Antoine Dion Ortega, Author at Corporate Knights

Lithium, the love story

Antoine Dion Ortega — Mon, 16 Jun 2014 19:35:17 +0000

Purmamarca, ARGENTINA – When Tesla Motors revealed in February it would build the world’s largest lithium-ion battery plant, shares in major lithium producers such as SQM, FMC and Rockwood – all active in South America’s so-called lithium triangle – got a noticeable boost.

Tesla pledged to invest more than $5 billion in its factory, construction of which would begin in 2017 with an eye to producing 500,000 batteries a year. Analysts now expect the Palo Alto, California-based electric carmaker to strike a strategic lithium supply agreement in the near future.

When that deal comes through, it could be huge. Tesla alone might represent an 8 per cent increase in global demand for lithium, and that’s good news for countries in the lithium mining game. Yet it’s unclear to what extent South America’s resource-rich nations will truly benefit from it, and whether the foreseen “white gold rush” will be a sustainable one.

Just a few days before Tesla’s announcement, Bolivian President Evo Morales was dressed in white overalls, carefully examining a battery cell during the inauguration of a pilot manufacturing plant, located within the 10,000 square kilometre salt flats of Uyuni. “If we have the greatest reserves worldwide, why not have the greatest lithium industry here in Bolivia?” he asked.

Unlike its neighbours, Bolivia still lacks its own lithium production infrastructure, and there remains some confusion over the exact size of its lithium reserves. But that wasn’t Morales’ concern. He was there to promote a vision: that lithium could be Bolivia’s ticket to being an industrialized nation.

For years, governments in the lithium triangle – which includes Chile, Bolivia and Argentina – have pledged to take advantage of their respective lithium deposits. In 2011, Argentina suggested that the countries create an “OPEC-like” arrangement on lithium outputs. Newly elected Chilean President Michelle Bachelet said during her campaign that she would put together a special commission charged with determining how the country, which holds more than 25 per cent of global reserves, could draw the most from its resource.

But how large is the opportunity? Chile, which Forbes magazine has called the “Saudi Arabia of lithium,” currently produces up to 60,000 tonnes per year of lithium carbonate, making it the largest producer globally. Production in Chile has more than tripled since the beginning of 2000.

Sounds impressive, but the big picture tells a different story. Lithium is still a third-class commodity market, roughly $1 billion in size globally. On its own, Chile exports a little more than $200 million annually. That’s less than 0.5 per cent of the value of its copper exports. In other words, even in the world’s largest producing country, lithium exports make up less than 0.1 per cent of its GDP.

“There is an illusion around lithium,” says Jaime Alée, director of the Lithium Innovation Center in Santiago. “We can’t talk of a rush for something that has such little economic value for the country. Global lithium production works out to less than a month of copper production in Chile.” Alée doesn’t think that the expected increase in global demand will change the situation.

“We see that the global commodity market will increase to $2 billion in 2020. This is still a negligible amount compared to other mineral commodities.”

The substance being exported is called lithium carbonate, a commodity through which lithium – originally found in its soluble state in nature – can be transported. This white, salt-like powder contains about 18 per cent of metallic lithium. Its current price on the market has grown from less than $2,000 per tonne before 2000 to up to $7,500 in 2007. The price has since stabilized between $5,000 and $6,000 with global production around 150,000 tonnes annually.

“What our clients do is buy our lithium carbonate to produce the chemical product used in cathodes, thus multiplying its value 20-fold,” says Alée. “These cathodes are then sold to battery producers, and so on. In the end, our lithium makes up less than 0.5 per cent of the value of the battery in the car. It’s exactly like quartz and quartz watches: The value of the mineral itself is small in comparison to that of the watch.”

According to a Seeking Alpha report, esla’s current Model S uses no more than 100 pounds of lithium carbonate, putting its value at about $135 in a vehicle that sells for $70,000.

Alée says Chile, Argentina and Bolivia must do more than simply export the base mineral if they are to make the most of the lithium rush. To break free from their historical status as just natural resource providers, the countries need to climb the value chain by themselves becoming the manufacturers of batteries and their components.

