Negotiations for world’s largest lithium reserve in brine can be win-win for SQM and Chile

The ongoing negotiations between Codelco and Sociedad Quimica y Minera de Chile (SQM) can produce a win-win situation for both parties if some principles are followed

“The most important thing is that people that know what they are doing continue to do what they know well,” said Professor Tom Moerenhout at Columbia University’s School of International and Public Affairs and its Center on Global Energy Policy.

SQM is one of two companies, along with the US-based lithium miner Albemarle, operating in the Salar de Atacama, a salt flat in northern Chile. SQM has a contract to operate in the site until 2030, while Albemarle’s contract is valid through 2043.

The negotiations will benefit both parties if SQM’s contract is extended beyond 2030, in which case the company will have the incentive to invest more into environmentally friendly technologies and expand their production, according to Moerenhout.

The uncertainty surrounding SQM and Albemarle operations arises from “state control” clauses included in Chile’s new National Strategy for Lithium, introduced by President Gabriel Boric on April 20, which includes the establishment of a new national lithium company with the state of Chile participating throughout the entire lithium production process.

The policy foresees that the Chilean state shall retain majority stakes in projects deemed “strategic” for the country and calls for the promotion of public-private partnerships, with state-owned entities Codelco and Empresa Nacional de Mineria (Enami) playing leading roles until the new lithium company is created.

Codelco and SQM announced on Friday, May 26 that they had started negotiations “within the framework of the National Strategy for Lithium that seeks the State of Chile to participate directly in lithium production operations in the Salar de Atacama.”

SQM’s operational contract will be one the topics discussed during the negotiations with Codelco, whereas Albemarle has not yet started talks due to its contract’s longer duration, Fastmarkets understands.

“We talked about the challenges facing the mining industry globally, that is, the high environmental, social and governance standards to which the negotiation will be subject. Based on these criteria, we will form public-private alliances to give continuity to productive activities in the Salar de Atacama” Codelco’s chairman of the board of directors Máximo Pacheco said following the initial meeting with SQM chief executive officer Ricardo Ramos.

Another key issue regarding SQM remaining in the area is that extraction permits and the infrastructure around the mines are considered the property of the operators. If their contracts run out, the companies can take their assets with them or sell them to a third party, according to Moerenhout.

“This can be a big challenge right when we will have a lithium deficit,” he said, adding that various studies showed the world will experience around a 12.5% deficit in lithium supplies by the end of the decade.

Fastmarkets researchers forecast a deficit of around 88,950 tonnes of lithium carbonate equivalent in 2024.

Due to its solid track-record as a copper producer, Codelco’s involvement in the future operation of the mines is preferable, Fastmarkets understands.

The results of the negotiations will either attract or deter the other potential lithium extractors in the world looking to enter the Chilean market, but Codelco’s good reputation as a copper producer gives confidence for a rational and positive outcome of the negotiations, according to Moerenhout.

Codelco is the world’s second largest producer of copper, having produced 1.446 million tonnes of copper in 2022.

Crucial lithium reserves

Salar de Atacama is home to the world’s largest lithium reserves in brine with 9.2 million contained tonnes, which amounts to around 37% of the world’s lithium reserves.

“Atacama is the biggest lithium brine reserve in the world. It also holds the highest lithium content in the world; you get a higher amount of lithium for every liter of brine you pump,” Moerenhout said.

Alongside the neighboring Argentina and Bolivia, Chile is considered part of the “lithium triangle,” which holds around 54% of the world’s lithium reserves.

The lithium in the triangle is concentrated in large amounts in Salar de Uyuni in Bolivia, Salar de Atacama in Chile and Salar del Hombre Muerto in Argentina.

In 2022, SQM produced 152,500 tonnes of lithium carbonate at its Salar de Atacama operation.

“With the lithium price being so high, SQM can profit, and the state can join into the economic benefit through the public-private partnership,” Moerenhout said.

Fastmarkets’ lithium carbonate 99.5% Li2CO3 min, battery grade, spot price ddp Europe and US was last assessed at $37-41 per kg on Thursday June 1, a drop from historic highs at $80-82 per kg on December 15, 2022.

The price followed the downward price trend in China when the weakening in the Chinese electric vehicle market subdued demand.

But the price is still up by 151.61% from $13.50-17.50 per kg on July 5, 2017, when Fastmarkets first launched this price assessment.

Keep up to date with global market insights and predictions for 2023 and beyond with our NewGen forecasts.

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