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Thursday, Feb 13, 2025
Mugglehead Investment Magazine
Alternative investment news based in Vancouver, B.C.

Lithium

Codelco and SQM finalize a definitive agreement about lithium in Chile

The contract replaces the one SQM signed with the Chilean economic development agency in 2018

Codelco and SQM finalize a definitive agreement about lithium in Chile
A still image of the Salar de Atacama in Chile. Image from Francesco Mocellin via Wikimedia Commons.

Chile-owned copper miner Codelco and Sociedad Química y Minera de Chile (SQM) (NYSE: SQM) signed a definitive agreement to work together to take advantage of the country’s vast lithium deposits in the Salar de Atacama salt flat.

Announced late last month, the deal gives Codelco a majority stake, which plays into President Gabriel Boric’s strategy to boost government-controlled lithium production.

“Just as we have helped make Chile the global leader in copper production, we will now contribute to making our country a leader in lithium production, another mineral essential for the energy transition,” Máximo Pacheco, Codelco chairman, said.

The contract replaces the one it had with the Chilean economic development agency (Corfo) in 2018. The original contract had an expiry date of 2030. The partnership will begin in 2025 and run through 2060, with Codelco overseeing general management starting in 2031.

Opponents of the deal told the local news site El Ciudadano that despite having six years to prepare either Codelco or the national mining company (Enami) to take over the operations, the government has chosen to keep them in the hands of SQM.

“This is a company obtained through dubious methods by the former son-in-law of dictator Augusto Pinochet, Julio Ponce Lerou, a person also recognized in world stock markets for his corrupt practices,” deputy Cristian Tapia said.

In 2014, authorities fined Ponce Lerou, the 78-year-old who controls SQM, for illegal trading of shares in his holding companies. Around the same time, SQM became embroiled in a case involving the illegal financing of political parties.

Read more: Lithium South Development first production well installed at Hombre Muerto lithium project

Read more: Lithium South Development expands production goals, updates PEA on Hombre Muerto lithium project

SQM is leaning into supply glut

Earlier this year, Ponce Lerou placed his children, Francisca, Alejandro-Augusto, and Daniela, on the boards of directors of Pampa Calichera, Nitratos of Chile, Potassium of Chile, Norte Grande, and Oro Blanco.

The document released on Friday stipulates that board members of the new venture cannot have served as directors of Codelco or SQM for more than 10 years, effectively excluding Ponce Lerou from the lithium firm.

An oversupply of lithium that drove down prices is still affecting supply chains, but SQM expects buyers to return to the market, forecasting a 20 per cent rise in demand this year.

That’s why SQM hasn’t taken standard measures to slow down production in the face of the supply glut. It’s a rare and bold move, but other companies, including Lithium South Development Corporation (TSXV: LIS) (OTCQB: LISMF) (Frankfurt: OGPQ), have followed the same course.

It’s recently reported progress at Pumping Well PW23-AS-02 on its Hombre Muerto North Lithium Project (HMN Li), located at the Alba Sabrina claim block. Alba Sabrina, spanning 2,089 hectares, is the largest claim block in the HMN Li package and vital to the company’s lithium development efforts.

Currently, Well PW23-AS-02 is pumping at a rate of 25 liters per second. Once clear, the company will increase the pumping rate and release results by the end of May.

 

Lithium South Development Corporation is a sponsor of Mugglehead news coverage

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