Argentina's lithium hunters scale back as EV shift slows
Global lithium prices slump over 80% since last year
Argentina lithium production forecasts trimmed
M&A interest rises as firms seek deeper-pocketed backers
By Daina Beth Solomon
SANTIAGO, Oct 24 (Reuters) -The Argentine salt flats in South America's "lithium triangle" have been one of the busiest sites for ventures racing to extract the battery metal needed to power the global shift to electric vehicles. Now firms are hitting the brakes.
The global lithium sector from Chile to Zimbabwe is struggling due to prices that have slumped over 80% since the start of last year on oversupply and weaker-than-expected EV demand. That's gummed up financing and hit profit margins at miners both large and small.
Reuters interviews with nearly a dozen executives, officials and analysts show how severe the situation is in Argentina, and how that is likely to reduce lithium output in the years ahead.
Firms have cut staff, slashed spending and halted exploration projects, and the plunging value of lithium assets has left some firms vulnerable to takeover.
Globally, Argentina is the number four lithium producer. It has the second largest resources of the metal and has been a key spot for investors looking to lock up supply.
"We were prepared for a rainy day and we found a storm," said Juan Pablo Vargas de la Vega, managing director of Australia-based Galan Lithium, which is developing a project in the Hombre Muerto basin in Argentina's northern province of Catamarca.
Galan is aiming for first production in the second half of next year, but it has cut its phase one target by around a quarter from 5,400 tons to 4,000 tons of lithium a year.
The lithium price squeeze is shaking up the global market, putting pressure on miners to cut costs and spurring more merger and acquisition (M&A) interest as companies look for deeper-pocketed backers to ride out the downturn.
This month mining giant Rio Tinto RIO.AXRIO.L agreed to buy U.S.-based Arcadium Lithium ALTM.N for $6.7 billion, a deal that will make it the world's third largest miner of the metal.
Five analysts consulted by Reuters expect more M&A, particularly for early-stage projects.
"For companies that aren't producing and have resources in Argentina, it's very probable that they'll be receiving offers," said Federico Gay, a lithium analyst at Benchmark Mineral Intelligence.
Arcadium operates two of the main projects in Argentina. The wider region, including Chile and Bolivia, holds more than half of the world's deposits of the metal, which despite the price drop remains a critical mineral for governments and carmakers worldwide.
Western investors consider the region to be a geopolitical safe haven as the United States and Europe put tougher controls on auto parts from China, the world's number three lithium producer.
'STOP SPENDING MONEY'
To be sure, Argentina is still likely to see a slate of more advanced projects coming online in the near-term. The hit will come further down the road, denting output estimates by around 2026-2028, analysts said.
That could play into a supply shortfall that is expected to hit around the end of the decade as demand rises for lithium for EV batteries and energy storage.
"We had to make the call to sort of stop spending money," said Jerko Zuvela, managing director of Australia-based Argosy Minerals, which took a pilot plant in Argentina offline and laid off the site's workers.
Local media reported the plant closure cost 140 jobs.
Asked about the reports, Zuvela said the company reduced its workforce given the stoppage at the demonstration facility, and changed its focus to construction on the commercial plant.
"When the big guys are slowing down their expansion strategies and cutting back on staff and operations and so forth, it's no different for us," he said.
UK-based mining consultancy CRU Group told Reuters it had lowered its Argentina production forecast for 2027 by about 10% and no longer sees the potential for Argentina to overtake Chile, the world's number two producer, by that year, as it previously expected.
Lake Resources is seeking permits for its Kachi project in Argentina, but meanwhile this year cut three-quarters of staff and put four Argentina lithium assets up for sale.
CEO David Dickson told Reuters the company is looking for funding via equity investment and supply deals, and expects lithium demand to exceed supply by the end of the decade.
Arcadium in August put some expansion plans in Canada and Argentina on hold, a move that it said would help save it $500 million in the next two years.
"We must adapt to the realities of the market we find ourselves in today and the pace at which we can responsibly invest capital," Arcadium CEO Paul Graves told analysts when announcing the cuts.
Argentina stands out for its deep pipelines of projects driven by private capital - in contrast to neighbor Chile where two established players, SQM and Albemarle, dominate the sector.
Argentina had 30 companies in the prospecting, initial exploration and advanced exploration phases across its lithium region as of July, government records show. But that pipeline could be slowed in coming years as earlier-stage exploration takes the hardest hit from the downturn.
"Exploration is very impacted by the drop in lithium prices," Flavia Royon, head of a government-sponsored lithium booster committee, told Reuters, adding the main hit to output would likely be from 2028.
In the key lithium province of Salta, advanced projects from companies including Rio Tinto, Eramet, Posco and Ganfeng, are moving forward, but earlier-stage projects are getting stuck, according to Salta Mining Minister Romina Sassarini.
"There are at least six others coming along that aren't being developed today, that aren't moving into construction and production because they don't have the investment," she told Reuters. She did not identify the projects she was referring to.
Argentina, looking to boost a flagging economy, has lured investment from global firms in recent years with market-friendly regulations. The current government is also pushing investment incentives including tax breaks and targeted easing of capital controls for large projects to access dollars.
"This in some ways counteracts the drop of lithium prices," said Royon, citing Rio Tinto, Eramet, Posco and Ganfeng as projects that were advanced enough to potentially benefit from the incentives.
'NO BETTER TIME TO BUY'
The shakeout may be painful, but it has made projects more attractive to potential suitors looking to pick up bargains: valuations for lithium companies globally have dropped about 60% to 70% in the last year and a half.
A half-dozen analysts and executives pointed to eight projects in Argentina that could potentially be targets, including Argosy Minerals, Galan Lithium and Lake Resources.
"There is no better time to buy assets than today," said Jose Hofer, a lithium adviser at consultancy SC Insights, without himself specifying who might be the top targets.
In fact, Galan was approached by lithium technology startup EnergyX in August for a $150 million takeover, but rejected the offer. Galan declined to comment on potential M&A, as did Argosy.
Most executives were hopeful of prices rising again – even if not to peak levels – as EV demand picked up.
Although the exact timing is hard to pin down, the price turnaround is not expected to be any sooner than mid-2025.
The head of one early-stage lithium project in Argentina that has struggled with funding, who declined to be identified, said he expected prices to rise by the second or third quarter of next year, at least enough to start mobilizing the projects.
However some analysts expect low pricing to persist through the first half of 2026.
Argosy Minerals, which plans to build a 12,000-ton per year facility at the Rincon salt flat in Salta province expects its capital reserves to be enough to fund feasibility and engineering works, said Zuvela, the managing director.
Once that is done, in about nine to 12 months, it would return to the market to see if funding was available for construction, he said.
"That's where higher lithium prices probably need to provide an incentive for financiers to come out and support companies like us to develop lithium projects," Zuvela said.
Argentina lithium production outlook trimmed https://reut.rs/4eMttaU
Argentina lithium production outlook trimmed (Interactive) https://reut.rs/4dQBVoh
Lithium prices take roller coaster ride https://reut.rs/4gJPM2y
Lithium prices take roller coaster ride (Interactive) https://reut.rs/3XE4srb
Reporting by Daina Beth Solomon; Editing by Adam Jourdan and Claudia Parsons
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