Bolivia: The myth of the Saudi Arabia of lithium

Published by Reve
October 28, 2009

Bolivia produces no lithium, though it is sometimes called “the Saudi Arabia of lithium” because its still-untapped salares are thought to contain nearly 50 percent of the world’s estimated lithium reserves.

Lithium can be obtained in small quantities in the form of lithium chloride (LiCl) from just about anywhere in the world, but concentrated deposits — called salares — are found only in a few places. Salares result when pools of salt water, which contain LiCl, accumulate in basins that lack drainage outlets, allowing the water to gradually evaporate and leave dense layers of salt behind. Underneath the dried salt layer is a layer of brine — groundwater with a high concentration of LiCl in solution. It is this brine that is highly prized as a source of lithium.

For a lithium deposit to be commercially viable, it must have a large amount of lithium that is not contaminated with too much magnesium, and it must be in a location where natural evaporation will concentrate the watery solution where LiCl is normally found. Factors that contribute to increased evaporation include low air pressure found at high altitudes, low precipitation, frequent winds, high temperatures and exposure to solar radiation.

Thus, commercial lithium deposits are found along volcanic belts in the earth’s desert regions. The process of harvesting LiCl exploits the same natural process that initially created the salt flat — evaporation. Brine is pumped from beneath the crust into shallow pools on the surface of the salt flat, where it is left to bake in the sun for about a year. During this period, the LiCl becomes more concentrated as the brine is reduced by solar radiation, heat and wind.

To be used in a lithium battery, however, the LiCl must first react with soda ash to precipitate lithium carbonate (Li2CO3), which can then be processed into metallic lithium for use in making a battery’s cathode. This usually takes place at off-site chemical processing plants, making it necessary to transport the lithium by tanker — something that becomes economically viable only after the lithium solution is sufficiently concentrated. Thus, the rate at which the water evaporates is quite important for economical harvesting of lithium, and it also influences the size (and therefore the environmental footprint) of the solar ponds required to achieve economic concentrations.

After the lithium is extracted, it must be processed for use in batteries, and only a few producers have the required capital and capacity to manufacture lithium batteries. Currently, most companies that can supply lithium-ion batteries for vehicles are joint ventures between auto manufacturers and technology firms. Of these, seven are based in Japan, two are in the United States, two are in Korea and one is in China. These few producers rely on even fewer suppliers for the components — primarily the anodes, cathodes, separator and electrolytic salt — of lithium-ion batteries. The most specialized step in the process is the production of the electrolytic salt used in lithium-ion batteries. That salt (lithium hexafluorophosphate) is produced only in Japan at two complexes, one in Okayama prefecture and the other in Osaka prefecture.

An estimated 70 percent of the world’s LiCl deposits are found in South America. Chile is the world’s largest producer of LiCl — not only because Chile already has highly developed mining, transport and processing infrastructure, but because its climate and geography are favorable for the evaporation that is central to producing lithium.

The Salar de Atacama is located in the Atacama Desert, which receives almost no rainfall and has high winds, low humidity and relatively high average temperatures. Together, these features make the Salar de Atacama the second-driest place on earth, after Antarctica.

Argentina has the world’s third-largest estimated lithium reserves. Argentina’s Salar de Hombre Muerto’s average elevation is nearly twice that of Salar de Atacama, but what it gains in altitude it sacrifices in net evaporation. Though its evaporation rate is only about 72 percent of Atacama’s, Salar de Hombre Muerto is still commercially successful because costs are low and are further offset by the sale of recoverable byproducts like boric acid.

Bolivia produces no lithium, though it is sometimes called “the Saudi Arabia of lithium” because its still-untapped salares are thought to contain nearly 50 percent of the world’s estimated lithium reserves, most of which is found within the brines of the vaunted Salar de Uyuni. Attention to Bolivia’s reserves has increased strongly in recent years, with South Korea, Japan and France showing particularly strong interest (China is rumored to be interested as well). However, having a resource does not mean it can be brought to market at a reasonable cost.

Uyuni’s higher rainfall and cooler climate means that its evaporation rate is not even half that of Atacama’s. Achieving the necessary concentrations is further complicated because the lithium in the Uyuni brine is not very concentrated, and the deposits are spread across a vast area. Uyuni also has a high ratio of magnesium to lithium within the brine, which means the magnesium must be removed through an expensive chemical process. This is something Chile has handled with relative ease, but Uyuni’s deposits have three times the magnesium concentrations of Atacama’s, making investment in Bolivia’s deposits much less economical.

Bolivia also lacks established infrastructure, and any serious investments in Uyuni would require extensive spending upfront on infrastructure development. Combined with the highly unwelcoming investment climate in Bolivia, there is no guarantee that the country will be able to attract the massive investment necessary to develop its reserves, despite the rise of global interest in lithium. It will be difficult for the Bolivian government to achieve its goal of becoming a center of lithium processing. This is not to say that Bolivia could never be a major lithium producer, but in the short- to medium-term, Chile will continue to dominate global lithium markets.

