The academic from the School of Engineering of the University of Chile, Gustavo Lagos, assures that the national lithium strategy, announced a week ago by Chilean President Gabriel Boric, marks only a starting point in his policy on the mining resource. As part of a group that, at the end of the 1970s, began to investigate at the Imperial College of the University of London the materials that are used today to manufacture lithium cathodes, he says that the numbers have yet to be put on the table to see Yes, indeed, the Chilean State will have the capacity to achieve control (50% +1) in the next lithium developments that are carried out in Chilean territory.
The proposal that the Boric Administration announced last week seeks for the State to have a majority in the projects and for the state copper company Codelco to lead the negotiations with private companies, including the current producers that operate in the country (the Chilean SQM and the American Albemarle). According to Lagos, the government’s message was “very statist.” And he remembers that Boric began his speech by alluding to the nationalization of copper in the governments of the Christian Democrat Eduardo Frei Montalva (1964-1970) and the socialist Salvador Allende (1970-1973).
“Preceding the announcement with all this apology for the nationalization of copper was inappropriate, because the truth is that this does not have much to do with the other,” says the expert. “Having said that, the truth is that it is positive that he made the announcement. It does not mean that there is an agreement, but I think that it is the initial kick to the negotiations between the State and the various companies involved”, says Lagos, who has spent more than four decades investigating the properties of the metal and the potential of the local industry.
Ask. Was the president wrong in the tone of the announcement? Some foreign media interpreted it as a nationalization of lithium…
Answer. That’s why I say it. If there were many international media that were wrong or interpreted the message as what it was not, it means that it was wrong. This government works to please its most maximalist sector and proposes something maximalist. But it is known that it is going to start to regress rapidly from that point. This is what happened with the tax reform, with the royalty to mining, with the pension reform.
Q. So do you think there is room to change your position?
R. There is a lot of space, because the Government expressed its wish that the State’s participation be a majority, but that is only possible in those operations in which the investment is paid, because otherwise the business does not allow the State to have a majority. If the State is not going to put a weight and puts only the deposit, then the returns of the operation have to pay the returns of the investment. International experience shows that if you do a business in this way (where the State only puts the deposit), the property will depend on the quality of the deposit. It can be 5%, 10%, 15% and more if it’s a very, very good one like the Salar de Atacama, but I don’t know if it’s 51%.
Q. In the case of the SQM company, whose lease contract expires in 2030, would it be convenient for this company to partner with the State to continue exploiting lithium, which in 2022 was almost 80% of its income?
R. Of course, an intermediate point could be found that is convenient for the State and SQM. Because it is not convenient for Chile that someone else, not SQM, produce in the Salar de Atacama. I would have to spend a lot of money, because they don’t have the plants. What is in the contract is that SQM returns ownership of the deposits, but not the chemical plant, added to all the knowledge it has. SQM’s is the largest operation in the world. And the Salar de Atacama is the place where the most lithium is produced in the world, so, obviously, the State is not going to put another company to experiment with this technology. In addition, there is another advantage: it is a Chilean company.
Q. And why would it be more convenient for a Chilean company to exploit lithium?
R. Because knowledge remains in Chile. Foreign companies have the problem that they are managed by Chilean professionals, but the knowledge does not remain in Chile and the decisions are not made in Chile. Therefore, other things being equal, if I am given a choice between a foreign company and a Chilean one, I prefer the second.
Q. Chile has lost position in the world in the lithium market. Because?
R. Because our leftist political elite, at one point, got hotheaded and discovered that there was a decree from 1979 that declared that lithium belonged to the State and, therefore, it had to be seized. I identify that it was between 2005 and 2006, when some international theories about lithium appeared. First, that this was the triangle (the border between Argentina, Bolivia and Chile) that was going to replace oil and that it was going to be the new Saudi Arabia of the world. The second thing is that the price was going to continue to rise. And thirdly, some worrying things, such as the fact that the exploitation of the salt flats could destroy them. That produced a very big impact and still does.
Q. And isn’t it true that the salt flats can be destroyed with the exploitation of lithium?
R. No one can prove that, although I think that if we continue to exploit the salt flats and production continues until it has to grow 10 years from now, obviously there could be damage. You have to pay attention to that and change the forms of production.
Q. The Government’s strategy includes improving environmental standards and applying direct extraction technology.
R. And there is agreement on that. It is something that technologies are going to change anyway, because there are already suspicions that the current method based on evaporation is not very efficient for extracting lithium, because it leaves 50% of the lithium right there. And if you apply direct extraction technology, you could practically double the production of the Salar de Atacama within five, seven or 10 years. That is part of the negotiation. This is a very complex conversation, it’s not something where there are two options, there are 50.
Q. Because?
R. Because there are many things involved and the possibility of doing business is brutal. The Salar de Atacama is the best deposit in the world by far, the Government knows that, SQM knows it, everyone knows it. We have endless negotiation possibilities and opportunities to make things right. The Government of Gabriel Boric has a golden opportunity in the Salar de Atacama.
Q. Is it essential for the State to play a role for this industry to continue to grow in Chile?
R. Without an agreement from the State, I don’t see that production in the Salar de Atacama, specifically that of SQM, can go up too much, because it has a very short horizon. Albemarle can do it. And the other operations in other salt flats have not gone ahead. One or two could come through, although they are small compared to Salar de Atacama, which is currently producing 200,000 tons of lithium carbonate.
Q. Do you think Codelco has to carry this strategy forward?
R. Is that, who else can it be? There is no other established state mining company, except for Enami (the National Mining Company), but it does not have this capacity.
Q. Doesn’t that take away from Codelco’s main business, which is copper?
R. Yes, but I think this is a great opportunity for Codelco. If you get it right, this might not be as important as copper, but it could be very interesting for Chile. Codelco has to learn lithium. It would not be logical that, even achieving the majority, he would manage the production. But he does have some things that he knows how to do: evaluate projects, from international markets. It is convenient for this government that there is an agreement. If an agreement is reached between Codelco and SQM, it is a huge victory for this government. It would be a legacy of President Boric.
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