In Mining

Concern is mounting across the EV industry that there may not be enough supply of lithium, nickel, copper and other metals to match demand later this decade. While Tesla sources the vast majority of its battery cells from suppliers, it actually sources a large part of the materials used to build those batteries directly from mines. This approach is going to be critical as companies fight to secure those minerals for battery production to support electric vehicle growth.

Lithium is on the forefront interest of miners and Bolivia, Chile and Argentina sit atop the so-called “lithium triangle,” a region containing nearly 56% of the world’s resources of the metal. Meanwhile, Mexico has no commercial lithium production but boasts potential deposits that if proven economically viable, could catapult it to major producer status, which is why its Congress passed a bill to nationalize the metal, tightening control of strategic mineral resources.

Tesla and most EV manufacturers have no experience with the time-intensive and laborious task of building and operating a mine, so industry analysts have advised automakers to focus on buying an existing operator. And many in the mining industry have noted that buying an existing metals producer would cost far less than the $44 billion Musk offered to personally buy social media network Twitter earlier this year.

The Salinas Grandes Salt Flats in Argentina’s Jujuy province,
where some of the largest lithium mines are located

Argentina is a jurisdiction that may well have a suitable candidate for Musk, as the country expects to receive a $4.2 billion combined investment in its growing lithium market over the next five years, which would help the country double production in 2023 to reach 175,000 tons in 2025.

The country has already attracted major players, including the world’s second largest miner Rio Tinto and South Korean steelmaker Posco.

Tesla, as well as other electric vehicle (EV) manufacturers, are already working with Latin America’s mining industry in other respects. For example, Vale, Brazil’s largest mining company, has signed a long-term contract with Tesla to supply Class 1 nickel for its EV initiatives. German automaker BMW has signed a deal whereby Livent, a company that has invested $640 million to extract lithium in the Argentine province of Catamarca, will become the brand’s second-largest supplier of the mineral in 2022. Livent is also a lithium supplier to Tesla. And Australia’s Orocobre, which has supply tie-ups with Toyota, operates a lithium mine in Argentina.

Political Risk Problems

Despite the potential upside for Musk acquiring a mining company to ensure a steady flow of lithium, there’s one major obstacle: Latin America is now undergoing a resurgence of resource nationalism with respect to mining—especially for lithium.

In the aforementioned Argentina, which currently produces 10% of the world’s lithium, there is a strong environmental activist movement that is pushing back against the expansion, concerned about the environmental and social impact on the Puna region where the salt brines are located.

In Bolivia, former president Evo Morales tried to broker international lithium agreements last year before being removed in a coup, and the new president, Luis Arce, campaigned on a platform of developing lithium resources for the public benefit.

In Chile, newly elected President Boric campaigned on ambitious climate change action and has proposed a state company for lithium exploitation.

To successfully manage a looming lithium boom, Latin American governments will look to balance environmental and social considerations, as well as the potential revenue. Responsible water management will be key to ensuring that local communities – many of which depend on water resources for traditional livelihoods – share in the benefits from new investments. Mining companies become convenient political scapegoats when tensions arise, which could extend to electric vehicle (EV) manufacturers. Community and government relations take on added importance for miners and EV players will need to search for appropriate advisory to effectively manage these risks. 

Next Steps

Contact us so we can help your company gain a deeper understanding of political risk in different LatAm mining jurisdictions — along with insights as to how best manage or mitigate this risk. For more than 20 years, AMI consultants have been helping miners and investors manage above-ground political risks in Latin America through crucial intelligence that promotes strategically driven decision-making.

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