Lithium Projects in Argentina May Face Roadblock

Earlier this week Lithium Americas Corp. (TSX:LAC) said new environmental permitting review by a provincial government in Argentina may raise the bar for a final mining permit for its Cauchari-Olaroz project, but this should not materially affect current development.

Last week, the governor of Jujuy Province in Argentina declared lithium a strategic mineral under a new declaration, named Decreto 7592/11, asserting that all present and future lithium projects must be studied by a special expert commission before being approved by local and national authorities.

Exploration and development permit applications for Cauchari-Olaroz were approved in late 2009 and the company had been fully permitted through final feasibility, with the company currently working to complete its preliminary economic assessment by the end of the month. The company had intended to start construction of an on-site continuous lithium carbonate pilot plant in April, with first production of lithium carbonate expected in the fourth quarter of this year.

The implications of this have also been realized in some operations for Orocobre Limited (ASX:ORE) where the company was advised that a Committee of Experts should be established within 30 days.  According to the decree, additional approval will be required for the Olaroz lithium-potash project for which the Company has already received approval of its development and production environmental impact statement (EIS). Approval will also be required for the Cauchari lithium-potash project for which an exploration EIS has been submitted.

Orocobre Chairman, James Calaway said, “The Company is committed to the successful development of its lithium assets through a balanced and cooperative working relationship with the Jujuy provincial government but will maintain all available options to ensure an orderly development of our Jujuy assets.

Orocobre Managing Director, Richard Seville, said, “The Company recognizes the importance of lithium to the economic and social development of the province of Jujuy. Jujuy is part of the so-called “lithium triangle” and there is real potential to establish a viable long-term lithium industry in the province.”  His optimism contends that “our positive and strong working relationship with national and provincial governments, and local communities which resulted in a speedy EIS approval, will allow us to work effectively with this new process and achieve final approval for our Olaroz project within our desired timeframes.”

Regional context

In Fraser Institute’s Survey of Mining Companies: 2010-2011 released earlier this monthArgentina is ranked 61 among the 79 best jurisdictions in the world for mining investment in terms of the overall policy potential index (PPI). The survey is based on the opinions of mining executives representing 494 mineral exploration and development companies on the investment climate within specific areas. The PPI is a comprehensive composite index that measures the effects on exploration of government policies including uncertainty concerning the administration, interpretation, and enforcement of existing regulations; environmental regulations; regulatory duplication and inconsistencies; taxation; uncertainty concerning native land claims and protected areas; infrastructure; socioeconomic agreements; political stability; labor issues; geological database; security, reliability of legal systems; trade barriers and overall confidence.

Relative to some of its Latin American peers, Argentina placed sixth out of twelve countries represented in the results. There is a significant differential between these jurisdictions as Chile has long been considered the only jurisdiction to consistently place inside the top 10, and Guatemala, Bolivia, Venezuela, and Honduras frequently rank within the bottom 10. Investors may take a cautionary note as average scores within Latin America have decreased slightly this year, to 31.6 from 33.4 last year. This follows a general trend from the 2006 survey, which scored most of these countries much higher with an average score of 51.2.

Policy debate in the air

Some controversy arises in Argentina from the confrontation that exists between the nation with the primary law of the provinces that form the Argentine Republic and the provincial right to regulate its natural resources. Speaking exclusively on Tuesday with Lithium Investing News, James McCann, Exploration Manager for Lithium One Inc. (TSXV:LI), assured that Argentina is very much a “republic of provinces” and was quick to indicate confidence that the the Sal de Vida Lithium Project is located at “the only commercial lithium producing salar in Argentina and the source of more than 10 percent of the world’s production of lithium.” He demonstrated strong confidence that his company would not be affected by potential roadblocks facing mining exploration and development projects in the Jujuy Province.

Last October at the second International Conference on Exploration in Latin America, a new law to protect glaciers was debated. Ricardo Martínez, Manager of Argentina Minera (Aminsa), acknowledged that the raw materials are the ones boosting the economy nowadays, governed by an international capital in search of countries where investment possibilities are favorable, and further encouraged by population growth which pushes mining production ahead, particularly to supply markets such as the Chinese and Indian markets

Positive resource delineation

On Monday, Lithium One issued a new resource statement which infers estimates of 5.4 million tonnes of lithium carbonate equivalent and 21.3 million tonnes of potash equivalent at the Sal de Vida project. The positive news release also suggested that the deposit has emerged in this initial resource estimate as one of the largest and highest grade undeveloped lithium brine deposits in the world with significant expansion potential.