Chile’s National Lithium Strategy in Practical Terms
Written by Carlos Cottin, Mining Partner
Last week, President Gabriel Boric’s government announced the long-awaited National Lithium Policy. Since the announcement, there has been a considerable amount of media attention, with headlines that Chile is nationalizing the industry. This is not quite accurate, so we have set out to help companies and investors to understand what these announcements from the government mean at this point in time for the Chilean lithium industry.
Current Lithium Legal Framework
- Chilean Mining Code of 1932: Lithium is a concessible mineral substance (Article 3). Law-Decree N°1.557 (year 1976): The National Commission of Nuclear Energy (CChEN) must authorize the storage of lithium.
- Law-Decree N°2.886 (year 1979): Lithium is a reserved substance in favor to the State because the national interest provides it (potential use in nuclear fusion). It could no longer be object of a mining concession.
- Only existing mining exploitation concessions, registered before January 1st, 1979, are authorized to have lithium as part of their object. Also, in the same regime, all mining concessions derived from mining claims registered before January 1st, 1979.
- It provides that a law will regulate how the State will exercise its rights over the Lithium.
- It modifies law 16.319 (which creates CChEN) in terms of requiring authorization from the CChEN to carry out any legal act regarding lithium (Art. 8).
- Organic Constitutional Law of Mining Concessions of 1982: It incorporates Lithium into other non-concesible mining wealth by nature (Art 3).
- Mining Code 1983 in force: It reiterates lithium as a non-concessible mineral substance (Art. 7).
In conclusion, Chile’s exisiting laws already make lithium a strategic mineral that requires companies to have agreements with state owned companies in order to produce.
National Lithium Strategy
The President highlighted 5 fundamental elements of the National Lithium Strategy:
- The State will participate in the entire production cycle of this mineral by creating a National Lithium Company
- The effort of exploration, exploitation and added value will be based on the principle of public-private collaboration.
- Chile will move towards the use of new lithium extraction technologies that minimize the impact of ecosystems on the salt flats. In turn, it will promote research in the salt flats to find out how to take better care of them. To do this, Chile will establish a network for the protection of salt flats, thus fulfilling the commitment of 30% of ecosystems protected by 2030.
- All this development will be with the participation and involvement of the communities surrounding the mining operations.
- Chile will be aiming to promote not only extraction but also the generation of value-added lithium products.
What does this mean?
National Lithium Company – To create a state company, the government will send to the Congress a bill in the second half of the year that creates the National Lithium Company. This will require dialogue with stakeholders and the different communities that co-exist within the salt flats. There will be developments in this area as those discussions take place.
Existing Lithium Producers – Corfo, the institution that manages the mining concessions currently in the Atacama salt flats, will mandate Codelco to search for the best ways to achieve, from now on, the participation of the Chilean State in the extraction of lithium in the Salar de Atacama. Consequently, companies with existing contracts will need to negotiate with Codelco before their current contracts end. As mentioned above, SQM’s and Albemarle contracts end in 2030 and 2041.
It is important to note that all current contracts will be respected and an anticipated State participation in the Salar de Atacama will be the result of an agreement with those who currently have rights to exploit lithium.
New Exploration – Special operational contracts will be awarded to Enami and Codelco, in areas where there are currently projects that are in different stages of development. These state companies will be able to decide if it is convenient or not to create joint ventures with other private companies. This is similar to what is already happening.
For the other salt flats that have been considered for exploitation, a public bidding process will begin for private exploration contracts, added to the prospecting that we will be carried out by the State itself. In the event that the exploration results show potential, the private entity that carried out the exploration will have a preferential option to request an exploitation contract in association with a State company, such as the National Lithium Company, Codelco, or Enami.
Technologies used for Extraction – In respect to the salt flats that are exploited, the implementation of technologies that minimize the environmental impact will be required, such as direct lithium extraction. It is important to note that to date, no technology has been implemented at the production scale but there are several companies who already have demonstration plants.
The announced strategy still lacks some details. For example, there are no details about state shareholding or other ownership arrangements for the public-private partnerships that will need to be agreed on in order to receive licenses.
More importantly, it is in our opinion that the strategy announced is very similar to what it is already required for companies to advance projects to exploitation. That is, they need to have a special operational contract with a State company.
In terms of the other points raised, such as the use of technology, both SQM and Albemarle have announced that their future growth will rely on technologies that reduce water usage and use direct lithium extraction. Companies currently exploring are also very clear that direct lithium extraction will be required, and many are already working with potential technology providers.
In addition, the strategy refers to local communities. Communities who currently have agreements with SQM and Albemarle are benefiting considerably from funds they are recieving. Community support is required if a project will successfully progress to exploitation so this is not a big step away from what is happening today. This is not an easy process considering there is many different stakeholders but the strategy reenforces the importance of creating positive relationships with communities and provides them with certainty that their rights will be respected.
International investors and companies need to remember that the national lithium strategy is just that, a strategy. It is not a policy yet and will require the government to speak with stakeholders and build support for its plan in congress. This will require time and there will surely be more details that need to be analyzed.
Ax Legal is an advisory firm that works with foreign companies in Latin America. Our team of legal and commercial advisors have a distinguished track record of helping foreign technology and services companies to grow and operate in Latin America. Over the years, we have worked with starts up, mid-size businesses, and publicly listed companies. The one common factor that connects our clients is that they are leaders in their field, providing innovative technologies and services to the industrial sectors.
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