Chile’s lithium future

Boric shocks Chile's mining industry with proposal to reform lithium market.

Lithium mining has become an increasingly important industry in Chile, with the country being one of the world’s largest producers of this critical metal. As demand for lithium continues to grow, driven by the rapidly expanding electric vehicle and battery storage industries, Chile has become a crucial player in the global supply chain. Consequently, Chile is home to some of the world’s largest lithium producers, including Sociedad Química y Minera de Chile (“SQM”) and Albemarle, who have invested heavily in the region over the past few decades. These companies have built massive production facilities and infrastructure, including pipelines, roads, and power plants, to extract, process, and transport the lithium from the Salar de Atacama to the rest of the world.

Last month, Chile’s mining industry was rocked by a shock move from President Gabriel Boric who announced the government’s intention to nationalise the country’s lithium industry. The president affirmed that the decision will be crucial to boost the country’s economy and protect its environment. The growth of the lithium mining industry in Chile has already had significant economic benefits for the country, creating thousands of jobs and becoming a major source of revenue for the government. In 2019, the lithium industry contributed more than USD 900 million to the Chilean economy, making up around 1% of the country’s GDP.

Under Boric’s proposal, private companies interested in exploiting the Chile’s lithium reserves must enter a public-private partnership which remains under state control. The Congress will now debate the details of the government’s lithium strategy which, Boric guaranteed, will fully respect existing contracts. The congressional debate is expected to be heated, as the government does not hold a voting majority and the opposition is not likely to approve his strategy. Furthermore, Boric’s low approval ratings will hamper his progress, according to Chilean political analyst, “Boric doesn’t have a majority in Congress and the president’s low approval rating of around 30% makes it even more difficult for initiatives that he personally proposes to gain traction. In the case of the “Lithium Policy” Boric personally intervened with the announcement and has committed to personally participate in meetings with indigenous communities. This degree of public association with the President will limit the project’s chances of gaining support, just as with the recent plebiscite on the proposed new constitution where the loss of support for the new text coincided with the loss of support for Boric and the close association between the two.”

“Boric doesn’t have a majority in Congress and the president’s low approval rating of around 30% makes it even more difficult for initiatives that he personally proposes to gain traction.”

Political analyst, Chile

Does Boric’s proposal suggest that Chile’s government are on the path to mass nationalisations? Not according to the director of a mining company with operations in Chile, “What Boric announced is not a nationalisation of lithium per se. In fact, under the Constitution, the state is already the owner of all mineral and mining resources found in the country. What could be interpreted as a form of nationalisation is Boric’s intention to limit private participation to a minority. The announcement that the state will always be the majority and controller of lithium projects has been interpreted as a form of nationalisation, in the sense that the state would have control of the companies that are formed for these purposes but there are no plans to nationalise any existing company currently in operation.”

“What Boric announced is not a nationalisation of lithium per se. What could be interpreted as a form of nationalisation is Boric’s intention to limit private participation to a minority. [B]ut there are no plans to nationalise any existing company currently in operation.”

Director, mining company, Chile

Most private companies were taken by surprise with the measure and opted to take a prudent stance while remaining open to dialogue despite their obvious concerns. SQM, the world’s largest lithium producer, said that it expected to be part of the political dialogue but this didn’t prevent the company’s share price from plummeting 15% after the announcement. SQM maintains that its technology and knowledge of the industry will provide leverage as it attempts to reach an agreement with the government.

The state-owned mining company Codelco will represent the state in its negotiation with private companies. In this context, Codelco is studying to reach a deal with SQM to advance production phases in the Atacama salt flat. Richard von Appen, president of the business association Sociedad de Fomento Fabril (“Sofofa”) said that he did not share the signs of mistrust from private companies and claimed that he was confident that the state could replicate the same public-private cooperation already in place in the country’s copper industry. The mining executive we spoke to did not share von Appen’s enthusiasm for using Codelco as a model, “Remember that Codelco is facing enormous difficulties in the development of its structural projects and is failing to meet its production targets. Also consider that in 2022 SQM, as a private company, contributed more to the state through taxes than Codelco. In other words, private mining companies are contributing more to the state than state-owned mining companies.”

Industry skepticism was not helped by the government’s communications, as a frustrated mining executive in Chile highlighted: “On the same day that President Boric announced that the State be the majority owner of lithium projects, Minister Marcel qualified those statements by indicating that the State would not necessarily always be the controller, but only in some special cases such as the Salar de Atacama. These contradictions combine with a glaring lack of detail in the president’s proposal, suggesting to many investors that the president’s proposal is poorly thought out. There are precedents of proposals from the current administration that have shown an alarming degree of improvisation and lack attention to detail, which has caused doubts as to the true scope of the proposal.”

“There are precedents of proposals from the current administration that have shown an alarming degree of improvisation and lack attention to detail.”

Mining executive, Chile

The presidential announcement has been criticised for its lack of precise definitions and for reflecting an ideological preference for increased state control despite evidence to the contrary. But above all, the announcement has been criticised for numerous contradictions with other presidential and ministerial announcements. On this issue, the lack of confidence in the current government makes it highly unlikely that the announcement will be followed through, unless the proposal has major modifications and rectifications.

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