The SQM-Codelco lithium partnership 'is a necessary experiment for Chile'

The public-private partnership between Chilean lithium producer SQM and state copper miner Codelco, which will come into effect next year, has been criticized by China's Tianqi Lithium, which owns 22% of the former.

The Codelco-SQM joint venture is expected to manage lithium operations in the Salar de Atacama through 2060. Under the alliance, Codelco will receive 33,500t/y of lithium carbonate equivalent between 2025 and 2030, and majority ownership in the business from 2031.

But Tianqi claims its revenues will be affected and went to the courts, and although SQM is seeking to increase production to benefit its partners, these efforts could be undermined.

BNamericas talks to Mirco Hilgers, mining lawyer at Baker McKenzie in Chile, about the arrangement and Tianqi's problems, and the legal hurdles facing the sector generally.

BNamericas: What does the Codelco-SQM alliance, in the form of the Minera Tarar-SQM Salar joint venture, require to successfully manage lithium operations in the Salar de Atacama?

Hilgers: This type of partnership is a necessary experiment for Chile, as it allows for the sharing of both risks and benefits between the public and private sectors, and can generate economies of scale that are vital to maintaining competitiveness in a globalized market.

However, from the point of view of legal certainty, clear rules on how the partnership will be governed, what dispute resolution mechanisms will be implemented and how shareholder rights will be guaranteed will be essential.

BNamericas: Tianqi Lithium criticized financial market regulator CMF after it rejected its request to oblige SQM to hold an extraordinary shareholders meeting to approve the alliance with Codelco...

Hilgers: Protecting the rights of minority shareholders is essential to ensure confidence in the Chilean corporate system. Failure to adequately consider these rights could jeopardize legal certainty and discourage future foreign investment in strategic companies such as SQM.

Moreover, in the economic context, ignoring minority shareholders could erode the corporate governance structure, which would impact the valuation of companies in the long term.

BNamericas: Has Tianqi a point in claiming that the SQM-Codelco alliance implies a disposal of assets, since in addition to incorporating the state part with 50%+1 of the shares in the JV, the transfer of activities, assets, contracts, personnel and permits to Codelco from 2031 is also considered?

Hilgers: The difference between a disposal and a merger has significant implications for the corporate structure and control of the company.

Legal certainty in this distinction is key, as it will affect shareholder rights and the future governance of the joint venture. In economic terms, if a disposal is considered, the value of the assets involved and the tax and regulatory implications must be carefully assessed, which could create an important precedent in the Chilean industry.

BNamericas: More broadly, which legal barriers are holding back Chile's lithium industry?

Hilgers: The lithium industry in Chile is crucial to the country and the world's energy future.

However, the impossibility of granting concessions represents a barrier that affects legal certainty for investors. Legal frameworks need to be updated to offer greater stability and predictability. Without this, investors may prefer other more open jurisdictions with less legal risk, affecting Chile's competitive positioning in the global lithium market.

BNamericas: Is the bill in congress that seeks to allow lithium concessions and enable private companies to explore and extract appropriate?

Hilgers: A law that allows lithium concessions without compromising the country's strategic resources could attract more foreign investment.

However, it is vital that this law provides legal certainty and clear mechanisms to avoid conflicts between the State and concessionaires.

From an economic perspective, a greater opening of the lithium market could generate significant revenues for the country, provided that control mechanisms are maintained to ensure that these benefits reach the State and not just the companies.