Chile’s SQM Reaches Lithium Mining Accord With Codelco

(Bloomberg) -- SQM, the world’s second-largest lithium producer, reached a framework agreement to hand over a majority stake in its prized Chilean brine assets to state-owned Codelco in exchange for extending operations for three more decades. 

If ratified, the deal would allow the new public-private partnership to increase output at one of the world’s richest sources of lithium. It’s also a critical first step in the government’s model for opening up new areas for producing the key component in electric-vehicle batteries as demand accelerates in the energy transition.

After several months of talks, the two negotiating teams led by SQM Chief Executive Officer Ricardo Ramos and Codelco Chairman Maximo Pacheco reached the initial agreement for the development of the Atacama operations for 2025-2060, the two firms said in statements Wednesday. US-listed shares of SQM were up 4.2% at 9:36 a.m. on Thursday.

Under terms of the memorandum of understanding, a new operating company will take over the assets from 2025, with Codelco owning 50% +1 and SQM 50% -1. 

Through 2030, SQM will retain control over operations with equal board representation, although Codelco will have some veto rights. Then from 2031 through 2060, the operation would switch to a new mining lease to be signed by Codelco, with the state copper behemoth getting both boardroom and operational control, although SQM will have some veto rights.

Output Numbers

In terms of sales, the deal supports more than 275,000 tons a year through 2031, although the way it’s structured would encourage SQM to target 300,000 tons, BMO Capital Markets analyst Joel Jackson wrote.

While the agreement favors Codelco, SQM investors are being offered some relief given the private operator’s current contracts expire in 2030. American Depositary Receipts in the company had dropped more than 20% this year. 

“The deal is complicated, but value enhancing for shareholders, which were potentially facing harsher post-2030 scenarios,” Jackson wrote in a note to clients.

A finalized agreement would also give Chilean President Gabriel Boric’s government a much-needed victory in its new public-private model for lithium development. 

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Chile has the world’s largest lithium reserves, but it’s been losing market share as output remains restricted to two operations on a single salt flat. 

Boric unveiled a new model to develop lithium in April, saying the state will take a controlling stake in future public-private partnerships deposits considered strategically important. 

His administration left Codelco in charge of negotiating terms on a case-by-case basis, including with the two incumbent producers, SQM and Albemarle Corp. Albemarle has contracts that run until 2043. Separately, another state firm, Enami, has been tasked with finding partners for smaller salt flats.

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