Sunday, May 02, 2010

Lithium market: Bolivia nationalises three private electricity firms TNR.v, CZX.v, LMR.v, RM.v, WLC.v, CLQ.v, LI.v, SQM, FMC, ROC, HEV, AONE, F, NSANY

We have wrote it before and these days Bolivian President Ivo Morales reminds us to warn everybody again.
"Electric Cars are here, they will be on our roads soon. They will be powered by Lithium and automakers are unveiling model after model of EVs in recent months. Investment decisions in Electric Cars Value Chain will be driven by politics and Supply and Demand in a tightly controlled Lithium market space. Will Lithium market be under control of our "friends" from Bolivia, like oil is now under control of OPEC? Will it be controlled by 3-5 companies with lithium revenue as low as 8%? Or will automakers integrate it into their Supply chain, when diversity of resource base will the dominant drive? If somebody would like to place future of Electric Cars into the hands of Bolivia and its leaders, they are welcome to try their luck - Japanese Multinationals do not play against Casino and bet on House in Las Vegas: they would like to have secure supply of lithium and REE from diverse sources in stable political regions close to the end markets. They are ready to go the distance and strike J/V deals with Juniors involved in Exploration and Development in Lithium and REE space."
Will political uncertainty in Bolivia (0r certainty, in another words, as it was demonstrated on 1st of May) prevent us from enjoying Electric Cars? Not at all, if we can believe developers in Lithium and REE space. Interesting discussion was taken place at EV World between Juan Carlos Zuleta with Bolivian Insider perspective on lithium development and Kirill Klip from International Lithium Corp. - one of the companies developing Lithium resources in Argentina, Nevada and Canada.

"Kirill Klip: Great article, Juan. Your perspective on development of lithium deposits in Bolivia is very important for the whole lithium exploration and development industry. Sadly for Bolivian economy and people involved, politic rhetoric will stand on the way of progress and even after being developed resources will not provide necessary geographical and political diversification for Lithium end users. Nobody of auto makers will be able to be a hostage of Lithium supply with political twist from Bolivia (Lithium Embargo comes to mind) and compete in the EV market. Luckily we have lithium available in other geographical locations like Argentina, Chile, Nevada and even spodumene projects in Canada can fly once EV market will take off. Magic number here is: 1% it is the cost of lithium in the end product – lithium battery. Price can improve dramatically without affecting end users and buyers of EVs. Bolivia still has a chance to become one of the sources of lithium if it overcomes all those problems you are highlighting in your article. I believe that there is a place for Bolivian lithium and for other resources to be developed in stable politically and economically locations for the coming electric mobility revolution.
Juan Carlos Zuleta: Although there is lithium available in other geographical locations, Bolivia is key to any electric mobility revolution because of the quantity of lithium it holds. I am not sure that the cost of lithium in the end product is only 1%; I suppose you are not referring here to battery grade lithium carbonate which is the kind of lithium compound that is finally used in the production of Li-ion batteries. To my understanding, this is still lithium albeit more processed and refined, and thereby much more costly than bulk or raw lithium carbonate. I have suggested elsewhere that Bolivia should concentrate all its efforts on producing that kind of lithium compound so that it adds more value to its lithium before it is sold. Furthermore, if the trend of the lithium market I have portrayed in my presentation at the Lithium Supply & Markets conference in Las Vegas last January is correct, then chances are that in about 10 years from now most automakers will use Li-air batteries which are purported to contain much more lithium than Li-ion batteries mainly because they utilize metallic Li rather than Li carbonate. So if Bolivia does not enter the Li market fairly soon, the prices of Li are likely to go up in a substantial way postponing indefinitely a lithium era in the world.
Kirill Klip: Juan, You have raised a very important question, which is manipulated very widely by those who do not like EV to become a reality. Electric Mobility does not depend on Bolivian lithium in a sense whether it can happen without Bolivian lithium - It can and will, but lithium market depends on pricing and projects’ economy outlooks depend on case if and when Bolivia will develop its lithium resources into production. I will refer you to presentation at Las Vegas Lithium Show by Keith Evans, Roskill and International Lithium among others. 1% as a cost of lithium contained is an estimation from FMC presentation at Las Vegas lithium show. I have seen another estimations ranging from 1% to 3% in the end price of battery sold. The most important message here is that even if lithium price doubles, it will not affect the price of batteries and EVs sold to consumers – technological and manufacturing progress will reduce the price in the metrics Capacity/USD much faster. Nissan and GM Volt are talking about raising capacity by 50% and reducing cost by 50% for lithium batteries within next five years. Bolivia could be a very important factor in Lithium market if it ever comes to it. On another hand, if Bolivia will be closed tomorrow, electric mobility will not be postponed at all - Bolivia is not producing any lithium now. FMC, SQM and ROC could increase their production, not as much as they would like everybody to believe, but still they can rump it up. New brine projects are coming online in Argentina and even spodumene in Australia now. With price above 10000USD/t of LC (now is around 5000-6000USD/t) spodumene lithium will take off – number of Canadian hard rock mining projects will be more than economical. Battery grade lithium is more expensive even now, but with higher prices for LC more battery garde lithium can be produced. International Lithium Corp. develops now a few brine projects and has a number of spodumene properties in Canada and Ireland. Orocobre is putting its brine project in Argentina into production cycle. Western Lithium develops lithium clay project in Nevada, Rodinia Minerals is involved in a number of brine projects, Canada Lithium develops into feasibility stage its spodumene project in Canada and talks about battery grade lithium. Lithium One has a number of brine exploration projects in Argentina and Canada as well. I have mentioned here only few of credible companies with advanced properties – in Australia there is its own story, starting with Galaxy. If and when Bolivia will come into production of Lithium will affect lithium market and prices, spodumene projects need to have a credit of other Rare Metals like Tantalum to be economical in this scenario and larger resources to bring economy of scale. If Bolivia will not come on stream before 2015 even spodumene projects under exploration now will have their chance to be developed, if it never comes – more projects will have their chance, but the bottom line is that Electric Mobility is not at the mercy of any political situation as it is at the moment and there are no reasons to postpone EV production for this reason."
We expect that this move from Bolivia will bring sobering attitude to the the lithium market and all parties involved: battery makers will have to secure lithium supply and we can see another wave of consolidation among Canadian junior miners involved. Japanese, Korean and Chinese companies will have another look at brine projects in Argentina and Nevada, and hard rock in Canada and Australia. Chile has announced revision of its lithium strategy: in order to finance and develop new deposits it is considering to open its lithium market. All these developments are in a sharp contrast to the recent moves from Bolivia.

