SQM (NYSE:SQM) has entered into a partnership agreement with Codelco, Chile's stated-owned copper miner, through which the two will jointly exploit lithium and other products in the country's Salar de Atacama.
The joint venture is part of Chile's strategy to nationalize its lithium industry. Chile, which holds the world's largest lithium reserves and is a top producer of the battery metal, announced plans to nationalize its lithium industry in 2023.
Codelco will own the majority of the joint venture, as required by Chile's nationalization plans.
The partnership between SQM and Codelco will involve the merger of Codelco’s subsidiary, Minera Tarar, into SQM’s subsidiary SQM Salar. It will allow for increased lithium production through to 2060.
According to a press release from Codelco, the aim is to produce an additional 300,000 metric tons (MT) of lithium carbonate equivalent from 2025 to 2030, with output of 280,000 to 300,000 MT set for 2031 to 2060.
"This increase in lithium production will be achieved through improvements in process efficiency, the adoption of new technologies and the optimization of operations and does not entail increased brine extraction or use of continental waters," the company states. By 2031, Chile will receive 85 percent of the partnership's operating margin.
The public-private partnership is Codelco's first foray into lithium, and various conditions must be satisfied in order for it to proceed, including governmental approvals and consultations with Indigenous communities. SQM and Codelco expect the conditions to be fulfilled by the first half of 2025, although the earliest closing date is January 1, 2025.
The agreement also covers the transfer of SQM's properties in the Salar de Maricunga to Codelco, and the granting of SQM intellectual property licenses to Codelco and the joint venture.
Tianqi pushes back against SQM-Codelco deal
The deal between SQM and Codelco continues to face opposition from Tianqi Lithium (OTC Pink:TQLCF,SZSE:002466), SQM's second largest shareholder. The Chinese firm has been vocal in demanding that the deal be subjected to a shareholder vote, alleging that SQM failed to disclose key terms during the negotiation process.
Tianqi acquired a 22 percent stake in SQM for US$4 billion back in 2018.
Lawmakers have also raised past controversies involving SQM's top shareholder, Julio Ponce. The former son-in-law of dictator Augusto Pinochet was fined in 2014 for illegal trading of shares in his holding companies, and around the same time, SQM was implicated in a case involving the illegal financing of political parties.
Regardless, Chilean Finance Minister Mario Marcel remains optimistic about the deal's future.
"We hope that the agreed deadlines will be met," he said in an interview. "Any agreement of this size does not end simply with the signing of a document. There’s a whole implementation process that continues."
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Securities Disclosure: I, Giann Liguid, hold no direct investment interest in any company mentioned in this article.