PDAC: ‘Lithium OPEC’ in South America could drive away investment, says Sigma CEO

The creation of a lithium cartel in South America could drive away investment, according to Ana Cristina Cabral-Gardner, CEO of Sigma Lithium Resources (TSXV: SGML).

Argentina, Chile, Bolivia and Brazil are analyzing the creation of a group in charge of expanding South America’s processing capacity, turning more of their mined lithium into batteries, and tapping into the electric vehicles manufacturing sector. 

The group would emulate similar schemes, such as the Organization of the Petroleum Exporting Countries (OPEC), in terms of coordinating production flows, pricing and good practices, representatives of the Argentinean delegation said at the annual PDAC Convention, held this week in Toronto. 

“What I worry about these initiatives is that lithium is not rare. Lithium is abundant and every time producers or actors tried to think of lithium like that, they made strategic mistakes that were costly for these countries,” Cabral-Gardner said.

Recent examples like the Democratic Republic of the Congo and Chile taxing cobalt and lithium have shown that such initiatives can drive away investment and end up “being very non-benign for the countries,” she said.

“There’s plenty of capital chasing lithium. So any exclusionary initiative tends to punish those who are in the initiative because if we end up doing such a thing as an OPEC, it’s born out of the assumption that we are the only ones who have it, which is a colossal mistake.”

A frenzied rush by EV makers to secure lithium supply over the past two years drove prices for lithium carbonate up more than six-fold and spodumene up nearly ten-fold.

However, looming supply from China, Australia and Chile and slower demand from Chinese manufacturers have brought prices back down. 

Goldman Sachs forecasts spot prices of lithium carbonate sinking to $34,000 a tonne in the next 12 months, from an average of $53,304 this year.

Cabral-Gardner remains bullish despite the recent drops.  

“It’s a volume market, not a margin market. Just as iron ore, lithium is abundant, and low-cost producers will do incredibly well,” she said.

“What we are living through in terms of price cycles isn’t related to scarcity. It’s related to an investment gap, which has been closed in 2021, but it’s been built in the supply chain because even though it’s abundant, it takes time to be brought to market because it has a pre-chemical characteristic.”

Sigma is about to start production in April at its Grota do Cirilo mine in Minas Gerais, Brazil.

During this first production phase, Grota do Cirilo is expected to generate up to 270,000 tonnes per year of high purity battery grade lithium concentrate, equal to about 36,700 tonnes per year of lithium carbonate equivalent.

Canada’s TSX Venture Exchange has highlighted Sigma Lithium as one of the top-performing companies in its 2023 Venture 50 list.

Last month, Bloomberg reported that Tesla has been weighing a takeover of the miner.