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The Growth of Lithium in Chile

Last week we provided an overview of the copper project pipeline in Chile. This week we are discussing lithium, which over the last few years, has made headlines around the world. Without a doubt, there are differing opinions regarding the sustainability of prices. The jury is still out on whether demand from automotive and battery manufacturers will be as robust as expected. The same can be said for whether supply from new producers will come to market in a timely manner.

Chile holds a strong position, with 7.5Mt, the country alone holds 47% (approx.) of the world’s lithium reserves and these are entirely contained in low-cost brine deposits. Even with an abundance of resources, Chile, known to investors as an open country with a well-respected mining culture, has been left on the sidelines because the rules around lithium are not so clear.  Lithium was declared of strategic importance to the nation in the 1970s and strict controls were placed on its production and sale. Partnering with a state company is the only realistic way of entering the Chilean lithium market. This has slowed the amount of investment into the sector and instead, has helped neighboring countries such as Argentina, with its own growth.

Early this year, state development agency Corfo reached a long-negotiated agreement with Santiago-based SQM, one of Chile’s two lithium producers, to significantly increase the company’s production quotas. Corfo had already reached a quota increase deal with the other producer, US-based Albemarle a year earlier, and on signing with SQM then Corfo director Eduardo Bitran said Chilean lithium carbonate equivalent (LCE) production could rise as high as 500,000t/y. Global production in 2017 was around 210,000t.

Source: SQM

SQM said in May that it will spend US$525 million to triple lithium capacity over the next three years in response to market demand, with Chilean capacity rising to 180,000t/y by 2021. The company also has projects in Argentina and Australia.

Albemarle is advancing a US$300 million expansion of its La Negra complex, to increase production by an extra 42,700t/y of lithium carbonate.

In addition, Chile is attempting to add value to its lithium resources. As part of their production cap increases, SQM and Albemarle agreed to sell 25% of their output at preferential prices to local downstream processers, such as to produce lithium cathodes. In January, three companies were selected in a Corfo bidding process to add value to lithium: Molymet, Sichuam Fulin Industrial Group, and the consortium formed by Samsung-Posco.

In addition, earlier in July, executive vice president of Corfo, Sebastián Sichel, announced that Chilean authorities will build a center for energy transition and advanced materials for the development of lithium in the Northern Antofagasta region.  The announcement stated that the Technological Institute will be tendered in the next 90 days and is expected to be operational in 2019. The initial annual investment of this center will be about US$12 million, which is established in the contract between the state agency and Albemarle, and would be developed under three main axes: energy transition, solar energy, and development of advanced materials for the lithium industry.

The question remains, will Chile continue to lead the global production of lithium or will they miss the boat? Time will tell. For now, SQM and Albemarle will move forward with their investments which will provide opportunities for construction, technology, equipment, and service companies.

Harris Gomez Group is an international law firm with offices in Santiago, Bogotá, and Sydney. Our firm has been working with mining equipment, service, technology providers both in Australia and internationally for 16 years. We find that our clients appreciate that we understand the industry, provide fixed pricing, and take the time to learn our clients business.

To better understand how we can support you, please contact Cody Mcfarlane at cmm@hgomezgroup.wwwaz1-lr5.supercp.com