Nature’s gift

Unlike other minerals in the region, such as gold or copper, lithium extraction does not come with major environmental risks. It is naturally found in its soluble state in the brines below the salt flats. For two million years, it has been carried away from the surrounding volcanic rocks through the waterways, and thrown into these vast pockets of salt, along with other minerals. In Salar del Rincon, where ADY Resources – a subsidiary of the Canadian-based Enirgi Group – launched a 500-tonne pilot plant in 2012, natural concentration of lithium in the brine is roughly 0.035 per cent. ADY plans to build a production plant in 2018 that would process about 25,000 tonnes a year.

Lithium producers use natural evaporation, rather than heat, to increase lithium concentration in the brine. In other words, being sustainable is what makes these projects more profitable. By simply pumping the brine into shallow pools, the exceptionally sunny conditions of the desert evaporate most of the water, forcing undesirable minerals to eventually settle to the bottom – like a glass of water oversaturated with salt and left to sit on the counter. “The only impact that I see we will have here is that the concentration of lithium in the brine will decrease over the years,” says Carlos Galli, operations manager at ADY.

None of the products used in the process, including lime, sodium carbonate and sodium sulphate, are toxic. The main waste that’s generated is a greyish, crumbly material called gypsum (used in drywall and toothpaste), mixed with magnesium hydroxide. “This is the most dangerous waste we have,” says Galli. “And it’s not dangerous.” ADY, in fact, is exploring ways of separating the magnesium so it can be sold as a by-product.

In fact, most of the waste resulting from lithium extraction could become commercial by-products. Among the minerals deposited at the bottom of the pools is potassium chloride, which is in demand in neighbouring Brazil for use in fertilizers. Salt chloride – or common salt – also has value, but ADY has refrained from selling it because it would damage local artisanal production. “We can’t just let our big project break the local market,” says Galli. “So we decided to put our salt at the disposal of local communities.”

Many lithium producers in the region have been careful to hire as much of their staff as possible from the surrounding, poor Colla communities. Of the 168 employees of ADY, about 110 are Collas. Gaining social licence to operate is particularly challenging for companies such as ADY. Lithium producers generally have smaller financial resources than the gold, copper or silver producers in the area, so funding for corporate social responsibility programs is limited. “We need to be creative,” says Galli.

Great expectations

Paradoxically, the greatest challenge that lithium producers face comes from the high expectations politicians and the media have created for the industry. By exaggerating the importance of the lithium market and its potential benefits, there is pressure to deliver.

The truth is that countries like Chile and Argentina are still struggling to develop basic national energy plans, let alone clear strategies for the future of a single commodity like lithium. This has led to growing frustration and sometimes cynicism among the population, which sees the technological race to batteries being dominated by other countries.

According to Navigant Research, electric vehicles will drive so much demand for lithium-ion batteries that the market is expected to grow from $6 billion today to $26 billion by 2023. Compared to the $2 billion market that the commodity itself could reach in 2020, it is obvious that only a negligible share of this boom will remain in lithium-producing countries.

“I think Chile could increase how it adds value, but there is a lack of scientific and technological policies to do so,” says Guillermo Gonzalez, professor at the department of chemistry at the University of Chile and an expert on lithium batteries. “We don’t create new things here. We don’t generate wealth from knowledge, as is the case in more developed countries.”

Many have been critical of major players such as SQM – Chile’s top producer with a production capacity of more than 40,000 tonnes of lithium carbonate – because they do not process their product to its full potential. They prefer instead to export the raw material, thus contributing to the widespread feeling that Chile “is missing the train.” It’s the same kind of criticism launched against oil developers in Canada, which exports raw bitumen to the United States where it is refined into a higher value product.

“These companies have no interest whatsoever in processing their products,” says Gonzalo Gutierrez, an expert on lithium applications in the physics department of the University of Chile. “Lithium extraction is extremely simple; it could have been carried out in the year 1000. So when you hear SQM saying that it is innovating new technologies, it’s simply not true.”

