Lithium: Bolivia Wants Partners, Not Pillagers 8 comments
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Over a three day period last week, the country of Bolivia hosted a forum focused on natural resources. While Bolivia has a strong resource base with ample reserves of silver, tin and natural gas, many of the participants of the forum came to learn more about the world’s hottest new commodity: lithium. Bolivia sits on 5.4 million tons of the element (used in making lithium-ion batteries), approximately 50% of the world’s reserves.
At that forum, Bolivian President Evo Morales made some clear statements about his vision of the lithium industry. Specifically, he warned that lithium will not become a “new chapter” in his country’s “history of pillage and poverty.” And Morales admonished future foreign investors to become “partners—not owners—of the lithium industry.”
“If we don’t take measures,” he added, “we will never change Bolivia. We will continue down the path of pillage. We cannot repeat another Cerro Rico de Potosi (Bolivian silver mine that was recently shut down), neither in lithium, nor iron ore, nor oil.”
Evo Morales nationalized the entire Bolivian oil and gas industry and most of the mining industry since he assumed power in 2006. And his government recently ordered the partial suspension of the mining activities in Cerro Rico, a mine currently owned by Coeur d’Alene (CDE), but which has been operating for almost five centuries.
Bolivia’s lithium reserves, purported to be the largest in the world, are located in an enormous salt flat known as “El Salar de Uyuni.” At the natural resource forum, Morales declared that he believes that Bolivia will produce 30,000 tons of lithium carbonate annually starting in 2013 (the global demand today is 70,000 tons, much of it being supplied by neighboring Chile). He further declared that the lithium industry will be 100% state-owned and that will cost US$350MM to build the lithium carbonate plant.
At a future stage, Bolivia plans to develop a battery plant and perhaps, in conjunction with foreign firms, battery-powered automobiles, but this will require an investment of US$1 billion. Insofar as how foreign firms could participate in the lithium industry, Morales assured the participants that there would be “clear laws” regarding investments and returns, but he did not offer a time table on when they would be announced. And he was clear that the Bolivian state would own the lithium industry, while foreign companies need to accept the role of “partners not owners.”
It is increasingly clear that lithium will have a valuable role in the “green revolution” sweeping the world. One interesting, albeit expensive, way for investors to play lithium is SQM, a US$9 billion Chilean firm that trades on the NYSE. SQM is mainly a fertilizer company (potassium nitrate, sodium nitrate, etc), but it also has a robust lithium carbonate business. It seems that investors have “re-discovered” SQM, as the company’s stock rose from $18 to $40 per share this year. While it's a good lithium play, it may be a bit expensive.
The stock is trading at a FV/EBITDA of 16x.
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This article has 8 comments:
Do foreign companies want to be partners with the Bolivian socialist government?
Do companies want to manufacture batteries and autos in Bolivia, and have export transportation shut down for many weeks?
That's what happens when Bolivia has a nationwide transportation strike. They block all the roads. The government does nothing to keep the roads open.
Bolivia has no ocean port and no through railway. Export transportation moves by truck.
I predict that Bolivia's lithium will remain in the ground. Foreign companies may do a little R & D and "explore" Bolivian opportunities. But in the end, Major foreign companies will not remain in any long term deals with Bolivia.
If you retire in the USA, and:
Your Social Security pays $2,000 per month.
Your Medicare costs $1,000 per month.
Your real estate property taxes are $10,000 per year.
Your electric bill is $1,000 per month.
Your water bill is $200 per month.
A loaf of bread costs $10.
A gallon of gas costs $20.
You can move to Bolivia and get all those things cheap: groceries, housing, utilities, healthcare, and taxes.
And if you have to get 24 hour nursing care or move into a nursing home, that is cheap too.
A larger problem may be that Morales has promised to have environmentally friendly development. For example, 3 species of pink flamingo breed there. Other rare animals are also present. Hotels have been built for tourists who come to watch the wildlife. I don't know enough about this but SQM, which mines Li from the Salar de Atacama, in Chile, has not had to be as environmentally responsible.
It is not clear how much of the world's recoverable Li lies in Bolivia. Li is a fairly common element, found in many different places including seawater. Extracting the Li, which is almost always found in tiny concentrations, is a major problem.
Another problem is that batteries containing Li are not the only alternative to petroleum for powering cars. No one knows which technology, if any, will dominate in powering future cars. While there are other uses of LI, the demand would drop substantially were auto makers to use a different technology. Morales may be counting his flamingos before they hatch.
Mitsibushi, Honda & Nissan-Renault are all sniffing around this opportunity from a buying perspective. India's Jindal already has mining operations in Bolivia, imo, they will probably be the best bet for any short term exploitation deal.
"China's demand for lithium carbonate has grown rapidly. Starting from 2008, China's production capacity of lithium carbonate has entered a releasing period. It is expected that China's lithium carbonate output will amount to 45,000 tons and its designed production capacity will surpass 60,000 tons by 2010, when China will become a net exporter of lithium carbonate."
On Nov 05 10:49 PM Rolo wrote:
> I bet the Chinese move in and make "friends"
That's why I believe the mining investments will face favorable conditions.
Jindal has not produced anything and is going to lose every penny it puts into Bolivia. Evo will see to that.
AMF did a successful pilot project on the Salar for Lithium about 10 years ago. They wanted to go ahead and build a major industry. But they left and set up shop in Argentina instead when it became clear that Bolivians (and this was before Evo) did not want them there.
The current government lithium project will just lose money.
In just a couple of short years Evo Morales has taken a promising, growing, exporting, wealth producing hydrocarbon sector and turned it into a money losing, shrinking, corrupt state boondogle that cannot even supply the needs of Bolivia. It is amazing how fast that happened.