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Other than being the country where Cuban revolutionary Che Guevara was
killed, most North Americans know little about Bolivia.
The landlocked country is surrounded by Peru, Brazil, Paraguay, Argentina
and Chile. Today, it is South America’s poorest nation. But in the 1960s,
Bolivia was going to be the launchpad of Che Guevara’s socialist revolution.
Che’s legacy
Born in Argentina, Ernesto “Che” Guevara became radicalized by the
poverty, hunger and disease he saw while traveling South America as a young
medical student. He got involved in social reforms enacted by Guatemalan
President Jacobo Arbenz, which were resisted by the United States. When
Arbenz was overthrown by a CIA-assisted coup at the behest of the United
Fruit Company, Che Guevara began a personal mission to destroy what he saw as
the capitalist exploitation of Latin America by the United States.
When Guevara was living in Mexico City, he met Raul and Fidel Castro,
joined their 26th of July Movement and sailed to Cuba aboard the yacht Gramma with
the intention of ousting US-backed Cuban dictator Fulgencio Batista.
Guevara rose quickly among the ranks of the insurgents, got promoted to
second-in-command to Fidel Castro, and was pivotal in the two-year guerrilla
campaign that deposed the Batista regime. He played a number of key roles in
the new socialist government.
Guevara left Cuba in 1965 to spread “la revolution” worldwide. For a good
read of Che Guevara’s legacy published in 2017, 50 years after his death,
read this
article in The Guardian. A few colorful paragraphs summarizes what
happened to him when he arrived in Bolivia following a failed expedition to
the Congo:
The Bolivian recruits resented taking orders from the battle-hardened
Cubans, and government propaganda sowed fear of the foreign interlopers among
the campesinos. The United States soon got wind of Guevara’s presence and
sent CIA agents and military advisers to assist the regime of René
Barrientos.
On 31 August an army ambush wiped out half of Che’s forces. The
remainder trudged towards the mountains in a desperate attempt to break out
of the trap.
Che, prostrated by asthma, rode on a mule towards the remote village
of La Higuera. A local farmer informed on them – and amid a frantic gunfight,
a bullet destroyed the barrel of Guevara’s carbine. Wounded, he surrendered
to a battalion of rangers – trained by US Green Berets – under the command of
a 28-year-old captain, Gary Prado.
“Don’t shoot – I’m Che. I’m worth more to you alive,” Guevara
reportedly said.
In an interview with the Guardian, Prado recalled that moment. “I felt
pity because he looked so poor, so tired, so dirty,” said Prado. “You
couldn’t feel he was a hero, no way.”
According to Prado, orders came the next day to “get rid of him”.
A 27-year-old army sergeant, Mario Terán, volunteered for the job, and
ended Guevara’s life with two bursts of machine-gun fire. After being flown
by helicopter to nearby Vallegrande and displayed for the world’s press,
Che’s body – minus his hands – and his companions were buried in unmarked
graves. They wouldn’t be found for 30 years.
The United States was active in Bolivia during the 1960s, providing
finances and training to the military dictatorship. The military controlled
Bolivia until 1982, when a Congress was established following a violent coup
by General Luis García Meza Tejada. Since then governments have been
democratically elected, with three parties predominating.
Current President Evo Morales was the first indigenous Bolivian to serve
as head of state. His Movement for Socialism – Political Instrument for the Sovereignty
of the Peoples party was the first to win a presidential majority in four
decades, doing so in 2005 and 2009.
Poor Bolivia
As mentioned at the top, Bolivia is poor. An estimated 80% of Bolivians
are below the poverty line and 40% live in extreme poverty, largely due to
unproductive small-scale farming. There is no mass food production and
frequent water shortages. The country also lacks basic infrastructure like
water management systems and roads. A major hit to the economy came in the
early 1980s when the price of tin collapsed - being one of Bolivia’s most
important mined commodities (replacing silver) and sources of income.
According to The Borgen
Project, a non-profit focused on poverty and hunger, there are four
reasons why the country has failed to succeed economically: political
instability, insufficient education, lack of clean water and sanitation, and
low productivity in rural areas.
