With hundreds of possible greenfield resources, especially in Brazil and Argentina, Latin America has emerged as a new frontier for junior miners seeking to capitalize on strong lithium and base metals demand.
The Toronto Stock Exchange lists 1,097 miners, with at least 910 it classifies as juniors that focus on exploration and early development. About 19pc of those have at least one asset in Latin America, compared with 6pc in Africa, 2pc in Asia and 3pc in Australia.
The 15 largest juniors who have their main asset in Brazil have a total market capitalization of R75bn ($13.8bn), underscoring the region's potential for exploration companies.
Argus spoke with Koby Kushner, chief executive of Libra Energy Materials — a junior miner — about why lithium offers unique opportunities for smaller players to become bigger producers. Edited highlights follow.
Why are junior miners so predominant in Latin America?
Brazil has great geological potential and it is relatively a new frontier, so there are a lot of low-hanging fruits still out there waiting to be discovered.
It also has such a long history of mining that people are familiar with it and the permitting regime is very well defined and efficient in comparison to other places in the world.
Elsewhere in Latin America, you have several untapped assets that need to be explored and discovered, which is the job of junior miners.
You are also looking at relatively stable, friendly jurisdictions where there is less chance of the government coming in take your mine after you've built it — unlike in some African countries, where higher political risk can make it harder to attract investment.
Are junior miners likelier to become producers in lithium than in other commodities?
It probably happens more in lithium than in most other commodities because the capital requirement and the cost of capital are the major hurdles for a lot of juniors.
Juniors, because they're smaller and don't have existing cash flow to fund their own costs, have a much higher cost of capital.
With lithium, however, the capital intensity — especially for spodumene projects — is much smaller than what you see in other commodities.
And this is even more true in Latin America.
Sigma Lithium, for example, is sitting in the bottom of the cost curve for hard-rock lithium. You could argue that if that same deposit was in Australia, it would not be there. Conversely, some of the great deposits in Australia would be more profitable if they were located in Brazil.
Even if a deposit in Latin America is not as attractive as one elsewhere, the lower production and project costs often makes the economics better.
In Argentina, it is tougher. The brines are more capital-intensive than spodumene, so it is harder for a $50mn market cap company to fund a $1bn in costs. Even Lithium Argentina, one of the bigger juniors, needed a joint-venture partner to finance its project .
Miners like Galan are taking a unique approach, trying to produce lithium chloride — a lower-capital path, though still higher than a typical spodumene project on average.
How do junior miners finance exploration and early development?
If you become a producer, you can take on debt.
Early-stage miners without cash flow, however, should avoid debt and rely on equity, royalties or joint ventures.
Issuing equity is the most common for junior exploration companies. They issue equity, sell shares to investors and use the money they raise to move the needle on the company and hopefully their share price.
Royalty financing usually happens further down the line, with project funding.
The joint venture model makes sense when you feel your equity is undervalued and you're getting better terms at the project level. Someone else spends their money to de-risk the project. You own a smaller piece, but it saves you dilution at the corporate level.
What are the main exit strategies for junior miners?
The main one would be to get bought by someone bigger.
The alternative is to sell off assets to a larger party. So instead of getting acquired, you transact at the project level and keep royalties.
