The focus of the discussion in this chapter is lithium and the lithium industry, but it also considers battery production and the challenges for the future. We also address the role of initiatives such as the Global Battery Alliance (GBA).
The aim is to address the market trends and legal aspects relating to battery minerals, which constitute a new category of minerals that has the potential to change the mining industry and our way of life now and in the future. There is a close link to the evolution of the electric vehicle (EV) industry. This is still a relatively unknown and unpredictable market, not least because new technologies and other discoveries are likely to have a vital role in the development of EV innovations.
Legal aspects of the regulations on extraction of these minerals and the development of relating projects need to be carefully addressed, and much depend on the kind of deposit that is dealt with: whether it be hard rock or brines, as in the case of lithium projects. Equally essential are the issues associated with social licences and sustainable development, which are critically important, since much of the regulation in the future will be in relation to environmental care and water use.
As an example of current trends, in September 2017, the GBA was launched by businesses, international organisations and non-governmental organisations as a joint effort to ‘end child labour, hazardous working conditions, pollution and the environmental damage behind the booming trade in batteries for smartphones, gadgets, electric vehicles and renewable energy storage systems in households and cities’.2
Initiatives of this sort that address the traceability of a product also have a role in drawing a complete picture of this industry.
What is in a lithium-ion battery?
Lithium is the number one choice in battery production, as it is the lightest metal and an excellent conductor of electricity and heat. There are a number of alternatives to lithium-ion (li-ion) technologies, such as the use of hydrogen fuel cells. Their development is still at too early a stage to be economically viable; the batteries in the near future are most likely to be those that use li-ion technology. There may be some differences in the blends of raw minerals, but analysts insist that lithium will remain a constant.
Batteries come in all shapes and sizes, and are composed mainly of lithium, cobalt, graphite, nickel and manganese, in varying combinations depending on the type of battery. Currently, a li-ion battery consists of an anode electrode (negative charge), a cathode electrode (positive charge), a separator and liquid electrolyte. The assembly of these four components constitutes a cell, and a collection of one or more cells constitutes a battery. When a battery discharges, electrical energy is produced by the movement of electrons from negative to positive; lithium ions move from the anode to the cathode. When it charges, the process is the inverse. In the case of EVs, a certain number of batteries are assembled into a module and, subsequently, a certain number of modules are assembled into a battery pack. In 2018, the demand for lithium for battery production accounted for 56 per cent of the global demand – a significant increase from the 7 per cent demand in 1992.3
Cathode composition is the main differentiating factor between li-ion batteries. There are currently five li-ion battery technologies vying to be the top choice for battery makers. Each of these technologies uses different combinations of raw materials, lithium being the only common element. Additionally, all these types of chemical combinations use lithium ions to carry the charge between the anode and the cathode, with graphite generally being the choice for the anode. Solid-state batteries, such as the solid-state lithium-ion battery, in which the electrolyte is solid rather than liquid, is also a feasible option for future technology.
The following cathode chemistry ratios are the basis for every producer’s cathode ‘recipe’ or formulation:
- lithium cobalt oxide: used extensively in portable electronics, though not in EV applications;
- lithium nickel manganese cobalt (NMC): takes several forms, such as NMC 111 (the simplest, based on an equal number of atoms of the three elements), NMC 532/622 (typically used by most car makers for EVs) and NMC 811,4 the most recent and advanced (though the highest theoretical performance is thought to be still many years away);
- lithium nickel cobalt aluminium: has good energy density and is an affordable price, making it ideal for EVs and portable electronics;
- lithium iron phosphate: intrinsically safer than other cathode chemistries. Its high-power density makes it ideal for electric tools and e-buses, and a good option for EVs; and
- lithium manganese oxide (LMO): used in the first EVs, such as the Nissan Leaf, because of its high reliability and relatively low cost. The downside of LMOs is low cell durability compared to competing technologies.
Therefore, in most batteries, the critical metals are lithium, graphite, cobalt and nickel. Lithium has been the focus in recent years; however, the other commodities are also integral to a battery’s composition, and their development will be key in EV market trends.
The rise of EVs
On 12 December 2015, as part of the 21st Session of the Conference of the Parties to the United Nations Framework Convention on Climate Change held in Paris, and further to the Kyoto Protocol, all major nations gave a commitment to fight against climate change through combined efforts and the execution of domestic action for the mitigation of greenhouse gases. The objective was, and still is, to peg the increase in the average global temperature to well below 2°C above pre-industrial levels, and to pursue efforts to limit the temperature increase to 1.5°C above pre-industrial levels. As a result of the general consensus regarding climate change as a common concern of humankind, countries and individuals are increasingly demanding greenhouse emission-free products and services, ultimately leading the way to the rise of electro-mobility.
