Argentina's mining-friendly policies and low royalty rates have made it Latin America's premier destination for foreign investment looking for lithium projects, fueling projections that the country may surpass Chile as the world's second-largest lithium producer.

Investors have been assessing Argentina, Chile and Bolivia — as the three countries form the "Lithium Triangle" and hold 56% of the world's lithium reserves — but only Argentina has put out a welcome mat. Chile and Bolivia have been hesitant to enact policies that would allow foreign companies to exploit their reserves, blocking the cash and expertise needed to quickly profit from their lithium wealth. Meanwhile, lithium prices have rapidly increased above $40,000 per tonne as the world demands the silvery metal for electric vehicle batteries.

JPMorgan forecast in August 2022 that Argentina would go from supplying 6% of the world's lithium in 2021 to 16% by 2030, overtaking Chile as the No. 2 lithium producer in the world by 2027, behind only Australia.

"Argentina has treated lithium like any other metal, open to be explored and exploited by any private company like all other minerals," Daniel Jimenez said in an email. Jimenez is a partner at iLiMarkets, a lithium consulting firm in Santiago, Chile. "Chile's and Bolivia's legislation, which define lithium as strategic, give no incentives for private companies to risk capital in exploration and to invest in project development."

Argentina has been welcoming foreign investment since the 1990s when the government enacted a promotional regime that includes a set of mining incentives to spur economic growth. In 2021, the country also enacted a set of measures aimed at promoting exports through increased access to the local foreign exchange market.

The country's policies aim to make up for an unstable political scene and a looming economic collapse amid diminished central bank reserves, a stubborn fiscal deficit, uncontrolled inflation hovering near 100% and a bulging IMF loan.

Superior incentives

Investments in Argentina's lithium sector reached an estimated $1.5 billion in 2022, the Cámara Argentina de Empresarios Mineros, a group of mining entrepreneurs, said Jan. 20. It forecast that investments would reach more than $5 billion in the coming years.

Considering all imposed taxes, lithium miners in Argentina get to keep 72% of profits, compared to a 64% share for miners in Chile, according to a study by the United Nations Economic Commission for Latin America and the Caribbean.

The Argentine federal government regulates lithium like any other ore, giving it no special designation or status. Miners pay a 3% royalty, far lower than Chile, which imposes a progressive royalty that can reach up to 40%.

Argentina also locks in tax rates in mining contracts for 30 years, does not levy a tax on capital goods, and allows companies to deduct double the amount spent on exploration from taxes.

Concessions do not have an expiration and do not limit annual extraction like they do in Chile. Companies only need to make annual tax payments and execute their investment plans to maintain concessions.

Everyone into the pool

Lithium operations controlled by Australia-based Allkem Ltd. and U.S.-based Livent Corp. have helped make Argentina the world's fourth-largest lithium exporter. With over 20 projects in various stages of development, lithium is the fastest-growing mining segment in the country, according to the U.S. International Trade Administration.

The country has a robust project portfolio thanks to a regulatory framework that gives provincial governments control over concessions and environmental regulation, allowing for more leeway as provinces look to boost their economic output.

South Korean steelmaker Posco Holdings Inc. outlined plans in March 2022 to invest $4 billion in a new lithium project at the Salar del Hombre Muerto salt flats in Argentina. And in February 2022, Zijin Mining Group Co. Ltd. said it would construct a $380 million lithium carbonate plant at its nearby Tres Quebradas lithium project.

Meanwhile, the Cuenca Centenario-Ratones, Sal de Vida, Rincon and Cauchari-Olaroz lithium mining projects are all expected to come online by 2026 but many have already faced delays. The government of Argentina's Catamarca province, the country's largest and oldest lithium-producing region, has met with Australia's mines minister in order to request technological help in building the industry.

Lithium triangle politics

Argentina's lithium reserves are the third largest in Latin America, far behind Chile and Bolivia. But Bolivia has concentrated all exploration activity within state-run Corporacion Minera de Bolivia and Yacimientos de Litio Bolivianos, which have struggled to gain the knowledge needed to reach exploitation. The country announced Jan. 20 that it tapped a consortium led by China's Contemporary Amperex Technology Co. Ltd. to help it develop the industry.

Chile has been highly selective with its lithium extraction permits, concentrating operations within Chilean company Sociedad Química y Minera de Chile SA, commonly known as SQM, and U.S.-based Albemarle Corp. The shifting mining policies have left mining companies befuddled.

The administration of Chile's former President Sebastián Piñera awarded mining permits to China-based BYD Co. Ltd. and Chile-based Servicios y Operaciones Mineras del Norte SA only to see them struck down by Chile's high court.

In March 2022, leftist President Gabriel Boric swept into power in Chile with plans to impose heavy royalties on miners. The bill was withdrawn for a more moderate proposal on copper, but some mining companies became leery of the country's unstable politics. The latest plan is for a state-run company to partner with private companies.

"Indeed, Argentina will overtake Chile in lithium production. Lithium legislation in Chile has been the biggest deterrent to the industry's development because the owner of a mining property is not the owner of any lithium resource found there," Jimenez told foreign policy think tank The Dialogue.

Argentina has its own risks

Argentina's incentives must compensate for the country's political and economic instability. The government imposes heavy controls on the foreign currency exchange market and puts limitations on imports. Sky-high inflation and poor local infrastructure also plague the country.

"Infrastructure continues to be deficient in mining areas and its development has depended, to a large extent, on contributions made by the mining companies," the Argentina Chamber of Mining Entrepreneurs said in a Jan. 20 release. These public works, such as highways and power lines, often require the help of the companies for their maintenance as well, the group said.

Activist groups have warned that Argentina's desperation for economic growth may lead to irresponsible mining practices that could use up local water resources, disrupt local communities and damage the complex ecosystem of the salt flats.

"The point is that this energy source should not continue to repeat this paradigm of 'business as usual,'" María Laura Castillo Díaz told the Wilson Center, a nonpartisan policy forum, in October 2022. Díaz is a program coordinator at the Fundación Ambiente y Recursos Naturales, a local nonprofit focused on sustainable development.

"We cannot talk about good practices or a new energy source without taking into account all these other environmental, social and cultural aspects," Díaz said.

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