Written by Rodrigo Cortés, Senior Mining Lawyer
Lithium is a crucial element indispensable for the world’s future: it is an essential component in powering green technologies and a necessary constituent for energy storage systems. Its use in various technologies like mobile phones, smart devices, and electric vehicles has converted this metal into an indispensable element, and its demand has grown exponentially.
As established by the National Lithium Commission of Chile in 2015, when reaffirming the strategic nature of this element, lithium acquires value for Chile when it is considered a strategic material for the energy transition. Due to its strategic importance, lithium in Chile is a non-concessional substance. However, lithium can be exploited and commercialised through the so-called Special Contract of Operation (CEO), periodically tendered by the government of Chile.
According to the Chilean Ministry of Mining’s projections, global demand of lithium will quadruple by 2030, reaching 1.8 million tonnes of lithium carbonate, while available supply will be 1.5 million tonnes.
With the aim to boost the lithium market, stimulate sustainable production and increase competitiveness in the industry, the Chilean Government has invited all national and international interested parties to participate in a public process seeking strategic partners to initiate exploration, exploitation, and commercialisation activities of new lithium deposits in the country, for a total of 400,000 tons of lithium.
The key dates of the bidding process, according to the information published by the Chilean Ministry of Mining, are:
- 13 October 2021: Start of the period for purchase of bases (via https://www.minmineria.cl/litio/).
- 18 November 2021: Close of the consultation period.
- 25 November 2021: Publication of answers.
- 17 December 2021: Close of the period for the reception of bids.
- 14 January 2022: Publication of results.
If you are interested in this opportunity, please make sure to diarise these dates!
Terms, Conditions, and Requirements of the Special Contract of Operation (CEO)
The requirements and conditions of the special contract that will be signed between the State of Chile and the awarded participant (“Contractor”) are set out in Decree No. 23 of the Ministry of Mining published in the Chilean Official Gazette on October 13th, 2021.
The following are the basic conditions:
- The total volume to award is 400,000 tons of lithium divided into five individual quotas of 80,000 tons each. Decree No. 23 states that bidders may bid for a maximum of two quotas.
- The Contractor shall assume all costs and risks inherent to the lithium’s exploration, exploitation, and benefit. The awarded bidder will be also responsible for all costs and risks to obtain all sectorial or environmental authorisations and permits necessary to carry out the work under the special contract.
- The special contract will have a duration of 29 years, counted from the date of the administrative act that approves it, unless the Contractor reaches the production quota before the expiration of the referred term.
- The Contractor will have 7 years to start the exploitation stage, extendable for 2 additional years, subject to authorisation. Failure to commence exploitation within that time will result in early termination of the contract. The Contractor shall submit either a bank guarantee or insurance policy to guarantee the above.
- The Contractor will be obligated to commercialise all lithium products such as lithium carbonate, lithium hydroxide, lithium bromide, lithium chloride. However, the Decree prohibits the sale of brines specifically. The sale price shall be competitive.
- It also establishes the obligation of a specific annual payment for the benefit of the Chilean state, which will be calculated according to the annual operating profits multiplied by the corresponding rate according to the operating margin of the year.
If you or someone you know is interested in this opportunity, feel free to let our experienced team know. We would be pleased to set up a time to discuss and share our experience of over 20 years in Latin American tender processes.
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