Chile’s lithium plans not really ‘nationalization’ say experts

The announcement by Chile’s state miner Enami, which is looking for private partners to develop lithium assets in the Atacama desert, provides clues about the nature of the country’s lithium “nationalization”,  but what it means for investors in the South American nation has analysts and industry actors divided.

Enami’s vice-president Jaime Pérez de Arce told local media the company’s has not experience in the market and its pockets are not deep enough to develop them.

The executive noted that sort of knowledge interchange is exactly one of the goals of the national lithium policy — to create a defined pathway for new private participation in the sector.

Strategic lawyer and business advisor at Canada’s McCarthy Tétrault, Shawn Doyle, believes that while Boric’s announcement has been branded as “nationalization” is rather a positive turn of events for private capital keen to invest in the battery metal.

“In his speech, Boric indeed invoked expropriations that occurred in Chile’s copper industry in 1971. However, it must be remembered that, as a result of policy paralysis, Chile has been effectively closed to new private investment in lithium for decades” he wrote in a note to clients.  

Doyle aded that, as a result of policy status quo, Chile has only two private producers — Albemarle and SQM — holding longstanding leases, while all other would-be players “have been left waiting”, he said.

Albemarle chief executive, Kent Masters, also sees the new policy as an opportunity to tap into new lithium reserves, beyond the mines it already has.

“I don’t fear about Albermale’s future in Chile,” he told CNBC. “Boric’s government wants to bring more Chilean lithium supply to the market by partnering with companies interested in the business, which know how to operate those mines,” Masters said.

Nicolás Saldías, senior analyst at the Economist Intelligence Unit for Latin America and the Caribbean, said that phrasing Chile’s move as nationalization is “too strong”.

“It’s a quasi-nationalization in that the playing field will now be levelled in favour of the state,” he said.

Others are not so sure. Bernardo Fontaine, Chilean economist and academic, believes that private capital will hesitate before letting the state own the majority of their business, particularly if the same state competes with their other operations for buyers.

“It’s an optimistic and enthusiastic bet to ask investors to choose partnering with a state company, via minority stake, risking capital and technology as opposed to simply doing it alone,” Fontaine told MINING.COM.

Boric’s announcements seem more focused on the nationalization of production than on development and the maximization of tax revenue, he said. “Let’s hope the government proves otherwise,” Fontaine added.

Daniela Desormeaux, director of Chile’s Center for Copper Studies (Cesco), believes it will take years before the new model can be put in place. She believes that creating the national lithium company will be “the most complicated” element of the plan since it requires legislative support.

Aaron Malone, researcher at the Colorado School of Mines, and Morgan Bazilian, former lead energy specialist at the World Bank, warn that in other lithium-rich nations, such as Bolivia, nationalization has not yielded the expected results.

“The Evo Morales administration nationalized lithium under the name Yacimientos de Litio Bolivianos and took a hard line against private and foreign participation. Coupled with a more technically challenging recovery situation, this rigid stance and subsequent missteps have stunted the country’s economic potential,” they wrote.

Negotiations underway

While Chile’s state development office Corfo has already met with Albemarle representatives to discuss the new policy,  SQM expects to start talks before the end of June.

The contract for the world’s no.1 producer, Albemarle, to keep operating in Chile as usual ends in 2043, while the contract for the second largest, SQM, expires in 2030.

Jordan Roberts, battery raw materials analyst at Fastmarkets NewGen, does not expect any material impact to established producers. “There may be, however, some hesitation investing in Chile’s lithium space until further details have been released and companies are confident on stability and in how the public-private partnerships will operate,” Roberts said in an emailed statement.

Chile is the second largest producer of lithium and holds the world’s third largest reserves of the metal. 

Global demand for the battery metal, according to projections of Boric’s government, will quadruple by 2030, reaching 1.8 million tonnes. Available supply by then is expected to sit at 1.5 million tonnes. 

The country’s Atacama region, which is also home to vast copper mines, supplies nearly one-quarter of the globe’s lithium.

Last year, the state received more than $5 billion from the sector, equivalent to 1.6% of its GDP, figures from the Autonomous Fiscal Council show. 

Exports of lithium carbonate reached almost $7.8 billion, an increase of 777% over 2021, according to the Chilean Central Bank. 

It means that lithium carbonate surpassed salmon and fruit in the Chilean export basket.

The success or failure of the Boric administration’s stated intent to leverage public-private partnerships, all seem to agree, will likely hinge on the perceived fairness of the compensation and treatment of the current leading companies, the world’s largest producer Albemarle (NYSE: ALB) and No.2 SQM (NYSE: SQM).