Michael Hughes
AOPNEWS
April 22, 2023
China will face stiff technical, geological, logistical, and market challenges in trying to extract lithium profitably from Afghanistan, in addition to the obvious security problems, primarily in the form of ISK terror attacks. However, Beijing is certainly not approaching the situation naïvely. In fact, China may be fully willing to absorb significant losses to meet broader geopolitical goals.
Afghanistan sits atop massive untapped mineral deposits, which the USGS and Pentagon, after refreshing detailed Soviet studies, estimated in 2007 at $1 trillion. This includes a site in Ghazni province with a deposit the size of the Salar de Uyuni find in Bolivia, which holds 5.4 million tons of lithium.
With the entire globe racing to reach net zero emissions by 2050, demand for electric batteries has sent lithium prices soaring to all-time highs in recent years. Not to mention, the International Energy Agency (IEA) forecast significant shortfalls in lithium by 2040. Current production would have to jump four times to meet demand. In April of 2022, Tesla CEO Elon Musk tweeted that the price of lithium had gone to “insane levels” over the past decade – jumping by a factor of 17 – from $4,450/ton in 2012 to $78,000/ton in 2022.
Hence, it sounded like good news for Afghanistan that China wants to take the first crack at the massive lithium deposits. The Afghan mine ministry last week said Chinese company Gochin expressed interest in investing $10 billion on a lithium venture, claiming it could lead to 120,000 direct and one million indirect jobs. However, there are many good reasons why Afghans should remain skeptical despite what appears to be a huge opportunity.
Some experts have not only mocked the U.S. $1 trillion estimate as absurd but doubt the minerals have any value. In 2017, Adam Smith Institute Fellow and economist Tim Worstall, in a piece for Forbes, gave his own back-of-the-envelope calculation and projected that the reserves were worth roughly zero. In fact, the Afghan Ministry of Mines and Petroleum told this journalist in the same year that “there is little to no information on the proven economic viability of these resources.”
Two years ago, Rick Valenta, a professor at the University of Queensland’s Sustainable Minerals Institute, said closer inspection cast doubt on the 2007 survey of lithium deposits in Afghanistan. He said drilling in 2010 commissioned by USGS found a range of lithium levels “about three orders of magnitude less” than the lithium concentrations in South America. In other words, Afghanistan may not be the “Saudi Arabia of lithium,” as an internal Pentagon memo described it. Apparently, the US comparison of Afghanistan’s deposits to those in Bolivia were based on deeply flawed assumptions.
“So it wasn’t just a near miss, it was way off,” Valenta told Mining Technology.
And the tricky thing about commodity prices is their cyclicality. When a commodity gets too costly, the market adapts and looks for alternatives. And this is already occurring with lithium. As of Friday, the China spot price of lithium carbonate sat at $23,282/ton, down 70% from a year ago amid a slowing in electric vehicle demand. This means Afghanistan’s lithium reserves were worth $421 billion 12 months ago, and are now worth roughly $108 billion (assuming extraction costs of zero).
Meanwhile, more reserves of lithium are being found every year. In March, Iran found a deposit containing 8.9 million tons of lithium and India reported discovering a deposit with 5.9 million tons. It turns out the shortage is not in lithium per se – the shortage is in mining capacity and the ability to get the stuff out of the ground without going bankrupt.
And then there are the technical complexities. It typically takes around 15 years to go from exploration to market, according to an IEA study. Moreover, Afghanistan poses unique problems, including the fact it will be logistically challenging to bring product to market from a landlocked country with limited transport and power infrastructure.
And let’s not forget that China in 2007 won the right to extract copper at Mes Aynak, a large mine in Logar province. China Metallurgical Group Corporation (MCC) inked a $2.8 billion deal for a 30-year lease. MCC reportedly spent $371 million toward developing the area, but work halted amid security issues and corruption allegations.
Then again, it is worth noting that China does not view such projects through purely capitalistic eyes. This is a resource nationalism play. They are willing to absorb some costs in order to corner the market. UBS forecast that China’s ramp up of lithium extraction could see it accounting for nearly a third of the world’s supply by mid-decade. And they have better lithium prospects in Africa and South America than Afghanistan to boot.
In the end, Beijing also sees it in the context of the broader superpower competition, regardless of the outcome. Even if the Chinese fall short of plan, they have prevented rivals like the United States from gaining access to Afghanistan’s lithium. In that sense, this particular battle is already won.