Bolivian President Evo Morales has ordered the nationalisation of four private electricity companies.
Police moved into the offices of Corani, Valle Hermoso and Guaracachi firms, following Mr Morales' decree.
Corani is half owned by a subsidiary of France's GDF Suez. Guaracachi's main partner is Britain's Rurelec, while ELFEC and Valle Hermoso are local.
President Morales said that the government now controlled 80% of electricity generation in the country.
Last year, Mr Morales announced the takeover of a subsidiary of British oil company BP, which supplied jet fuel across the Andean nation.
He has recently nationalised oil and gas reserves to redistribute wealth to Bolivia's indigenous majority.
The four companies seized on Saturday account for more than half of Bolivia's electricity market.
They emerged following the privatisation of the state National Electricity Company in the 1990s.
President Morales nationalised the gas and oil industry in 2006 and the national telephone company in 2008.
Both those announcements also came on May Day, says the BBC's Andres Schipani in Bolivia.
Since then he has taken control of several utility and commodities companies."

President Evo Morales has seized the Bolivian assets of UK-listed British Rurelec, the largest power provider in the South American country.

By Lawrie Holmes

Published: 11:02PM BST 01 May 2010
A statement from Rurelec said its controlling stake in Bolivian power company Empresa Electrica Guaracachi was nationalised yesterday along with the two other privatised power-generation companies in the country as part of Bolivia's May Day programme. The statement said the asset was forcibly brought into state ownership yesterday by means of a Supreme Decree signed by President Morales, together with one regional distribution company and the national electricity transmission company.
Peter Earl, chief executive of the group, told The Sunday Telegraph: "We're disappointed because since President Morales came to power in 2006 we have invested $110m [£72m] of new capacity in Bolivia. We are the largest power company in Bolivia and managed to keep free of power cuts for the last year. As a result Bolivia has had the largest GDP growth of all countries in North and South America."

The company's statement said the move was taken in the face of assurances given to the British and French ambassadors at the end of last week that the Morales administration continued to want to maintain European private investment in the power sector.
"Furthermore, during the same week, the Morales administration stated publicly that it expected to reach a negotiated agreement for a public-private partnership with the electricity generators. Such an approach would permit even greater investment in new power plants by Rurelec and its subsidiaries," said the statement.
Mr Earl said: "We were in discussion about changing the way we work with the state electricity company ENDE."
Rurelec’s shares in Guaracachi are held through a wholly owned holding company subsidiary called Guaracachi America Inc (GAI) worth $65 million (£42.5 million), according to thecomapny. Additionally, GAI is due to receive US $5.5 million (£3.6 million) in dividends declared by Guaracachi. The Supreme Decree issued by President Morales on 1st May requires GAI to transfer all of its 50.001 per cent. stake in Guaracachi to ENDE, the state power company and states that ENDE must pay fair value for GAI’s shares. The Supreme Decree gives ENDE 120 days to formulate its fair value proposals to GAI.
Rurelec’s statement said it enjoys full protection of its investment in Bolivia as a result of an investment treaty between Bolivia and the United Kingdom which came into force in 1990. The Agreement for the Promotion and Protection of Investments was signed in La Paz on 24 May 1988. This treaty protects all British companies and guarantees payment of market value in the event of compulsory state nationalisation of their investments in Bolivia. Rurelec is believed to be the third largest British investor in Bolivia after BP and BG."
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