Production is set to begin at the Cauchari-Olaroz and Tres Quebradas lithium projects in Argentina this year, while output is also being ramped up at the Olaroz and Fénix operations, but the political and economic scenario is making things difficult in the industry.

Inflation in the country is over 100%, the government has imposed restrictions on imports of certain inputs and there is a difference in the official and unofficial exchange rates of around 80%, all of which are hindering the mining industry.

Adolfo Durañona, a partner at Baker McKenzie, said the official exchange rate is 207 pesos per US dollar, while the unofficial rate is now at around 370-390 pesos.

This "affects the financing of capital-intensive projects, payments to foreign suppliers and lenders, and production and operating costs," he told BNamericas.

Meanwhile, the president of the Argentine chamber of mining entrepreneurs, Franco Mignacco, said that in order to resolve the current difficulties, "the mining industry has to be a true state policy," which includes establishing an appropriate regulatory and fiscal environment to maximize the lifespan of mineral resources and attract new investments in exploration and start-up of projects.

Mignacco argued that import procedures for the mining industry "must be streamlined," adding that companies in the sector should have access to the free exchange market to cover import payments and services provided by foreign firms.

Last year lithium accounted for 18% of total mining exports, and Australian firm Allkem’s Olaroz and US company Livent’s Fénix generated combined sales of US$696mn, up over 230%.

Together the companies produced around 30,000t of lithium carbonate equivalent (LCE) in 2022 and their output is rising.

Olaroz produced nearly 13,000t of LCE and the expansion will add 25,000t/y from this half. But in its 4Q22 report, Allkem cited supply chain issues due to delays in deliveries of important materials, stating that it had raised its capex for the project by 12% to US$425mn because of these import problems and inflation.

The Fénix plant expansion, with an investment of US$450mn, will add 10,000t LCE in the second half of 2023 and another 10,000t from early next year.

While the coming months will continue to be challenging, Marina Pera, associate analyst at consultancy Control Risks, told BNamericas that regulatory improvements could be on the way to help resolve some of the current distortions.

"It will be necessary to progressively reduce import controls and export taxes, in addition to standardizing the dollar [exchange rate]," said Pera.

Ensuring the sustainability of Argentine mining involves "reducing regulations, cutting public spending, restoring stability and confidence in the Argentine peso, and giving the sector greater optimism, with a special focus on lithium," she said.

All in all, Argentina has six lithium projects under construction.

Lithium Americas' Caucharí-Olaroz operation will begin producing 40,000t/y LCE in Jujuy province, although capex has increased 15% to US$852mn due to the impacts of the exchange rate and inflation, the company said in its 3Q22 report.