As the Fourth Industrial Revolution5 builds, the energy storage revolution has taken off rapidly. Rechargeable batteries are seen as the backbone or ‘holy grail’ of a clean energy and low-carbon emission economy. EVs, commercial and domestic energy storage systems, and smartphones have been exponentially increasing battery demand during the past few years, the greatest demand being for EVs.6 The EV revolution has been fostered by different government incentives, such as China’s vehicle subsidy programme – now partially abolished – and the widespread ban on internal combustion engine vehicles (ICEVs). The main aim of abolishing subsidies was to reduce the number of companies engaged in the business, so that only robust projects contribute to developing a strong EV market. In this regard, countries such as France, India, China, Ireland, the Netherlands, Slovenia, Sweden, the United Kingdom and Norway have in place EV deployment targets, and have pledged their intention to end sales or registrations of new ICEVs between 2030 and 2040.
According to analysts, the li-ion market faces two stumbling blocks: (1) when EVs will penetrate the market and the number of EVs that will be sold; and (2) the type of chemistry that will be used for producing its batteries. By 2040, 57 per cent of all passenger vehicle sales, and more than 30 per cent of the global passenger vehicle fleet, will be electric.7 (At present, EVs account for less than 0.55 per cent of the global car fleet.)8 Lithium forecast analysts have discussed whether the demand for lithium will increase threefold, fourfold or sixfold in the near future – whatever the truth is, demand will reach unprecedented levels. Demand for EVs has already led to sizeable changes in the spot prices of lithium and cobalt – as at January 2018, a 250 per cent increase for cobalt and a 400 per cent increase for lithium since January 2015.9 This notwithstanding, prices fell significantly during 2018, restoring market equilibrium, according to analysts.10 There is uncertainty, however, as to whether the lithium market will be able to meet the demand in the short term, considering the current investment and the time it takes to instal and start operations at a production plant.
Notwithstanding the uncertainties that still exist and that these figures and trends are a moving target, as things stand, with the emergence of electrification in the generation, storage and use of energy, EVs and energy storage are the key market drivers for lithium – and China's role in these market drivers will be pivotal.11 One factor to consider is the Chinese subsidy changes set forth in June 2019, whereby the Chinese government completely cut subsidies for vehicles with less than 250km of electric range.
In addition, and to complete the picture, global car manufacturers continue to expand on their EV strategies with significant levels of investments committed to building capacity.12
With the chemical symbol Li and an atomic number of 3, lithium is the first metal in the periodic table. With a specific gravity of 0.534, it is about half as dense as water and the lightest of all metals. In its pure elemental form, it is a soft and silvery-white metal. It was first recognised as an element by Swedish chemist Johan August Arfwedson in 1817, though it was only in the early 1970s that English scientist Michael Stanley Whittingham began to study its use in batteries. Mr Whittingham, then working with ExxonMobil, invented a rechargeable battery that could be used, but was not commercially available. Later, American physicist John Goodenough contributed to Sony’s introduction of the first rechargeable lithium battery in 1991.13 The use of li-ion batteries became widespread around 2007.
Different chemical compounds are derived from the lithium mineral, the main ones for battery use being lithium carbonate, lithium hydroxide, lithium chloride (generally obtained from lithium carbonate) and metallic lithium. Lithium carbonate is usually the first stage in production of the other compounds. Nowadays, lithium producers sell mainly lithium carbonate; however, this is shifting towards lithium hydroxide as it is expected that it will outpace lithium carbonate in terms of demand growth.
Traditionally, lithium carbonate can derive from two processes: (1) hard-rock mining extraction where lithium is extracted from granitic pegmatites that contain minerals such as spodumene, which have the largest concentrations of lithium found in igneous rocks; and (2) extraction from brine, by pumping lithium-rich brines to the surface, followed by concentration by evaporation in a series of solar evaporation ponds. The first process is mainly used in projects in Australia,14 whereas the second takes place mainly in Chile and Argentina, but also in Bolivia, China, Russia and the US state of Nevada. Pegmatite is extracted from open-pit systems using traditional mining techniques.
The crushed ore is further milled to produce a finer product. Various other minerals, including quartz, feldspar and micas, are then removed. This process results in the formation of a spodumene concentrate, which can be chemically processed to create lithium carbonate or lithium hydroxide.
As a general rule, extraction from brine remains the easiest and most cost-effective process to obtain lithium carbonate. The majority of global lithium production comes from lithium brine deposits in South America's ‘lithium triangle’ – or ‘the Saudi Arabia of lithium’, as it is commonly known – in the Puna region of the Andes mountains, which includes parts of Argentina, Chile and Bolivia.
A salar is a natural deposit of different types of salts and sediments that has originated under extreme conditions of aridity. Owing to their location and geological, climatic and environmental characteristics, salars are extremely fragile and dynamic ecosystems. The brine extraction process must meet specific conservation methodologies to avoid any alteration or corruption of the hydrological and geochemistry environment and ecosystem.
