Codelco takes new step into lithium exploration in Chile’s Atacama salt flat

State-owned copper giant Codelco has created two subsidiaries to further its expansion into lithium, a metal Chile has identified as essential not only for the global energy transition but for its own future development

On Friday May 19, Codelco said that it has created Salares Chile, a subsidiary that will oversee any of the company’s lithium activities. Minera Tarar will be a subsidiary of Salares Chile, which will explore specific operations in Salar de Atacama – a salt flat in northern Chile.

“Our board of directors has authorized the constitution of both these companies, allowing the state to join the development of this industry, which, together with copper, is seen as key to link Chile’s progress with the transition to a global green economy,” Codelco chairman Máximo Pacheco said in a written statement.

On Wednesday May 17, Chilean mining minister Marcelo Hernando said in a meeting with the country’s copper commission Cochilco that the creation of a state-owned lithium company that will act alongside Codelco was being readied for a Congress vote in the second half of 2023.

Chile’s boost to lithium exploration

Designing this new Empresa Nacional del Litio – or National Lithium Company – was one of the steps announced by Chile’s president Gabriel Boric in April, when he revealed intentions to nationalize lithium resources.

Codelco is the world’s largest copper producer and is now paving the way to also potentially explore lithium assets, together with Empresa Nacional de Litio or the private sector. Pacheco was nominated by the company board to be the person responsible for negotiating and considering a stake in the business in Atacama.

“This board believes that entering the lithium business will allow Codelco to diversify risks, improve revenues and even generate a positive impact on global electrification,” the company said in a letter on Wednesday.

“Currently, supply of this mineral is a limiting factor to electric transportation. To close that gap would positively affect copper demand as well, something that would also benefit the company,” it added.

Chile has forecast that demand for lithium will grow more than sixfold from 2020 levels, while mine output is set to increase only four times.

Lithium demand to outpace supply

In 2022, copper commission Cochilco – a body under the mining ministry responsible for mining market studies and supervision of state-owned organizations related to those markets – published its largest lithium paper to date, showing not only those numbers, but also its projection that Chile will lose ground as an important lithium producer in the future.

According to Cochilco, global demand for lithium carbonate equivalent is set to grow to 2.11 million tonnes in 2030, compared with 327,000 tonnes in 2020. Consumption for electric vehicle production would represent 73% of total demand, up from 41% in 2020.

Meanwhile, brownfield and greenfield capacity expansions already in development would boost mine output to 1.64 million tonnes of lithium carbonate equivalent by 2030 from 384,000 tonnes in 2020.

“We expect that today’s market balance will remain relatively stable until 2027 but with supply tightness,” Cochilco wrote in its report last year. “That means any disruption or delays in operation ramp-up… would send the market into a deficit.”

In that same study, the commission said that projects in Australia would cause that country to become the world’s largest producer by 2030, with Argentina poised to at least match Chile’s output – effectively reducing Chilean contribution to global lithium supply to 15% from 32% in 10 years.

At the time the paper was published, Albemarle and SQM were producing lithium in Chile. Now, the government intends on boosting that capacity with its own companies.

Fastmarkets Research’s own forecast is for available lithium carbonate equivalent around the world to reach 1.12 million tonnes by 2024, up from 417,000 tonnes in 2020. Apparent demand is expected to hit 1.21 million tonnes, up from 378,000 tonnes in the same comparison.

Cochilco’s outlook was for 838,000 tonnes in aggregate global demand and 803,000 tonnes in mine output by 2024.

Lithium carbonate prices start to rebound

A long-lived downtrend that left lithium carbonate prices at their lowest level in Asia since late 2021 was recently reversed, with recovering lithium-iron phosphate battery cathode output boosting demand – and prices – for carbonate.

Fastmarkets’ latest assessment of lithium carbonate 99.5% Li2CO3 min, battery grade, spot prices cif China, Japan & Korea was $32-36 per kg on Friday, down by 2.86% from $32-38 per kg the day before, but 9.68% higher than $30-32 per kg a month before and17.26% higher from the 1.5-year low of $28-30 per kg on May 4.

Fastmarkets Research forecast that lithium carbonate prices will average $34 per kg in the second quarter of 2023, rising to $44 per kg in the third quarter and $48 per kg in the final three months of 2023. In 2024, the average price is forecast at $50 per kg.

Chile in search of more funds from mining

That more lithium will be needed for electric vehicles usage to become more widespread is a fact that has been well-known for years. But now the Chilean state wants it “in-house” too as part of a myriad of actions aimed at tackling inequality and mounting public dissatisfaction, mainly due to the cost of living.

In 2019, demonstrations in Chile due to higher costs and insufficient government investments led to at least one mining workers’ standstill. That movement turned into an assembly to draft a new constitution, which was ultimately denied by voters.

Sentiment among part of the population and politicians, mainly left-wing representatives with views close to President Boric, remained that the country needs to benefit more from mining. With that in mind, a proposal for larger mining royalties in the country was approved on Wednesday by the Chilean lower house of Congress.

In addition, an ad valorem tax and a variable tax over operating margins, investment funds aimed at supporting regional communities and capacity expansions in Chile were also approved.

Felipe Román Briones, president of the mining workers’ union federation in Chile, FMC, told Fastmarkets in August 2022, “it’s time that more profits from mining went into investing in Chile itself.”

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