Energy & Resources

Charging into Argentina

Chinese firms rush to dominate global lithium supply chain


CATL needs Ottawa’s green light to conclude Argentine lithium deal

What would Argentina’s legendary nineteenth century cowboy Gauchito Gill have made of the corporate stampede to stake a claim to the nation’s deposits of lithium, the silvery-white metal found under the country’s northwestern salt flats? He’d almost certainly give it the thumbs-down given that he’s revered as a saint across the country for his Zorro-like feats of taking from the rich to feed the poor.

Shrines to Gauchito Gill are a common sight along the roadsides in the Catamarca, Jujuy and Salta provinces that lie within South America’s lithium triangle, which also includes parts of neighbouring Bolivia and Chile. Approximately 58% of known deposits of lithium – now commonly known as white gold – are located in the three countries.

And there’s certainly the twenty-first century equivalent of a white “gold rush” happening right now in Argentina, which has become the focus of efforts to secure lithium supplies needed for rechargeable electric car batteries. Unsurprisingly, Chinese companies are at the forefront of the action.

The world’s largest battery manufacturer, CATL, is hoping to take over Millennial Lithium Corp after spending $317 million to outbid rival Ganfeng Lithium in August. Meanwhile Zijin Mining has just announced an agreement to buy Neo Lithium for $770 million.

Both target companies have Argentine assets but are Canadian-owned as well as listed on the Toronto Stock Exchange. As such, the deals will require the Canadian government’s approval before they can close.

Shifting geopolitics means that this is far from a foregone conclusion. In recent weeks, Ottawa has adopted a noticeably harder stance towards Beijing following the late September release in China of Canada’s two Michaels (Spavor and Kovrig), who headed home at a similar time to Huawei’s CFO Meng Wanzhou (held in Canada for nearly three years awaiting extradition to the US for allegedly breaching Washington-imposed sanctions on Iran).

Adding to tensions a Canadian warship sailed through the Taiwan Straits alongside an American destroyer last week, prompting condemnation from Beijing. And a survey published by Canada’s Globe & Mail newspaper shows that 87% of respondents want Canada to join the US, UK and Australia (its counterparts in the Five Eyes intelligence sharing alliance) in taking stronger measures to contain China’s rising power. Three-quarters want their government to ban Huawei from the country’s 5G network as well, a major decision that’s pending in the next few weeks.

When it comes to lithium, the Canadian and American governments spent 2020 working on a joint action plan to secure supply chains for critical minerals. This year, Ottawa followed this action plan up by designating lithium as one such mineral.

Canada also has recent form in blocking Chinese acquisitions. At the end of last year, Shandong Gold was prevented from purchasing Arctic gold miner TMAC on the grounds that its operations were too close to a radar warning station. However, that mine was inside Canada rather than located in another sovereign state. Blocking transactions in Argentina would represent a step change in Ottawa’s approach.

If it does start blocking Chinese M&A deals on national security grounds, Canada will be following Australia’s well-established lead. Last year, Sydney stopped AVZ Minerals from selling an 11.77% stake to Yibin Tianyi, whose major shareholders include CATL and TA&A Ultra Clean (the latter’s founder, Pei Zhenhua, was one of CATL’s earliest investors).

However, CATL and Pei haven’t given up. At the end of September, Suzhou Tianhou Times New Energy, another company owned by the two, announced a $240 million agreement to develop AVZ’s Manono lithium and tin project in the Congo. Instead of trying to buy into the parent, the new strategy involves taking a stake at the project level, in this case 24%, leaving AVZ with 51%.

CATL needs the raw materials if it’s to hit its 600 GWh capacity target by 2025. In 2020, the company ranked as the world’s top EV battery producer for the fourth year in a row. As of June, it had existing capacity totalling 65.45 GWh, with a massive 92.5GWh under construction.

So far this year, it has announced Rmb73.5 billion ($11.52 billion) of capital expenditure to try and keep up with soaring demand for electric car batteries. CATL currently has seven domestic production bases: these are in Fujian, Guangdong, Jiangsu, Jiangxi, Shanghai, Sichuan, and Qinghai, plus an international one in the German state of Thuringia. Coming next is a first plant in Hubei province through a Rmb32 billion ($5 billion) investment over a six-year period.

Such is the demand for lithium that Zijin was willing to pay $183 per tonne to buy Neo Lithium, more than double the levels for deals being struck two years ago. It represented a premium to the $161 per tonne that CATL agreed in August for its Millennial Lithium purchase. However, Neo’s Tres Quebradas Salar project (also known as 3Q) in Argentina’s Catamarca province has one of the world’s highest-grade lithium deposits. A recent feasibility study said that it’s capable of producing 20,000 tonnes of battery grade lithium carbonate per annum for 35 years. CATL stands to benefit either way after taking an 8% stake in Neo just over a year ago.

CATL’s more recent purchase Millennial Lithium has two main lithium brine projects: Pastos Grandes, which is capable of producing 24,000 tonnes per year for 40 years and Cauchari East, which is at an earlier stage of development.

In 2018, Ganfeng Lithium also purchased Chilean producer SQM’s interest in Argentina’s Caucheri-Olaroz project. This has an annual production capacity of 40,000 tonnes over 40 years.

The Argentine government is keen to develop the lithium mining sector and has spent the past few year attempting to entice foreign investment by slashing export taxes from 12% to 8% and easing capital controls.

It’s also trying to win over local voters by flagging the potential job opportunities all this investment will bring in its wake. Catamarca’s mining minister, Maria Fernanda Avila recently pointed to the government’s efforts to build up a downstream supply chain in Argentina as well (the factories that produce car batteries and other electronic products). France’s Novatech has a notebook battery assembly plant in the province, while Ganfeng has signed an agreement to build a battery factory in Jujuy province.

However, there are signs that voters remain unconvinced about sales to overseas interests, if social media comments on domestic media articles are anything to go by. “It outrages me that nature blesses us with a key natural resource, yet the stupidity of our rules allows others to benefit from it,” wrote one Argentine netizen.

Folk hero Gauchito Gill would almost certainly agree. The country’s gauchos forged their reputation trying to kick the Spanish out of Argentina as they sought independence from colonial exploitation.

Meanwhile some US commentators already worry that China is trumping American economic influence in South America. China is now Brazil, Chile and Peru’s largest trading partner. Argentina soon will be too, the Financial Times reported this week based on recent trade data.

Ryan Berg from the Centre for Strategic and International Studies recently told Nikkei Asia that China is not only increasing its investment in ‘lithium triangle’ countries but also winning them over with its vaccine diplomacy. He believes China will continue to dominate the lithium industry.

However, the US is fighting back, with efforts to lure its continental neighbours back into the fold. Deputy National Security Advisor Daleep Singh has been touring the region promoting Build Back Better World (B3W), America’s counter to China’s Belt and Road Initiative.

The plan will be officially launched next year, alongside its domestic equivalent (designed to revitalise infrastructure investment in the US), with a focus on climate, health, digital technology and gender equality.

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