Environmental and socially responsible practices are needed to earn more than just the formal approval of the authorities and regulators. Transparent and responsible practices are also required to gain and maintain community support and approval – the social licence to operate. In this regard, consulting indigenous communities is a key part of the approval process for any lithium project in the salars of the Puna region. In Argentina, there are large indigenous communities in the areas surrounding many salars, and they are one of the main stakeholders when seeking a social licence to operate.
Hydrological and geochemistry balance
The use of water is a critical feature in the development and operation of lithium projects. The extraction of lithium requires considerable amounts of water, specifically brine, which is drained from the surface and underground to fill the evaporation ponds where the mineral remains. Nevertheless, research and analysis on water reserves and the hydrogeology of the salars has to take place and will continue to be developed by government authorities in the region. South American brine-bearing states have only recently started to understand and measure the effects that brine extraction has on water. In this regard, a lack of data and management models are the primary concern. Chile, as a mining-driven country, being aware of the importance of resource conservation, has recently shown signs of increasing protection of lithium resources. Further, new technologies for lithium extraction from brines are being researched and developed. Certain companies claim to have developed different processes in which lithium is directly extracted from the brine without the need for evaporation ponds. None of these technologies has yet reached the production stage, and are unlikely to in the near future; however, if proven to be successful and deployed in good time, it could substantially lower the environmental impact.
Most of the salars in Chile and Argentina currently behave like a closed basin, in which the scarce supply of surface and underground water has no outlet except through evaporation. The grade of salinity is defined by the combination of freshwaters that recharge the aquifer zone of a salar and its discharge, which occurs mainly through evaporation. The preservation of this type of environment is affected by human activity. Consequently, it is increasingly essential to study, understand and measure the hydrology, hydrogeology and geochemistry of each salar and its aquifers, especially the source of the waters that recharge them, and the rate at which this occurs. This understanding will help to set workable brine extraction rates in order to achieve sustainable exploitation of these ecosystems.
To adequately manage the water resources of salar ecosystems, it is important to have a detailed understanding of their hydrology, hydrogeology and geochemistry. In particular, it is important to determine the origins of the waters that feed these ecosystems. This will permit the delineation of environmental protection zones, the definition of maximum freshwater and brine extraction rates, and the establishment of thresholds to proactively trigger defensive measures to maintain these ecosystems.15 Environmental authorities require the submission of reports on the volume of water extraction for each lithium project, so that they can assess the implications on the hydrological balance. This notwithstanding, the hydrological and geochemistry balance in Andean region salars is extremely complex, available data is limited and no thorough studies have yet been conducted. Numerous studies need to be carried out to get a better idea of the effects of the brine extraction process in the region.
Additionally, in many areas, salars have a number of lagoons in their periphery. Usually, these ecosystems have a high ecological value and should also be encompassed within the studies and understanding of the hydrology of each salar.16
The Ramsar Convention
The Convention on Wetlands, called the Ramsar Convention17 (the Convention), is an intergovernmental treaty that provides the framework for the conservation and wise use of wetlands and their resources. The Convention, adopted in 1971 and in force as of 1975, was negotiated during the 1960s by countries and non-governmental organisations concerned about the degradation and maintenance of wetlands ecosystems originally created for waterbirds. It is the oldest of the modern global intergovernmental environmental agreements.
More than 160 countries are contracting parties to the Convention, which deals with the management of wetlands globally and has compiled a List of Wetlands of International Importance (the List). The definition of wetlands as used by the Convention is very broad and includes all lakes, rivers, underground aquifers, swamps and marshes, wet grasslands, peatlands, oases, estuaries, deltas and tidal flats, mangroves, coastal areas, coral reefs and all man-made sites such as fish ponds, rice fields, reservoirs and salt pans.
The interaction of these protected areas or sites – which relate to many countries undergoing economic development and, in particular, development of extractive industries – is another challenge to be faced by the projects.
The Convention was ratified by Argentina in 1991 and came into force as of 1992. Currently, 23 Ramsar sites are identified by Argentina as internationally relevant wetlands, and there are more wetlands in unforeseen areas that have been identified for inclusion on Argentina’s list. Mining authorities, both at national and local level, are to work together on this matter to harmonise current and potential mining activities in the Ramsar sites to achieve the goals of the Convention and the development of mining projects.
Consequently, and from the perspective of companies, the involvement of the Convention with mining activities in salars should not be ignored in the future. Many salars are located within wetlands that are designated under the Convention as being of international importance. One of the main goals of the Convention is to implement mechanisms to ensure the protection of wetlands, which are home to species of fauna of great importance, such as vicuñas, guanacos, flamingos, taguas (a type of coot) and chinchillas, some of which are, or have been, endangered species.
All lithium triangle states have ratified the Convention. This notwithstanding, as an instrument, it is quite vague and lax when setting forth a state’s commitments to the protection of wetlands, and does not include specific prohibitions, such as draining or pumping. Some of the sites in salars are qualified in the List as highly vulnerable and fragile ecosystems threatened ‘by overgrazing, unregulated tourism, mining prospecting and flamingo egg collection’.
