Proactive Investors - Timing is everything.
Of course, when you make a statement like that, a lot depends on what your timelines actually are.
The Chilean has chosen to make a move on the country’s major lithium mines at a time when the lithium price is significantly lower than it was at the end of last year.
Lithium companies themselves aren’t in quite as strong a position as they were financially, and the wider market has less reason to object as all of a sudden lithium doesn’t seem quite as desirable as it did.
But it is still desirable, make no mistake about that.
The Chilean government is moving on the lithium mines and resources there because it’s that kind of government, but also because most pundits out there - be they of the financial, ecological, ESG or political kind – reckon that lithium is likely to be one of the key commodities of the future.
It’s all about batteries, as everyone who hasn’t been living under a rock has known for a good few years now.
Nevertheless, things are never so simple as all that.
Chile is a world-renowned mining destination because of its huge endowments of copper, but it’s long been known that copper companies without very close local affiliations won’t stand much of a chance in the big game there.
Codelco, Chile’s national champion, and one of the largest copper producers in the world has long been run as a para-statal, and without there being any secret about it. Try being on Codelco’s board and having an opinion about workers’ wages that differs from the government’s – it’s not so easy.
In this sense, the mining scene in Chile has for a while had similarities – although the fit is certainly not absolute – to the way the Chinese run their companies and their economy. Why this should be surprising – if indeed it is – isn’t clear. The coalition of left-wing parties that rules Chile makes no bones about its affiliations with socialism and its aversion to what it terms ‘neoliberalism.’
It may be right at that.
Attempts to impose the Western way of doing things on South America haven’t always run smooth, and the history of Great Power meddling in Chile itself is dark and tragic.
On the other hand, there are those who argue that Codelco could be a much more successful company – and correspondingly a bigger employer and net contributor to the economy – if the government would just leave it alone.
The Chilean government has a self-imposed mandate to promote “inclusion” and to ensure the independence of “progressive forces” from “corporate power”, though, so it won’t. If corporate power needs to be denigrated in order to achieve that.
And again, it may be right. Corporate power is corrupting US politics at an alarming rate, to the point where many voters now understand their politicians no longer to be representatives, but rather mouthpieces for various corporate interests.
Lobbying works – for thee, if not for me.
So, you can see, if you take a broad view, what the Chilean government is trying to do with its lithium resource base.
Unfortunately, though, the precedents are not good.
Zambia nationalised its entire copper industry in the late 1970s to free itself from the likes of Anglo American (LON:AAL), which it did, to a degree. It also destroyed copper mining as a serious economic activity in the country for a generation. Chile will likely avoid that pitfall to a degree, but the same dynamic forces will be at work.
After all, it was worth noting Elon Musk’s reaction to the news of Chile’s move on its strategic assets. [https://twitter.com/elonmusk/status/1649559205685219329?ref_src=twsrc%5Etfw%7Ctwcamp%5Etweetembed%7Ctwterm%5E1649559205685219329%7Ctwgr%5E206c70816c5d92bcb27781988a240b35bb2e3b99%7Ctwcon%5Es1_&ref_url=https%3A%2F%2Fwww.benzinga.com%2Fgovernment%2F23%2F04%2F31950509%2Felon-musk-says-lithium-is-common-everywhere-chiles-economy-minister-politely-corrects-him].
“Lithium ore is very common throughout the earth,” Musk wrote on Twitter (where else?). “What matters is refining capacity.”
The media in general hasn’t tended to favour Musk’s opinions, which may retrospectively be one reason why he bought Twitter – to ensure a hearing – but in this instance, he’s right.
Yes, it was widely reported that Chile’s economy minister had corrected him, but there are different categories to consider here. Yes, Chile holds some of the largest reserves of lithium in the world. But reserves aren’t everything. Reserves just mean people have done the work. And if you are going to nationalise assets, fewer people are going to be inclined to continue to do the work.
Put another way, given that lithium is more abundant in the earth’s crust than lead or tungsten, if the world needs it, it can find it.
But we come again to the question of timing. Finding and proving up lithium takes time, and when a huge amount of it is already sitting there in Chile, as far as the mining industry has been concerned – at least hitherto – that’s half the battle.
After all, ten years ago, no-one was even talking about lithium, it was a fringe element in the mining sector and the great riches of the Lithium Triangle to the north of Chile, where the border intersects with Argentina and Bolivia, were largely peripheral to the industry’s world view.
They’re centre-stage now, but for how long?
For a start, private money will switch from Chile to Argentina and Bolivia as naturally as brine evaporates in the Atacama. Operating in these two countries hasn’t been any picnic over the years, either, though, so perhaps the real winners here will be the Australians, Americans and Europeans, who will at last be given the proverbial impetus to get on with it and develop their own resources.
Bear in mind too that Musk is right about refining. As it stands, the people who control the lithium supply chain aren’t those with the resources, they’re those with the refining capacity. And that’s the Chinese.
None of which helps lithium miners or buyers, of course. Although investors who’ve opted for safe-haven jurisdictions and companies like Bradda Head or any of the British, Canadian, Australian and European lithium stable of companies have cause to congratulate themselves yet again.
And it may be that in the end, it’s timing that has the last word.
At the Global Mining Conference in Armourer’s Hall last week, a well-known industry up-and-comer - the fund-manager Amanda Van Dyke - gave a notable keynote address.
Among the many interesting points she made was the rapid rates at which technological change is moving these days. Ten years ago, as we said, no-one was really talking about lithium. Van Dyke pointed out that although copper is often touted as the metal of the future, certain technologies currently in development might allow for its successful combination with graphene, which would be a huge advance, and may also end up cutting demand.
Could it be that lithium will get substituted out in a similar way?
No-one can know. But it’s a bold man or woman who’ll let anything other than the market decide.