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Chile’s plan for state control of lithium is going against the business world

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A lithium mining machine moves a salt by-product at the mine in the Atacama Desert in Salar de Atacama, Chile on Oct. 25, 2022.

Lucas Aguayo Hours| Anadolu Agency | Getty Images

The Chilean government’s newly announced plan to allow the state to take a majority stake in the lithium industry has left business leaders baffled, though analysts warned the proposal appears to be trying to strike a middle ground between competing interests.

President Gabriel Boric announced in a national broadcast Thursday night that private companies will have to work with the government in exploiting Chile’s lithium, a metal used to make rechargeable batteries.

Boric said the state would take a controlling interest in any partnership, leading some to call it a nationalization of the industry, while others disagreed.

“Phrasing it as nationalization is too strong… it is a quasi-nationalization in the sense that the playing field will now be leveled in favor of the state,” said Nicolás Saldías, senior analyst at the Economist Intelligence Unit for Latin America and the Caribbean. “There is no level playing field for the private sector in Chile.”

Chile is the second largest producer of lithium and holds the third largest reserves of the metal in the world. Demand for lithium is expected to increase due to the global transition to renewable energy and the growth of electric vehicles powered by lithium batteries.

The South American country has recently lost ground to others in the race to exploit the metal, so there was a lot of anticipation about what Boric, a leftist, would herald as the country’s strategy for the industry.

“There were no big surprises, which doesn’t mean it’s not a very significant change in the model,” said Mariano Machado, chief analyst for the Americas at Verisk Maplecroft, a global risk information firm.

Under the plan, all companies wanting to work in Chile’s lithium sector will have to include the yet-to-be-established National Lithium Company as a partner and “the state will be in control,” Boric said Thursday. Existing contracts will be honored, but Boric expressed optimism that they could find a way to boost state participation in their operations before they expire.

“It’s not stealing the concessions, it’s changing the rules rather than breaking them abruptly,” said Emily Hersh, CEO of Luna Lithium, a lithium exploration company with projects in America.

Two companies are currently mining lithium in Chile, Albemarle Corp. from the United States and local company SQM with concessions expiring in 2043 and 2030 respectively. Shares of the two companies plummeted Friday after Boric’s announcement.

The creation of the new company requires approval from Congress, which has already shot down several of Boric’s key initiatives.

Until then, two other state-owned companies, Codelco, the world’s largest copper producer, and state-owned mining company Enami will figure out how the public-private partnerships will work.

Chile’s president traveled to Antofagasta, some 1,300 kilometers (800 miles) from the Chilean capital, on Friday to provide more details about his proposal to local authorities.

“We are calling for a dialogue and participatory process to gather visions and knowledge about the new governance of lithium and salt flats,” said Boric.

But businesses in Chile expressed concern.

“We were quite alarmed” by Boric’s announcement, said Ricardo Mewes, head of the Confederation of Production and Trade, an association that represents Chilean business.

Mewes said company leaders had expected there to be “large private sector participation” in the lithium sector and that now the “state will be the one to control the industry”.

Several analysts said those concerns may be going too far.

Saldías, from the Economist Intelligence Unit, said the proposal “actually offers the private sector more opportunities than the existing framework because… there would be more opportunities to participate in projects than there is currently.”

However, he warned that environmental restrictions on how lithium is produced and the push for more consultation with local communities could lead to “a rise in the cost of doing business” in Chile.

Verisk Maplecroft’s Machado said that “Chile seems to have gone for a model that is in the middle where the state has the upper hand as it is a resource that is considered strategic.”

That is a different model from neighboring Bolivia, where the state has full control over the sector, and Argentina, where the state simply grants concessions to companies to operate.

Finance Minister Mario Marcel called for calm in business. He said that under the plan, private companies will contribute capital, technological knowledge and experience, while the state will provide “financing” while safeguarding the environmental conditions of the salt flats and the “relationship with the indigenous peoples” of the affected area. .

It remains unclear whether the government would contribute capital in direct proportion to its ownership interest.

Boric also said the government will go beyond just being involved in lithium mining, saying it will promote the development of value-added lithium products in its drive to become the world’s largest lithium producer.

Boric’s plan is in line with “the direction the world is heading,” said Luna Lithium’s Hersh.

“The push to have more added value where minerals are produced and to get a greater share of revenue from mining operations are understandable long-term trends,” she said.

For Hersh, the real concern isn’t necessarily Chile, a country with a robust mining industry and existing lithium production. She is concerned about what message this sends to others in the region trying to build emerging industries, as Mexico has already nationalized its lithium sector.

“You’re in a hurry to the party. You can’t be seen as the uncool president who doesn’t,” Hersh said.

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