There are currently no provisions arising from the Convention that would prohibit mining activities. However, a specific and case-by-case analysis of each salar in which the Convention may apply needs to take place.
The rights of indigenous peoples have been on the agenda in many countries, largely as a result of the approach by the United Nations and related conferences that it has hosted. Specifically in Latin America, there has been an interesting evolution of legal concepts relating to this matter since the 1980s.
The primary issues concerning the protection of these rights are focused on three main areas: acknowledgement and access to land, traditional knowledge and intellectual property issues, and participation in the extraction of natural resources.
One of the main pieces of international legislation governing the rights of indigenous peoples and communities is the Convention concerning Indigenous and Tribal Peoples in Independent Countries (initiated by the International Labour Organization and widely known as ILO 169) adopted in 1989, brought into force in 1991 and ratified by 20 countries; those in Latin America are Bolivia (1991), Colombia (1991), Paraguay (1993), Peru (1994), Ecuador (1998), Argentina (2000), Brazil (2002), Venezuela (2002) and Chile (2008). Canada and the United States have not ratified ILO 169.
Article 6 of ILO 169 expressly establishes the following:
1. In applying the provisions of this Convention, governments shall:
(a) consult the peoples concerned, through appropriate procedures and in particular through their representative institutions, whenever consideration is being given to legislative or administrative measures which may affect them directly;
(b) establish means by which these peoples can freely participate, to at least the same extent as other sectors of the population, at all levels of decision-making in elective institutions and administrative and other bodies responsible for policies and programmes which concern them; and
(c) establish means for the full development of these peoples’ own institutions and initiatives, and in appropriate cases provide the resources necessary for this purpose.
2. The consultations carried out in application of this Convention shall be undertaken, in good faith and in a form appropriate to the circumstances, with the objective of achieving agreement or consent to the proposed measures.
Closely related to the above is the concept of free, prior and informed consent (FPIC), which is adopted as part of Latin American legislation and trends through ILO 169, and is now one of the relevant topics considered by stakeholders in the mining, and oil and gas sectors. However, there is no agreed or unanimous consensus on the scope of FPIC, or the mechanism for its implementation – the concept of ‘consent’ being the most controversial. The real question is whether the need for consent leads to the indigenous peoples’ right to veto the development of a project. In other words, whether consent is construed by means of a procedure and consultation process, or as a right that confers the power to issue a decision that may also include the veto to the project. This right would derive from the self-determination substantive right granted to indigenous peoples in several international instruments.
In this regard, the extraction of natural resources in Latin America has been challenged in recent years by indigenous communities’ rights and consultation procedures, or, to be more precise, by the lack of regulation that would allow for the principles of the Convention to put in place.
In the Puna region in the north of Chile and Argentina, where lithium is extracted, indigenous representatives expressed concern about the amount of water being used by mining companies, and the fear that this could have a disastrous effect on water levels in the area. Another major concern is the pollution caused by mining and oil exploration activities, which have been carried out for decades without any proper environmental controls.
‘We don’t eat batteries. Without water there is no life’ is a frequent claim made by indigenous communities in and around the salars of Argentina.
Relevant to this statement is the case of Comunidad Aborigen de Santuario Tres Pozos y otros v. Jujuy, Provincia de y otros s/ amparo. On 20 November 2010, 33 communities brought a lawsuit before the National Supreme Court of Argentina (CSJN) to correct the omissions by the provinces of Jujuy and Salta, and the national government, and ordering them to take measures to ensure that indigenous communities could exercise their rights of participation and consultation, and therefore express their FPIC on programmes for the exploration or exploitation of natural resources in their territories.
Indigenous communities have sought to enforce their rights in every administrative proceeding under which permits for exploration and exploitation of lithium and borates in the areas of Salinas Grandes and the Guayatayoc lagoon have been granted, owing to the lack of prior consultation and participation by the communities. They also requested the issuance of an injunction, ordering the authorities to refrain from granting any administrative permits in the area, and the suspension of those permits already granted.
The CSJN rejected the claim on 18 December 2012, based on formal arguments, but did not rule on the merits of the case. The indigenous communities indicated that they would continue pursuing their claim before the Inter-American Court of Human Rights; to the best of our knowledge this has not yet taken place.
Another aspect to consider in connection with indigenous peoples’ involvement with lithium projects relates to the protection of archaeological and palaeontological heritage. In this regard, the lithium project owned by the Chinese company Ganfeng in the vicinity of the Llulliallaco archaeological site is relevant.
As in other countries with mining operations (eg, Australia and Canada), the interaction with indigenous communities will have to be further considered in the Puna region with the development of lithium projects, since these communities are one of the main stakeholders involved in the social licence process. It is expected that, with the more comprehensive sustainable policies that mining companies have nowadays, this interaction will become the norm, and the interests of communities and companies can be aligned and developed.
