The Chile National Lithium Policy is about providing the state with a seat at the lithium industry table in Chile. It is NOT nationalisation as many sensationalist headlines have portrayed over the last week. One just has to see what happened after Chile nationalised its copper industry in 1971. The copper industry in Chile includes the largest copper producer in the world, Codelco. When Codelco was established in 1976, it was the copper industry in Chile. Today it represents just 28%, with the private sector making up the remainder. I see the private sector dominating the lithium industry in Chile for decades to come as the private sector makes better miners. The mining industry is all about time, risk, capital and expertise, something most governments don't have, or have an appetite for.
PROJECT EQUITY
There has been a lot of who-ha in the press the last week about the Chilean Government eventually taking a 51% stake in its mining leases currently operated by SQM and Albemarle at the Atacama salar. The press has carried on as if joint-ventures have never happened before, but it is very common. Three of the biggest lithium hard rock operations in Australia are joint ventures and the same applies at many of the world's biggest copper mines in Chile.
Lithium Projects
Project Operator(s) and % Equity
1 Greenbushes
Albermarle – 49%
Tianqi – 51%
2 Pilgangoora
Pilbara Minerals – 100%
3 Wodgina
Albemarle – 60%
Mineral Resources – 40%
4 Mt Holland
SQM – 50%
Wesfarmers – 50%
5 Maricunga Stage 1
LPI – 100% (potential equity investor dilution)
6 Maricunga Stage 2+
LPI – to be negotiated
Codelco/NLC – to be negotiated
7 Copper Projects - Chile
8 Escondida
BHP – 57.5%
Rio Tinto – 30%
JECO – 10%
IFC – 2.5%
9 Collahuasi
Anglo American – 44%
Glencore – 44%
Mitsui – 12%
10 Los Bronces *
Anglo American – 50.1%
Mitsubishi – 20.4%
Codelco/Mitsui JV – 29.5%
* Regarding the Los Bronces copper mine, in 2012, Codelco and Mitsui formed a joint venture to add to its copper interests in Chile. Mitsui loaned Codelco US$1.86 billion to purchase 24.5% of Anglo-Amercican Sur, which included the Los Bronces mine. Mitsui purchased the other 5% as part of the joint venture. The point I am making about this 83/17 joint venture is, end users that need raw materials will look past ownership to gain access to those materials, particularly if the assets are tier-1 assets. That has always been the case, AND LPI's Maricunga project is a tier-1 asset. In 2014, Mitsui signed a strategic agreement with Chilean state entities Codelco and Corfo to pursue new business opportunities. And since then, LPI has signed MOUs with Mitsui and Codelco concerning development of its stage 1 and stage 2+ projects at Maricunga respectively.
PUBLIC-PRIVATE ARRANGEMENTS AT MARICUNGA
There is legitimate concern about how future state control (51%) of the SQM and Albemarle operations at Atacama will impact business operations. However, as mentioned by several Ministers in the press leading up to the policy announcement, circumstances regarding public-private arrangements at Maricunga will differ. And that is because 82% of the mining concessions at the Maricunga salar are held by the private sector. Codelco's southern concessions represent the remaining 18%. It would be different for Codelco at the Pendernarles salar because it currently controls that entire salar. I do see the Chilean Government taking a controlling 51% interest in greenfield salars earmarked for potential exploitation, but that will not include the Maricunga salar.
Because of the different property and mining rights held by participants at Maricunga, I see LPI's project plans being largely unaffected by the lithium policy. LPI will be the operator of its wholly-owned stage 1 project and will be so for its stage 2+ projects, possibly under a 50/50 joint venture arrangement with Codelco, most probably the National Lithium Company. As a fallback, and I very much doubt they will ever be needed, LPI can rely on the protections provided by the Free Trade Agreement between Chile and Australia.
LPI's STRATEGIC ADVANTAGE AT MARICUNGA
One just has to look at the graphic below to see the location of the Nevado Tres Cruces National Park and how it potentially constrains some holders of mining concessions on the salar. Fortunately, LPI's mining concessions are located at the north/northwest portion of the salar, providing clear access to the 19 square kilometres of development land its owns adjacent to the salar. One could say "all roads lead to LPI". In 2022, LPI bought its water rights outright, enough to provide for nearly eight times the amount of water needed for its annual stage 1 production. The development land and water rights are two key strategic assets which will influence future development at Maricunga.
The stage 1 project is configured to produce between 15 and 16,000 tonnes of BGLCE. The LPI EIA has approval to produce 20,000 tonnes per annum. LPI can produce up to 20,000 tonnes per annum without having to seek regulatory approval. The CCHEN extraction quota / export licence granted to LPI in 2018 can be automatically increased to around 1 million tonnes, enough to provide for stage 1 production of 20,000 tonnes per annum for 50 years.
In terms of the proposed stage 2+ development, the LPI CEO sees this project being fast-tracked to become the first example of a public-private project in Chile. I understand that testing of Maricunga brine using DLE began in 2022.
LOOKING FORWARD
Apparently the data room due diligence was an intense and exhaustive process. I did inquire of managemnt why it was taking so long for the due diligence (DD) process to complete. The response I received was there were many interested parties undertaking DD on the project and the smallest group to arrive in Chile to conduct their discovery work was 17. And these people were coming from different parts of the world. The coordination involved with each group was substantial and time-consuming. I was not provided information on the number of parties and any names. The only hint was provided by the CEO on the investor call last week when he said there were some global names interested in the project.
The latest quarterly refers to the company evaluating a number of financing options. The Proactive Investor video interview with the LPI CEO on 24 April 2023 at around 7:17 onwards included the following comments from the CEO:That sounds pretty positive to me.
- The final investment decision (FID) has effectively been made
- All supplies have been secured to commence construction
- All that remains is financial closure.
Regarding the EPCM work, the preferred engineer will be contracted in conjunction with the FID.
Good luck to all holders. There is a LOT to look forward to for the remiander of 2023.
