Codelco and SQM agree on final lithium deal

Chile’s state-run copper miner Codelco and the world’s second-largest lithium producer SQM (NYSE: SQM) inked a definitive agreement on Friday to jointly exploit the country’s vast deposits in the Salar de Atacama salt flat.

The new deal gives Codelco a majority stake, which is a key part of President Gabriel Boric’s strategy to increase government-controlled lithium production, an essential ingredient in the making of batteries that power electric vehicles (EVs).

“Just as we have helped make Chile the global leader in copper production, we will now contribute to making our country a leader in lithium production, another mineral essential for the energy transition,” Codelco chairman Máximo Pacheco said in a statement.

The mining veteran noted the partnership still needed to go through several additional steps before it can be implemented.

The fresh contract replaces the one signed by the lithium company in 2018 with the Chilean economic development agency (Corfo), which was set to expire in 2030. The partnership will begin in 2025 and run through 2060, with Codelco overseeing general management as of 2031.

Opponents to the deal told local news site El Ciudadano that while the government had six years to prepare either Codelco or the national mining company (Enami) to take over the operations, it has chosen to keep it in the hands of SQM.

“This is a company obtained though dubious methods by the former son-in-law of dictator Augusto Pinochet, Julio Ponce Lerou, a person who is also recognized in world stock markets for his corrupt practices,” deputy Cristian Tapia said.

Ponce Lerou, the 78-year old who controls SQM, was fined in 2014 for illegal trading of shares in his holding companies. Around the same time, SQM was embroiled in a case involving illegal financing of political parties.

Earlier this year, Ponce Lerou placed his children Francisca, Alejandro Augusto and Daniela on the boards of directors of Pampa Calichera, Nitratos of Chile, Potassium of Chile, Norte Grande and Oro Blanco. With this new board of directors, the conglomerate will no longer be recognized as a Ponce Lerou’s company, but as the Ponce-Pinochets’.

The document released on Friday stipulates that board members of the new venture cannot have served as directors of Codelco or SQM for more than 10 years. This requirement would effectively exclude Ponce Lerou from the lithium venture.

Tianqi’s saying

Tianqi Lithium, SQM’s second-largest shareholder, has been advocating for the deal to be decided by a stockholder vote. The Chinese firm, which acquired a 22% stake in SQM for US$4 billion in 2018, claims SQM did not disclose key terms during negotiations. The company said in April it had faced restrictions on accessing SQM’s sensitive information and hinted at potential legal action.

The binding contract between SQM and Codelco signed on Friday ratifies a preliminary accord forged between the two firms in December and allows production to increase to 300,000 tonnes a year through 2060.

Indigenous groups in the area and academics have also criticized Codelco and SQM for their communication regarding their plans.

Both companies have launched a special web site for the public to learn the details of their partnership.

An oversupply of lithium that drove down prices is still affecting supply chains, but SQM expects buyers to return to the market, forecasting a 20% rise in demand this year.

Chile has opened up new lithium mining areas to private companies and it is testing direct lithium extraction, or DLE. With this process, brine can be re-injected back into salt flats, reducing the environmental impact and accelerating production. 

Codelco and Chile’s other state mining company, Enami, are also seeking partners to develop lithium projects. Meanwhile, Chile’s only other current producer, Albemarle (NYSE: ALB), has a contract extending until 2043.