South America is copper, lithium and gold

Analysts say South America isn’t just rich in metals – it’s rich in the right metals. Copper and lithium have exciting medium-term prospects while gold miners have experienced something of a bonanza, recently.

This is confirmed by in a recent study from the market intelligence division of ratings agency, S&P Global, which notes that “for the first time since 2014, base metals matched gold as the top South American exploration target, with each garnering 42% of planned spending.”

The upsurge in base metals exploration is being determined by bullish long-term views on copper. As the commodity super cycle began to unwind in 2012, investors turned bitter on copper. The red metal’s rise had been powered by massive Chinese demand but conventional thinking figured that the infrastructure glut in the Middle Kingdom, combined with efforts to move its economy away from heavy industry, would limit future global copper use.

But the rapid growth in electric vehicles has transformed the outlook for copper. A battery-powered electric vehicle uses about 83 kg of copper compared to just 23 kg in an internal combustion engine.

Hybrid vehicles, like the Prius are normally somewhere in the middle. McKinnsey consulting firm estimates that yearly electric vehicle sales will hit 4.5 million in 2020, up from 1.2 million in 2017.

This would only be 5% of annual light electric vehicle sales, leaving lots of space for further growth. The red metal has been hit by worries of a trade war between China and the US, and prices are still 40% below their 2011 peak.

Another clear frontrunner from the transition to low carbon energy systems is lithium. It’s already recognized as the battery of choice for electric vehicles. While the search for renewable energy’s holy grail – a cheap efficient battery that can store excess electricity produced by intermittent sources such as wind farms and solar panels – may yet give lithium another boost.

At the moment, Australia has managed to become the world’s largest producer despite the fact its lithium is made mined from ore – a more costly process than extracting it from the lithium-heavy salt brines found in Latin America. The reason is that Australia has been more welcoming to lithium investors than Chile, which treats the white metal differently to copper, Argentina or Bolivia. It is now starting to change, with Argentina in particular receiving a mix of international investment.

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