Many of the articles used the phrase, “The Saudi Arabia of lithium,” when describing the nation, although a few stories correctly referred to Bolivia’s neighbor Chile by that sobriquet. Despite its potential, Bolivia has yet to start producing any lithium. Bolivia’s potential is “very exaggerated,” says Eric Norris, global commercial director of the lithium division of US-based chemical producer FMC. “People are interested in Bolivia because of the size of its deposits, but if Bolivia does not enter the lithium market, it will have no impact.”

There is plenty of the metal elsewhere, Norris notes, whether in the rest of South America, Australia or Asia. Nor does US-based Rockwood Holdings, the parent of Germany-based lithium producer Chemetall, think Bolivia is the end-all. “We believe there are substantial, proven reserves at other existing sites to supply the expected growth in demand that is likely to be created by the introduction of EVs,” says Timothy McKenna, vice president, investor relations and communications, for Rockwood. Further, Rockwood expects that lithium from the large batteries used in EVs will be recycled, creating an additional supply source.

Chile provides 61% of lithium exports to the US, with Argentina providing 36%, says the US Geological Survey (USGS), with Chile having estimated reserves of 3m tonnes, and Argentina about 400,000 tonnes. Bolivia’s reserves, however, are projected at about 5.4m tonnes. The Andean areas between Bolivia, Argentina and Chile are referred to as the Lithium Triangle. At the 2009 Lithium Supply & Markets conference, held in Santiago, Chile, in January, global lithium reserves and resources were estimated at nearly 30m tonnes, with 7.6m tonnes from mining, and 17.6m in continental brines. Other lithium producing countries include Brazil, Canada, China, Finland, Portugal, Serbia, the US (in Nevada) and Zimbabwe.

Lithium production via the brine method is much less expensive than mining, says John McNulty, analyst at global bank Credit Suisse. Lithium from minerals or ores costs about $4,200-4,500/tonne (€2,800-3,000/tonne) to produce, while brine-based lithium costs around $1,500-2,300/tonne to produce. Melting snow from the Andes Mountains runs about 130 feet (39.6 meters) underground, into lithium deposits, then gathering into pools of salt water, or brine. The brine is pumped out from under salt flats such as Chile’s Salar de Atacama, and spread among networks of ponds where the desert sun and high altitude provide a beneficial environment for evaporation.

It takes about a year for the brine to reach a lithium concentration of 6%, when it is shipped to a plant to be purified, dried and crystallized into lithium carbonate, which then is granulated into a fine powder for battery makers. Lithium stores a very large amount of energy for its volume, which makes it perfect for electronics. In a mobile phone or PDA, there is about one-tenth of an ounce (0.284g) of lithium in the battery. But EV batteries are projected to contain about 20lbs (9kg) of lithium. Lithium sells for roughly $1/kg, or $3/lb.

The major producers, called the “Lithium Three” by analysts, are Rockwood/Chemetall (with reserves in Nevada and Chile), FMC (Argentina) and Sociedad Quimica y Minera (SQM), based in Chile and 32% owned by PotashCorp of Saskatchewan and 2% by Japan’s Kowa. Basically, none of these companies appear interested in Bolivia. “It is well-known that Bolivia has large deposits of lithium,” says McKenna. “However, there are practical barriers to developing these deposits.”

UK-based consultancy Roskill Information Services says the ratio of magnesium to lithium is much higher in Bolivia’s Salar de Uyuni than at the Salar de Atacama in Chile, the Silver Peak operation in Nevada, or in Argentina’s Salar de Hombre Muerto, which will lead to higher extraction and processing costs. The Bolivian salar is also at a much higher altitude, resulting in less efficient evaporation. Then there is Bolivia’s limited infrastructure, compared with that of Chile, Argentina or the US. “Any developer would have to factor the cost of these barriers into development and eventual production,” says McKenna.

Also, the Salar de Uyuni floods seasonally – compared with Chile’s Salar de Atacama, which has about one inch of rain every 13 years – further diluting the brine. But Bolivia’s biggest problem may be Bolivia itself. “Bolivia, the poorest country in South America, should not expect the derailment of oil-fueled vehicles to deliver an instant economic shot in the arm,” warns US-based Latin America-focused think-tank Council on Hemispheric Affairs (COHA) research associates Andy Blair and Adam Bloom.

Bolivia has ruled out selling lithium as a raw material. Leftist president Evo Morales and his administration think that partners are welcome, as long as they use the lithium in Bolivia. In other words, partners must build battery factories and possibly EV/HEV assembly lines there. At a press conference in March, Morales said: “The state doesn’t see ever losing sovereignty over the lithium. Whoever wants to invest in it should be assured that the state must have control of 60% of the earnings.”