The election of Morales in 2005 was an important development in the
nation’s quest to improve the plight of the poor. While the US dismissed
Morales as another Hugo Chavez for his spirited anti-capitalist tirades and
international push for the legalization of the coco leaf, his success in holding
onto power has been a surprise, especially when he won a third term in 2014.
Morales’ popularity has been attributed to higher economic growth (the
highest from 2006-14 in 3.5 decades), a 45% boost in social program
spending, and a near doubling of the minimum wage, states the Centre
for Economic and Policy Research. Poverty has declined from 59% in
2006 to 36% in 2017. Indigenous communities have better access to
electricity, water and sewage services.
Like all long-lasting leaders, however, Morales’s support is waning. After
12 years as President, native peoples are turning against him, Reuters
asserts in a recent special report, “Angst in the Andes”. The
discontent stems from a number of unpopular policies, including developing
indigenous lands and a controversial move to consolidate power by ending term
limits. Despite the constitution setting a limit of two five-year terms, he
convinced the courts to let him run again in 2019. Morales is now the
longest-serving head of state in the Americas and the last of a wave of
leftist leaders that included Venezuela’s Chavez and Luiz Inácio Lula da
Silva of Brazil, notes Reuters.
No friend to mining
But Morales’ invincibility at home has not translated into likeability
abroad.
He caused widespread consternation in 2006 when he nationalized the
country’s oil and gas industry; Bolivia has the second largest natural gas
reserves in South America after Venezuela, and an agreement to sell natural
gas to Brazil through 2019.
A year after first getting elected, Morales strongly suggested he would
nationalize parts of the mining industry. Six years later he confiscated
and nationalized a silver and indium mine owned by South American
Silver, without paying compensation to its Canadian owners. In 2016 his
government announced a crackdown on mining cooperatives after a government
official was murdered. The mining sector is dominated by 120,000 miners
working in about 1,700 cooperatives.
Major nickel miner Glencore has initiated arbitration proceedings over its
investments in two smelters and a tin mine nationalized between 2007 and
2012.
Battery-powered dreams
In 2017 Morales started talking about lithium mining. The country holds
vast amounts of the mineral used in mobile phones, power tools and electric
cars, but has so far done virtually nothing with it. The more than doubling
of the lithium carbonate price between 2010 and 2017 no doubt had the
President visualizing dollar signs.
“We will develop a huge lithium industry, over $800 million have already
been made available,” Morales told the German DPA news agency.
The biggest step so far came in April, when Bolivia secured a $1.3 billion
investment from Germany’s ACI Systems GmbH. The plan is to work with the
Bolivian government to develop a lithium battery industry that would generate
a billion dollars a year, reports
Americas Quarterly.
Last week, Bolivia and ACI announced that ACI
will work with state-owned Bolivian Lithium Deposits (YLB) to install four
lithium plants in the Salar de Uyuni - the world’s second largest
lithium deposit. The joint venture aims to build a lithium processing plant
at Uyuni with an initial outlay of $250 million. The plant would produce up
to 40,000 tonnes of lithium hydroxide per year, for 70 years, by the end of
2022. (That’s about double the capacity of FMC, the world’s fourth-largest
lithium producer, at its Argentina operations).
Bloomberg
reports ACI will rely on “new, untested technology” from German
company K-UTEC AG Salt Technologies that will produce lithium hydroxide
directly from brine, thus speeding up the process.
Eighty percent would be exported to Germany, which is pledging to have a
million hybrid or battery-electric vehicles on the road by 2022.
The general manager of YLB told Bloomberg in early December that the
company will also start building a $96 million plant with the capacity to
produce 18,000 tons of lithium carbonate by early 2020.
But most are skeptical. Americas
Quarterly notes that nine years into a pilot plant at its vast Uyuni
salt flat, and investing $450 million, the project produces just 10 tons of lithium
a month - under 1% of what Argentina and Chile produce every 30 days.
Perhaps most importantly, ACI Systems has no experience mining lithium - a
notoriously difficult mineral to extract and process. The industry is
dominated by just four players who own nearly all the mines: Albemarle, SQM,
FMC, and the latest, Tianqi Lithium. They have the technology and expertise
to mine lithium economically. A lack of infrastructure and investor
confidence considering Morales’ record on nationalization are also black
swans.
