Revolutionizing Lithium: How Chile's Game-Changing Strategy Impacts the World

Chile: The highest-value battery metal is Lithium, and Chile has the most of it. Minerals that fuel electric vehicle batteries are becoming the new oil. Because of this, the new Lithium policy in Chile, which shifts the balance of power from private corporations to the government, is a topic of intense attention on a global scale. 

With the dual objectives of improving the sustainability of Lithium production and increasing revenue for the nation, the administration of President Gabriel Boric wants the state to acquire a controlling interest in operations deemed strategically significant. In the end, Boric intends to establish a national business that makes the decisions in collaborations with private businesses. (The plan makes use of memories of the expropriation of copper mines in the 1970s.) Projects would be required to adopt a method called direct Lithium extraction, which would decrease water loss but is comparatively untested at scale. Local people will have a stronger say in these projects.

The news was referred to as a "nationalization" a term that denotes a complete transfer of ownership from private to public ownership. The only two Lithium producers in Chile, SQM and US-based Albemarle Corp., saw a decline in their stock prices as a result. However, Lithium had already been largely nationalized in Chile: SQM and Albemarle operate under specific contracts and adhere to rigid output limitations established by government organizations, in contrast to copper producers that receive unrestricted concessions. Authorities reaffirmed their commitment to uphold current agreements with the two incumbents and left the door open for private corporations to acquire majority holdings in areas not deemed strategically crucial to allay market concerns.

A bill to create the new national Lithium business is being prepared by the left-leaning administration of this country. However, it might take a significant portion of the remaining four years of Boric's tenure, which runs through March 2026, to have that approved by Congress and put into effect. It has tasked Chile's state-owned copper mining corporation, Codelco, with leading negotiations with private firms over new conditions for obtaining Lithium from the coveted Atacama salt flat. Although the government has stated that it will uphold SQM's and Albemarle's current contracts, when those agreements expire in 2030 and 2043, respectively, both businesses risk losing their business operations. Alternately, they could agree to give up at least 51% of their ownership to Codelco earlier in exchange for possible extensions and expansions.

The new model has garnered generally positive reviews from businesses who will need to mediate agreements with government entities and obtained a conditional support from the UN. After all, there may be benefits to working with the state as a partner in cutting through bureaucracy and interacting with communities. Some investors are still wary. Robert Friedland, a Canadian mining millionaire, stated that the possibility of further government participation makes it more difficult to invest in Chile. In private, some businesses voice worries about negotiating contract details with sluggish state agencies that are new to the sector. The government claims that this approach is the most effective way to increase sustainable production in a country where Lithium is already regarded as a strategic resource under state control.

Codelco and SQM started serious negotiations in June with the intention of closing the agreement by the end of the year. One thing is certain: the state will receive a majority equity holding through Codelco. But other crucial elements, like Codelco's financial commitments and its role, if any, in daily decisions, are still in question. If Codelco and SQM can come to a compromise, it will act as a model for the rest of the industry. Codelco aims to choose a business model for the development of a second salt flat, Maricunga, this year and has already begun separate discussions with potential partners. Drillers and potential developers of new projects outside the Atacama and Maricunga flats will need to work with Enami, another state-owned corporation that offers services to minor copper mines, in some form going forward. The Rio Tinto Group and China's Tianqi Lithium Corp. are two potential Lithium partners with whom Enami claimed to have made initial contact.

The second-biggest provider of Lithium after Australia, Chile possesses the largest Lithium deposits in the world. All its production originates from the Atacama salt flat, where SQM and Albemarle pump enormous quantities of brine and store it for up to a year in massive evaporation ponds. The resultant concentration is processed into Lithium Carbonate and Hydroxide at adjacent facilities, then sent to battery manufacturers in China and Korea. Chile stands to gain from President Joe Biden's green stimulus initiative as a free-trade partner with the US, perhaps raising demand for its Lithium.

But in recent years, Chile has been losing market share to more investor-friendly countries like Argentina, which is expected to overtake Chile as the world's second-largest economy by 2035. In a throwback to a 1979 decision to declare Lithium "strategic" because it was believed to be a crucial component in nuclear processes, a little-known nuclear energy organization in Chile now must approve limits and exports.