Chile Invites Private Investors for Lithium Contracts

Last month, Pablo Wagner, the deputy mining secretary of Chile, completed a marketing road show in New York and Toronto in an attempt to interest investors in bidding for contracts to produce lithium in Chile. Wagner met with as many as 300 representatives of investment banks and mining companies during his four-day visit. The trip generated some interest, with as many as 24 investors becoming involved in the lithium bidding process.

On June 12, Chilean President Sebastian Pinera invited local and foreign companies to tender offers to mine the country’s lithium resources. Under the guidelines, a successful bidder will be granted the rights to extract up to 100,000 tonnes of lithium over a 20-year period in exchange for paying the government royalties equivalent to 7 percent of the total yield. The special lithium operating contract (CEOL) covers exploration and production of lithium, excluding areas already in production under a 1932 mining law. The operating contract is expected to generate as much as $350 million for the government.

Developments in Chile are extremely relevant to all lithium stakeholders as the country currently accounts for as much as 43 percent of lithium production.

Potential stakeholders

Li3 Energy (OTCBB:LIEG) and its partner POSCO (NYSE:PKX), the largest steelmaker in South Korea and the fourth worldwide, already have a project in the Salar de Maricunga and are among the potential bidders. Other stakeholders include Talison Lithium (TSX:TLH), Minera Copiapó linked to Samsung SDI and Francisco Javier Errázuriz, Pan American Lithium (TSXV:PL), and Simbalik. Chile-owned top copper producer Codelco is also a potential bidder, and its chairman, Gerardo Jofre, indicated that he is “interested in participating but must study whether investing in the metal would be profitable.”

Opposition

Chile-based lawyer Marlene Brokering indicated to Lithium Investing News that the initiative has been challenged by the opposition, which fears that the government is encouraging the privatization of state-owned resources. She commented, “some people oppose this project for two main reasons. One is that they wish for the development of lithium batteries here in Chile, so the country has better revenues for the lithium. Another [reason] people oppose the project [is] because many foreign mining companies have paid in Chile little to no taxes due to the use of different accounting procedures.”

The government wants the lithium industry to grow; however, the opposition says the state should maintain ownership over the industry, which might represent billions of dollars in future revenue. The results of this opposition are unlikely to influence Pinera, as he strongly advocates free-market policy and is the first conservative Chilean president since the end of the Pinochet military dictatorship in 1990. Senators representing the opposition recently announced their intention to bring the decision to privatize the country’s lithium reserves before the Constitutional Court.

Next stage

To participate in the bidding process, investors have until the end of July to acquire the auction conditions and terms. The deadline for submission of tenders is September 12, and the first decision is expected to be announced in the fourth quarter of this year. The government has said that this tender will be the first of several tenders.

 

Securities Disclosure: I, Dave Brown, have no interests in the companies mentioned in this article.