Salar de Uyuni
Still, the potential has to be considered. Bolivia is part of the “lithium
triangle” with Chile and Argentina, where about 75% of the world’s lithium
comes from, given its abundance and high quality. Chile is currently the
second largest producer of the main ingredient of lithium-ion batteries
installed in electric vehicles, behind only Australia, home to the
Greenbushes hard rock lithium and tantalum mine owned by Talison Lithium.
Chile produces 70,000 tonnes a year and Argentina 30,000 out of the 230,000-
tonne lithium market.
According to the US Geological Survey, the Salar de Uyuni salt flats alone
contain 9 million tons of lithium, over a quarter of the world's known
reserves.
If other deposits are added to it, the country may contain half the
world’s lithium.
Problems
But having it and mining it are two entirely different things.
The 4,000-square-mile Salar de Uyuni is the world’s largest salt flat and
unexploited lithium (Li) deposit. Uyuni is a huge prehistoric lake on a high
Andean plateau.
 
Lithium contained in Bolivian salars are higher in altitude, not as dry,
and contain more magnesium (Mg) and potassium than in neighboring Chile,
making the extraction process much more complicated, and costly.
Chile and Argentina supply 78% of global lithium carbonate and hold more
than 90% of the proven lithium carbonate reserves. The Salar de Uyuni has the
lowest average grade of Li at .028 and has an extremely high ratio of Mg/Li
at 19.9. At Chile’s Salar de Atacama the rate is 6:1 and at the Hombre Muerto
salar in Argentina, it’s 1:1.
The Mg has to be removed by adding slaked lime to the brine. The slaked
lime reacts with the magnesium salts and removes them from the water. If the
Mg/Li ratio is 1:1 in the original brine, and if slaked lime costs
$180/tonne, it costs $180/tonne to produce lithium carbonate. At 20:1 the
extra production cost would be $3,600 per tonne. A common industry axiom says
that the ratio of Mg to Li in brines must be below the range of 9:1 or 10:1
to be economical.
“It will be expensive to remove the magnesium,” Brian Jaskula, lithium
specialist at the US Geological Survey was quoted in an article
by Lithium Today. Also, “altitude, precipitation rate, and
evaporation rate are not in Bolivia’s favour if the country adopts Chile’s
sun-based evaporation pond route,” he added.
A major factor affecting capital costs is the net evaporation rate – this
determines the area of the evaporation ponds necessary to increase the grade
of the plant feed. These evaporation ponds can be a major expense. The Salar
de Atacama has higher evaporation rates than the world’s other salt plains
and evaporation takes place all year long.
Uyuni’s higher rainfall and cooler climate mean that its evaporation rate
is not even half that of Chile’s Salar de Atacama, which is ideal for lithium
mining because the lithium-containing brine ponds evaporate quickly and the
solution is concentrated into lithium carbonate and lithium hydroxide used in
EV batteries. Bolivia’s rainy season lasts from December to March, converting
Uyuni into a lake for parts of the year. Bolivia’s rainfall is about 168mm a
year compared to the Atacama’s 15mm.
Though its evaporation rate is only about 72% of Atacama’s, Salar de
Hombre Muerte in Argentina is still commercially successful because costs are
low and are further offset by the sale of recoverable byproducts like boric
acid.
Moreover, the lithium in the Uyuni brine is not very concentrated and the
deposits are spread across a vast area.
Bolivia also has limited infrastructure compared to Chile, Argentina or
the US, and lacks access to the sea.
Consider also the high “country risk” factor companies face doing business
in Bolivia. Morales has nationalized the oil and gas industry, the
electricity grid, telecoms, and several mines. Why should he be trusted?
“The state doesn't see ever losing sovereignty over the lithium.
Whoever wants to invest in it should be assured that the state must have
control of 60% of the earnings.” - Morales at a 2009 press
conference
In 1990 hunger strikes and massive protests forced US-based Lithco out of
a $46 million investment in Salar de Uyuni. The company set up operations at
Argentina’s Salar de Hombre Muerto, and eventually became part of FMC.
