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DFS, page-178

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mondyinvest

4,951 Posts.

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27/04/23

19:30

Post #: 67488545
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Originally posted by paulgf: ↑

This could be a net positive yet for Argentinian projects .

I was a holder in LPI and given noises since mid last year after the election of Boric early last year , I exited that position a couple of months back . It was a creeping feeling of we are going to get F***** here. Admittedly it is a form of soft nationalisation via the PPP route but it is still nationalisation in form, although I suspect the wash up will be LPI can still proceed with it stage 1 Maricunga development, but its later stages will likely require Codelco owning 51 % of the venture. Mind you it might be a struggle to attract foreign capital even to Stage 1 until there is a lot more certainty on exactly what this new nationlisation policy means in practice.

However my point is Argentina has not made the noises Boric and his mates have made about nationalisation despite the Argentine government also being socialist in orientation . In fact the current Argentine regime is on record in 2021 saying that they are hoping to encourage more foreign capital into lithium and they have no desire to nationalize the industry . A very good recent article comparing the two approaches can be found here on the net ;

https://www.wilsoncenter.org/sites/default/files/media/uploads/documents/Lithium%20Production%20in%20Chile%20and%20Argentina_Inverted%20Roles_JAN%202023.pdf

Now yes I am sure this decision of Chile will create some pressure by those on the more extreme left of the ruling party to push that barrow again but there are a couple of key differences one needs to be aware of in comparing the risk of Argentina possibly doing this like Chile.

Firstly Argentina has been much more successful in recent years in attracting foreign capital and has now 36 projects in the pipeline as the article above mentions . Is the Argentine central government really going to torch all those projects who have already committed to future investment , but for most part these projects funding commitments are not sunk yet. Easy for this foreign capital to walk away, but very hard for Argentina alone but to fund these projects in the absence of foreign capital. When a country such as Argentina already has a quite uncertain macro environment ( by virtue of its debt, inflation and currency situation) it has leverage to play with the nationalisation card in my view. Even a soft form of nationalisation through a PPP scheme would completely destroy the confidence foreign capital needs to take the plunge in Argentina.

Secondly their more market orientated approach in recent years compared to Chile is working and very likely Argentina will eclipse Chile in the next couple of years for exports . If its not broken why change it ? Hopefully there is enough sane heads in Argentina who can see the evidence for what it is and not idealogues who always want to tear everything down and rebuild utopias which is a bit what Chile is now infected with.Hence as the current approach is working I don’t think they will risk blowing it up particularly when once the capital is sunk you can achieve a very tidy outcome much quicker by just raising royalty rates a few %.

The other key difference which is alluded to in the article is that more of the regulatory power here sits with the provinces , its bit like how our states here in Australia actually own the mineral resources not the federal government. In the end this is what prevented Labor coming in over the top here in Oz with its mining tax back in Rudds era. Ultimately the states/provinces having more power lends itself to a more decentralized industry development pathway and again this approach is working when you compare it to Chile .

Even when Chile was controlled by right wing parties it was still a very top down highly regulatory environment with lithium deemed of "national strategic interest" . Ironically this was in part a legacy of the right wing fascist government of Pinochet trying to control everything . So Chile whilst it had an image of being more pro market and investor friendly for years , actually had a government structure that by its nature was more authoritarian and top down courtesy of its adoption of outright fascism for years and the only thing now that has changed is that structure is now controlled by the socialists not market friendly advocates .

Argentina is a different kettle of fish in my view given the greater control by the provinces hence I rate the chances of nationalisation much lower as there would be many more Cats to herd so to speak. This is South America of course so one would be foolish to say the risk is small or zero but to think this is likely now just because Chile done it is misplaced and a bit hyperbolic , when you step through the different fact pattern. Their success so far with pursuing a market based approach to developing their lithium industry and that they are on course to eclipse Chile soon with exports adds to this argument in mu view.

The best thing Argentina central government could do now is come out and confirm as they did back in 2021 that they do not wish to pursue a strategy of nationalisation and this should encourage greater FDI to continue flowing into Argentina and clearly then differentiates their pathway to their neighbours. I suspect in time if Argentina does hold its pro market course for lithium and Chile continues down this path of socialist idiocy it will become yet another textbook example ( and there are already many) of how governments nationalizing industries only makes their citizens in fact poorer in the long run and they experience less benefits from these industries in terms of production , foreign exchange earnings , invested capital which ultimately less job creation .

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Great post Paul, you’re always such good quality to read. Thank you.

Hoping for the DFS to read tomorrow!

GLN Price at posting: $1.07 Sentiment: None Disclosure: Not Held
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