Lithium: Corfo and SQM settle differences, agree new Salar de Atacama license

Lithium

The long-running clash between Corfo and SQM came to an end last week as the two parties penned an agreement allowing SQM to produce an additional 349,553t Li (1.86Mt LCE) from their Salar de Atacama lithium operation through 2030, and expand capacity to 216,000tpy. In return, SQM agreed to: make a payment of US$17.5M to Corfo to settle the arbitration, provide US$10–15M to local communities around the Salar de Atacama, commit US$10.8-18.9M in R&D expenditure, revise royalty payments based on lithium prices, make 25% of additional production available preferentially to Chile-based consumers.

Royalty payments are similar to the agreement signed between Corfo and Albemarle in 2017, with a sliding scale up to 40% of FOB sales value when >US$10,000/t. Corfo stated that the royalty agreement and associated payments could generate an additional US$8.3Bn for regional and state government by 2030. The approval for 25% of SQM’s additional output to be made available for consumers in Chile, in conjunction with an identical clause in the 2017 Corfo-Albemarle agreement, is expected to fast-track investment and development of a downstream lithium industry in Chile, bringing further benefits, particularly for the Antofagasta region.

Roskill view: The extension of SQM’s license and approval of expansion was somewhat inevitable, given what Chile stood to potentially lose, but was clearly catalysed by the recent change in government. The quota expansion allows SQM to triple output at the Salar de Atacama to 216,000tpy LCE, compared to 60,000tpy LCE, which, along with expected capacity expansions at Albemarle’s operations in the Atacama and Corfo’s plans to develop the Maricunga and Pedernales salars, could make Chile the largest lithium producer once again. It is possible the Corfo-SQM deal could open up Chile’s lithium sector after years of hindrance and Corfo is already pushing the ability of Chile to dominate the market in future. Roskill expects SQM to increase capacity in Chile alongside its investments in Argentina at Cauchari and Australia at Mt. Holland, with an aim of maintaining a 25% market share. This would mean maximum capacity being reached around the mid-2020s. After experiencing tight supply of lithium compounds, SQM’s customers will no doubt breathe more easily, with strong demand growth expected over the coming years. The agreement is less rosy for SQM’s current and potential competitors who will now see a more competitive market.