The lithium triangle Chile
According to the US Geological Survey,18 Chile holds the largest worldwide reserves of lithium, at 8 million tonnes, and the third-largest resource, at 8.5 million tonnes. There are two type of salars in South America: Andean and pre-Andean. The latter have the highest concentration of lithium; the most important ones in Chile are Atacama, Punta Negra, Pedernales and Maricunga. Currently, the Atacama salar is the only one in operation, and is where most of the Chilean reserves are located.
Since 1976, lithium has been considered a ‘strategic resource’ for being a mineral of nuclear importance. Since then, no mining concessions have been granted for the exploitation of lithium, except those that were constituted prior to the corresponding declaration of non-concession, or of importance for national security. Such is the case of Production Development Corporation (CORFO), whose concession is located in the Atacama salar, and Chile’s National Copper Corporation in the salars of Pedernales and Maricunga.
In accordance with article 19, subsection 24 of the Constitution of Chile, and article 8 of the Mining Code, the exploration or exploitation, or both, of substances qualified as non-susceptible to mining concessions can only be executed directly by the state or by its companies, or by means of administrative concessions or special operating contracts. In public-private partnerships, the state plays the part of the controller under the conditions that the President of Chile establishes by decree. Such is the case with CORFO.
In 1984, CORFO invited bids for the development of a portion of the Atacama Salar. After several changes of control, Sociedad Química y Minera de Chile (SQM) entered into the salar exploitation and started production at the salar in 1997. Currently, two companies are in production in Atacama after entering into agreements with CORFO, namely SQM and Albemarle (formerly Rockwood).
These agreements, as amended, were criticised for having weak environmental requirements and insufficient monitoring standards, and for creating a virtual lithium monopoly for SQM. Under its agreement with CORFO, SQM was to retain lithium extraction rights until 2022. In 2013, President Piñera’s administration filed a lawsuit against SQM for serious breach of contract, which led to a long arbitration process that ended in 2018 with the execution of an amendment agreement entered into by and between CORFO, SQM and Albemarle. The amended agreement raises SQM’s lithium extraction quota to 350,000 tonnes, to be in force until 2030,19 establishing higher standards of compliance with environmental obligations, and higher royalties and contributions. It remains to be seen how this amended agreement will evolve, since it has already attracted much criticism.
Lithium exploitation in Chile has generated serious environmental concerns. SQM, being the only mining chemical company operating in salars for many years, has needed to substantially update and improve its environmental controls and standards in recent years to comply with current sustainable practices.
At the end of January of 2017, SQM submitted an environmental compliance plan, in which it proposed to carry out work valued at US$18 million, within the framework of a proceeding initiated against the company.
Special consideration should also be given to the recent 24 per cent holding purchase in SQM by Tianqi Lithium. This stake was sold by Canadian fertiliser producer Nutrien, approved by Chinese and Indian regulators after a prior merger. The deal led to an agreement between Chilean antitrust authorities and Tianqi, which established certain conditions in relation to the appointment of SQM authorities and access to sensitive information. SQM’s controlling shareholders opposed this agreement, filing an appeal before the Constitutional Court of Chile, which was ultimately denied. It remains to be seen how Tianqi’s involvement in one of the biggest lithium projects will unfold in the future, and what the implications will be for the lithium market.
Regarding indigenous peoples in Chile, the current exploitation in the Atacama Salar is in the Atacama La Grande Indigenous Development Area. This territory has been claimed as their own by the Atacameño people, who say they have always occupied and inhabited the salar and its basin.
Chile has a key role in the global lithium industry development, and SQM is one of the very few companies – together with FMC (now Livent Corp) and Albemarle – that has the technical knowledge to operate brine projects. Now consolidating more operations in Australia with new project acquisitions, Chile’s role as a leader in the sector is secured.
According to the US Geological Survey,20 Argentina’s lithium resources could be the largest worldwide, at 14.8 million tonnes and 2 million tonnes in reserves. Salars in Argentina are distributed in the provinces of Salta, Jujuy and Catamarca. Currently, there are only two salars in production: Salar de Olaroz (Jujuy) and Salar del Hombre Muerto (Salta and Catamarca).21
Any individual or legal entity with the capacity to legally purchase and own a real estate property may purchase and own a mine. The ownership of a mine is acquired through a legal concession granted for an unlimited time and subject to the compliance of certain maintenance conditions (mainly relating to the payment of mining fees and the implementation of an investment plan).
The availability of resources has led to a boom of junior exploration companies, which have acquired large extensions of mining properties with potential feasibility. Regarding the future, the question is, how many lithium projects can take place in a given region?
