South America's Lithium Triangle

What side of the Lithium Triangle is better for investors? 

A. A pariah on recovery.
B. The usual suspect.
C. The golden boy gone rogue.

    Argentina, Bolivia and Chile have two things in common. One is geographical: they share sections of the Andes range of mountains. The other is geological and becomes economic: together, they have more than half of the world’s lithium reserves. Lithium, at least until technological prowess finds a better way, is crucial for the energy transition.

    Foreign investors seeking to tap these resources have to make choices. Which side of the triangle is better for entering this lithium haven? There seems to be an obvious answer, but reality may be counterintuitive: is it A-B-C or C-B-A?

    C: A Cobweb

    Chile may lead the pack right now, but the race is not over yet. The country has a rich tradition in mining, with a focus on copper, and it is already the world’s second-largest lithium producer and top exporter. Not to mention that for decades, investment-friendly policies have made Chile a market darling.

    Looking ahead, however, Chile is struggling to untangle a series of regulatory knots that originate from its decision over 40 years ago to bar fully private concessions for lithium development due to the mineral’s role in nuclear energy development. Due to “national security” issues, all lithium activity must happen under the federal government’s watch. 

    President Gabriel Boric’s National Lithium Strategy, presented in 2023, obviously works under that assumption. A recent call for private investors to participate in lithium projects reserves a state a majority stake in the most desirable areas of Atacama and Maricunga salt flats.

    Besides, the political environment in the country in the last five years — which included two failed attempts to reform the Constitution and election whiplash to the left (Boric) and to the extreme right (Jose Kast) — does not guarantee this strategy will prove consistent over time. 

    B: A Fight

    Move north to Bolivia, and the situation gets slightly more complex. In 2008, then-President Evo declared lithium a “strategic resource,” meaning that the federal government is omnipresent like in Chile. In 2017, La Paz created YLB, its flagship lithium state company. Since then, YLB has been signing contracts with certain foreign companies, mostly of Chinese and Russian origin, but transparency has been questioned as there is no clear framework or pattern for these partnerships. 

    Bolivia thinks it can replicate in lithium its experience with natural gas development over the past 20 years, under the left-wing MAS party of former President Evo Morales and current President Luis Arce (who do not get along these days). It came with strong government intervention, also through the state-run YPFB. But while Bolivia did have prior experience in hydrocarbons, lithium development is an entirely different story where very little progress has been made. 

    The upcoming presidential election season only makes things more uncertain. Arce and Morales are in a fierce leadership battle for the MAS nomination. Lithium is at the forefront of their fight. Just recently, a former Morales mining minister was jailed for alleged corruption related to the construction of lithium evaporation pools. The investigation was triggered by YLB, controlled by Arce’s followers. 

    Bolivia desperately needs new resources to grow the economy because, as Arce said recently, gas reserves “have run out.” The way forward for lithium, however, is nowhere near clear.

    A: Really?

    Suddenly, the perpetual market pariah Argentina, previously plagued with chronic inflation, debt defaults and capital controls, has something different to offer. By design of its Constitution (last redrafted in 1994), the owners of the natural resources are the provinces and not the federal governmen. Mining, historically underdeveloped in Argentina, has a special investment law that dates back to the 1990s and puts a 3% cap on royalties.

    Investors willing to tap lithium resources must knock on provincial doors first to get permits and licenses to operate, without even visiting Buenos Aires if they don’t want to. Three provinces form Argentina’s own lithium triangle in the northwest: Jujuy, Salta and Catamarca. Their three governors are committed to mining because they need income and jobs — and reelections. Several private companies, local and foreign, are already developing projects there.

    Under the former Peronist administrations of Alberto Fernández and Cristina Kirchner, there were moves to set up a “national lithium strategy” similar to Chile’s, and even to establish with Chile and Bolivia some sort of “OPEC of lithium.” None of that prospered, in large part because of Argentine provincial reluctance to relinquish their control. 

    Argentina will not change its Constitution any time soon, so development will continue at provincial level. The country, of course, needs to sort out its macroeconomic issues, especially capital controls. President Javier Milei, who describes himself as an anarcho-capitalist, opens a new horizon for a more pro-market Argentina. Elon Musk, who hosted him at his Tesla mega plant in Texas in April, believes he has a chance.

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