Copper behemoth National Copper Corp. of Chile (Codelco) may soon become a major global lithium player after signing a partnership that will give the state-owned company a majority stake in SQM’s prized Chilean brine assets, according to Bloomberg.
A definitive agreement announced on May 31 ratifies a preliminary accord forged between the two firms late last year (GM Jan. 5, p. 1). The deal is a pillar of Chilean President Gabriel Boric’s agenda to have more state control in key lithium assets while boosting production of the battery metal in the transition away from fossil fuels.
World No. 2 lithium supplier SQM will relinquish a majority stake in its assets on the Atacama salt flat in exchange for three more decades of operations in one of the world’s richest sources of lithium. Its current contract expires in 2030. The agreement also pertains to potassium and other products that are extracted from the salt flats.
SQM shares rose 1.5% in premarket trading in New York on May 31.
The deal clears the way for the new public-private partnership to ramp up production at the Atacama operation from less than 200,000 mt/y toward 300,000 mt/y, thereby giving battery makers greater assurances on future supplies of a key raw material. A global lithium glut that drove down prices is still working its way through supply chains, but SQM is expecting buyers to come back into the market, forecasting demand to rise 20% this year.
The partnership will take the form of a joint venture, in which Codelco will own 50% of the shares plus one. Operational control will be in the hands of SQM through 2030, then Codelco through 2060.
There are still potential obstacles ahead of its implementation next year, including an indigenous consultation process as well as permitting. Increased production would come from efficiency gains and new technologies rather than greater brine extraction.
The two new partners will also be waiting for a decision by Chile’s securities regulator after SQM’s second-largest shareholder, Tianqi Lithium Corp., requested the deal go to a stockholder vote, alleging SQM failed to disclose key terms during the negotiation process. It bought a 22% stake in SQM for $4 billion in 2018.
Terms of the arrangement attempt to address concerns raised by some lawmakers that current boardroom restrictions on SQM’s top shareholder, Julio Ponce, and his immediate family members should also be reflected in the Codelco arrangement.
While the document released on May 31 doesn’t name Ponce, it states that board members of the new venture can’t have served as Codelco or SQM directors for more than 10 years, which would effectively rule out the former son-in-law of dictator Augusto Pinochet.
Defending criticism that the deal favored SQM, Pacheco has said in recent months that the Chilean state will initially receive about 70% of proceeds from new production, which will increase to 85% in 2031.