Junior exploration companies have attempted to penetrate the sector as ‘real estate’ players but, in fact, lithium projects depend substantially more on energy supply and infrastructure than just holding mining licences on properties in salars. In the next few years, the situation in Argentina will probably change dramatically as some companies will not be in a position to sustain the mining concessions they own (owing to canon payment and investment plan compliance), and mining companies with the capacity to operate projects will dominate the scene. This, of course, will just apply to the few lithium projects where it is operations are feasible.
Argentina lacks a specific regulation for the development of lithium projects, though provisions of the Mining Code and procedural provincial regulations apply to the granting of mineral concessions.
Given the specific features of lithium in salars and brines, Argentina is at the discussion stage of working towards a regulation that may encompass all the issues relevant to this mineral and its extraction, especially considering that in certain salars there will be more than just one operator and this will undoubtedly require certain parameters or guidelines regarding operations (eg, demarcation zones, unitisation or other alternatives).
In such discussions, the fact that the country has a federal organisation and that resources belong to the provinces is crucial. In this sense, and apart from specific legal considerations, the main effect on natural resources is the power to rule and decide on the specific policies relating to the mining industry, even within the scope of a federal or national resources policy.
Likewise, and in the context of a federal country, Argentina will have to address the future regulation of the lithium sector considering the views and needs of the interested provinces, and the national policy articulating the local policies and interests, to develop the industry in a sustainable way for the long term.
Another aspect to consider as part of the discussions will be the role and scope of interaction by public provincial mining companies, and their potential and current participation in lithium projects (eg, in the case of Jujuy, lithium is considered a strategic mineral, a fact that has several implications).
Environmental protection, protection of reserves and natural reserve areas, water resources and access to economic benefits are the topics that are highest on the agendas of all communities with regard to the mining sector, and lithium projects are no exception.
Bolivia has two major lithium reserves, in the Salar de Uyuni and Salar de Coipasa. Since 2009, the Constitution of Bolivia regards natural resources from salars and brine as strategic resources,22 and therefore permits exploitation, industrialisation and commercialisation by the state only. Since this legislation was enacted, there have been several efforts to move on to including the management of natural resources.
In 2008, by means of Decree No. 29496, the state-owned Mining Corporation of Bolivia (COMIBOL) was entrusted with the creation, within its institutional structure, of a body responsible for the industrialisation of the evaporitic resources of the Salar de Uyuni. In compliance with this mandate, by means of Resolution 3801/2018, COMIBOL created the National Directorate of Evaporitic Resources, which later changed its name to the National Agency of Evaporitic Resources (GNRE). In 2017, the agency was replaced by the Bolivian Lithium Deposits Corporation,23 which controls the exploitation of lithium throughout the value chain.
In 2015, two agreements were executed: a contract for the construction, assembly and commissioning of the potassium salts industrial plant to be implemented in the Salar de Uyuni was entered into by and between the GNRE and the Bolivia branch of Chinese company Camc Engineering Co Ltd; and a contract for the final design project of an industrial lithium carbonate plant was entered into by and between the GNRE and German company K-Utec.24
It is commonly held that the main reasons for the apparent failure of Salar de Uyuni exploitation are the absence of clear government policies, poor infrastructure and a lack of qualified manpower. Additionally, the extraction process in that salar is much more intricate than in the Argentine and Chilean salars, which are at much lower altitudes and therefore have a drier climate, which helps the evaporation process. The lower concentration of magnesium and potassium makes it easier as well. Until now, Bolivia has only been able to produce a few tonnes of industrial grade lithium.25
Whether the country will be open to investors in a general way and therefore start operations in these salars, is an unanswered question. Should that be the case in the near future, another big international player may enter the arena and have an effect on the supply of lithium.
As previously mentioned, the lithium market is currently dominated by the market leaders – the big five – which are, in order of market share, Albemarle (American), Ganfeng (Chinese), SQM (Chilean), Tianqi (Chinese) and FMC (now Livent Corp, American). This notwithstanding, there has been an increasing emergence of new players who are gaining a significant share of the market, such as Australian companies, Galaxy Resources Ltd and Orocobre Ltd.
There are several questions about the state of the lithium market in the future. According to some analysts, small projects will be acquired by the well-established players, which could eventually benefit from their experience and reduce production costs. Another common notion is that in the not too distant future, big mining companies – many of them having already voiced their interest in lithium – will ultimately acquire considerable stakes in the big five companies. This will allow them to avoid the operational and resource-related uncertainties that many projects face, as well as acquiring a diverse lithium portfolio. Also of interest is the interest being shown by oil and gas companies in lithium projects as an alternative to the energy transition process.