At the start of October, the government-run Bolivian Mining (Comibol) revealed its plan to invest about $400m to build a lithium carbonate plant at Salar de Uyuni. The facility’s capacity is projected at 20,000 tonnes/year, roughly 30% of current global supply. Bolivia says the site will be producing by 2014, but the government wants total control of the resource, and has turned away any offers for partnership.

Construction was started on a smaller processing facility in March 2008, and Bolivia says the plant will be completed by the end of 2009. The cost of this unit has risen from its initial estimate of $5.7m, to $8m, and was delayed by two months because of the lack of workers, as well as bad weather. At a Madrid press conference for his September visit with King Juan Carlos of Spain, Morales said: “Companies that respect Bolivian norms will be welcomed. We’re looking for investment, be it from private or state sector. We want partners – not owners of our natural resources.” In 2006, Morales nationalized the oil and gas industry, something that has made foreign gas companies stop investing there.

And with lithium, investors have been burned before in Bolivia. In 1990, US-based Lithco had planned to invest $46m in Salar de Uyuni, but hunger strikes and massive protests forced the company out, despite pro-capitalism former Bolivian president Jaime Paz Zamora’s protests. Lithco eventually set up operations at Argentina’s Salar de Hombre Muerto, and eventually became part of FMC.

COHA warns that “processing raw lithium carbonate into lithium-ion batteries will be a protracted task due to Bolivia’s anemic economy.” Bolivia’s recent history has been tumultuous. A series of military coups from 1978 to 1980, and then a major economic crisis in the mid-1980s “shattered” the country, says COHA. The economic crisis culminated in 1985 with an inflation rate of 24,000%, which effectively crippled the government and raised the country’s foreign debt to $3bn, “over which Bolivia is still struggling to recover.”

And if Bolivia could solve its infrastructure and debt problems, would anyone still want their lithium? “The Bolivians are spending about $400m on the plant by the salar, but FMC, Chemetall and SQM can increase capacity at a fraction of that cost,” claims FMC’s Norris. Each of the Lithium Three can add roughly 25% more capacity with a $40m-50m investment, says Credit Suisse’s McNulty.

Bolivia forgets that growth to date has been driven by consumer electronics. “As of today, lithium is not being used in the vehicles on the road,” points out Norris. “These cars, while scheduled, are all under development.” Lithium supplies from existing and expanded operations are more than sufficient to meet potential demand for 500,000 lithium-powered vehicles in 2015 and could meet demand for up to 2m lithium-powered EVs and HEVs in the same period, says US-based consultancy and financial services provider Gerson Lehrman Group.

With China’s capacity, including Tibet’s, adding another 10,000 tonnes/year of production capacity by the early 2010s, and several Canadian companies entering the market, “oversupply might be a more pressing question than lithium availability,” says the firm. During the Deutsche Bank Alternative Energy Conference in June, Rockwood CEO Seifi Ghasemi noted that the world had “more than adequate” lithium production capacity to reach the auto industry’s goals regarding batteries. “If the US market were 100% converted to EVs, the Salar de Atacama lithium resource in Chile could supply market needs for at least 100 years. At the 10% market penetration level, the Salar could satisfy market needs for 216 years.”

The Atacama resource is shared between Rockwood and SQM. And then, at the start of October – when Bolivia made its announcement about lithium production – SQM dropped a bomb when the company said it would be reducing prices by 20% for lithium carbonate and lithium hydroxide to drive demand growth “in what we believe is an attempt to gain share,” says McNulty. SQM is also increasing capacity by 40,000 tonnes/year.

US bank BB&T Capital Markets managing director Frank Mitsch says: “While this lack of discipline bodes unfavorably for the competitive landscape,” SQM’s actions drive “long-term development of the lithium market.” “We believe SQM may be seeking to forestall new production capacity from being developed,” says David Begleiter, analyst at Germany’s Deutsche Bank.

SQM has flooded the market before. In the late 1990s, lithium prices approached $4,000/tonne, and lithium from mining operations, as opposed to brine operations, became economically viable. These producers were starting to enter the market when SQM flooded it, forcing prices down to roughly $1,400/tonne, effectively driving the new producers out. Given the weak economy and capacity expansion, the lithium market “is way oversupplied,” emphasized McNulty. “Pricing in the near term will be under significant pressure.”

Demand before the global recession had been growing at about 5–7%/year, but in 2009, the lithium industry contracted by about 30%, says Norris. However, “we see demand returning to those pre-2009 levels in another couple of years, with new applications, including car batteries, driving growth.”

Traditional markets will only see single-digit growth long-term, cautioned McNulty during Credit Suisse’s early October EVs conference call. He predicted that the lithium industry would enjoy a compound annual growth rate (CAGR) of 7.2% from 2009-2015. But incremental demand connected to lithium-ion batteries in EVs will push the CAGR from 2009-2020 to 10.3%, he noted.

“Currently, demand for lithium from automobiles is essentially zero,” said McNulty during the conference. “But by 2015, demand from EVs will be about 10,000 tonnes, expected to increase to 81,000 tonnes by 2020.”