Codelco and SQM ink pact aims to transform Chile’s lithium sector

Authors: Daina Beth Solomon and Fabian Cambero

SANTIAGO (Reuters): Chilean miner Codelco and the world’s No. 2 lithium producer SQM struck a key joint venture agreement on Friday that will transform the Andean country’s lithium sector and give the state a leading role in the development of key electricity sectors and a metal vehicle battery.

The new entity will enable SQM to increase production by 2060 in the Salar de Atacama, one of the world’s most valued lithium mining areas.

Most control, however, will go to Codelco, which will be the copper lithium giant’s first venture into a state mandate to lead the government’s entry into the industry. There are still a few hurdles left to finalize the partnership.

“Just as we contributed to making Chile a world leader in copper production, we will now contribute to making our country a leader in the production of lithium, another mineral critical to the energy transition,” Codelco CEO Maximo Pacheco said in a statement.

Chile is the world’s second-largest lithium producer after Australia, thanks to mining from SQM and Albemarle.

The global shift to electric vehicles has prompted a rush by automakers and others for more supplies of the ultra-light metal. Boric and other members of the government see their lithium strategy as inextricably linked to the global fight against climate change.

The deal follows months of complex negotiations between the two companies, as well as protests from indigenous communities and challenges from major shareholder SQM.

Following the announcement, SQM shares initially rose before falling 0.2%.

Analyst Cesar Perez-Novoa of BTG Pactual said the news dispelled uncertainty surrounding the talks.

“We expect a positive stock reaction as negotiations and lithium prices have outperformed the stock price,” he said.

The planned start of the partnership in 2025 will depend on the Chilean financial regulator’s rejection of an application by Chinese company Tianqi Lithium, which holds about 20% of SQM, to allow shareholders to vote on the joint venture.

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SQM maintains that only a board vote is needed.

Goldman Sachs warned on Friday that investors should focus on whether Tianqi will take legal action to block the partnership deal, which it said is “not a standout deal” because SQM will become a minority shareholder of the state-owned enterprise.

Tianqi did not immediately respond to a request for comment.

The transaction also requires consents from Chilean and foreign authorities and consultations with local indigenous communities living in the Atacama salt flats.

“The projects we will implement with Codelco will be extremely positive,” SQM CEO Ricardo Ramos said in a statement, noting that from 2031, 85% of the operating margin will go to public coffers.

The agreement, first described in December, requires Codelco to oversee general management from 2031 and stipulates that board members cannot serve on either company’s board for more than ten years.

The agreement also enables SQM to increase production by 300,000 metric tons of lithium carbon equivalent (LCE) by 2030, while targeting annual production of 280,000-300,000 tons by 2060.

The companies said in a joint statement that growth will come from new technologies and streamlined operations, without having to extract more brine or rely more on reservoirs.

(Reporting by Daina Beth Solomon, Natalia Ramos, Fabian Cambero, Editing by Alex Villegas, Sriraj Kalluvila, Ernest Scheyder and Richard Chang)