It’s not surprising that while Chile and Argentina have thriving lithium
and potash production, Bolivia lags far behind.
Who wants it?
As for who has the expertise and might be willing to front the billions it
would take to develop a lithium industry in Bolivia, at considerable risk,
there are only two interested parties: Germany and China. Several companies
have tried and failed, including attempts by US-based FMC Corp, which
operates in Hombre Muerto, South Korean steel-maker POSCO, and two French
companies. Mitsubishi Corp and Sumitomo Corp were also previously involved.
Besides the state-run pilot plant, The
Guardian reports just two other projects underway, a lithium carbonate
project by German company K-UTEC Ag Salt Technologies and a battery
manufacturing plant built by Linyi Dake Trade, a Chinese firm.
China bought Bolivia’s first export of lithium from its pilot plant, 15
tons of lithium carbonate in 2016, more a symbolic shipment than anything
that could be built upon. The plant produced just 250 tons this year.
Sydney
Morning Herald quotes Joe Lowry, head of Global Lithium and a
leading expert on the mineral, on the challenges Bolivia faces in luring
potential lithium producers.
“FMC, my former employers, wished to develop Uyuni in the late ‘80s and
early ‘90s,” he said. “But the governmental chaos and poor infrastructure
were too much too deal with. Argentina ultimately got chosen. Thirty years
later Bolivia still lacks both infrastructure and the sort of government
investors can be comfortable with.”
Another lithium authority, Chris Berry of research firm House Mountain
Partners LLC, was equally skeptical, telling
Bloomberg, “Bolivia is quite frankly very risky relative to other parts
of the world for lithium investment. Investors are concerned with both return
on capital and return of capital.”
Conclusion
In the risky but potentially very rewarding world of resource investing,
two well-worn terms are “country risk” and “resource nationalism”. Most
experienced investors steer well clear of countries with even a whiff of
either. Bolivia has both, in spades. Being a poor country, it’s
understandable that its current President, Evo Morales, would do what he can
to alleviate the sad legacy of poverty. In developing countries though, the
easiest targets are the rich: wealthy, powerful people and companies within
Bolivia, and foreign companies that want to come in and strike deals.
But foreign companies have targets on their backs for people like Morales.
It’s just too tempting, when the government runs short of funds, to tap a
foreign, rich corporation. If Bolivia gets into lithium mining, there’s no
reason to believe Morales won’t expropriate and nationalize, as he has done
many times.
Then there’s the technical challenges of mining lithium. Bolivia’s salars
are too low in elevation, meaning too much rain, the evaporation rate is too
low, and the magnesium to lithium ratios are too high. This makes it
extremely challenging for any company to mine lithium at a profit. The costs
are simply too high and the grades too low. If somebody had the technology to
make it work in Bolivia, it would have happened by now. Bolivia’s vast
lithium reserves are no secret. The inevitable conclusion: this dog won’t
hunt. Save your hard-earned investing dollars for one that will.
I continue to hold Cypress Development Corp. (TSX-V:CYP) for its Clayton
Valley Lithium Project which is due to release a prefeasibility study early
in the new year. Visit my home
page for lots of background and stay tuned for news on CYP.
Legal Notice / Disclaimer
This document is not and should not be construed as an offer to sell or
the solicitation of an offer to purchase or subscribe for any investment.
Richard Mills has based this document on information obtained from sources
he believes to be reliable but which has not been independently verified.
Richard Mills makes no guarantee, representation or warranty and accepts
no responsibility or liability as to its accuracy or completeness.
Expressions of opinion are those of Richard Mills only and are subject to
change without notice. Richard Mills assumes no warranty, liability or
guarantee for the current relevance, correctness or completeness of any
information provided within this Report and will not be held liable for the
consequence of reliance upon any opinion or statement contained herein or any
omission.
Furthermore, I, Richard Mills, assume no liability for any direct or
indirect loss or damage or, in particular, for lost profit, which you may
incur as a result of the use and existence of the information provided within
this Report.
Richard owns shares of Cypress Development Corp (TSX.V:CYP). CYP is
an advertiser on his site aheadoftheherd.com
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