How will the creation of a national lithium company take shape?
Lithium has been arguably the mining world’s hottest commodity, rising in price by over 400% from 2021 to 2022. Chile is the second largest producer of lithium, producing approximately 26,000 t/y in 2021, a record output for the country that is blessed with the largest known lithium reserves. As demand ramps up, driven by the electric vehicle revolution, it goes without saying that producers have been making hay while the sun is shining.
For instance, Chilean miner SQM (Sociedad Química y Minera de Chile), one of the two lithium producing majors active in the country, reported a near twelve-fold rise in quarterly profit in Q1 2022, with net profit rising to US$796 million and revenue nearly quadrupling to US$2.02 billion. As industry profits have soared, governments around the world, including Mexico, Argentina, and now Chile, are looking to get more closely involved in the lithium space beyond the taxes and royalties they already receive.
While the idea of government intervention may raise red flags for investors and private sector spectators, in the case of Chile the intention of the Boric government to create a new State-run company to advance lithium development has been received with cautious optimism by the country’s industry. All lithium assets are owned by the Chilean Government since 1979, when Pinochet declared lithium and uranium strategic minerals. Because of this decree, there is currently a lot of red tape involved in producing lithium in Chile, and new developments outside of SQM and Albemarle have stagnated. The hope now is that the new vehicle can collaborate with the private sector and provide a clearer set of processes and guidelines to streamline development.
Chile is the second largest producer of lithium in the world, but we produce lithium carbonate for the most part. In the future, we are also interested in producing lithium metal and lithium for batteries. President Boric's government is mandated to create a state-owned lithium industry that could take various forms, such as a state-owned company or a public-private partnership.”
Marcela Hernando, Minister of Mining, Government of Chile
On May 22, 2022, Chile’s Mining Minister, Marcela Hernando, told local paper La Tercera that the government hopes to establish a model for the new company by the end of the year, and that a specialized group was being formed to define the best way to operate the company. She reiterated that the government was open to the participation of private capital in the firm, with the State as the main shareholder, and that lithium would not be included in the plans to apply a mining royalty.
In her interview with Global Business Reports, Minister Hernando commented that the incorporation of electromobility worldwide to face the climate crisis presents an opportunity for Chile given the country’s abundant lithium and copper reserves. She went on to affirm that adding more downstream capacity is in the interests of the government: “Today, Chile is the second largest producer of lithium in the world, but we produce lithium carbonate for the most part. In the future, we are also interested in producing lithium metal and lithium for batteries.”
Marcelo Awad, executive director of Wealth Minerals, suggested it would not be difficult to develop certain downstream capacity. “For instance, if you want to build a 25,000 t/y operation for lithium or hydroxide production, capex is around US$600 million. Going downstream to lithium cathodes, one of the battery components, capex for the same production level would be around US$100 million.”
Gerardo Illanes, SQM’s CFO, spoke of the company’s investment plan that considers US$2.25 billion between 2021 and 2024: “Regarding lithium in Chile, we are increasing our capacity from 120,000 metric tons of lithium carbonate to 180,000 metric tons that we are reaching now, and then reaching 210,000 metric tons in the middle of 2023.”
Illanes observed that these capacity increases will be made while SQM reduces its extraction of brines from the Atacama Salar by 50%, on a voluntary basis.
The other of the major lithium producers in Chile, Albemarle, recently finalized the expansion of its chemical commercial plant in La Negra, which will increase the company’s Chilean production capacity to over 85,000 t/y of lithium carbonate, according to Ignacio Mehech, VP external affairs and country manager in Chile. He also elaborated on the company’s US$100 million investment in evaporator recycling technology, which will allow Albemarle to reduce the consumption of fresh water at La Negra by approximately 30% per kilo of product. “The plant was commissioned in 2021 and its final product is currently in the process of qualification with customers. We expect it to be fully qualified by Q3 2022”
Mehech underlined Albemarle’s enthusiasm regarding the creation of a national lithium company to build policy, create opportunities to add value to Chile’s lithium sector, developing the value chain within the country, and also to investing more in R&D. He also pointed out that, as per the company’s contract with CORFO (Chile's Economic Development Agency), which lasts until 2043, Albemarle pays the highest royalty or commission for lithium production in the world, which goes up to 40% of the final sale price of the product. He added: “We will contribute approximately US$300 million in R&D funding to CORFO between 2016 and 2043, which has contributed to CORFO funding a center of E-mobility and a circular economy center in northern Chile.”
Image courtesy of Albemarle