Focus On The Puna Plateau - 'Saudi Arabia Of Lithium'

by: Livio Filice


Overview and History of The Puna Plateau.

Update on what is happening in: Bolivia, Argentina and Chile.

Review of investment opportunities with leading chemical companies operating in the region.

The Puna Plateau is an area of the Andrean Mountains that reaches elevations of 4,000m and spans 1,800km across Argentina, Bolivia, and Chile. It houses the largest proven deposit of lithium, referred to as the "The Lithium Triangle," and consists of three major salt lakes: Salar de Atacama, Salar de Uyuni, and Salar de Hombre Muerto. The Puna Plateau is referred to as the "Saudi Arabia of lithium" as it holds approximately 70% of the global reserves, making it an attractive area for both junior exploration and large mining companies.

'Brine' is water saturated with a high concentration of salts such as that found in salt lakes, or a salar. Concentrated brine water is extracted from below the Earth's surface and cycled through a pond evaporation process, which can take from 12-24 months; as the brine water begins to evaporate, lithium and other by-products are harvested, including potassium and boron.

In the 1990s, a large investment of approximately $150million by an American chemical company spurred interest in the Puna Plateau. In recent years, a significant number of junior exploration and mining companies have flocked to this part of the globe to unlock further value as the demand for lithium has doubled over the past decade and is expected to double again by 2020. The increase in demand comes from the rapid adoption of lithium ion batteries to a wide range of mobile applications such as cell phones, laptops, and power tools, but also its use in new and emerging applications like table PCs, smartphones, and electric vehicles.

The largest deposit sits in Bolivia, a country that has decided to develop the salars with little external support. But in late 2011, the Chinese state company CITIC Guoan Group Corp announced that it had reached an agreement to begin exploration in the Salar de Coipasa. Later in 2012, a consortium of South Korean firms announced that they would build a pilot plant to manufacture lithium cathodes, the main component in lithium ion batteries. Major South Korean electronics firms, such as LG (NYSE:LPL), have indicated that they are seeking to be the number one producer of lithium ion batteries in the coming years. Industry watchers, however, have seriously criticized the Bolivian government for making such slow progress on the project. It is even doubtful that these projects will see life in the coming years as the immediate future sees supply being brought in from Argentina and Chile.

Chile is the largest lithium-producing country in the world, followed by Australia. Presently in Chile, where lithium is considered a strategic resource subject to state control, only two companies have access to their lithium reserves through joint ventures with the government. In mid-2012, the government changed course and invited both the existing producers as well as local and foreign groups to bid on a potential grants right to extract lithium over the next 20 years. It later revoked the lithium concession, revealing a major scandal.

Sociedad Quimica y Minera ((NYSE:SQM)) is the largest producer of lithium in the world and is based in Chile. Even though the company is the world's largest lithium producer, it is not a pure-play as less than 10% of its sales are from lithium.

In December 2013, Rockwood Holdings, Inc. (NYSE:ROC) became the world leader in lithium-based compounds after acquiring a 49 percent stake in Talison Lithium, a hard rock miner in Western Australia. Rockwood also has two production sites in Chile: the lithium brine at the Salar de Atacama and the plant at Antofagasta, at the industrial region "La Negra."

Despite some pushback from local native communities in the Northwest, Argentina is considered the most mining-friendly state of the Puna Plateau region and has been rapidly advancing its position in the lithium industry. A push for development is ongoing, especially in the underdeveloped Northern state of Salta where 510 concessions have been granted to mine in 13 salt pans, which cover a surface area of 3,522km2. FMC Lithium, a division of FMC Corp. (NYSE:FMC), is the world's second largest producer of lithium and it presently operates a lithium brine operation in Argentina at the Salar del Hombre Muerto. FMC Corp. is a diversified chemical group and is not a pure lithium play. Although Argentina is the most miner-friendly state of the region, there is still significant currency and geopolitical risk involved in making investments in this part of the world. The current Argentinean peso crisis continues to deepen, making it extremely difficult for companies to move capital in and out of the country while also decreasing the value of the capital that does make it into the country. This will lead to cost overrun on projects. Additionally, a much-touted crisis may be heading for Argentina, which could keep investors at bay until the presidential election in 2015.

Demand for lithium is being driven by new consumer mobile devices such as Apple's (NASDAQ:AAPL) line up of advanced smartphones and tablets. Other players in the market providing power hungry consumer devices include Google (NASDAQ:GOOG), BlackBerry (NASDAQ:BBRY) along with Samsung Electronics (OTC:SSNLF). Further, electric vehicles such as those being offered by Tesla Motors (NASDAQ:TSLA) which consume a significant amount of lithium are now gaining traction in the market. Investors seeking exposure to the lithium-rich Puna Plateau region in South America should consider investing in companies that are producing salar projects because these are low-cost, long life, and high quality projects. SQM, Rockwood, and FMC are all existing diversified producers in the region with lithium only representing a portion of their businesses. Another option for those seeking to invest in lithium without being directly exposed to a particular company, project, or government should have a look at Global X Funds Lithium ETF (NYSEARCA:LIT); this Lithium ETF has a direct investment in all three major organizations listed above. For investors with a greater risk tolerance, Orocobre Limited (OTCPK:OROCF) is currently building a substantial Argentinean-based industrial mineral company through the construction and operation of its portfolio of lithium, potash, and boron projects and facilities. Toyota Tsusho Corporation (OTC:TYHOY) (See Seeking Alpha: Toyota's Lithium Based Future) is a key project partner and the Puna lithium brine project is expected to commence in 2014.

Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.

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