Chile’s SQM, the world’s No. 2 lithium producer, expects to reach an agreement to continue producing the battery metal under the Chilean government’s new National Lithium Strategy, a public-private model for the industry, which was announced by President Gabriel Boric on April 20. SQM shares closed down 18.6% on April 21, though they have since regained some of the loss.
The company is “convinced” that its technology and experience “will make it possible to reach reasonable agreements in the interest of the Chilean state as well as our diverse shareholders,” it said in a statement on April 24 after executives met with officials at state development agency CORFO.
SQM, the fertilizer-turned-lithium giant, runs the planet’s biggest and most profitable brine operation in Chile’s northern desert with a contract that expires in 2030. Under the government’s new policy, SQM can either keep full control of the operation for the rest of the contract and then risk losing it or let the state take a majority stake with the understanding it could keep operating longer. State-owned copper producer CODELCO will represent the state in negotiations with SQM until a national lithium company is created.
In 2022, SQM’s Lithium segment represented 79% of SQM’s consolidated gross profit of $5.74 billion. Specialty Plant Nutrition and Iodine/Derivatives represented 8% each, Potassium Chloride and Potassium Sulfate 4%, and Industrial Chemicals 1%.
Albemarle Corp., another lithium producer in Chile, has more breathing room and has said it would negotiate with the country closer to the end of its contract in 2043.
Both SQM and Albemarle have been diversifying their lithium assets, with both holding stakes in Australian production. SQM has invested in a new lithium refinery in China. Albemarle also has assets in the US. However, Chile, where SQM has been constantly expanding production, is SQM’s jewel in the crown.
SQM, which spent some $3.5 billion at the Salar de Atacama project since 1993, has budgeted more than $2 billion on technologies that enable it to eliminate the use of underground fresh water, make its brine evaporation process more efficient, and introduce direct extraction. That would bring it in line with sustainability practices laid out in the government’s new strategy, it said in the statement.
“The objective is control,” Chile’s Economy Minister Nicolas Grau said in an interview with Bloomberg on April 25. Control being “that the different fundamental decisions the company makes respond to the interests that we have as a country.”
While negotiations between CODELCO and prospective partners will determine the new contracts, at the end of the day, companies’ strategic decisions must be aligned with national interests, said Grau.
The government is engaged in a delicate dance of seeking a bigger role for the state while attempting to attract more private capital, defend the environment, and move further down the value chain. There is a lot at stake, given Chile has the biggest reserves of a metal critical to the clean-energy transition.
To be sure, the government understands that for the new model to work, the private sector has to be motivated to invest, Grau said. So far, the industry’s reaction has been “rather positive,” he said.
The government plans to present a bill to create a national lithium company later this year, Grau said. Officials will have to negotiate with lawmakers to secure the bill’s approval, with the administration proposing that the state firm participates in downstream operations such as cathode processing. “We are going to propose that the national lithium company plays a role in the entire value chain,” Grau said.
Still, Boric’s party does not have a majority in the National Congress, and any legislation could undergo significant changes prior to approval. Chile’s voters rejected Boric’s plans for a new constitution last year.