Lithium Boom Takes Chile's SQM Across Andes in Argentine Venture

  • Pays $25m for stake in Lithium Americas' Cauchari project
  • Argentine venture has potential to produce 40,000 tons a year

The race to supply lithium to the rechargeable batteries used in cell phones and electric cars is taking Soc. Quimica & Minera de Chile SA over the Andes as Argentina’s new government seeks to open up its reserves.

SQM, the second-biggest lithium carbonate producer, agreed to pay $25 million to Lithium Americas Corp. for 50 percent of Minera Exar, which owns a project in northern Argentina’s Cauchari, the Santiago-based company said in a statement Monday. Exar will update a feasibility study for a project that may produce 40,000 metric tons a year for more than 30 years.

Controlled by Julio Ponce, the former son-in-law of dictator Augusto Pinochet, SQM is looking to join South Korea’s Posco and FMC Corp. in Argentina where President Mauricio Macri has removed capital and currency controls and an export tax in a bid to jumpstart its mining industry. “Almost all” lithium companies are looking at Argentina right now, Mining Secretary Daniel Meilan told an industry conference in Toronto on March 7.

“One of the main objectives of this deal is to use SQM’s technical experience to reduce risks of developing Cauchari," Lithium Americas Chief Executive Officer Tom Hodgson said in a separate e-mailed statement.

Concession Battle

In Chile, SQM and Albemarle Corp. harness the sun and the world’s driest desert to evaporate brine from ponds in one of the lowest cost forms of production. The Chilean company recently begun to look for acquisitions abroad after consolidating operations during the last few years, Chief Executive Officer Patricio de Solminihac said in a conference call with analysts March 3.

SQM is locked in a legal battle with the Chilean government over mining rights in Salar de Atacama, which accounts for more than a third of earnings. The government has threatened to revoke the license, accusing the company of underpaying royalties. SQM says it has complied with its contractual obligations.

Even though Potash Corp. of Saskatchewan Inc. is its largest shareholder, Ponce controls SQM via a series of cascading holding companies. He hired a unit of Itau Unibanco Holding SA to seek bids for an indirect stake in SQM in a transaction that could lead him to cede control of the company.

Lithium accounts for about 13 percent of SQM’s annual sales and 21 percent of net income, according to data compiled by Bloomberg. The company expects lithium prices to rise despite new supply hitting the market due to demand from battery producers, De Solminihac said at the conference call.

Global demand for lithium is expected to grow by more than 10 percent this year, versus about 150,000 tons last year, according to SQM.

Albemarle acquired Rockwood Holdings Inc. in a $6.2 billion deal that closed in January last year.

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