By Dave Sherwood and Nicole Mordant
SANTIAGO/VANCOUVER (Reuters) - South America's lithium triangle is the lowest-cost place to produce the vital battery ingredient, but political hurdles will require Japanese and South Korean companies to make big investments to crack into the region as they chase Chinese rivals who have tied up resources in other parts of the world.
Even China, the leader in the global race for the metal used in batteries for everything from smartphones to electric cars, has had its efforts thwarted in the lithium triangle of Bolivia, Chile and Argentina, home to around two thirds of global reserves.
Because of China's problems, market experts say the lithium triangle is one place South Korean and Japanese auto and battery makers can play catch-up.
The race will go to whichever producers can best navigate policy obstacles in all three countries. But Panasonic, Samsung (KS:005930) and other South Korean and Japanese companies focused on long-term supply contracts find themselves further behind the Chinese, who have been aggressively going after physical assets elsewhere, such as purchasing their own mines.
JOLTED OUT OF COMFORT ZONES
South Korean and Japanese firms have relied largely on South American lithium, and formed longstanding relationships with producers there. But they have been jolted out of their comfort zones in the last year as China has engaged in a deal-making spree elsewhere in the world, spurred by government quotas for electric car sales.
The Japanese and Koreans are "certainly looking for supplies" in South America, said Henk van Alphen, CEO of small Chilean lithium brine developer Wealth Minerals Ltd (V:WML), which has held talks with battery makers from both countries.
Japanese and Korean companies have dipped a toe in backing new lithium mine developers, including in Latin America where Japanese carmaker Toyota (T:8105) invested in an Argentine lithium project. Company executives and government officials from those countries say more is needed.
"How to secure metal supplies is one of the interests I have these days," Park Jin-soo, chief executive and vice chairman of LG Chem (KS:051910) told reporters in Daesan, South Korea, last month.
"We could consider cooperating with companies which have such metals, or if needed, a joint venture or a long-term deal, and we are making a lot of plans for the next few years."
A Korean official said the government was looking at how to back the private sector. Previous efforts by Korean state development agencies have been halting, especially in Bolivia where a lithium initiative is mired in debt.
"We are currently focused on giving support to the private sector like POSCO or Samsung SDI on the sideline," said the official speaking on condition of anonymity.
Japan's Panasonic Corp (T:6752) is "working to secure stable supplies of battery materials, through such steps as directly sourcing raw materials and diversifying sourcing channels", said a spokeswoman, declining to comment on specific regions.
In February, a delegation of dozens of Japanese companies toured Argentine provinces that are home to most of that country's lithium reserves.
THE REAL PRIZE
Chinese companies have aggressively pursued supply elsewhere, inking several deals with mine developers in Australia, Canada and Africa in the past year.
In Chile, however, the Chinese have struggled to get a significant foothold in the lithium industry, leaving an opening for others.
Authorities in Chile balked when Chinese lithium giant Tianqi moved to purchase a coveted 32 percent stake in Chile's SQM, the world's lowest cost producer. Chile development agency Corfo filed a complaint with anti-trust regulators to block the sale.
Now Tianqi is talking to Chile's top anti-trust prosecutor about the yet-to-be-inked deal (N:SQM) (SN:SQM_pb).
Such a deal would be "nerve-wracking for Korean and Japanese companies" who have long-standing arrangements with the producers like SQM, said van Alphen, of Wealth Minerals. These relationships would be rocked if Tianqi purchased even a minority stake in the top producer.
South Korean battery maker Samsung SDI (KS:006400) and metals supplier Posco have committed to building a battery materials plant in Chile in exchange for securing lithium at a discount from SQM and U.S.-based Albemarle (N:ALB), the country's two biggest producers.
"Why stick a cathode facility in Chile? It is likely to be more expensive than in Korea or China or Japan. It is all to do with security of supply," said Robert Baylis, managing director at consultants Roskill Information Services in London.
The real prize, according to a source with knowledge of the transactions, is a toehold in Chile's lithium industry and the possibility for eventual expansion.
Chile has proven particularly hard to court, prioritizing access and increased production quotas for SQM and Albemarle and more recently, state miner Codelco.
The country has also been closely guarding entry of new miners, encouraging companies to do business with known entities. Yet investors are watching a handful of smaller deals in the lithium triangle which could hint at potential openings in Chile for newcomers seeking reliable physical assets.
Topping those deals is Salar Blanco, a project controlled by Lithium Power International of Australia and Canada's Bearing Lithium, which in March secured a rare Chilean export permit.
There are also opportunities in Argentina and Canada where companies can jump on investments if they move swiftly.
"If you look at the emerging low-cost lithium chemical projects such as Cauchari, Sal de Vida (Argentina), and Nemaska (Canada), said Joe Lowry, an independent industry consultant who worked for U.S.-based lithium producer FMC Corp (N:FMC). The most appealing thing about those projects, he added, is that:
"China has limited participation."