Lithium Shares: Latin America is a Big Geopolitical Risk

Latin America Lithium

If you want to invest in raw materials, you can hardly avoid lithium. After all, the metal is an important component of rechargeable batteries. So it’s no wonder that most experts expect demand for lithium to rise sharply in the coming years. Latin America in particular is the focus here. The world’s largest lithium deposits are believed to be located there. The lithium rush in this region of the world is correspondingly huge.

Lithium Nationalism in Latin America

But now a development is emerging that could become a problem for us investors. More and more Latin American governments want to take lithium extraction into their own hands via state-owned companies – and to outbid private companies or to bleed them financially.

This is intended to nationalize the revenues from exploitation and keep them in the country, which should ultimately benefit the local population. Observers are already talking about lithium nationalism.

Chile and Bolivia Ask Foreign Companies to Pay Up

In Chile, for example, a new government will come to power in March that wants to increase state influence in the strategic battery raw material. This would simply leave less for investors.

There’s a similar approach in Bolivia. There, the state-owned company YLB has been fighting for years with the German technology company ACI Systems Alemania over the exploitation of the raw material. Here, too, the government wants to secure the most lucrative concessions possible from foreign partners.

Mexico Wants To Do Without Private Investors Entirely

Mexico, meanwhile, is going even further. President Andres Manuel Lopez Obrador announced just a few days ago that the country’s undeveloped lithium deposits will not be exploited by private companies at all. 

In his opinion, private capital is not welcome. Obrador therefore also wants to establish a state-owned lithium company.

Lithium Shares: Is the Time of Bubbling Profits Over?

As you can see, many Latin American governments want to tap the lithium money pit themselves. Foreign companies must therefore either forgo the region’s raw material treasures, which would hardly be an option in view of the gigantic deposits, or make substantial concessions to the states. This would mean that large parts of the revenues would then disappear.

On the other hand, governments need the expertise of foreign companies – in exploration and production as well as in marketing. But the states simply have more leverage.

As an investor, you should definitely keep this development on your radar. In particular, those listed mining companies with a strong exposure to Latin America will have to prepare for profit cuts in the coming years.

This, in turn, could lead to corporations scaling back their exposure to these countries. The consequence would be an additional tightening of the global lithium supply situation. In any case, this would argue for further rising prices.

Shares From Australia, Canada and Europe Become More Interesting

If you want to minimize your risk with lithium investments, you can focus on companies that are active in Australia or Canada, for example, in view of the increasing nationalism in Latin America. 

These would benefit twice: from higher prices and from the relatively low restrictions in these markets. One such company is the mining giant Allkem (OROCF). In addition to Australia and Canada, it also operates projects in Argentina. However, the company has not encountered any major problems there so far.

Europe is also interesting. The continent also wants to have a say in lithium. Rock Tech Lithium (RCKV) is one example of a lithium stock with European operations. 

The latter company wants to mine the battery raw material in Canada, but process it into battery-grade lithium hydroxide in Europe.

Dr. Gregor Bauer
Dr. Gregor Bauer
Dr. Gregor Bauer credits his trading success to combining fundamental aspects of a trade with expert technical analysis. A Certified Financial Technician from the International Federation of Technical Analysts (IFTA), he’s rated as one of Germany’s top 300 economic experts.
Dr. Gregor Bauer
Dr. Gregor Bauer
Dr. Gregor Bauer credits his trading success to combining fundamental aspects of a trade with expert technical analysis. A Certified Financial Technician from the International Federation of Technical Analysts (IFTA), he’s rated as one of Germany’s top 300 economic experts.

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