mined since the 1980s, before lithium-ion batteries were even commercialized.

So in the '80s, lithium was used primarily, it's used in greases to make the grease more viscous. It's used in ceramics. It's used in glass. It's used as a medicine as well

for bipolar and for depression. Today, where the demand is really coming from is from electric vehicles. Your smartphone uses several grams of lithium and an electric vehicle battery uses about 60 to 80 kilos of lithium. Extracting lithium from brines is a fairly straightforward but lengthy process. First, mineral rich brine is pumped to the surface.

Once it's at the perfect point, chemically speaking, then we'll pump this brine from here over to pond 15, which is the first pond of our 15 ponds. As the brine moves through all the ponds, a variety of other salts precipitate out, leaving behind increasingly large concentrations of lithium. Here at Albemarle's Salar Plant, it takes about 18 months for the brine to reach 6% lithium concentration, after which the liquid is transported over 150 miles via truck to Albemarle's processing facility in Antofagasta, which we also got the chance to visit.

Typically, we send between about 24 and 30 trucks every single day. Here, lithium is further purified into battery-grade lithium carbonate, which looks and feels just like powdered sugar. Chile was the largest producer of lithium until 2017, when it ceded the top spot to Australia, where the country has acted quickly to ramp up production. In 2022, Australia produced

about 47% of global lithium supply, while Chile produced about 30%. Now some people are even talking about Argentina taking away the second position that Chile has now as the world's second largest producer of lithium, because Argentina has all these projects in the pipeline. While Argentina has thrown open its doors to foreign investment, Chile has not. Though the country is typically viewed as one of the most neoliberal, free-market economies in the region, lithium in Chile is heavily regulated. That's because former dictator Augusto Pinochet categorized it as a strategic resource in 1979 due to its use in nuclear weapons, allowing the government to restrict its extraction. Albemarle and SQM partner with CORFO, the Chilean economic development agency, to develop lithium resources, while the Chilean Nuclear Energy Commission oversees quotas and exports.

Up until now, companies could theoretically apply for a special license to mine on their own, but this has never been granted and no new lithium mines have been opened in decades. Albemarle and SQM are the only games in town. Those companies pay high taxes and royalties. They have to sell a certain amount of what they produce domestically at below market rates to subsidize other industries that may develop that use this resource. So it's a very heavy hand of the state and a great reluctance to allow other players to enter the sector.

We're paying the highest commission in the world to extract lithium here in the Salar de Atacama. So 2022, we will have paid the Chilean government over $600 million in commission. Though many in the business community aren't exactly thrilled by President Boric's new plan for a state-controlled lithium industry, the new framework will likely provide private players with more opportunity to enter the market and explore resources beyond the Atacama and has existed in decades past.

It's helpful that it looks like Chile will be welcoming new investment in its lithium sector and that it is now formally in favor of new projects. And we haven't seen new projects in a very long time, despite the massive reserves of lithium that Chile has. In that sense, it's a positive development. The new, long-delayed national lithium policy represents a compromise of sorts between the two wings of President Boric's governing coalition, which is divided among leftists who hoped to see full nationalization of the industry, and a more free-market wing that wanted to see private industry take the lead. Our challenge is for our country to become the main lithium producer in the world, thus increasing its wealth and development, distributing it fairly at the same time as we protect the biodiversity of the salt flats. Boric himself is a leftist who took office last year. At 37, he's one of the world's youngest leaders and environmental and climate issues were central to his campaign. The plan he presented calls for the

creation of a Chilean national lithium company, which will partner with all private companies looking to enter the sector. A lot of people referred to it as a nationalization of the resources. I don't think that's quite true, but certainly it's a bigger role for the Chilean government than the private sector would like the Chilean government to play. Cruz says that the initial impression was that the state would take a majority share in these public-private partnerships, but the administration has since walked that back. The ministry explained that when they are talking about control, it's not necessarily to own 50% or more of the company, that there are other ways to have control, like shareholders agreements and and so on.

We were also explained that this control is only in those projects that the government will define as a strategic project, so it's not something that will be for all the joint ventures for the exploitation of lithium. What exactly constitutes a strategic project remains to be seen. The new policy does honor the existing mining contracts that Albemarle and SQM have with the government though, which expire in 2043 and 2030 respectively. But Boric says that he plans to negotiate with the two companies for the state to take a stake in their operations before their contracts expire. SQM is reportedly set to begin talks with the government in the next few months and is investing $2 billion into sustainable technologies to meet the new plan's environmental goals.

