Lithium will not regain MG’s hegemony in mining – 09/28/2024 – Market

The energy transition has made lithium a popular mineral. Strategic for governments and industries, it is present in the batteries of electric and hybrid cars, as well as large electricity storage systems – all crucial for a world with a lower carbon footprint. And Brazil has one of the largest lithium reserves in the world, more precisely in Minas Gerais.

At first glance, the context would be favorable to the country’s mining state. This if it weren’t for Minas’ loss of hegemony in the sector, also motivated by the energy transition, such as Sheet has been showing since the end of August.

Large mining companies have been migrating to Pará, which is home to purer iron ore and large deposits of copper, another important mineral in the new economy. It is no surprise that the Northern state is expected to surpass the Southeast in the coming years in terms of the value of investments in the sector.

In the view of experts and executives, lithium will not have sufficient scale and demand to reverse this scenario. For at least three reasons: 1) the known lithium reserves in Minas are large, but much smaller than those of the main producers, such as Chile and Australia; 2) there are currently no concrete plans on a scale to add value to the mineral in the state; 3) with much greater abundance and demand, the market value of iron and copper will still be greater than that of lithium in the new economy.

The International Energy Agency, for example, estimates that in an optimistic decarbonization scenario, the lithium market will be worth US$118 billion (R$646 billion) in 2030 and US$232 billion in 2040. Copper will be worth US$282 bi and US$330 billion, respectively. Consultants see the iron ore market being worth between US$300 billion and US$500 billion in 2030.

Based on these projections, therefore, there would be no way for Minas Gerais’ gains with lithium to exceed those of Pará with copper. Not to mention that in the coming years, people from Pará could surpass Minas Gerais in iron production, the flagship of Brazilian exports.

The only solution to this, some experts point out, would be to guarantee the verticalization of the lithium chain in the state – even if any gains from these movements were credited to the transformation industry and not necessarily to mining. This movement could almost quadruple the added value of the mineral extracted in Minas, according to projections by those who follow the market.

Today, Minas is home to three lithium operations and three other ongoing projects, almost all of which are in the Jequitinhonha valley, the poorest region in the state. Last month, for example, Australian Pilbara Minerals, one of the largest lithium producers in the world, announced its intention to purchase one of these projects in Salinas.

Of the mining companies in operation, however, only CBL (Companhia Brasileira de Lítio), in Araçuaí, advanced to chains following the extraction and concentration of the mineral. The company transforms part of the 45,000 tons of concentrated spodumene, the mineral that contains lithium, into 2,000 tons of lithium carbonate and hydroxide, substances that are part of electric car batteries and large electricity storage systems.

But the value is negligible when taking into account the state’s capacity, even considering the company’s intention to increase this production to 6,000 tons. In comparison, Sigma Lithium, the largest lithium company in Brazil, produces 270 thousand tons of concentrated spodumene every year – which could generate around 35 thousand tons of lithium carbonate and hydroxide.

If the predictions of all the lithium production projects announced today in the state are added together, Minas Gerais will have the capacity to produce 2.19 million per year of concentrated spodumene by the end of the decade or 290 thousand tons of lithium carbonate and hydroxide, today Mostly produced in China.

But there are no concrete plans for this. And not even economic interest. Sigma, for example, never showed willingness, Pilbara said that the evaluation would be delayed, and the other companies that arrived in the Jequitinhonha valley are too small to finance an investment of this size.

“Nobody is going to do that here, because nobody is going to commit their own production to a local plant, since we are more encouraged to export. And to build a chemical plant, it is very expensive”, says Rodrigo Menck, former financial director of Sigma and current advisor to Atlas Lithium, which wants to produce 150 thousand tons of concentrated spodumene per year from the end of 2025.

The American company Atlas is one of the junior miners that arrived in Minas Gerais to extract lithium. These companies are known for creating mineral extraction projects in order to sell them to large mining companies, such as what happened with the Pilbara in August. They depend on contracts with investors to guarantee their operations and, therefore, would hardly be able to afford a scaled production plant for lithium carbonate or hydroxide – even more so with the current market crisis.

