Is this when Chile’s lithium wager pays off? 

Two years after President Gabriel Boric pushed to develop Chile’s lithium potential, the initiative could soon start to bear fruit. 

The government is expected to announce four deals this year with private companies to develop lithium projects. France’s Eramet (EURO: ERA) and Chinese electric vehicle maker BYD are among those reportedly in the running, while state copper giant Codelco and government miner Enami seek partners of their own like mining giant Rio Tinto (ASX: RIO) for Chile’s two largest battery metal projects. 

The initiatives could really change perceptions about Chile which, despite holding the world’s largest lithium reserves, has been seen as a closed shop due to a law reserving production for the state. The potential deals, also expected for another eight projects, could see lithium production double over the next decade to almost 500,000 tonnes a year, recapturing Chile’s position as the world’s leading producer. 

“They can really send a message to the world that private companies are up and running with projects in Chile,” Gordon Stein, chief financial officer of Cleantech Lithium (AIM: CLT), told The Northern Miner in March. “We’re at a really interesting point where it’s all coming together.” 

A prefeasibility study for the company’s $450-million (C$644-million) capex Laguna Verde project is due imminently. It has an industrial-scale test plant up and running and the support of local Indigenous communities. A government licence could see the company start operating by the end of the decade. 

Licences due 

Eramet, which last year bought the Siete Salares project for $95 million, and Canada’s Lithium Chile (TSXV: LITH), are also in the running. The first batch of licences were to arrive near the end of March.  

“We are going to end the year for at least four permits awarded to produce lithium,” Cristian Quinzio, a mining lawyer in Santiago, said in an interview. “And with that the government will have met its aims.” 

The announcements are due as Codelco takes 50%-plus-one-share control of the country’s largest lithium operation run by SQM (NYSE: SQM). Codelco is also seeking a partner to develop the Maricunga salt flat into what could be Chile’s second-largest lithium operation after buying Australia’s Lithium Power International last year for $244 million. Empresa Nacional de Minería, or Enami, is seeking a partner for its Altos Andinos project. 

While increasing state participation in world-class assets like the Atacama salt flat, the world’s largest lithium reserve, the government intends to provide the legal certainty necessary for private investors to develop new projects. It’s a strategy that has worked in its giant copper industry where multinationals have invested billions of dollars alongside the powerful state mining firm. 

“Given the political realities, this was really the best outcome available,” Daniel Jimenez, a Santiago-based consultant to the lithium industry, said by phone. 

Obstacles? 

Challenges include Indigenous groups who view the salt flats as their ancestral property, and the country’s permitting process, especially given the fragile ecosystems. 

But consultations on the new projects have advanced as isolated communities see the benefits of projects on their doorstep. And legislation in Congress to slash red tape and cut permitting times should facilitate that process, says Cristobal Sarmiento, a lithium specialist at the Diego Portales University in Santiago. The development of new, cleaner and faster methods of extracting lithium from the brine should boost the process as well.  

New contracts to produce lithium are expected to require investors to adopt direct lithium extraction (DLE) technologies which can produce the mineral without the huge evaporation pools currently employed by Albemarle (NYSE: ALB) and SQM. 

These could significantly reduce the industry’s environmental footprint and water consumption, advocates say. But it is not clear the technology can be successfully applied in all conditions. 

“By obliging the new projects to use DLE, we could be creating further delays,” Jimenez said. 

If they can be developed swiftly, Chile’s new projects could come at just the right time for the depressed lithium market. After two years in the doldrums due to a build-up of inventory, SQM says prices are expected to begin recovering next year as demand for electric vehicles continues to rise. 

“This is the time to be developing projects,” Quinzio said. 

National strategy 

It would be a big change from two years ago. When left-leaning President Boric launched his national lithium strategy, many industry analysts accused him of seeking to expropriate the country’s natural resources. 

Although Boric has shelved plans for a state lithium company due to a lack of congressional support, the Codelco deal has advanced with minimal opposition. Attempts by China’s Tianqi Lithium, which owns 20% of SQM, to force a shareholder vote have been blocked in the courts while Boric has intervened personally to soothe concerns among local Indigenous communities.  

“We have not encountered any significant obstacles in this process, and we’re currently expecting that the conditions will be met in the second half of this year,” SQM chief financial officer Gerardo Illanes told analysts on a March conference call. 

Federal vote 

In October, Chileans will head to the polls to choose a new president in what is turning into a wide-open race among several candidates across the political spectrum. 

Whatever the result, the new government is likely to keep focusing on growth and creating jobs after social unrest in 2019, the pandemic and then a four-year debate on a new constitution. 

Along with copper mining and clean energy, authorities are expecting lithium to be a key driver of foreign investment over the next decade. Given the progress under Boric, a new government is unlikely to tear up the rulebook and start again. Quinzio said. 

“Whoever wins is going to follow the same path, but go faster.”