In relation to the presence of other countries, it is common to read about geopolitical forecasts of Chinese domination and the emergence of a monopoly in a resource that is critical for the future of energy. This has special relevance in the ongoing and notorious trade war between the United States and China. In this regard, as reported by Reuters,26 Chinese companies now control nearly half of global lithium production (Tianqi and Ganfeng alone have roughly 30 per cent of the market share) and 60 per cent of electric battery production capacity. In this context, Goldman Sachs has predicted that China could supply 60 per cent of the world’s EVs by 2030.27 It may come as no surprise that the US government has recently shown an interest in lithium and other strategically important minerals, such as copper and cobalt.28 Many other factors still need to come into play to give a clearer picture of lithium market dominance – such as the technological challenges for developing brine projects and the cost efficiency of hard rock projects. It is true that a significant number of projects are currently owned by Chinese companies (in fact, China has invested approximately US$4.2 billion in South America in recent years). Nevertheless, it is not entirely clear that this necessarily translates into future market dominance since many of the acquired projects are still at an early development stage. It will also be interesting to see how Australia’s role in this trade war and the situation with lithium develops.
Unlike other minerals and commodities, lithium is not listed on stock exchanges, so prices are agreed between buyer and seller, taking into account previous purchase agreements, and import and export prices. As a result, there is much uncertainty in the market and fluctuation in prices. As a reference, prices are based on lithium carbonate, which is the most commercialised chemical.
The London Metal Exchange announced early in 2019 that it is working on the launch of new futures contracts covering one, some or all of the following battery minerals: lithium, cobalt, nickel sulphate, graphite and manganese. This is part of a process by the Exchange to deliver new risk-management tools for EV battery materials markets. This would affect the lithium and cobalt industries in particular, as it would bring more certainty to the markets, and allow prices to be normalised and more stable.
Reporting agencies that provide lithium price assessment services include Fastmarkets, Argus Media, S&P Global Platts and Benchmark Mineral Intelligence. They collect price data and assess companies specialising in minerals, including the li-ion battery supply chain.
Whether the listing of lithium on stock exchanges will change market trends in any way is yet to be seen – it is unlikely – though it will certainly affect the junior companies involved in the sector.
Cobalt production is concentrated in sediment-hosted stratiform copper deposits in Kinshasa, in the Democratic Republic of Congo (DRC). It is the leading source of mined cobalt, representing more than 50 per cent29 of global cobalt mine production and holding at least half of the world’s reserves. It is highly likely that your smartphone or EV contains cobalt that has been extracted by child workers (some as young as seven) in artisanal mines, dug by hand in often dangerous conditions. Health and safety compliance is non-existent and mines frequently collapse, burying people underground; some have gone so far as to say that cobalt is the ‘blood diamond of batteries’. A supply shortage is also a reality, with few producers having any control, and the price has been rising, from about US$24,000 per metric tonne in 2016 to US$83,000 per metric tonne in early 2019.30
The DRC remains one of the poorest and most underdeveloped countries in the world, where more than 80 per cent of people do not have access to electricity and other basic needs. Government corruption and the lack of human rights law enforcement are also well known. In 2012, the Organisation for Economic Co-operation and Development (OECD) provided guidance for companies on sourcing minerals from high-risk areas such as the DRC.31 In accordance with this guidance, it is recommended that car and battery makers disclose their supply chain assessments identifying and addressing human rights risks. In 2017, several companies worked together to create the Responsible Cobalt Initiative to help the industry conduct due diligence in line with the OECD guidelines, and tackle the issue of child labour in the DRC. Those involved in this initiative include tech firms such as Apple, HP, Huawei, Sony and Samsung SDI, whose smelters purchase cobalt from artisanal mines. As yet, no carmakers are members of this group.
In the United States, in accordance with section 1502 of the Dodd–Frank Wall Street Reform and Consumer Protection Act (the Dodd–Frank Act), certain companies are obliged to conduct supply chain due diligence of specified minerals to determine whether the minerals originated from the DRC or the surrounding area. Consequently, and when applicable, companies are required to file a Conflict Minerals Report with the US Securities and Exchange Commission (SEC). China has also issued guidelines for the ethical sourcing of minerals.
In the United States, regulated conflict minerals – referred to as 3TG – are specified in section 1502(e)(4) of the Dodd–Frank Act, as follows: columbite-tantalite, also known as coltan (from which tantalum is derived), cassiterite (tin), gold, wolframite (tungsten), derivatives of any of the foregoing, and any other mineral, or its derivatives, determined by the US Secretary of State to be financing conflict in the DRC or an adjoining country.
Currently, cobalt is not considered a conflict mineral; therefore, the disclosure obligation does not apply. In 2016, Apple expanded its responsible sourcing efforts beyond conflict minerals to include cobalt, being the first tech company to do so.32 In its latest Conflict Minerals Report before the SEC (for the year ending 31 December 2018), the company admitted that it cannot say for sure whether materials produced during ‘incidents’ related to the financing of violent conflict are used in its products.
Tesla has also voluntarily included cobalt in its latest Conflict Minerals Report submission (for the year ending 31 December 2018), stating that it has implemented due diligence procedures for cobalt sourcing to ensure that it does not come from artisanal mining sites.
Both Apple and Tesla are striving to find ways to use less of the metal, expecting to gradually move to batteries that use less cobalt, such as NMC 811.
