Richest Lithium Nation Risks Being Left Behind in Tesla-led BoomBy
Chile may fall behind Argentina in scramble to produce lithium
Lithium has bucked commodity slump in electric-car revolution
The electric-car revolution is here and Chile is looking to ramp up production of the lithium the industry needs for batteries. Or it would be, but for a bitter dispute between the government and the former son-in-law of a military dictator.
After Chile’s government moved to withdraw its license to exploit one of the world’s largest deposits, Soc. Quimica & Minera de Chile SA opted to invest in a lithium project across the Andes in Argentina and is trying to block a project by Albemarle Corp. in Chile. SQM is controlled by Julio Ponce, the former husband of the late dictator Augusto Pinochet’s daughter.
Demand for lithium is soaring as Tesla Motors Inc. prepares to start production of its mass-market Model 3 battery-powered car and Chevrolet prepares an all-electric “Volt”. The soft, silver-white metal is also used in cell phones.
As of last year, Chile held 54 percent of the world’s known lithium reserves, almost all of it in brine underneath the vast salt flats of the Atacama desert. For now though, it’s neighboring Argentina that looks to be moving faster to capture surging demand, rather than the normally investor-friendly Chile. New Argentine President Mauricio Macri has removed currency and capital controls and a mineral export tax to lure investment.
“This bickering and this back and forth in Chile is detrimental” to production, said Chris Berry, president of research firm House Mountain Partners LLC and editor of the Disruptive Discoveries newsletter. At the same time “the political climate in other parts of the world is changing -- and the case in point is Argentina.”
Sales from SQM’s lithium operations rose 62 percent in the first quarter as prices surged. The metal and its derivatives accounted for 41 percent of gross profit, the mining company reported Wednesday, up from 19 percent a year earlier.
Government agency Corfo, which is legally the owner of mining concessions that SQM exploits in the Salar de Atacama salt-flat, is seeking to rescind the rights, alleging the company has underpaid. SQM said the accusations are unfounded and subsequently announced a joint venture in neighboring Argentina which is targeting production of 40,000 metric tons per year of lithium carbonate by 2019.
That’s not all the company is doing amid its spat with the Chilean state. In April, SQM said it will seek to block an expansion project by rival Albemarle in Chile, citing concern that the operation will have a bearing on its own environmental procedures.
Corfo had announced a 27-year contract with the Baton Rouge-based Albemarle in February to expand production in exchange for a royalty of about 40 percent of sales. The state agency declined to comment. SQM didn’t respond an e-mail with questions.
The dispute between SQM and the government doesn’t come out of the blue. In 2012, an auction that awarded SQM rights to produce an additional 100,000 tons of lithium was annulled after a review discovered that the company failed to meet all requirements.
And controversies continue. The company has fired its CEO for an illegal campaign- financing scandal that has tainted almost all the country’s political parties. At the same time, Julio Ponce is fighting in courts a fine of about $70 million imposed by the securities regulator for illegal trading in shares of SQM’s holding companies.
The series of quarrels has led Ponce to hire a unit of Itau Unibanco Holding SA to invite bids for his controlling stake in one of those holding companies.
As Chile bickers, Argentina may surpass it in the next few years as a lithium producer.
Australia’s Orocobre Ltd., with backing from Toyota Motor Corp., produced 2,232 tons in the first quarter from its Salar de Olaroz in northern Argentina and is expected to reach full capacity in September. Admiralty Resources NL is in the pre-production phase at the Salar de Rincon, Galaxy Resources Ltd. is developing the Sal de Vida salt-bed project and Lithium Americas Corp. is working with SQM on the Cauchari venture, according to a presentation from the Argentine government. SQM agreed to pay $25 million to Lithium Americas for 50 percent of that project, which will begin construction in 2017.
Prices for lithium carbonate at 99.5 percent purity in China more than tripled in the last 12 months to 168,000 yuan (about $26,000) per ton from 49,000 yuan, according to Asian Metal, as the government subsidizes electric buses to help clean up smog levels. While prices are falling in China, elsewhere in the world they will continue to climb, Citigroup said in a report. In 2015, Chile produced about 35 percent of global lithium output totaling 200,000 tons, according to estimates from consultancy Stormcrow Capital Ltd.
It’s not as if Chile doesn’t recognize the potential for lithium. The government has declared it a strategic industry, which means that it won’t hand out concessions to private miners but rather invite companies to form partnerships with state companies such as copper miner Codelco. But those projects will take time to get online, according to Berry.
“The market is growing, but supply isn’t going to stand still and wait for SQM and the Chilean government to iron out their differences,” Stormcrow President Jon Hykawy said by e-mail.
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