Investors have been left feeling a little lacklustre in the wake of Chile’s much anticipated National Lithium Strategy, with some wondering if the announcement will work to undermine the country’s longstanding status as a pioneer in lithium production.
The announcement runs parallel to an emerging global trend of embracing the re-nationalization of supply chains, with many countries seeking to protect their own reserves, in a form of reverse-globalization.
Chile’s introduction of its state-led public-private model has prompted speculation as to how it will impact mining companies. Whilst pre-existing contracts will remain intact, President Gabriel Boric declared in a national broadcast, that the state will find a way to incorporate policies to boost its participation in operations moving forward. Further, under the new plan, the creation of a state-owned company, (subject to Congressional approval) will be involved in the entire lithium productive cycle, from exploration to adding value, through the implementation of public-private partnership agreements.
The Minister of Finance explained that these PPPAs will likely take the form of joint venture agreements between state-owned enterprises and private investors, shareholders agreements, or something similar.
Boric also stated that the new strategy will work to move beyond the current geographical constraints of Chile’s lithium industry, in which most of its lithium extraction takes place exclusively in the Atacama, despite there being a multitude of unexplored salt flats. Expanded exploration and production will therefore be encouraged in the new approach, reaping the benefits of widespread interest in the country’s critical minerals.
The specifics of the arrangement, however, are obscure. Ambiguity particularly surrounds how much ownership the government will demand from companies, and the level of deterrence that creating a state-owned lithium company will trigger.
Additionally, the market response to the broadcast has been predictably adverse, yet Chile’s history in nationalizations does hail stories of success, particularly with the example of Codelco, the state-owned company that nationalized copper production in 1971 under the Allende administration.
According to Barron’s, the privatizations of the Pinochet era did not extend to Codelco, leaving it to operate as a state enterprise for over half-century. It is currently the world’s most significant copper producer and in recent years has annually contributed extraordinary amounts to Chile’s government.
Overall, the outcome of the National Lithium Strategy is certainly not a foregone conclusion – only time will tell how the implications will affect foreign and domestic producers, but it is clear that Chile’s government are keen to harvest the fruits of their lithium rich lands.