The company did not respond to requests for comment. Albemarle said in a statement that, "We expect no material impact, as the Chilean government made clear it will fully respect existing contracts." The company said they will continue to collaborate with the government moving forward. And when we spoke with Lenny-Pessagno in January, she said that Albemarle supports a public-private partnership.

We're incredibly supportive of the Chilean government's aspirations to develop this national lithium company. We're also quite interested in partnering with them because, of course, we've got more than 40 years experience here and certainly know how to work with brines. The new policy won't go into effect immediately. First, it has to be approved in Congress, where Boric has struggled to pass legislation.

His party doesn't have a majority, and Congress recently shot down his major tax reform bill. That blow came on the heels of Chilean voter's overwhelming rejection of a progressive new constitution last year. Chile's mining minister acknowledges that it will take years to get the national lithium company up and running. So in the meantime, two existing state owned companies will be in charge of handling all new lithium contracts, copper giant Codelco and minerals company Enami. Boric also wants Chile to move beyond just lithium extraction and invest in downstream processing for the battery supply chain. They do not merely want to export the natural resource, which has been the economic history of Latin America.

Chinese EV giant BYD plans to build a $290 million cathode manufacturing facility in Antofagasta, and CORFO has given the company preferential prices on lithium carbonate, the input used to make cathode material. But some analysts think that it's too soon for Chile to move into downstream production, given that the EV industry in the country is practically nonexistent. We didn't see a single electric car when we were there. In 10 or 15 years when there's battery plants all over the world, and a more well-developed supply chain and EVs everywhere, it'll make sense to be making batteries on every continent. Right now it doesn't. Chile's raw lithium is of great strategic importance to the U.S. though, which has a free trade agreement

with Chile, but not Argentina. The U.S. has determined that it needs to have a domestic battery and electric vehicle industry, and it's not going to have one unless it gets access to plentiful supplies of affordable lithium. And right now its best bet is to get that lithium in places like Chile.

Unfortunately for the United States, it's not the only country that's realized that. And the Chinese are investing heavily in places like Argentina and Chile to get their hands on lithium, to produce their own batteries and electric vehicles. And so this great power competition between the United States and China is really playing out in the lithium sector in Chile's Atacama Desert right now as we speak. And Chile's new policy could end up being favorable to the Chinese, as Cruz expects that the country's state-owned companies will be some of the first new entrants into this market.

It's not a secret for anybody that many Chinese state-owned companies are interested in the lithium, and probably they will be the first to jump in, because when you have a state-owned company with an economy like China, they are not looking for immediate profits. They are more patient. But as with so many mining projects, domestic and abroad, calls for rapid expansion often drown out the voices of local and indigenous community members who are wary of the environmental and social impacts of mining on their ancestral lands and way of life. In Chile, Atacameños, also called Likanantaí, are an indigenous people whose history in the Atacama region dates back to around 500 BC. I am a descendent of a Likanantaí family.

How have you seen the area change over the years? Well, mining has intervened in all ecosystems, right? In the cultural sphere, our own culture, our heritage, tends to disappear. And from the social point of view, money has greatly fragmented my community. The Atacama Indigenous Council represents 18 communities around the Salar. It has an agreement

with Albemarle in which 3.5% of Albemarle's revenue from its Chilean operations go to the council, to be used in any way that it sees fit. Some communities have struck agreements with SQM as well.

This 3.5% of sales of lithium carbonate, there's nothing like that in the world. We work with the University of Queensland who's done a study of 50 such agreements. A typical agreement is half a percent to 1%. But Ramos has seen the money sow division in her community.

But what the end result has meant is that this money, this 3% aid, further divides my community. And seeing us become so vulnerable to an economic system that is not ours, you have to forget your worldview, your laws, your word, right? And seeing that world so Western, so material, but without spirit. This is not spiritual at all. For indigenous farmer Cristian Espíndola, it feels like his community is being used for greenwashing campaigns. The mining companies are occupying our identity to show a clean image to the world for the extraction of lithium water, which is not the case. Chile is in the midst of a decade plus megadrought, and many locals believe that brine mining in the Atacama Desert is exacerbating the problem.

Albemarle emphasizes that brine is different from freshwater, since it's too salty to either drink or to use in agriculture. Yet many remain concerned that evaporating so much brine in one of the driest areas on earth is having an impact on freshwater availability and the surrounding ecosystem. So we're talking about I don't know, it's an immense, millions of liters of water that evaporate every day. And that's have an effect.

