The fight for control of Chile’s lithium business

With global lithium demand booming, Chile needs a plan to protect its economy and environment

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A salt flat in the Atacama desert in northern Chile (image: Jorge Pacheco)

In northern Chile, at just over 2,300 metres above sea level, three thousand square kilometres of eerie landscape mark the world’s driest desert. The Salar de Atacama, a white sea of salt, conceals huge reserves of one the most sought-after metals there is – lithium.

For several months, Tianqi, the Chinese company that controls the largest share of lithium reserves in the world, has tried to reach an agreement with Chilean company Sociedad Química y Minera de Chile (SQM), which owns the largest deposits in the country.

The dispute revolves around what would amount to the Chinese company’s control of the majority of global lithium reserves and their purchase of the raw material with Chile adding little value. Chile considers lithium – the exploitation of which poses big, and as yet unknown, risks to the environment – strategically important for its economy.

The Dispute

In May this year, Tianqi acquired 24% of SQM for US$4,066 million but the deal has come under scrutiny. SQM’s board objected to the deal on the grounds that, providing it is approved by regulators in April 2019, the Asian company will handle around 70% of the world’s lithium production.

Former chairman Julio Ponce wanted to at least limit the participation of Tianqi’s executives on the board in order to safeguard their strategic commercial information.

The tug-of-war negotiations were even raised at investment fair Chile Week China, which took place in Beijing at the beginning November. The event ended with the signing of an agreement to strengthen commercial cooperation between the two countries.

Xia Nong, general director of industry at top Chinese planning body the National Development and Reform Commission, told the Chilean authorities present at the forum –   including Foreign Minister Roberto Ampuero – he was concerned about delays in the process.

The dispute was brought to local court and has been referred to the National Economic Prosecutor’s Office, the Free Competition Tribunal and the Constitutional Court.

Chinese stakeholders do not understand why the process has taken so long, according to Fernando Reyes Matta, director of the Latin American Center for China Studies (CELC) at Santiago’s Universidad Andrés Bello.

“Specifically, what they are asking is why did the case not go directly to the highest Chilean legal chamber instead of following several previous steps,” he said. The court has now approved the transaction and there should be no further delays.

Strategic Resource

In 1979 the Chilean military government declared lithium a strategic resource, meaning there would be restrictions on extraction.

Two private companies currently operate in the Salar de Atacama: SQM and Albemarle. These companies signed contracts in 1993 and 1980, respectively, with Corfo, the Chilean government agency in charge of supporting lithium development.

According to Reyes Matta, who is also a former Chilean ambassador to China, Chile has a history of foreign companies controlling production of its natural resources.

“We saw the same thing with saltpetre [a source of nitrogen used in fertilizers] and the English, and then with copper and the Americans,” he said. Both are activities on which the Chilean economy depended and still depends. Copper accounts for around half of Chile’s total exports, around 40% of which, worth some US$18 billion, go to China, according to World Bank data.

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SQM’s lithium operation in the Salar de Atacama (images: Google Earth)

However, though Chile has increased exports of refined copper in recent years, activities have historically focused only on the exportation of raw material and not adding value by processing it.

Now Chile hopes to avoid the mistakes of the past. The mining commission of the Chamber of Deputies of Chile recently approved a bill stating that the exploitation, industrialisation and commercialisation of lithium was in the national interest.

The Senate is debating another bill declaring the State’s exclusive and constitutional right to exploit the raw material.

In January 2018, China and political bloc the Community of Latin American and Caribbean Nations (CELAC) released the Declaration of Santiago, which outlined priority areas for cooperation. A section of the document on trade, investment and finance agrees to define areas for: “investment cooperation and productive capacity that benefit the long-term socio-economic development of both Parties”.

At present, Chile has limited capacity amid pressure to meet huge global demand for lithium. This is expected to increase from 37 thousand tonnes last year to around 91 thousand by 2025. Its principal use is in electric vehicles. The 18 thousand tonnes of lithium needed to manufacture them in 2017 will increase to 64 thousand by 2025.

Environmental Unknowns

There are also a number of environmental unknowns about scaling-up production of one of Chile’s prized natural resources.

Although both SQM and Albemarle have environmental permits to operate in the Salar de Atacama, each new investment must be approved by a national environmental agency. Still, legislating for the long-term impacts of extraction is vital.

“The Government should set out an extraction plan for exploitation of the mineral. Exploitation of lithium must be done according to environmental laws because breaking them will come at a cost,” Reyes Matta said.

To obtain lithium from salt, brine (which contains lithium sulphate and potassium) is pumped from underground wells through pipes into evaporation ponds, in which the solution dissolves and crystalises into salts through exposure to the sun. During evaporation, the concentration of lithium rises from 1% to 6%.

The process can take up to a year.

As there is no rain and the environment is dry, the bi-products do not constitute a risk to the environment

Salts are then taken to a plant in which solvents are used to separate out the lithium. The result is processed lithium, but also solid tonnes of less soluble salts, such as magnesium and calcium, which are disposed in the same salt pans.

“As there is no rain and the environment is dry, the [the bi-products] do not constitute a risk to the environment,” said Álvaro Videla, a mining engineer at the Catholic University of Chile, said of the risks of extraction.

The biggest impact is in the extraction of the brine itself, he said.

Despite being the driest desert in the world, wetlands and groundwater are part of the salt system, and are vital for the area’s communities and biodiversity.

“Extraction must be limited and, therefore, contracts must updated while knowledge advances on how to achieve a water balance,” Videla said.

SQM and Albemarle’s daily activities use over 200 million litres of water (fresh and salt).

Diálogo Chino contacted both companies to ask about the measures they take to limit the environmental risks of their work. Neither responded to requests.

“The current extraction method depends on the availability of water, and with climate change it will be increasingly scarce,” Videla said.

This lack of information is one of the biggest problems for the environmental management of the process.

“Scientific opinions talk about a complex problem, where the glaciers that feed the salt system are different and behave differently,” said César Padilla, coordinator of the Observatory of Mining Conflicts in Latin America (OCMAL).

He added: “The resource is being exploited to take advantage of today’s big global demand, but it is leaving aside what will happen to the ecosystems.”

Reyes Matta said: “You should not take specific decisions with lithium, but we must have a development strategy that prioritises Chile’s maximum interest, both now and in the future.”