Resource nationalism

Chile plans to nationalise lithium mining.

Chile’s mining minister, Marcela Hernando, has proposed to create a national lithium company by the end of the year. Attempts by the leftist constitutional convention to nationalise lithium mining have already been shot down after fierce opposition from the country’s influential mining sector. It is unlikely to be the convention’s last attempt to do so – they see it as part and parcel of their efforts to redistribute wealth. The convention’s environment commission first mooted nationalising lithium back in March and had since dominated much discussion in president Gabriel Boric’s governing coalition.  

Naturally, any talk of nationalisation sends immediate shockwaves through markets and the industry. However, a Chilean author of several books on lithium is optimistic on future investment, “The ideological leanings of the constitutional convention are concerning. But Boric is pragmatic and understands that without a vibrant mining sector, the Chilean economy would collapse. Given the large increase in world demand for lithium, I would predict a steady increase in investment throughout his term in office.”

“…Boric is pragmatic and understands that without a vibrant mining sector, the Chilean economy would collapse.”

Author of several books on lithium, Chile

The increase in demand is driven in large part by supply chains, particularly those for electric vehicles whose batteries cannot function without lithium. Given the exponential increase in electric car production and sales – including in Latin America – prices are likely to remain high for the foreseeable future.  

Indeed, despite alarming headlines – the government has been quick to assure the industry that the creation of a national lithium company – if it ever did get the green light – would still allow for the participation of private capital, albeit with the state as majority shareholder. 

US lithium extraction specialists Albemarle and Chile’s SQM, the world’s largest lithium producer, which this month announced an almost twelve-fold rise in quarterly profits on the back of high prices in global markets for lithium, dominate the industry. Both maintain large-scale operations in the lithium rich Atacama desert.  

“For Chile, the model is clear, if a company ensures the investment, it will have the tender to exploit the lithium. Carbonate is already exported and developed in this way. Chile, despite political rhetoric, has no intention of breaking businesses and waiting for someone else to develop batteries and loose supply chain dominance,” explains an academic expert on lithium based in Chile.  

“…Chile, despite political rhetoric, has no intention of breaking businesses and waiting for someone else to develop batteries and loose supply chain dominance.”

An academic expert on lithium, Chile

The convention’s proposals would have meant that operations and projects started before 1993 would have to undergo a costly and time-consuming environmental assessment within three years. Concessions in excluded areas, such as those near glaciers and on indigenous lands – a flashpoint for recent high-profile protests – would be revoked.  

“Currently there are several transnational companies in Chile and in neighbouring Argentina. Most of the large consortiums are present in these two countries and extract cheap lithium by evaporating brines. This is a fairly inexpensive process and thus economically feasible. Direct extraction has higher financial costs but is more environmentally friendly,” explains the academic.   

Given the administration’s ambitious green targets, the question now is whether the government will provide funding or other support to encourage more environmentally friendly extraction practices. One of the attractions of lithium-mining in Latin America is that its conditions currently allow for cheap extraction, regulatory burdens and ESG concerns could make doing so a little less attractive.    

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