I mean, we cannot say that [doesn't] have any effect when it's part of the water cycle. So it's impossible to say that [doesn't] have any effect. What directly? How? It's something that have to be I think understand and researched even more. In response, Albemarle points to a study led by researchers at the University of Massachusetts, Amherst, which concludes that the entire lithium mining process in the Salar de Atacama accounts for less than 10% of freshwater usage in the region, and that evaporating brine does not lead to diminishing reserves of freshwater either on the surface or underground. The study was funded by BMW, which is ramping up its electric vehicle production, and BASF, a European chemicals company, raising questions of conflict of interest for some. But what everyone agrees on is that more research is needed.

And the new lithium policy includes the creation of a public research institute for lithium and salt flats that could dig into questions like these. As a microbial ecologist, Dorador also studies how mining is impacting the diverse microbiology of the region. Her research indicates that lithium mining has led to the death of microorganisms that are key for scientific research and vital to the broader ecosystem.

If we are thinking about life, we have to include everything, and microbial life are the dominant type of life on the planet. Because everything is related. From this perspective, she doesn't see Boric's plan for a state-led lithium strategy as relevant to her concerns.

Because the point is, we are still pushing the extractivism as the main way to develop economy. For most people, I think they're very affected when they see pictures from the Amazon, how the deforestation has increased. And nobody really cares about what happens here. Boric says that strengthening social and environmental sustainability is a priority for the administration though, and wants to open a dialog with Indigenous community members.

All this development will be with the participation and involvement of the communities surrounding the mining sites, understanding of course the concern that this news could generate in the communities. I want to promise you that the first milestone in this process will begin with a direct conversation between the Atacama People's Council and myself. There are no easy answers when it comes to balancing the various interests at play. And though Boric has

laid out a general strategy for the country's lithium industry, much remains to be seen. How big a role will mining play in the future of Chile's economy? How will it balance social and environmental considerations, including water use? How much will it demand that the lithium produced in Chile, as well as the copper, is used domestically for green energy industries versus sent abroad to be industrialized in countries like the United States or in places in Europe? These are tough decisions and they're policy decisions. And I think right now, Chile is still struggling with what kind of economy it wants to have. Many are still anxiously awaiting more specifics on the national lithium strategy and how much control the state will actually exert. The devil is in the details. The main problem here is that we are losing time.

We were awaiting for a sound policy with answers and not something this blurry that is only creating more questions. And time is short. Chile has a small window of opportunity, which is, what, ten years? 15 years? That's because as battery recycling technologies improve, less lithium-intensive battery chemistries are explored and other countries ramp up production, the need to vastly expand lithium mining in Chile will not last. Of course, that's welcome news to the many that view the mines as an unwelcome intrusion. I have always dreamed that the scientists create, that they develop something better than lithium and leave us alone. In the meantime though, companies like Albemarle and SQM are working to maximize efficiency at their existing plants.

The fastest way that you can make significant change is by really what we call sweating the assets, right? So we doubled the capacity of our conversion facility in Antofagasta. We've built a Salar, we're completing construction of the Salar Yield Improvement project, which will allow us to increase production by by 30%. And Lenny-Pessagno is looking forward to a promising, but commercially unproven, technology called direct lithium extraction, or DLE, which Chile's mining minister said will be required for all new lithium mining projects. With this tech, lithium is chemically separated from the brine, and that brine is then reinjected back into the earth, expediting production, increasing the amount of lithium recovered, and reducing environmental impacts.

Some claim that what now takes 18 months with evaporation ponds could be done in a matter of days with DLE. This process could actually use more freshwater though, which has Albemarle looking towards desalination. And so as part of this new era of lithium, we're working with the same company that's going to bring the desalinated water to our La Negra chemical conversion facility to bring a desalinated water pipeline here into the salar. And that's going to allow us to change technologies.

There's a lot on the line and a lot to consider as the company and the country at large prepare for a new era in the Chilean lithium industry. I think Chile is trying to find a middle ground here. There are countries that do want to control every aspect of this industry. There are others like Argentina taking

a real hands off pro-market approach. I think Chile is trying to protect the environment, protect local communities, be a player in the industry while still attracting investment and making sure there's enough private money around so that the industry can expand rapidly to meet demand. It's not clear it will succeed, but I think that's a fairly reasonable, logical approach.

2023-05-08 06:14

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