Chile plans to nationalize its huge lithium industry

  • Chile to establish a state-owned lithium company
  • A state corporation to control the largest lithium reserves in the world
  • Copper giant Codelco to play a major role

SANTIAGO (Reuters) – Chilean President Gabriel Boric said on Thursday he will nationalize the lithium industry in the country, the world’s second-largest producer of the metal essential in electric car batteries, to boost its economy and protect its environment.

The surprise move in the country with the world’s largest lithium reserves would in due course transfer control of Chile’s vast lithium operations from industry giants SQM (SQMA.SN) and Albemarle (ALB.N) to a separate state-owned company.

It presents a new challenge for electric vehicle (EV) manufacturers scrambling to secure battery materials, as more countries look to protect their natural resources. Mexico nationalized lithium deposits last year, and Indonesia banned the export of nickel ore, a key material for batteries, in 2020.

“This is the best opportunity we have to transition to a sustainable and developed economy. We cannot afford to squander it,” Borik said in a nationwide televised address.

He said future lithium contracts would only be issued as public-private partnerships with state control.

He said the government would not terminate existing contracts, but hoped the companies would be open to state participation before they expire, without naming Albemarle and SQM, the world’s first and second producers of lithium, respectively.

The SQM contract is due to expire in 2030 and the Albemarle contract in 2043.

SQM, formally known as Sociedad Quimica Y Minera de Chile, Albemarle supplies Tesla Inc (TSLA.O), LG Energy Solution Ltd (373220.KS) and other manufacturers of electric vehicles and batteries.

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Albemarle said the announcement “will not have a material impact on our business” and will continue talks about investing in further growth and the use of new technologies in Chile.

SQM was not immediately available for comment.

South Korean battery maker SK On, which has a long-term supply contract with SQM, said it will monitor the development and respond with a long-term vision.

Chile’s announcement did not cause a reversal in lithium prices, which have fallen more than 70% from their November peak due to weak demand for electric vehicles in China, the world’s largest auto market.

Lithium carbonate futures, the most traded on China’s Wuxi Stainless Steel Exchange, were down 3.4% as of 0618 GMT Friday.

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“When or if battery makers renew their contracts with lithium companies in Chile, contract terms are likely to become more difficult than they have seen in the past when there was no state intervention,” said Cho Hyunriol, an analyst at Samsung Securities.

Analysts said the move was likely to lead to a shift in future investment in lithium to other countries including Australia, the world’s largest producer.

“Policy stability is very important to any mining venture… Mining-friendly jurisdictions like Australia will be places where the extra money is invested,” said Harsh Bardia, an analyst at JBWere National Australia Bank.

major lithium producers

CODELCO role

Borik said state-owned Codelco, the world’s largest copper producer, will be tasked with finding the best way forward for the state-owned lithium company, and that he will seek congressional approval for the plan in the second half of the year.

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Congress scrutinized several of Borek’s more ambitious proposals and delayed a proposed tax reform bill in early March.

Codelco and the state company Enami will be awarded exploration and extraction contracts in areas where there are now private projects before the formation of the National Lithium Corporation.

A section will be devoted to technology development to minimize environmental impacts, including favoring direct lithium extraction over evaporation ponds.

Privately held Summit Nanotech, which is developing direct lithium extraction technology, welcomed the announcement.

Borik said the country will look to protect biodiversity and share the benefits of mining with indigenous people and surrounding communities.

“Today we present a technologically strong and ambitious National Lithium Strategy,” the president said, adding that it will build “a Chile that distributes the wealth we all generate more fairly.”

The country with the highest reserves of lithium

(Reporting by Alexander Villegas and Ernst Schneider); Editing by Jacqueline Wong

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