The promise of lithium, caught in a perfect storm

By David Bueno

The Argentine lithium industry is in crisis due to a sum of factors that have caused a kind of perfect storm: the semi-paralysis of mining activity in the country due to quarantine, restrictions on the purchase of foreign currency and withholdings.

The provinces of Salta and Jujuy have been among the most affected by the covid-19 pandemic in recent months so their governments restricted circulation to prevent the virus from spreading.

This impacted the mining industry as companies had to reduce the mobilization of their workers to the camps in the Puna, to which was added the increase in the costs they suffered when having to carry out tests both those who went to work, and those who returned home.

Everything is running at half machine, because companies cannot have installed capacity of more than 50%, due to the coronavirus. Everything is slow, because of the logistics to move and that no one wants to be infected, or take risks. It will be impossible to work 100% back until the health emergency is lifted. What more complicated was the increase in the costs of movement, which is a disaster ”, said the Secretary of Mining and Hydrocarbons of Jujuy, Miguel Soler.

The impossibility of carrying out all the tests forced the reduction of the personnel working in the mines.

The Secretary of Mining and Energy of Salta, Ricardo Alonso, agrees and adds: “To the employees, they have to do the PCR, but the problem is that there is nowhere, because the laboratories have no capacity. So they can’t go up to the mines. The situation is more than difficult. Nobody knows how to act, not the government, not the Emergency Operating Committee (COE), not us. Furthermore, the technicians who have to build the pilot plants are foreigners and cannot bring them. That made Several firms have had problems since that cannot be solved by Zoom. This happens to Posco, who are Korean, and have developed everything with their technology. The same happens to Eramet, with the French”.

The stocks

This situation has been aggravated by the recrudescence of the foreign exchange market, which is causing companies to find it even more difficult to find investors or financial institutions willing to support the construction of their projects in the country.

“We can’t get people to come and invest in Argentina. What is happening is not good for investments “explained Iain Scarr, COO of Canadian Millennial Lithium, you are finishing building the pilot plant for your project Pastos Grandes in the province of Catamarca, for which it requires a total investment of 448.20 million dollars.

Without these funds, it is difficult for most of the developments in the country to move forward since the companies that have faced them are small and they have only managed to explore and carry out the pre-feasibility study with the money they raised when they went public in Toronto. To get them going, they need several hundred million more, which they don’t have.

50%
It is the level of activity registered by mining in Jujuy from the health controls due to the pandemic.

The government makes it difficult to get people to invest. It is a problem that we will have in six months when we have the project ready. The country’s reserves are going to be low and there will continue to be two types of dollar value. There is nothing that motivates the investor ”, he highlighted Alejandro Moro, general manager of the Australian Rincón, who is working on the Salar de Rincón project in Salta, for which you need 100 million dollars.

To advance with the feasibility study and / or build the plant to produce lithium carbonate, they need a partner, either a battery manufacturer or marketer, or banks willing to finance the works, two elements that are in short supply these days due to the low price. sales that the metal currently has throughout the world.

“Junior projects were impacted because funding dried up on the Canadian stock market. Now, the only way they have to fund themselves is with integrated parts, ”explains a former official of the National Mining Secretariat.

The rise to 8% of the withholdings limits the projects.

This situation has begun to improve in recent weeks after China announced that it plans to be carbon neutral by 2060, which would increase the use of batteries, which require lithium for their operation.

It would certainly make sense for this initiative to make battery materials projects more attractive. Renewable energies are one of the pillars of this announcement ”, Scarr highlighted and the former official said that by “2023 there will be a shortage of lithium and an improvement in prices, so we must start building now to take advantage of this opportunity.”

For this, the government must generate the confidence of investors, which has been affected by the resurgence of the exchange rate that the Central Bank (BCRA) implemented on September 15 through communication “A 7106”.

448,2
million dollars is the investment that the Big Steps project will require.

The government restrictions are not in our favor because they are worse than when we made the decision to suspend the project. If they do not change what has to do with access to foreign currency, which is a sine qua non issue, Eramet will not invest because they have to pay the loans they are going to take, “says a source close to the French company, who The Centenario-Ratones project in Salta has been semi-paralyzed, where it planned to invest around 600 million dollars.

From the Argentine Chamber of Mining Entrepreneurs (CAEM) they also came out to complain about the measure takenBut they did not have a response to their claims, despite the fact that the government often says that it seeks to promote mining in the country.

We view with concern the recent exchange rate measures announced by the Central Bank of the Argentine Republic, given that, to produce and export, mining companies must first necessarily invest and this is difficult if there are measures that threaten direct investment – he says in a statement -. If restrictions are applied to these payments, companies enter a situation of technical default, which is resolved by generating more expensive debt again. Thus, the new restrictions unprotect the current investment stock by eliminating financing options and hinder the possibility of new investments “.

Withholdings

Finally, Another critical point to attract investment for the sector is to have clear rules of the game, especially with regard to withholdings, since they went from 5% in the government of Cristina Kirchner to 0% in that of Mauricio Macri, who raised them at the end of his term to 12%.

Alberto Fernández lowered them to 8% in February as part of the Solidarity and Productive Reactivation law, but it took eight months to regulate it, so the industry paid the aliquot set by Cambiemos until October, with the negative impact that this generated in the middle of the quarantine.

All are very concerned about regulatory changes. You don’t have clear rules, there is legal uncertainty, and they begin to look at you with distrust – concluded Alonso -. Sometimes they ask me: ‘What is your policy to attract investment?’ Don’t talk to me today about attracting investments, we are trying not to let any company go away, keeping the ones we have ”.


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