It’s why observers such as ADY’s Galli see a need for a reality check. There’s a mismatch, he says, between the vision for lithium – as a key material in electric vehicles and batteries – and the facts on the ground. Regions that boast the greatest reserves of lithium may be setting themselves up for disappointment.

“These grandiose speeches on lithium are generating expectations that we simply will not be able to meet, and that will ultimately prove to be a disservice to our industry,” says Galli. “Lithium will not save the economies of Salta, of Jujuy, or of Argentina as a whole, and I don’t think that it will save Chile’s either.

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Too close for comfort

Antoine Dion Ortega — Thu, 29 Nov 2012 21:01:29 +0000

Barrick Gold, the world’s largest gold mining company, has made big commitments to improve the lives of Chileans living in the country’s Atacama region, the location of its controversial Pascua-Lama project. The company has funded a wide variety of projects, including development of a rehabilitation centre for handicapped children, a housing project, and the delivery of wireless Internet access to the area’s remote villages.

The company isn’t spearheading these projects on its own. Instead, it has relied on developing close partnerships with non-governmental organizations (NGOs) and local institutions in the affected communities. “What we recognize, by using this approach, is that we are good miners, but when it comes to meeting needs in terms of education or of health, we do not have this expertise,” said Rod Jimenez, Barrick Gold’s vice-president of corporate affairs for South America, during an interview at his office in Santiago, Chile’s capital. “It is better to go with NGOs who have this expertise.”

By working with local organizations that are familiar with the situation on the ground, Barrick says it ensures that the projects it funds are adapted specifically to the needs of these communities, thus increasing the projects’ chances for success, and, in the end, improving the reputation of the corporation itself.

“From a business perspective, that is what ensures the sustainability of a business model,” added Jimenez. “We’re not in the business of building one mine; we’re in the business of building many mines. If you do the right thing, then when you go and build the next mine, that legacy follows you.”

But the “legacy” that follows Barrick Gold might not exactly be the one Jimenez has in mind.

Indeed, the business model – increasingly shared by North American mining companies – has become a matter of intense concern for local observers. Many fear that as the number of partnerships between the industry and local organizations increase, NGOs, who have traditionally represented civil society as a crucial counterweight to government and private sector interests, might soften their stance in the public debate on the social and environmental impacts of large-scale mining. Such partnerships are often perceived as a form of “co-optation” – a way for companies to more easily navigate through the more than 160 environmental conflicts currently registered on the South American continent. Through these partnerships, mining multinationals ensure that the NGOs and municipalities they financially support will be more inclined to stand alongside their decisions, effectively severing civil society from its main spokespersons.

Lucio Cuenca, director of the Latin American Observatory of Environmental Conflicts (OLCA), shares this concern. He points to Barrick’s Pascua-Lama project, which instigated one of the most widely covered environmental conflicts in the media over the last decade. “What Barrick did is block an entire sector of the population’s potential for mobilization, and to co-opt other sectors, through promises of employment, economic benefits, sums allocated to the municipality for local projects, and establishing parallel aboriginal organizations from those which oppose the project,” he said.

Cuenca deplores this tendency for mining companies to convert their public image to one of a “social actor” through such partnerships. It’s a conversion made possible by the confusion between philanthropy and economy, as suggested by University of Buenos Aires professor Diana Mutti, who with colleagues published a study on the issue this summer in Resources Policy journal. It specifically addressed the corporate social responsibility (CSR) initiatives of mining companies in Argentina.

“There are complexities in identifying whether contribution to local development is part of economic or philanthropic responsibilities of companies,” the authors wrote. “Mining companies substitute contribution to local economic development by increasing philanthropic activities, as managers admitted.”

Under the pretext of holding local communities’ interests at heart, many mining companies manage to dangerously expand their private sphere of influence to the public sphere, thus increasing the perception, the authors contend, that CSR is nothing less than “a manipulation tool” used to “undermine civil institutions” with the objective to “reduce community resistance.”

