Mining giant Codelco is making its first foray into the lithium market with the acquisition of Australian junior Lithium Power International Ltd. (ASX: LPI). The deal is valued at approximately US$245M and aims to boost Codelco’s presence in the key material needed for rechargeable batteries.
Codelco is moving into the lithium sector as the Chilean government seeks to diversify the country’s lithium production and increase state participation in the industry.
Lithium Power, a Sydney-listed firm with projects in Chile and Australia, owns the Blanco lithium carbonate project in the Maricunga salt flat in northern Chile, believed to be the country’s second-largest lithium resource.
In April, Chile announced a plan to take state control of the lithium industry and told government-run Codelco to take charge. President Gabriel Boric chose the company to represent Chile in a new public-private model for lithium.
The acquisition is subject to approval from Lithium Power shareholders. The company’s board has unanimously recommended that shareholders vote in favour of the deal as both boards have backed it. Shareholders will vote in late January whether to implement the acquisition.
Codelco is targeting the Blanco project as it is already permitted and would be a streamlined process as only SQM and Albemarle currently extract lithium in Chile, with both lithium majors operating out of the Atacama salt flat.
Although Lithium Power has environmental approval for the Blanco project, Codelco holds the only special government licence granted to produce lithium from the salt flat. Codelco has also started talks with lithium miner SQM, with the intention of taking control of the company and plans to finish negotiations by the end of the year.
While the acquisition is seen as a strategic move, it has also raised concerns. Some argue that Codelco’s focus on lithium may distract the company from its main business, where it has been facing challenges with the red metal in recent years. Moody’s has even downgraded Codelco’s credit rating due to these issues.
“The acquisition of [Lithium Power] will make the Blanco project viable through synergies with Codelco’s assets and permits in the Salar de Maricunga,” Codelco’s chairman, Maximo Pacheco, said. “It will enable us to develop a globally outstanding lithium project with exceptional sustainability credentials.”
It remains to be seen how this move will impact Codelco’s overall business and its position in the global copper market.