Brazil primed for lithium boom by end of decade

Brazil's lithium industry is emerging from its chrysalis, and it is poised to take off within the decade, analysts told S&P Global Commodity Insights.

The country's hard rock reserves, low cost structure, and geographic convenience to the US and Europe make it a prime spot to produce lithium for rechargeable batteries used in electricity storage and electric vehicles for the energy transition.

"There are a lot of exploration and development activity in Brazil's lithium valley — a lot of potential in a mining-friendly area," Alice Yu, a senior analyst at S&P Global Commodity Insights, said in an email.

Junior mining companies have flocked to the South American country in recent years. Exploration budgets in Brazil reached $40.5 million in 2023, nearly quadrupling year over year, S&P Market Intelligence data shows.

A pipeline of lithium projects and expansions has already started to pay off: Brazil's lithium carbonate equivalent (LCE) output increased 96% year over year to 29,157 metric tons in 2023 and is expected to increase by a further 90% in 2024 to 55,404 metric tons, according to data from Market Intelligence.

Brazil's LCE production could reach 98,500 metric tons by 2028, nearly double the estimated 2024 production, a Commodity Insights forecast shows. While that figure is overshadowed by No. 1 producer Australia, which produced over 469,594 metric tons in 2023, it is a huge leap for a country that produced only 3,114 metric tons of lithium as recently as 2018.

Brazil has three lithium production facilities. AMG Critical Materials NV's Mibra mine in the south of Minas Gerais only started producing lithium in 2018 after more than 70 years of producing tantalum and niobium. The other two are also in the Minas Gerais state: Companhia Brasileira de Lítio's Cachoeira and Sigma Lithium Corp.'s Grota do Cirilo.

Several projects are expected to come online soon, Federico Gay, principal lithium analyst at Benchmark Mineral Intelligence, told Commodity Insights. Atlas Lithium Corp.'s Minas Gerais, Lithium Ionic Corp.'s Itinga and Latin Resources Ltd.'s Salinas are all expected to reach production before the end of the decade, and exploration projects could provide additional capacity in the long term.

But the recent crash in the lithium price may delay project development, analysts said.

"There are some projects with very ambitious timelines. However, like all mining development, it takes funding and time to move a project to production," Commodity Insights' Yu said.

Lithium Triangle plus one

Brazil is late to the lithium game compared to neighboring Chile and Argentina. Those two, along with Bolivia, form the "Lithium Triangle" due to their large lithium reserves. But Brazil is looking to join the club.

"It was only during the last five to six years that world-class deposits have been identified" in Brazil, Gay said.

Unlike its neighbors, which host vast lithium brine deposits, Brazil's lithium deposits are all hard rock. Its cash costs for concentrate output are below those seen in Australia, Canada and Mali, Market Intelligence data shows.

"Brazilian lithium is renowned for its high quality, low impurities and large crystal size," a representative from junior miner Atlas Lithium told Commodity Insights. The company's advisory board "liken Brazil's emerging lithium industry to Australia's 10 to 12 years ago."

In 2011, the budget for lithium exploration Down Under jumped to $9.2 million from $3.7 million the year before. By 2013, the annual budget grew to $11.3 million, setting the stage for the production giant Australia eventually became.

A lithium samba

Miners are being drawn to Brazil by its investment-friendly policies.

"Brazil is very friendly to permitting," Luis Azevedo, executive chairman and CEO of Bravo Mining Corp., told Commodity Insights. Bravo Mining, another junior miner, is developing the Luanga palladium project in the Brazilian state of Pará.

The country's interest in lithium matches pace with growing demand from the EV sector. In 2023, the Minas Gerais state launched the Lithium Valley Brazil initiative, which aims to attract investors and accelerate project development.

"In the past, Brazil's lithium products have been mainly used for industrial applications. EV demand in the region picked up only since 2021/2022, supported by US Inflation Reduction Act policies," Yu said.

Brazil could also benefit from countries seeking to diversify their supply chains away from China, Yu said, noting that "Brazil is geographically well-positioned to supply both to Europe and North America."

Valley headwinds

However, the ongoing pricing pressure may cause congestion in the lithium project pipeline. The Platts CIF Asia lithium carbonate price fell to $12,500 per metric ton on July 10, down 35.9% compared to the end of 2023 and 81.2% from last year's high as pricing returned to 2021 levels, Market Intelligence data shows.

Major producers have already pushed back investment plans, and several lithium projects have curbed output. Junior miners in Brazil will not be immune to the market slowdown, analysts said.

"We increased the risk factor of some expansion plans, and we believe at least one mine that was expected to start producing soon will be delayed because of current market conditions," Gay said.

Projects in the feasibility stage "will be banking on first production aligning with an increase in mineral concentrate prices relative to today's prices," Rebecca Grant, research analyst for metals and mining at Wood Mackenzie, told Commodity Insights. "Pressure will be on to reduce or optimize capital expenditure rather than to delay first production," Grant added.

Along with the pricing collapse, miners could face local opposition to project development.

"Mining is not new to Minas Gerais, and the legacies of adverse mining impacts remain," Grant said. The state is still scarred from the fatal dam breach at Vale SA's Brumadinho iron ore project in January 2019, which killed at least nine people, and the collapse of the Samarco tailings dam in 2015, which left 19 dead.

Rural communities in one of Brazil's most impoverished regions have raised safety and environmental concerns, especially over water scarcity and dust.

Brazilian activist group the Movement of People Affected by Dams urged the Brazilian government to "promote ... measures to fully investigate the damages and losses resulting from mining in the region" after a local resident died of pneumonia claimed to be linked to mining dust.

A spokesperson from Sigma Lithium told Commodity Insights that it will use the dry stacking method to address tailings safety concerns and will use sewage-grade water at its the Greentech processing plant "so it doesn't compete with the population for drinking water."

Sigma Lithium claims to be "the only company delivering 'net-zero lithium'... zero carbon, zero use of dirty power, zero use of potable water, zero use of toxic chemicals and zero tailings dams."

Platts CIF Asia lithium carbonate is an offering of S&P Global Commodity Insights. S&P Global Commodity Insights is a division of S&P Global Inc.