The case of the Renacer (Rebirth) project in northern Chile is a concrete example of this phenomenon. Recently inaugurated in a suburb of the mining town of Copiapo, this residential complex will welcome 125 families from slums in the area. The project emerged from a partnership, signed in 2008, between Barrick and Un Techo para Chile (A Roof for Chile), a local NGO whose mission is to eradicate shantytowns in the north, replacing them with adequate housing.

“Slums spring up here because of the high demand for labour in the mining industry,” said Daniel Gallardo, director of Un Techo para Chile. According to Gallardo, three Canadian projects alone – Maricunga (Kinross), Cerro Casale (Barrick) and Pascua-Lama (Barrick) – will require no fewer than 15,000 new workers between now and 2014, which could mean an influx of up to 45,000 people. “The objective, both for us and for the ministry of housing and urban planning, is to prevent exponential expansion of these camps,” he said.

It is not surprising that Barrick decided to provide financial support for the Renacer project. After all, it is in great part its own future employees who are now looking for a roof. The catch is that the Cerro Casale project, which has been shelved recently due to substantial capital requirements, is very likely to be met with resistance from the surrounding farming communities. In fact, this megaproject, which is located 145 kilometres southeast of Copiapo, will pump more than 900 litres of water per second during its exploitation phase, in a region known for severe drought. Indeed, on April 22, only a few days prior to International Earth Day, Chilean authorities declared a state of emergency on the Copiapo River watershed. After two decades of overexploitation in the mining and agricultural industries, the basin has virtually run dry.

Barrick Gold has consistently denied that its activities in the north of Chile could have any material impact on water resources in the region, where its Pascua-Lama and Cerro Casale projects reside. In the latter case, the company insists that the totality of its freshwater consumption will be drawn from outside of the Copiapo River basin.

A great deal is at stake, as the drying up of water reserves in the region’s valleys, upon which thousands of farmers depend, could result in a new rural exodus toward urban centres like Copiapo. These populations, displaced by depletion of water sources, would be added to an already overwhelming influx of mine workers from the south.

Gallardo is no stranger to this problem. “There are many valleys that are being closed down due to water shortages,” he said. “All of this labour force will sooner or later have to move toward the cities to find work. This is a problem.”

But when asked if the mining companies’ consumption of enormous supplies of water is in part responsible for this exodus, Gallardo was evasive. Given the fact that his organization is sponsored by these very mining companies, is there a risk that his point of view may be biased in public debates concerning this type of mining in desert areas?

“If we are in the eventual position where we must take up opposition to bad practices, we will do so,” he affirmed. “However, there is another important theme: families. We recognize that the environment is important, but we also believe that families have the right to live under a roof, in dignified conditions. And if we are in need of financial support from a mining company, we will accept it.”

The case of Un Techo para Chile is emblematic of this tendency. Through direct contact with families that migrate toward urban centres, the NGO is a front-line observer of the social and environmental impacts of the mining boom in the Atacama region. However, its numerous partnerships with mining companies place the organization in a predicament in which it may be discouraged from taking a public stance on the very problem it is supposed to be fighting: temporary housing sprawl. Citizens therefore find themselves without one of their primary representatives in the debate on the social and environmental costs that are generated by this industry. For its part, the NGO finds itself stuck treating the symptoms of the mining boom – the slums – without being able to publicly address the origin of these symptoms – the mines.

The drying up of the Copiapo River risks drawing significant attention to mining sites in the area, such as Cerro Casale. Many observers are challenging authorities’ consistent approval of such mining projects, considering the fact that inhabited zones are already facing water shortages. They wonder why NGOs and local institutions are being boosters of such projects instead of openly questioning their value.

“Stakeholders perceive that the increase in philanthropic activities does not compensate for reduction in environmental and ethical responsibilities,” wrote authors Natalia Yakovleva and Diego Vazquez-Brust in a 2011 study published in the Journal of Business Ethics. As long as North American mining companies fail to give adequate weight to their environmental responsibilities, the public’s perception will be that this philanthropy is merely a way to deflect communities’ attention from the real issues.

In this context, partnering NGOs run the risk of being perceived as accomplices in this deflection effort. They risk losing credibility with the public they were created to represent and defend.

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