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State control of Chile lithium operations 'a mistake' – former mining minister


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State control of Chile lithium operations 'a mistake' – former mining minister

Chile's new national lithium strategy will not stop the country from losing market share.

➤ The Chilean state is already capturing enough revenue from the lithium industry through taxes and royalties.

➤ A good middle ground between various political agendas would be a state-owned vehicle holding minority stakes, but not control of lithium operations.

The administration of leftist Chilean President Gabriel Boric has changed the direction of the country's lithium industry by requiring that all new lithium projects give the state a majority stake. Chile is expected to lose its place as the world's second-largest lithium producer to Argentina in 2027, behind Australia, S&P Global Commodity Insights analysts estimated in August.

The current government has not signed any new lithium contracts and is in discussions with existing producers Sociedad Química y Minera de Chile SA (SQM) and Albemarle Corp. over contract renewals and terms. Negotiations with SQM have been politically tense due to a 17% interest held by Julio Ponce Lerou, the former son-in-law of former Chilean dictator Augusto Pinochet. Pinochet, a general who ruled Chile and campaigned for free-market policies from 1973 to 1990, privatized SQM in the 1980s.

Juan Carlos Jobet was Chile's minister of mining in 20202022, during the final years of the administration of conservative President Sebastián Piñera. Piñera's government awarded special operating contracts for lithium extraction near the end of its administration, but they were revoked by the Supreme Court over a failure to complete prior consultation with nearby Indigenous communities.

S&P Global Commodity Insights spoke with Jobet to discuss the state of Chile's national lithium plan and which policies he believes would bring stability to the industry. The following conversation has been lightly edited for clarity and length.

S&P Global Commodity Insights: What is your opinion on the new national lithium plan released under the administration of Gabriel Boric?

SNL Image

Juan Carlos Jobet, Chile's former minister of energy and mining.
Source: Juan Carlos Jobet.

Juan Carlos Jobet: I think the objectives that the administration is trying to accomplish are broadly shared and reasonable. Those main objectives are to increase lithium production, that the Chilean people capture a reasonable and fair share of the value through the state, sustainability, and moving upwards in the lithium value chain.

We have disagreements on what are the best tools or policies to accomplish those goals. Making the state control lithium operations was a mistake for several reasons. First, it is not necessary for the state to control lithium companies in order to capture a fair share of the value that is created. In fact, in the current contracts with SQM and Albemarle, the state already captures around half of the value. Second, the state doesn't have the capabilities, knowledge or expertise to successfully and efficiently run lithium operations. Third, we agree on reducing the environmental and social impacts, but the policy says companies should use direct lithium extraction (DLE) to produce lithium.

Technology changes very fast, and the state should not be demanding a particular technology, but instead should be demanding certain standards. It's the outcome that we want to accomplish, not the ways in which the outcome will be achieved. And the other thing is that DLE is still in its infancy.

Finally, on the idea of adding value to the lithium [industry], it makes sense but it's very difficult to push an industry to add more value if the country does not have a competitive advantage in that segment. Some people say we should be producing batteries, but that doesn't make sense because over 90% of the cost of a lithium-ion battery is not lithium.

Do you think Chile has missed its opportunity to capture all of the market share it can in the lithium industry?

Numbers are more interesting than my opinion. We had roughly 60% global market share around 2010. We now have below 30% and most experts predict that we're going to be below 15% by the end of the decade.

And I don't think the lithium plan that the government has put in place is going to reverse that tendency, unfortunately.

Do you believe that the government's planned state-run lithium company will be approved by Congress?

I don't think so. And I don't think the government really believes the company will be approved either. They sent the project to Congress just to comply with a commitment made during their campaign.

The broader national lithium plan can be implemented without congressional approval, but what will happen to the plan after the next election?

If you ask me what is at the core of all the problems and struggles we have with lithium — we don't have a broad enough political agreement on what we want to do with lithium that can be sustained over time. This government made the same mistake that past governments including myself made, which is pushing their agenda without reaching an agreement with the opposition.

What would be the middle ground?

That's the million-dollar, or billion-dollar, question. I think we could have a state-owned vehicle. An entity that holds minority stakes in lithium operations, that captures a fair share of value through dividends and royalties but allows private companies to run the operations. Companies would be chosen through a competitive process and, I think, we could even make lithium a concession.

Codelco, the state-run copper giant, was tasked with managing the lithium industry but is struggling to maintain copper production amid declining ore grades. Can the company take on the additional responsibility right now?

The decision to involve Codelco was a political decision because the negotiations with SQM are going to be politically complicated because of the controversial story of SQM and its shareowners.

Codelco should focus its efforts on copper because of its very high debt and very challenging ongoing projects. It's too ambitious. Codelco doesn't have expertise in lithium. And I don't think we should be investing lithium revenues to strengthen Codelco's balance sheet. I am afraid that what they are doing is giving Codelco access to the money that lithium will generate.

At a Sept. 13 congressional hearing, Codelco Chairman Máximo Pacheco said the company's debt comes from a lack of state reinvestment of revenues for more than 50 years. During your time as minister, what actions were taken to help Codelco boost production?

The financial situation of Codelco is a combination of different things. One is declining production, the other is high production costs. If your production goes down, you need to scale your cost structure to be consistent with your production, and I don't think that has been done in the last couple of years. And another thing, as stated by Chairman Máximo Pacheco, is that the Chilean state, as a shareholder, has not made enough equity contributions to Codelco.

This is not something that should be politicized. The structural projects have been going on for a while. During our administration, we were very respectful of the corporate governance of Codelco. I was not involved, nor should I have been, in the day-to-day operations of Codelco.

At the time, we had discussions with Codelco. Projects were going according to budget, more or less, and timing was reasonably aligned with the original forecast.

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