Chile hopes to unlock its lithium potential by forming a state-run mining company that will partner with private miners, in a shift away from the country's strategy of selling mining permits.

Chile has the world's second-largest lithium reserves behind Bolivia, yet trails Australia in production, according to S&P Global Market Intelligence data. The country has struggled to solidify additional foreign investment, closing its doors to new miners following political disputes and proposing dramatic shifts to public policy, including possible changes to royalties and water rights.

Analysts have been left wondering if the country will miss out on the lithium boom. Prices of the white metal are soaring and will likely further increase amid demand for electric vehicle batteries. Leftist President Gabriel Boric has proposed to extract Chile's lithium wealth through a state-run company that would invite foreign partners to become minority stakeholders, allowing Chile to maintain control of its resources while accessing critical foreign capital and expertise.

"We don't have any opportunities related to lithium [extraction] right now because the government is working on a national company," said a representative from InvestChile, the country's investment agency.

Whether foreign investors buy what President Boric is selling remains to be seen, but keeping their attention will require the administration to release the national company's structure and business model, which was expected by the end of 2022.

"If this delays project execution it will not only delay cash flows, but there is also a likelihood that a lower lithium price environment is to be accounted for," said Daniel Jimenez, partner at iLiMarkets, a lithium consulting firm in Santiago. "The opportunities, starting from early exploration are very interesting. But being realistic also means to understand that production is 10 plus years away."

Out with the old

Chile has been losing market participation over the last decade as other countries increase reserves through exploration and new mining projects come online. The country's lithium extraction operations remain concentrated in Charlotte, North Carolina-based Albemarle Corp. and Santiago, Chile-based Sociedad Química y Minera de Chile SA, commonly known as SQM. This reflects the country's historically conservative approach to auctioning operational permits, which has been solidified during the Boric administration.

Wealth Minerals Ltd., Tianqi Lithium Corp. and BYD Company Ltd. also have lithium interests in Chile but did not respond to requests for comment. SQM could not reply by publication time.

"We do not think the best way to define this objective of not losing [market] participation is to put out a bidding process where we sell to the best offer without further consideration," Willy Krach, Chile's mining undersecretary, said in a media interview earlier in January.

While the government has yet to release final details, it has said the proposed state-owned company, Empresa Nacional del Litio, will seek out minority partners to provide the technical knowledge that the government lacks. Outside mining companies chosen through tenders may also be allowed to operate individual lithium projects under a minority stake.

"We do not have time to learn on our own account without bringing in that knowledge that is already in third parties," Krach said in September 2022 at the Foro del Litio lithium metals conference.

Krach said the structure of the state-run lithium company is expected to be similar to Codelco, in that it will include private actors. Codelco was nationalized in the 1970s by Salvador Allende, Chile's first socialist president, and has become the second-largest copper producer in the world.

The government is contemplating creating the company using Codelco's lithium project at the Salar de Maricunga, a salt flat that hosts the second-largest lithium reserves in Chile. This option has been criticized, considering Codelco has been slow to develop its lithium holdings.

Will anyone take the offer?

"The higher the restrictions the private investor has, the less attractive [the investment opportunity]," said iLiMarkets' Jimenez.

Extensive regulatory and investment requirements may reduce interest from major miners, while small and midsize enterprises see the option as beneficial to their growth considering the state would be more willing to level the playing field for control of existing reserves.

"I believe that the function of this national company, in addition to being a global competitor, is from the point of view of integrating more people into the [value] chain. That is, to give the possibility that SMEs can take advantage of this expansion," said Carlos Araya Rivera, president of the LLamara Group. Llamara is developing a project in northern Chile where it aims to mine lithium clays and has been in talks with the country's Mining Ministry.

Chinese, Canadian and Australian companies, including Wealth Minerals, held meetings with Chile's Mining Minister Marcela Hernando in 2022 to speak about their investment interests, according to Diario Financiero, a Chilean media outlet. And Chinese company Tianqi Lithium, which owns 23% of SQM, indicated an interest in working with a state-run company in an interview with La Tercera, another Chilean news provider.

"We view with great interest and enthusiasm the initiatives to be announced by the government with respect to lithium," said Ignacio Mehech Castellón, Albemarle's vice president of external affairs and Chile country manager.

"From what we have learned, the strategy that the government is developing seeks to give continuity to the lithium commission that was developed at the end of the second government of President Michelle Bachelet," Castellón said. "Many of the recommendations of this commission were incorporated into the contract that we signed with Corfo in 2016."

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