Yahoo Finance Codelco to Enter Lithium Market After Signing Deal With SQM
(Bloomberg) -- Copper behemoth Codelco is about to become a major lithium player after signing a partnership that will give the state-owned company a majority stake in SQM’s prized Chilean brine assets.
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A definitive agreement announced Friday ratifies a preliminary accord forged between the two firms late last year, although regulatory, community and — potentially legal — hurdles remain before the deal is implemented early next year.
The partnership is a pillar of President Gabriel Boric’s agenda to have more state control in key lithium assets while boosting output of the battery metal in the transition away from fossil fuels.
World No. 2 lithium supplier SQM will relinquish a majority stake in its Atacama salt flat assets in exchange for three more decades of operations in one of the world’s richest sources of lithium. Shares in SQM, whose current contract expires in 2030, rose 2.6% at 9:55 a.m. in New York.
The deal clears the way for the new public-private partnership to ramp up production at the Atacama operation from less than 200,000 metric tons a year toward 300,000 tons, thereby giving battery makers greater assurances on future supplies of a key raw material. A global lithium glut that drove down prices is still working its way through supply chains, but SQM is expecting buyers to come back into the market, forecasting demand to rise 20% this year.
Read More: Chile Eyes Doubling of Lithium Output Amid Substitution Risk
Increased output would come from efficiency gains and new technologies rather than more brine extraction, with Codelco bringing a production quota of as much as 300,000 tons to the venture.
The partnership will take the form of a joint venture, in which Codelco will own 50% of shares plus one. Operational control will be in the hands of SQM through 2030, then Codelco through 2060.
Still, celebrations of a definitive accord are being tempered by potential obstacles ahead of its implementation “in the first months of 2025.” As Codelco Chairman Maximo Pacheco said in Friday’s statement: “There are still several milestones to be reached before this partnership becomes operational.”
They include an indigenous consultation process, permitting and antitrust approvals locally and abroad, according to the statement. The companies didn’t say what foreign approvals they might need.
The new partners will also be waiting for a decision by Chile’s securities regulator after SQM’s second-largest shareholder, Tianqi Lithium Corp., requested the deal go to a stockholder vote. The Chinese firm, which has endured boardroom restrictions since buying its 22% stake in 2018, alleges SQM failed to disclose key terms during the negotiation process and has kept the door open to legal action.
“Overall this is positive, but I don’t know how Tianqi will react,” BTG Pactual analyst Cesar Perez-Novoa said by telephone.
Boardroom Restrictions
Terms of the arrangement attempt to address concerns raised by some lawmakers that current boardroom restrictions on SQM’s top shareholder, Julio Ponce, and his immediate family members should also be reflected in the Codelco arrangement.
While the document released Friday doesn’t name Ponce, it states that board members of the new venture can’t have served as Codelco or SQM directors for more than 10 years, which would effectively rule out the former son-in-law of dictator Augusto Pinochet.
Defending criticism that the deal favored SQM, Pacheco has said in recent months that the Chilean state will initially receive about 70% of proceeds from new production, which will increase to 85% in 2031.
Some analysts and politicians have said Codelco’s foray into lithium poses a distraction in its efforts to turn around copper mines that have seen output slump to quarter-century lows. The decision to put the state copper company into the lithium business was ideological, according to Juan Carlos Guajardo, head of consulting firm Plusmining. A better option may have been to hold a tender process for the assets once SQM’s contract expires, he said.
Read More: Race for Speedier Lithium Is Underway From Arkansas to Argentina
The Boric administration is also looking to open up new areas to lithium mining after Chile’s production quota system saw its share of the global market shrink in recent years. Authorities are also offering preferential pricing of semi-processed lithium to companies that pledge to process it further in Chile.
The government is also favoring new extraction processes that return brine to underground lakes once lithium is stripped out — in a bid to ease environmental concerns of local communities and investors. Such techniques are still being tested in Chile and can require more energy and water than the highly profitable evaporation method that is currently employed.
Codelco and Chile’s other state mining firm, Enami, are also seeking partners to develop lithium projects. Chile’s only other current producer, Albemarle Corp., has a contract that runs through to 2043.
--With assistance from Marcelo Rochabrun.
(Updates shares and adds comment from analyst)
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