Last Thursday night, in a televised address to the nation, Chile's president, Gabriel Boric announced his government's new lithium strategy. The announcement, which had been expected for months, confirmed the state-led approach to lithium exploitation that was promised by Boric during the 2021 election campaign.
The new policy has been widely characterized as the "nationalization" of lithium and, in his speech, Boric indeed invoked expropriations that occurred in Chile's copper industry in 1971. However, it must be remembered that, as a result of policy paralysis, Chile has been effectively closed to new private investment in lithium for decades, with only two private producers holding longstanding leases, and all other would-be players left waiting. Now, with Thursday's long-awaited announcement, Chile has at last created a defined pathway for some new private participation in the industry. Therefore, the new policy will, in fact, create important opportunities for some of our clients.
The new strategy focuses on the creation of wealth for Chileans, the protection of the environment (with some lithium deposits to be held off limits to exploitation), community and indigenous consultation, the promotion of research, and a value-added approach to the development of the resource. The aspects of the policy most relevant to our clients include the following:
- The creation of a national lithium company. A national lithium company was promised by Boric during his election campaign and it has been duly included in the strategy. But, under Chilean law, it can't be implemented without supermajority approval in the divided congress. For now, the country's two existing state-owned copper companies, Codelco and ENAMI, will take the leading roles.
- A mandate for Codelco to negotiate with the two existing private producers: The two existing producers have leases that won't expire for several years. However, the government has mandated Codelco to negotiate with them to achieve state participation. How they will react remains to be seen. The government has emphasized that it will respect the terms of the existing contracts (until their expiry) if new deals aren't reached.
- Codelco leadership of any new developments in the Salar de Atacama. Under the new policy, any future developments in the Salar de Atacama, the largest salt flat and the source of all of Chile's current lithium production, will be led by Codelco, but with an openness to public-private partnerships, as long as Codelco retains a controlling stake.
- Codelco and ENAMI leadership on salt flats where they already have projects. Rights for lithium exploration and exploitation will be granted to Codelco and ENAMI in the areas where they already have projects. However, the two state entities will be permitted to decide whether to associate with private partners to develop those projects. Codelco and ENAMI are both short on capital and expertise, so this is widely expected to be the preferred solution.
- A tendering process for private companies to carry out exploration on other salt flats. Where Codelco and ENAMI do not already have projects, private companies will be invited to tender for exploration rights. If they find economic resources, they will have a preferential right to partner with one or another of the state companies for the development of those resources. If a deposit is deemed strategic, the state must have a controlling stake. What might be considered "strategic" has not been defined. For non-strategic deposits, no particular level of state participation is prescribed.
While the scope of private participation is not as great as some clients had hoped – and while the tendering process may leave some companies that currently have lithium "projects" but no lithium rights in a difficult position –, material new investment opportunities seem sure to emerge.
One of the most important questions is how soon various elements of the new strategy will be implemented. The government has made clear that the first steps in implementing the strategy will include such things as community and indigenous consultation and institution building. There is no defined timeline for invitations to tender. Therefore, some fear that years may pass before new contracts are actually signed with private companies. However, our firm's sources within the government report that the administration is eager to demonstrate the success of the new strategy and has given instructions within different ministries to move expeditiously. Therefore, now is the time for the industry to begin focusing on Chilean lithium opportunities.
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