LG Chem of South Korea FDI in Bolivia’s Lithium Industry
LG Chem Global Strategy Team
Scott He
Harvey Hong
Arash Parham
Kenneth Turner
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Executive Outline
 LG Chem Company Overview & Global Strategy
 Lithium Opportunity
 Risks & Challenges
 Proposed FDI Project
 Go/No Go Decision
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The LG Chem Company
Company Highlights
• Former LG Group Chem Division
• Publicly traded (Korean Stock Exch.)
• 2 primary segments
– IEM and Petrochemicals
• 13,000 employees worldwide
• 2008 Net Income KRW 1 trillion
• Key recent partnerships
Lithium Battery supplier for:
- GM (fuel cells)
- Hyundai-Kia
- Volvo
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Global Strategy
• Vertical integration
• Hedging against future price increase of lithium carbonate
Lithium Battery Value Chain
Lithium Mining
Extraction from Salar
de Uyuni, Bolivia
state-owned
COMIBOL
Lithium
Manufacturing
Plant
Production of
Lithium-Ion Cells
Processing of lithium
carbonate and other
marketable elements
– potassium chloride,
boric acid, and
magnesium chloride
Hi-tech phase- LG
Chem as leader in
lithium –ion
technology
Lithium Ion
Battery Pack
Manufacturing
Final phase before
batteries go to
factories to go into
laptops, cell phones,
and cars
“For core business reinforcement, we need to achieve cost leadership, product leadership and
market leadership. In difficult times with depressed demand and a global glut, our first and
foremost challenge is to ensure cost leadership by reducing costs. By doing so, we can provide
better products at cheaper prices than our competitors” - LG Chem CEO Kim Bahn-suk
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Opportunity – Supply & Demand
Lithium Industry
2009 World Lithium Reserves
Argentina,
4.2%
United States,
0.2%
Australia, 3.1%
Brazil, 1.0%
Canada, 1.0%
Bolivia, 47.6%
Zimbabwe,
0.1%
China, 2.9%
Chile, 39.7%
Source: USGS 2010 .Mineral Resources
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Opportunity – Supply & Demand
Lithium Battery Industry
• Lithium-Ion Battery Facts
– Now, 84% of portable devices use lithium-ion batteries
– Predicted, 60% of all electric vehicles in 10 years will operate on
lithium-ion batteries (superior performance)
• LG Chem Top Competitors in Lithium Battery Industry
– Sanyo (Japan)
– BYD (China)
– Johnson Controls-Saft Joint Venture (US-France)
– Enerdel (US)
– A123 (US)
– Electrovaya (Canada
– China BAK Battery (China)
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Risks & Challenges
• Political
Risk
- Slow transition to democracy
- Pro-nationalism v. Pro-privatization
- Expropriation
- Poor Democracy (<$10,000 PPP GDP
per capita)
• Political Risk Mitigation
- Political Risk Insurance: (KEIC)
Korea Export Insurance Corporation
Source: ONDD 2010.
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Risks & Challenges (cont.)
• Past Economic Stress
– Latin Amer. Debt Crisis 1980’s
– Hyperinflation (nearly 60,000%)
– Foreign exchange fluctuations
– Recovery via economic austerity
• Current Position
– 100% IMF Debt relief in 2005
– Trade Surplus
– Low sovereign debt/GDP
– Current Account & Fiscal Surplus
– Fitch currency rating “B”
– Key risks remain – Central Bank
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Proposed FDI Project
• Resource seeking
greenfield JV with
COMIBOL
NPV Analysis
$400,000
$350,000
$300,000
• 40% share in $350M
Lithium processing plant
NPV ($1000)
$250,000
$200,000
$150,000
$100,000
• Positive NPV over 15-year
horizon, highly dependent
on the market price of
lithium carbonate
$50,000
$0
($50,000)
5%
6%
7%
8%
9%
Discount Rate
Low Lithium Carbonate Price Projection
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High Lithium Carbonate Price Projection
10%
Go/No Go Decision
• NO GO
o Political Environment
 Erratic behavior of current government
 Local population is anti-foreign investment
 Strict regulatory environment
 (maximum 40% share, limited management control)
 Unreliable source of lithium due to uncertain political environment
o Rate of Return (Risk vs. Reward)
 Capital intensive project with cost overrun risks
o Assessment score below target (<75)
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Questions?
THANK YOU
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Mode of Entry
FDI-JV
Minimum Acceptable Score
Recommendation
75
Consideration Categories
Financial
Capital Requirements
Profit Potential
Financial Risk
High
Moderate
Moderate
5
8
6
6.3
High
High
High
High
Low
High
Category Average
Foreign
Domestic
Foreign
Domestic
Export Platform
Easy Access to International Markets
Growth Prospects
High
9
High
Low
Moderate
Low
High
Low
High
2
10
7
10
10
4
8
Category Average
Technology
Technology Risk
Product and Process Improvements
7.5
High
Moderate
Category Average
Capital intensive project
Highly dependent on lithium carbonate price
4
25
Securing a reliable source of lithium carbonate
Consistent with LG Chem's vertical integration strategy
Improving LG Chem's position in South America
4
36
3
2
5
3.3
Deep involvement of management anticipated due to complex environment
Minority stake limits the operational decision making power
The planning and design for the project needs to start immediately
3
10
Lithium is being used in many industries
Other international companies are submitting investment proposals to the Bolivian government
No domestic entities competing for the investment
Other countries produce lithium carbonate and can impact the supply
All the lithium deposits are owned by the Bolivian government
The majority of the products will be exported
Bolivia lacks direct access to shipping lines and the roads need significant improvements
Expected growth in lithium ion battery market
4
30
7
6
6.5
59
Category Category
Comments
Weight
Point
10
9
8
9.0
Managerial
Management Requirement
Operational Control
Speed of Entry
Product
Point
(10 being the
ideal condition)
Category Average
Market
Effective Customer Demand
Competitors
Investment
Earned Score
Relative
Strength
Category Average
Strategic Positioning
Access to Scarce Recourses
Vertical Integration
Entry to New Markets
NO GO!
The lithium ion battery is not the only technology, other technologies may emerge
Processing of Bolivia's lithium deposits is less efficient that deposits in Chile
2
13
Regulatory/Political
Moderate
4
Bolivian economies dependence on commodity exports make the currency susceptible to commodity price
changes
Protection of Intellectual Property
Low
2
Bolivia doesn't have a good record regarding protecting foreign assets
Expropriation Risk
High
1
In the past 5 years Bolivia has nationalized many industries
Agreements Enforced
Low
3
Bolivian government has unilaterally broken foreign investment agreements in the past
Corruption
High
2
Because of the high poverty levels and lack of transparency the government officials are susceptible to
corruption
Local Reaction
High
2
Local population is highly suspicious of foreign investors
Environmental Liability
High
5
There is a potential for adverse environmental impacts however the laws to protect the environment are not
heavily enforced
Moderate
5
With $4600 PPP per capita income, the Bolivian democracy may not survive in the long run, however, president
Morales has been able to consolidate his power in the past years and enjoys wide public support
Currency Risk
Stability of the Government
Category Average
Maximum Possible Points
Proposed FDI Project Score
3.0
5
15
220
129
59
Earned Points
/ 100
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