Chile’s decision to increase state control over its lithium industry has shocked the new energy metals sector.
The country’s two largest lithium producers, SQM and Albemarle, have seen their share prices fall on the prospect of having to relinquish majority control of their operations or risk losing their licenses once they expire in 2030 and 2043, respectively. .
Shares of companies including Pilbara Minerals, Australia’s largest lithium producer, have risen on assumptions of slower investment and project growth in Chile, which is home to the world’s largest battery metal deposits.
Chile has been here before.
The country nationalized its copper sector in 1971, sparking international outrage, particularly in the United States.
The “nationalizationPresident Gabriel Boric’s lithium model is a more benign version of the previous model for copper.
Furthermore, Chile is far from the only country looking to harness the boom in new energy metals.
COPPER PATTERN – GOOD AND BAD
If President Boric’s lithium policy is an echo of the copper policy of the past, the comparison is with the “Chileanization” program of the government of Eduardo Frei Montalva in the late 1960s.
Frei embarked on a progressive nationalization, buying 51% stakes in existing copper projects and mines and consolidating them into the Oficina del Cobre, renamed in 1976 the National Copper Corporation (Codelco).
All the US companies that then controlled Chile’s copper production negotiated a reduction in their holdings. Kennecott Copper led the way, selling a 51% interest in the El Teniente mine in 1967 with the proceeds reinvested in an expansion program.
The balancing act between the state and the private sector was upset in 1971 when President Salvador Allende won the Chilean elections on the platform of speeding up the process.
The harsh nationalization that followed saw American copper companies stripped of their shares for minimal compensation, after the government offset the book value against previous “excess profits.”
There have been legal setbacks, including judicial seizures of physical shipments of copper, and economic and political setbacks in the United States.
The seizure of Chile’s copper was part of a broader trend of developing countries taking state control of their mineral wealth. Zambia, the world’s second largest copper producer at the time, did the exact same thing three years later, in 1974.
LITHIUM SET
Codelco remains owned by the Chilean government and is now the world’s largest copper producer.
Even the neoliberals of the Augusto Pinochet regime kept the national jewel by opening the rest of the country’s copper sector to the private sector.
Indeed, it was only in 2019 that Chile formally repealed the law requiring 10% of Codelco’s export sales to go to the military, even though technocrats had replaced generals on the company’s board.
Now Codelco is in charge of taking control of the lithium sector in the country.
There is no need for expropriation since the Chilean state owns the country’s reserves. Rather, there will be a “negotiated nationalization” similar to that of the copper industry in the 1960s.
Talks with SQM will begin almost immediately, according to economy minister Nicolás Grau. SQM said it needs an additional $2 billion to meet the sustainability goals of the new lithium plan, an echo of Kennecott’s 1967 copper investment sale deal.
Others, particularly smaller operators at the exploration stage, may welcome the prospect of state support.
CleanTech Lithium, which works in direct extraction rather than brine evaporation in Chile, noted that the new policy was one of “partnership rather than nationalization” and “may offer the potential for new opportunities.”
Given the interest of the Chilean government in orienting its industry towards more sustainable lithium extraction, state participation could become an enabler rather than a drag on such companies.
Everything, of course, depends on how the policy is executed.
JOIN THE CLUB
Chile is not alone in seeking to assert control of its mineral resources as the world prepares for a new metals age.
Mexico nationalized its lithium deposits last year and in February of this year handed over responsibility for developing them to the country’s energy ministry.
Zimbabwe has banned the export of raw lithium, citing the need to curb illegal artisanal mining.
The shining example for others is Indonesia, which has used export controls to squeeze its nickel miners.
Ore exports were banned from 2020, prompting operators to build the first nickel pig iron smelters and, more recently, processing plants capable of producing processed nickel for batteries.
Last year, the European Union won a World Trade Organization (WTO) panel that ruled that Indonesia’s export ban was a violation of WTO trade rules.
Indonesia has pushed ahead anyway and now boasts the world’s largest nickel-producing sector, which it is rapidly leveraging to become a global hub for battery materials.
Breaking the rules of the free market has proven to be a great accelerator for Indonesia, showing that state intervention does not always come at the price of slower industrial progress.
It is not just producing countries that are using government force to shape metal supply chains.
Such is the fight for all kinds of critical minerals that the governments of consuming countries are also intervening.
Japan’s Ministry of Economy, Trade and Industry will subsidize half the cost of major mineral mining and smelting development projects, including lithium, by Japanese firms, according to Nikkei Asia.
The European Union actively seeks what it calls “mutually beneficial partnerships” with emerging producers as part of its critical raw materials policy.
The United States, desperate to reduce its dependence on China, is pumping money into its mining and metals sector and hasn’t shied away from state involvement either.
The US Department of Defense is a direct investor in the heavy and light rare earth processing facilities being built in partnership with Australia’s Mynas Corp.
Chile is not an outlier when it comes to the new era of energy metals, it is part of a growing club of countries.
By Andy Home
(Opinions expressed here are those of the author, a Reuters columnist)
Source: Gestion
Ricardo is a renowned author and journalist, known for his exceptional writing on top-news stories. He currently works as a writer at the 247 News Agency, where he is known for his ability to deliver breaking news and insightful analysis on the most pressing issues of the day.
