Chilean bid for state control of lithium scares investors

Chili announced measures to boost state control over its industry lithiumas it seeks to diversify away from mining into batteries and other areas, raising concerns among investors about the country where dominant white metal miners SQM and Albemarle operate.

Progressive President Gabriel Boric announced the plan late on Thursday, which entails shifting the world’s second-largest lithium producer to a model in which the state will have a majority stake in all projects through a state-owned firm associated with private.

As of late Friday, shares of Chile’s SQM were trading in the United States down 18%, while those of Albemarle were down almost 9%. SQM’s lithium contract in Chile expires in 2030 and Albemarle’s in 2043, further complicating the potential switch.

The bid for state control in Chilireflects a broader wave of resource nationalism in Latin America, where the so-called “lithium triangle”, which houses the world’s largest reserves of the essential metal for electric vehicle batteries.

This presents a new challenge for electric car manufacturers, who are struggling to get the component for their batteries. Mexico nationalized its lithium deposits last year, and Indonesia banned exports of nickel ore, a key material for batteries, in 2020.

Boric said in his announcement that Chile would not cancel existing contracts, although it would try to negotiate with miners to voluntarily switch to a public-private model.

But he pointed to the country’s ambitions to engage in higher-margin sectors surrounding battery production rather than just mining, a common lament of emerging markets with large deposits of the metal.

Speaking from the northern city of Antofagasta on Friday afternoon, Boric He said the government has ambitions to produce value-added products and batteries.

“Here in Chile we can have added value, we can produce batteries here in our country. We don’t just have to export the raw ore”, he pointed out, adding that the government will open a technological institute for lithium and salt flats in that city.

No material impact

Meanwhile, Chile’s Production Development Corporation (CORFO) said Chinese automaker BYD plans to build a $290 million lithium cathode factory in the northern Antofagasta region.

SQM has a greater presence in Chile, with 81,000 hectares for lithium extraction, compared to Albemarle’s 16,000.

It’s a statement, SQM he said he was “analyzing” the government plan, while Albemarle noted that it would not have “no material impact on our business” and that he would continue talks to invest in further growth and use new technologies in Chile.

The Ministry of Economy said that the measure could not be classified as nationalization of the industry, but acknowledged that the State would have a majority stake in all public-private companies that intend to extract lithium.

“It is not effective to speak of a nationalization process because the announced strategy does not alter the current legal property regime in any way.”, he explained in a statement to Reuters, adding that current law already gives ownership of lithium to the state.

“Regarding the Salar de Atacama, the President clearly stated in his speech that Chile will fully respect what is established in the current contracts”, he added.

resource nationalism

In the neighboring countries of the lithium triangle, which encompasses Chili, Argentina and Bolivia, the governments are pressing more and more for the public sector to have a greater participation in the extraction of the metal.

According to Benjamin Gedandirector of the program on Latin America of the wilson centera Washington think tank, this kind of resource nationalism, which has long characterized the Latin American oil sector, has a poor track record.

According to him, mining in Latin America has historically failed in most cases to generate steady growth and has caused incalculable environmental damage, often leading governments to take over from private companies. .

“The current lithium boom offers an opportunity to learn from past mistakes“, said Gedancalling it “difficult balancing act”.

Giving an important role to the State without excluding private investors is “a clever middle ground“, he claimed.

Argentina’s state energy company YPF began exploring for lithium last year, while Bolivia has long maintained tight control over its vast, largely untapped resources. It recently awarded a tender to a Chinese consortium that included battery giant CATL.

Mexican President Andrés López Obrador and Bolivian President Luis Arce have suggested the idea of ​​creating a “OPEC” regional lithium to coordinate its policy and benefit local economies.

Source: Reuters