As the world's second largest lithium producer and third largest lithium reserves, the development prospects of large lithium mines in Chile have a profound impact on the supply and demand structure of the global lithium market. President Sebastian Pinera's push to develop a major lithium mine could hit a snag as new President Henrik Borici prepares to take office, raising fresh concerns about tight supplies of the key battery metal.
Prospects for large lithium mines are uncertain
Lawmakers from Chile's opposition coalition, the Democratic Party for Democracy (PPD), appealed to the Santiago Court of Appeal to halt a bid for large lithium mining contracts opened last October until a new constitution is approved. The centrist Christian Democrats then submitted a draft bill to Chile's legislature to block the government from bidding for new mining contracts during its last three months in office.
Raul Soto, a MEMBER of parliament for the PPD, said lithium was a strategically important natural resource for Chile, but that the tender launched in October was "once again putting commercial and private interests ahead of national strategic interests".
In October last year, the Chilean Ministry of Mines announced the launch of a global tender for exploration and production licensing contracts for lithium mines in Chile for the next 29 years, with a combined capacity of 400,000 tons of lithium metal. The aim is to accelerate the expansion of lithium production to meet the rising demand for battery raw materials. 400,000 tons of lithium metal will be divided into five separate quota exploration and exploitation rights, each quota accounting for 80,000 tons. The successful bidder will have a 7-year exploration and development license, which can be extended for two years. After the development, the production life will be 20 years, equivalent to the production of 21,000 tons of lithium carbonate per year for 20 consecutive years.
Reuters noted that the tender was controversial in Chile, and that prospects for the development of the giant lithium mine were unclear as Pinera prepares to step down. Mr Boridge's team of advisers is understood to have held talks with Mr Pinera's administration to express their concerns about the lack of a national policy on lithium.
Clearly, how to handle the development and production of lithium, copper and other mineral resources will be one of the thorniest issues facing Mr Borridge when he takes office. Mr Bolici made it clear that Chile should not repeat the "historic mistake" of privatising lithium and other energy resources, advocating higher equity rates and the formation of state-owned lithium companies, and promised to raise taxes and royalties for mining companies.
In response to the opposition, the Pinera government said that the bidding process has been highly transparent, the participating companies will be partners in the Chilean mining sector, and the five quotas are only equivalent to 4.4% of Chile's known lithium reserves, and will not affect or hinder the establishment of Chile's state-owned lithium company.
Chile's lithium production growth is sluggish
The New York Times notes that lithium has long been the focus of controversy in Chile over mineral development, with frequent gaming leading to years of sluggish growth in the country's lithium production.
Until 2016, Chile was the world's largest producer of lithium, with a global market share of 37 percent, according to Jobert, Chile's minister of Mines and Energy. But Chile's share of the global lithium market has now been overtaken by Australia. Without a way to increase production, Chile's share of the global market for lithium production will fall to 17 per cent by 2030.
Chile produced about 18,000 tonnes of lithium in 2020, far less than Australia's nearly 40,000 tonnes, according to data compiled by La Business News.
"Chile is missing the lithium opportunity while Australia, Argentina and other countries are making progress. The increase in lithium production will not only benefit Chile's economy, but also the development of electric vehicles and new energy industries that rely on batteries. "The tender, launched in October last year, is global in scope. The winning company will invest in the development of indigenous lithium mines. Chile will get more than 50 percent of the value of its lithium resources without investment, plus $1 billion in annual revenues from production and more than $200 million in licensing revenues," Jobert said.
Lithium prices have soared in recent years as demand outstripped supply, and while mining may pose ecological risks, the global scramble for the mineral is the most direct way to boost Chile's economy, which has suffered its worst recession this century in the wake of the pandemic.
But while mining has long been seen as key to the country's prosperity, a growing number of Chileans believe that an economic model based on unrestrained exploitation of natural resources imposes too high environmental costs and is not conducive to the country's sustainable development. According to the Research Center for Copper and Mining of Chile, not exploiting the mineral resources at all would increase poverty by 20 to 25 percent, so Chile's mining industry needs not only increased production, but also a new goal, such as building a strong value chain to promote sustainable development.
The gap between supply and demand is expected to widen
If the Chilean tender for a large lithium mine is ultimately blocked, it is widely seen as further straining global lithium supplies.
Chile, which has some of the world's largest lithium reserves, was only allowed to develop its mines before the bid. According to the US Geological Survey, global lithium production in 2020 was 82,000 tons of lithium metal equivalent, equivalent to about 440,000 tons of lithium carbonate equivalent. Chile's bid amounts to 400,000 tons, which is close to the global supply of lithium resources for the whole of 2020.
S&p Global Platts said demand for lithium carbonate is expected to rise to 641,000 tonnes from 504,000 tonnes last year and supply is expected to rise to 636,000 tonnes from 497,000 tonnes last year, as demand and inventories accelerate. The International Energy Agency predicts there will be about a 50% shortfall in lithium demand by 2030, driven by downstream demand, from existing and ongoing projects alone.
It is understood that Chile is in the world's most abundant lithium resources in South America "lithium triangle" zone. According to the US Geological Survey, the global lithium reserves in 2020 are about 21 million tons of lithium metal equivalent, of which Chile has 9.2 million tons.
According to Chile's National Copper Council, the electric vehicle industry will dominate lithium demand growth in the coming years, accounting for 73 per cent of consumption of the key battery metal by 2030, up from 41 per cent in 2020. By 2030, lithium hydroxide will dominate, with 56 per cent of consumption compared with 44 per cent for lithium carbonate.
