Investors in Argentina Lithium & Energy were pleasantly surprised as the stock surged 113.04% higher following the announcement of a definitive agreement on September 26, 2023. The agreement, worth the ARS$ equivalent of US$90 million, was made with Peugeot Citroen Argentina S.A., a subsidiary of Stellantis. As a world leader as an automaker and mobility provider, Stellantis is a works with iconic brands such as Alfa Romeo, Chrysler, Citroën, Dodge, Fiat, Jeep®, Maserati, Opel and Peugeot to name a few. Will this be the beginning of a more important role for Argentina in the exploration of lithium for the renewable energy sector?
Argentina’s Lithium Mining Sector is a Heated Topic of Debate
Argentina is a massive country abundant in natural resources but struggles to benefit from this advantage. Plagued by high inflation, corrupt politicians, and careless money printing have brought the nation to its knees as it is now experiencing a severe economic crisis. Its northern territory belongs to the Lithium Triangle, shared with Bolivia and Chile. Compared to its neighboring countries, Argentina’s lithium mining industry is at an early stage of development. Lithium mining has become a hot topic of discussion in the country as the resource is considered a get-out jail card to bring wealth to highly impoverished countries where 40,1% of the population lives in poverty. Opponents, mainly from the indigenous communities, argue that the sector will result in irreversible harm to the environment and the ancestral territories vital for the survival of these communities.
Lithium Mining Exploration Meets Popular Protest in Argentina
Lithium mining in Argentina is not without its fair share of political risk. Large protests were ignited in the province of Jujuy after Governor Gerardo Morales passed legislation enabling foreign multinationals to extract lithium in the region. People in the northern territories advocate that multinationals and a small Argentinian elite have benefitted from lithium extraction, leaving the local population behind in poverty and ecological degradation. Average salaries in Jujuy are about 40% lower than in the capital, Buenos Aires, with many people resorting to precarious jobs in the informal sector to make ends meet.
Water-intensive lithium mining will have detrimental, long-lasting consequences for the environment in the already dry regions of Salta and Jujuy. Subsistence farmers in the indigenous communities fear that the extraction process will deplete soil and contaminate water sources, jeopardizing their traditional way of life. Aware of the reforms’ lack of popularity among the residents of Jujuy, Morales expedited their passage through the provincial legislature, avoiding substantial debate and failing to engage with the Indigenous communities most directly affected. Humanitarian organizations denounced the brutal suppression by Morales of the popular protests, although presidential candidate Patricia Bullrich defended his actions during the latest presidential debate.
Argentina’s Lithium Mining Sector Journey
In 2022, Argentina ranked as the world’s fourth-largest lithium producer, trailing behind China, Australia, and Chile, with an output of 33 thousand tons of lithium. The outlook from Fastmarkets research is that, by 2029, Argentina will have taken over as the world’s third-largest lithium producer behind China and Australia, while Chile will have fallen to fourth place. Last year, Argentina achieved a record-breaking export value of US$695 million, reflecting a remarkable 234% increase compared to 2021. This surge was attributed to the rise in the international price of lithium, even though export volumes decreased by 7.8%. The price for lithium increased 420% in 2021 and 98.6% in 2022, going from US$6,700 per ton in 2020 to a peak of US$69,500 recorded last year.
Argentina Lithium & Energy Deal Sparks Bullish Stock Movement
Argentina Lithium & Energy Corp primarily focuses on acquiring high-quality lithium projects in Argentina to meet the increasing global demand from the battery sector. In the transaction with Peugeot Citroen Argentina S.A., Stellantis gains the option to exchange shares for up to 19.9% of Argentina Lithium’s outstanding common shares in the future, subject to specific conditions. Stellantis will hold a 19.9% stake in Argentina Lithium & Energy Corp shares, while Argentina Lithium & Energy Corp will retain an 80.1% ownership share. Additionally, a lithium offtake agreement will be established, with Argentina Lithium & Energy Corp supplying Stellantis with up to 15,000 tonnes of lithium annually over a seven-year period, extendable by mutual consent. Pricing will be determined based on market rates at the time of each shipment.
Resource-Rich Latin America Poised to Capitalize on Global Inflation
Global inflation had momentarily subsided, but historical patterns indicate that inflation tends to occur cyclically. Currently, commodity prices are rising again after an initial dip, driven by excessive money printing that channels capital into commodities as a store of value.
The prevailing consensus is that commodities are in a supercycle, which suggests that prices will remain elevated for an extended period. Latin America is well-positioned to benefit from this commodity surge as a resource exporter due to the growing demand for metals essential for the green energy revolution.
Resource-rich Argentina, with its abundant natural resources, has the potential to reap rewards. However, it’s improbable that the profits from lithium extraction will lead to a widespread increase in wealth among the Argentine population. Most likely, it will lead to further concentration of wealth among the elite who control the northern regions of Argentina and benefits multinationals (exporters and banks) linked to the transactions.
Unstoppable Momentum in Argentina’s Lithium Exploration Despite Challenges
Hence, the lithium mining sector presents a nuanced issue with numerous advantages and disadvantages that demand careful consideration. Navigating this path will be challenging, given the diverse stakeholders involved. The Argentine elite is determined to push for lithium extraction … sí o sí, regardless of the protests from the local population. While the lithium mining sector in Argentina holds promise for potential attractive investments, it is not without its share of political risks.
S&P Global mentioned that Argentina could become the epicenter of new stage lithium supply. Therefore, it will need to overcome several hurdles concerning infrastructure, technological advancements and environmental practices. The sector will also have to deal with price volatility which has been high in lithium.
Argentina Lithium & Energy seems strategically well-positioned to capitalize on the thriving lithium market in Argentina. Its drilling operations are located in the Rincon salar, predominantly owned by the world’s second-largest mining company, Rio Tinto. Argentina Lithium & Energy stands to gain from Rio Tinto’s active exploration and expansion efforts within the Rincon salar. This proximity presents promising opportunities for Argentina Lithium & Energy, as it operates two adjacent sites to Rio Tinto’s concessions.