How the supply of cobalt and its unique places of origin will affect the industry needs to continue to be monitored.
Sustainable development and supply chain
Owing to the importance of sustainability in the lithium sector, summarised below are some of the relevant international standards and initiatives.
Sustainable development goals
The 17 Sustainable Development Goals (SDGs) are part of the 2030 Agenda for Sustainable Development, adopted by all UN members in September 2015, for equitable, socially inclusive and environmentally sustainable economic development. SDG 12 is a call to action to ‘ensure sustainable consumption and production patterns’ to enable efficient management of natural resources and the disposal of pollutants, and guarantee reliability in human rights matters, labour (including health and safety) and the environment. As outlined in ‘Mapping Mining to the Sustainable Development Goals: An Atlas’,33 the mining industry has the opportunity and potential to contribute positively to all 17 SDGs. This notwithstanding, the following SDGs have particular relevance as regards the mining of battery minerals:
- SDG 6 – ‘Ensure availability and sustainable management of water and sanitation for all’: lithium extracted from brine can affect the hydrological and geochemistry balance of the region where it is sourced;
- SDG 15 – ‘Protect, restore and promote sustainable use of terrestrial ecosystems, sustainably manage forests, combat desertification, and halt and reverse land degradation and halt biodiversity loss by ensuring the conservation, restoration and sustainable use of terrestrial and inland freshwater ecosystems and their services, in particular forests, wetlands, mountains and dry lands, in line with obligations under international agreements’; and
- SDG 8 – ‘Promote sustained, inclusive and sustainable economic growth, full and productive employment and decent work for all’: cobalt mining production involves child workers in artisanal mines in the DRC and indigenous communities.
The analysis and impact of SDGs in the mining sector – especially in the lithium industry – would benefit from a more complete review; we are just touching on the subject to highlight this issue.
Section 1502 of the Dodd–Frank Wall Street Reform and Consumer Protection Act on conflict minerals paved the way to a traceability standard. Originally aimed at stopping the funding of the national army and rebel groups in the DRC, which illegally used profits obtained from the minerals trade, it obliges US-listed companies to identify the origin of the minerals they use and disclose any information regarding regulated conflict minerals. None of the main battery minerals come under this definition. That notwithstanding, perhaps the most important contribution of section 1502 is that it obliges companies to carry out due diligence on the supply chain.
Extractive Industries Transparency Initiative
The Extractive Industries Transparency Initiative (EITI) aims to develop standards that can be voluntarily implemented by countries. The EITI Standard is overseen by the international EITI Board, with members from governments, companies and investors, and civil society; it is thus a multi-stakeholder process. Alongside the publication of payment and revenue data, the EITI Standard also provides for comprehensive transparency concerning production data and other aspects of the extractive industries: ‘A recent report by the Open Government Partnership . . . noted that joining the EITI is the most frequent commitment countries make to improve transparency of revenue and related information around the “value chain” as described under this standard.’34
Battery minerals initiatives GBA
The GBA was launched as a global public-private partnership to support the development of an inclusive, sustainable and innovative battery value chain, focusing primarily on lithium, cobalt and graphite. Three areas of work are identified: to support the development of a responsible, sustainable and stable supply of critical raw materials for batteries; to accelerate the move towards a circular economy for batteries; and to help inform sustainable social, environmental and product innovation along the value chain. Its main function is seen as generating, mapping and pooling information, fostering dialogue along the value chain and providing a systemic approach to local challenges. Regarding lithium and cobalt minerals, coalitions are being assessed to take action for a responsible, stable and sustainable supply of such minerals.
European Battery Alliance
As a commercial pillar, the European Battery Alliance identified its first objective as seeking to establish ‘a competitive manufacturing value chain in Europe with sustainable battery cells at its core’.
It is expected that demand for lithium will continue to grow, as will demand for other related battery minerals – to what extent and degree remains to be seen.
Battery minerals have created a new sector within the mining industry, sharing some of the issues and challenges that mining has always had – while also interacting with new factors such as technology and innovation – and closely linked to the demand for EVs and the growth in production worldwide (mostly in China).
Hydrogeological aspects and technical expertise, as well as communities’ interests in connection with mining, and areas of influence relating to the specific projects, all play an important part in the development of lithium projects.
As is known within the mining industry, effective benefits, which include basic infrastructure and, in general terms, the improvement of living conditions for the communities affected by mining projects, could help to resolve many of the causes of potential conflict.
In this regard, and especially considering the many technical issues involved in the operation of salars, to ensure environmental protection and a balance in hydrogeological conditions, as well as addressing the concerns of indigenous communities, there is a growing need for a comprehensive analysis to be made.
Guidelines and parameters for operating salars, mainly from an environmental perspective, should be analysed, with consideration of the features of each salar and project.
Sustainable initiatives to set the standards for battery minerals development will continue to evolve, and show a way forward for the industry.