Codelco in talks with Australia’s Lithium Power on potential deal

Australia’s Lithium Power International (ASX: LPI) confirmed Thursday it was in talks with Chilean state-owned copper miner Codelco about a potential deal to jointly mine for the battery metal in the South American country.

Chile announced in April a new national lithium strategy, which calls for public-private partnerships for future lithium projects.

Under the new model, the state takes a controlling stake in operations considered strategically significant, while private firms can retain control of projects in non-strategic areas. 

Codelco has been tasked with negotiating for the government’s stake in Albemarle’s (NYSE: ALB) and SQM’s (NYSE: SQM) operations, the only two miners currently producing lithium in Chile.  

Together with state miner Enami, Codelco is also in charge of signing up partners for new contracts. Their roles will be eventually undertaken by a national lithium company.

Lithium Power, which recently sold its Western Australian assets to focus on the development of its flagship Maricunga lithium brine project in Chile, said Codelco was undertaking due diligence on the company.

Shares in Lithium Power soared on the news, closing 34.6% higher on Thursday to A35¢ (30¢) and leaving the company with a market capitalization of A$163.6 million ($141.6 million), according to the ASX.

The Sydney-based company is being advised by Canaccord Genuity, while Codelco has tapped Rothschild.

Finding a copper-lithium balance

Chile is already the world’s No. 2 producer of lithium after Australia and holds the globe’s largest known deposits of the coveted battery metal.

Some analysts have questioned whether Codelco, the world’s largest copper producer, which has no experience as a lithium miner, can tackle the challenge of boosting its own production while kick-starting Chile’s lithium industry. 

Maricunga project location. (Courtesy of Lithium Power International.)

Mining minister Marcela Hernando and industry insiders have said that the 47-year-old company would likely focus on dealing with rising costs and growing debt while negotiating contracts for lithium operations, but would let others do the work.

Codelco’s production in the first half of 2023 was 633,000 tonnes of copper, the lowest in 25 years. Over the past five years, its output has fallen 17% and is expected to keep dropping until 2025.

Codelco Chairman Maximo Pacheco said on Wednesday that the firm’s mine plan overhaul would address the factors holding back production. These include plants that are being operated at a capacity “far superior” to the mineral grade being mined.

Speaking at an industry event in Santiago, Pacheco said that in its 51 years of existence, Codelco has delivered $168 billion in surpluses to the state, but unlike private miners, it has not received enough funds to invest in its projects. 

He noted the company has received about 3.2% ($3.2 billion) of the almost $100 billion Codelco has invested between 1971 and 2022.