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| Atacama Salt Flats |
Chile’s state-owned copper giant Codelco is on the brink of finalizing a landmark agreement with SQM (NYSE: SQM), the world’s second-largest lithium producer, to jointly extract lithium from the Atacama salt flats. This partnership, which was first announced in December 2023, aligns with President Gabriel Boric’s national lithium strategy, positioning Codelco at the forefront of operations in Chile’s strategic lithium-rich areas.
A Landmark Partnership for Lithium Extraction
Under the terms of the agreement, SQM will transfer a majority stake in its Atacama operations to Codelco in exchange for an extension of its production rights until 2060. The deal is expected to be completed in the coming weeks, though it still requires approval from antitrust regulators, including those in China, which SQM anticipates will occur in the coming month or October.
The partnership is seen as a critical step for Codelco, which has faced declining copper output and increasing debt from delayed and over-budget expansion projects. By tapping into the rapidly growing global demand for lithium, a key component in the transition to clean energy, Codelco aims to diversify its revenue sources and reduce its dependence on copper. With SQM’s established infrastructure and expertise, the deal is expected to accelerate lithium production while lowering associated costs.
Criticism and Concerns Over Sovereignty and Revenues
While the deal has garnered support for its potential to provide Codelco with a much-needed boost, it has faced significant criticism. Economists like Marcela Vera have raised concerns about the agreement, calling it “a surrender of sovereignty.” Vera argues that the deal allows SQM to retain nearly half of the future revenues from Atacama, despite lithium being a non-concessionary resource under Chilean law. Critics point to Rio Tinto’s $6.7 billion purchase of Arcadium Lithium in Argentina as evidence that Chile undervalued its lithium assets.
Vera’s analysis suggests that Chile could have generated between $45 billion and $365 billion in state revenues if the lithium resources had been managed through a 100% public scheme or through international bidding. This, combined with the loss of a $6.7 billion down payment, presents a potential fiscal setback for the country, which could have significant long-term implications.
Codelco’s Push to Diversify and Strengthen its Financial Position
The move into lithium comes as Codelco struggles with deep structural challenges. Falling ore grades at its aging copper mines and cost overruns in several key expansion projects have put immense financial pressure on the company. As a result, Codelco’s debt has ballooned to approximately six times its earnings before interest, taxes, depreciation, and amortization (EBITDA). This has raised concerns about the company’s long-term financial stability, prompting discussions about the potential sale of a minority stake in Codelco, a proposal that was shelved after public backlash during Sebastián Piñera’s first administration.
Lithium provides Codelco with a rare opportunity to diversify its operations and reduce its heavy reliance on copper. Moreover, successive Chilean governments have shown respect for past resource contracts, making it likely that the agreement will survive beyond Boric’s term, which ends in 2026. The deal is seen as historic, both for its potential to give Chile greater control over its lithium resources and for maintaining a key private player in the sector.
ScrapInsight Commentary
Codelco’s joint venture with SQM signals a strategic move to diversify into lithium amid copper production challenges. While the deal offers growth potential, concerns about the long-term fiscal impact and the loss of control over valuable resources remain critical. The partnership may reshape Chile’s lithium landscape, but the economic consequences warrant close monitoring.
