Chile Hopes SQM-Codelco Deal to Proceed as Planned, Finance Minister Says

Chile’s government has announced that SQM and Codelco will move forward with the signing of a binding lithium partnership by the self-imposed deadline of Friday, despite facing increasing challenges. Finance Minister Mario Marcel expressed his hope that the agreed deadlines would be met, emphasizing that a deal of this magnitude involves a comprehensive implementation process beyond the mere signing of a document.
The recent comments suggest that the two companies have decided to sign an agreement that would take effect next year. This move is aimed at addressing opposition from an SQM investor and certain lawmakers. Under the proposed arrangement, Codelco would acquire a majority stake in SQM’s Atacama salt flat assets in exchange for an extension of operations for another 30 years. This deal aligns with Chilean President Gabriel Boric’s agenda of increasing state control over important assets and expanding the production of battery metals in the transition away from fossil fuels.

Once the deal is finalized, the new public-private partnership would be able to significantly increase production from its current level of under 200,000 metric tons to around 300,000 tons. This would provide battery manufacturers with greater confidence in future supplies of this crucial raw material.
However, there are still some potential obstacles in the way. Tianqi Lithium Corp., the second-largest shareholder of SQM, is pushing for a stockholder vote on the deal, claiming that SQM did not disclose important terms during the negotiation process. The Chinese firm, which has also threatened legal action, has faced limitations on accessing SQM’s sensitive information since purchasing a 22% stake for $4 billion in 2018.

Some lawmakers from the ruling coalition argue that the current restrictions on SQM’s largest shareholder, Julio Ponce, and his immediate family members should also apply to the Codelco arrangement. Ponce, who was once the son-in-law of dictator Augusto Pinochet, was fined in 2014 for illegal trading of shares in his holding companies. Around the same time, SQM was involved in a case related to illegal financing of political parties.

In addition, indigenous groups in the area have criticized the way Codelco and SQM have communicated their plans.
A formal contract was signed on Friday to confirm a preliminary agreement reached between the two companies. The minister chose not to disclose the specific value of the deal, stating that this information would be included in the official announcement.

Marcel explained, “We are going through a process. We had the memorandum of understanding in December of last year, and now it’s a matter of meeting the deadline to sign the final agreement. After that, we will address various implementation issues, including regulatory and financial requirements.”

Economic Growth

Marcel, who holds a degree from the University of Cambridge in economics, along with other high-ranking officials, such as central bank Governor Rosanna Costa, traveled to Toronto and New York this week to meet with investors and global banks.
At a time when there is growing optimism about the economy, characterized by stronger consumption and higher copper prices, which is Chile’s main export, their trip is significant. Additionally, they aim to address concerns regarding the government’s reform proposals.

On Thursday, the Finance Ministry announced the sale of social bonds worth 1.97 trillion Chilean pesos (approximately $2.15 billion). The bonds are set to mature in April 2033 and October 2040.

According to the central bank, Chile’s gross domestic product (GDP) experienced a 1.9% growth in the first quarter, the fastest expansion since 2021. In May, the government revised its 2024 growth forecast to 2.7%.

Marcel, one of the Chilean officials, emphasized that a key message to investors is the stabilization of the domestic economy.
According to Marcel, the effects of higher copper prices on the economy will take time to fully materialize. However, there are immediate benefits such as an improved current account balance and increased revenue for the government. He also mentioned that the Chilean economy is already experiencing expansion and the favorable situation in the copper market will contribute to further growth in 2024 and possibly 2025.