According to a survey carried out by Marco Antonio Castello Branco, former president of Usiminas and Codemig (Minas Gerais Economic Development Company), the installation of a plant capable of producing 20 thousand tons of lithium carbonate and 30 thousand tons of lithium hydroxide would require investments of US$1.28 billion (R$7 billion).

Therefore, he defends that the BNDES enters the agenda and creates a consortium with mining companies to guarantee the production of these substances in the country. He presented the proposal to bank technicians in April.

“These companies that arrived in the Jequitinhonha Valley are eager to be sold and put billions in their pockets, which is why the government needs to be a protagonist; entrepreneurship in today’s world means focusing on the value chain”, says Castello Branco.

“A company like Sigma, for example, will never spend US$1 billion; firstly because it doesn’t have that money and secondly because it’s a very big risk. That’s why I advocate uniting the mining companies and the government”, he adds. He presided over Codemig from 2015 to 2019, during the government of Fernando Pimentel (PT).

But the difficulty in generating added value from lithium also involves the lack of domestic demand. Today, most battery factories are in China and it will be in developed countries that electric cars will gain more traction. “There is no point in wanting to produce lithium carbonate without being able to strengthen our chain. That is why we are promoting energy transition sectors, including battery production”, says José Luis Gordon, director of BNDES.

Executives at lithium companies think so too.

“Having someone here who produces the battery and then the car makes it easier, because the hydroxide logistics are sensitive”, says Fabiano Costa, president of AMG, the only lithium company in the country outside the Jequitinhonha valley.

The mining company opened a battery-grade lithium hydroxide plant in Germany last week due to market and logistical factors. “We are in the backyard of Mercedes, Audi, BMW and Volkswagen, and today we don’t have that in Brazil, but I really hope that the country can create conditions to bring in battery producers”, he states. AMG wants to produce 20 thousand tons of technical grade lithium hydroxide (stage prior to battery grade) in Minas Gerais or Espírito Santo from 2028.

In the same vein, Vinicius Alvarenga, CEO of CBL, makes an analogy between the verticalization of the lithium and iron ore markets. “The per capita consumption of steel in Brazil is the same as in the 1990s, not because there is a lack of technology or mineral resources, but because there is a lack of demand; if it were a better business to make steel, Vale or BHP would do it. See that EBITDA [lucro antes dos descontos com impostos, juros, amortização e depreciação] of CSN is bigger in mining than in steelmaking”, he states.

Proportionally, metallurgy, however, generates more direct taxes for the state than mining. “Verticalization generates greater revenue, because the production chain is mostly located in Brazil, but any assessment has to take into account environmental aspects and the fact that production is currently automated and does not generate as many jobs as in the 20th century”, says Tádzio Coelho, professor at the Federal University of Viçosa.

For the secretary of economic development of Minas Gerais, Fernando Passalio, who leads the efforts of the government of Romeu Zema (Novo) to attract lithium mining companies to the state, an eventual consolidation of current lithium projects by a large mining company could help in the generation added value for the mineral.

“Of course, having all your eggs in one basket is always bad, but if you are going to take these steps towards the production of hydroxide and carbonate, this could be one of the paths”, he says.

But at least in the cities of the Jequitinhonha valley, it doesn’t matter whether or not the mineral has the capacity to reverse Minas Gerais’ loss of hegemony in mining. In a region marked by poverty, taxes generated from mining projects are eagerly awaited by the city’s political and economic class.

From August last year to September, for example, Araçuaí and Itinga received R$ 10.3 million in royalties from the sale of spodumene from Sigma – the amount is expected to increase in the coming months due to delays in transfers from ANM (National Mining Agency ).

The Zema government estimates that MG should attract R$30 billion in investments with the extraction of the mineral in Jequitinhonha by 2030 – much of which, of course, will remain in the region.

Rossandro Ramos, professor at Unirio and one of the main scholars of the country’s lithium market, summarizes: “Lithium can never be compared with iron ore, but its production has the capacity to transform the region.”