Santiago — As lithium prices continue to decline from their end-2022 peak, Chile has begun a heated discussion about President Gabriel Boric’s proposed policy for managing the mineral that is key to developing electric vehicle batteries.
The launch of the strategy, a campaign promise by Boric, immediately rattled the market. Concerns over greater state control in the lithium industry sent shares of SQM and Albemarle tumbling on Friday, while mining companies with operations in Australia - the mineral’s main producer - began to rise like froth.
Investors’ positions
The strategy has been received by diverse reaction, while the government is trying to convey calm.
“The easiest thing was to do nothing, leave everything as it is and avoid problems, but that is not the way to govern,” said Boric on Monday at an event with mining industry representatives.
There are a number of views regarding Boric’s plan, although its detractors claim that it could lead to a flight of investors. Robert Friedland, president of Ivanhoe Mines Ltd, said in an interview with Bloomberg that he saw it as “complicated for international capital” and would make it “more difficult to invest in Chile”.
But one of the most striking opinions was that of Elon Musk, owner of Tesla, who reacted to the Chilean strategy thus: “Lithium ore is very common all over the Earth. What matters is the refining capacity”. The comment was responded to by Economy Minister Nicolás Grau, in an interview with a local TV channel Mega.
“That vision presented by Elon Musk is a central part of our strategy, we want to add value, we want that from lithium, at least, a part of that production allows us to advance in the production of more complex goods, to approach the whole battery chain,” he said.
In contrast, Grau and other Chilean ministers posted comments by “potential investors” in favor of the government’s plan, among them the opinions of Russell Barwick, director of Lithium Power International; Rodrigo Dupouy, Latin America president at Sorcia Minerals; Cristóbal García-Huidobro, general manager at Minera Salar Blanco, and Hendrik van Alphen, CEO of Wealth Minerals.
“The National Lithium Strategy’s fundamental pillar is public-private collaboration, and which has been acknowledged as such by international companies that are experts in lithium,” Grau tweeted.
Reaction from SQM and Albemarle
In the midst of this maelstrom of opinions, the two companies that control lithium operations in Chile remain cautious. SQM and Albemarle, which concentrate lithium production and exploitation in the Atacama salt flats, have begun talks with the government.
“We are convinced that our technology and our experience in the lithium industry will allow us to reach reasonable agreements in the interest of the state and of the great heterogeneity of shareholders that SQM has,” the company said in a statement after its general manager, Ricardo Ramos, met with the executive vice-president of Corfo, Chile’s production promotion agency, José Miguel Benavente.
On Tuesday it was the turn of Albemarle’s executives, who stated that they would negotiate with Chile closer to the end of the company’s contract in 2043.
The view of US firm Jefferies is that Albemarle will respond with a greater focus on investments in lithium production in the US and Australia after the presentation of the Chilean strategy.
But Boric’s administration has rejected the hypotehesis that investors will be scared away by the new policy.
In an interview with Bloomberg Línea earlier this week, Mining Minister Marcela Hernando, said that her proposal aims at a public-private alliance in which “we are all winners”, while clarifying that the strategy is not a nationalization of the industry.
The government is proposing the creation of a state-owned company to participate in the entire lithium industrial process, a project that will be submitted to Congress in the second half of this year. But first, communities and other stakeholders will be consulted, Hernando said.
Meanwhile, Codelco and Enami will play a key role in the projects where lithium-related activities are being explored and developed.
Tax revenues from lithium will total more than $5 billion in 2022 from the export of this key element in the energy transition, double the amount contributed by state-owned copper miner Codelco, according to an estimate by the Autonomous Fiscal Council. A greater global appetite for lithium raised its prices to a record at the end of last year and although its price has fallen in recent months, it remains above pre-2022 levels.
