Chile plans to nationalize its lithium sector

Currently, at the Atacama salt flat, which represents 30% of global lithium production, two companies extract lithium: SQM, from Chile, and Albermarle, from the United States. The nationalization proposal would incentivize the renegotiation of those exploitation contracts, though President Boric stated that the current contracts would be respected. Precisely how Chile plans to strike that balance remains to be seen.

Going forward, the proposal, if approved, would permit the participation of private entities in the lithium industry, but only as minority partners in joint ventures with the State. Two Chilean State-owned mining companies, Codelco and Enami, would represent the State in future projects initially, until Chile creates a new, standalone lithium mining company. That future entity would serve as the majority partner in lithium joint ventures. How Chile plans to address the impact of this change to companies already investing in Chile on the basis of the current legal framework remains to be seen.

The nationalization plan also contemplates diversifying sources of production and private entities. For instance, Chile proposes to incentivize the exploration of salt flats other than the Atacama salt flat to diversify the sources of lithium and expand production. Similarly, through the joint ventures, Chile plans to increase the number of private entities that produce lithium in the country from its current number of two.

President Boric has stated that he intends to submit his proposal in the second half of 2023. If promulgated, the massive shift in the legal framework governing lithium mining in Chile could give rise to a number of disputes between those already investing in Chile and Chile. Additionally, the joint venture structure that would govern lithium mining in the future would also pose a challenge insofar as the goals and incentives of investors and Chile are in conflict. Anyone exposed to the lithium sector would be wise to seek experienced legal counsel on what this means for the short and medium term outlook, and how best to protect their investments and assets in Chile’s lithium sector.