August 2011, the Chilean government launched a package of...

August 2011, the Chilean government launched a package of regulatory reforms dubbed “The Boost Competitive Agenda.” As part of the agenda, on February 7, 2012, the Office of Competitiveness of the Ministry of Economy announced an initiative aimed at “re-launching the Chilean lithium industry” for the express purpose of “unlocking…restrictions and implementing mechanisms to improve competitiveness within the industry, promote further investment and protect the country’s market-share and standing in the world lithium market.”

These “mechanisms” include twenty-year Special Lithium Operations Contracts (CEOLs), which will allow foreign miners to produce 100,000 tons (approximately 530,000 tons of lithium carbonate equivalent) per year for an as yet undisclosed fee, plus a seven percent sales royalty paid to the Chilean government.

CEOLs open access to Chilean lithium resources

Currently, only two companies produce the “grey gold” in Chile: SQM (NYSE:SQM) and Rockwood Holdings’ (NYSE:ROC) lithium business division, Chemetall.

About five or six companies are exploring Salar brine deposits in Chile, says SignumBOX’s Desormeaux. Since most of these concessions were assessed after the implementation of the 1982 mining code, these exploration companies cannot extract lithium without the CEOLs. However, that’s soon to change, as the Ministry of Mining expects to open up bidding and auction the first CEOL by the end of this year.

Among the potential bidders is the Australia-based Talison Lithium Ltd. (TSX:TLH), the leading global producer of lithium. Other stakeholders include Li3 Energy, which together with its partner POSCO (NYSE:PKX) – the largest steelmaker in South Korea and the fourth worldwide – has a project in the Salar de Maricunga. Minera Copiapó linked to Samsung SDI and Francisco Javier Errázuriz, as well as Pan American Lithium Corp. (TSXV:PL) and Simbalik.

“The right to exploit around 100,000 tonnes of lithium for 20 years will be auctioned,” stated Chilean mining subsecretary Pablo Wagner, who also commented that the nation could earn as much as $350 million per project. “We know that if we delay a lot in developing this project we’ll lose competitiveness and we could halve our market share.”

Desormeaux believes that the impact of CEOLs on Chilean lithium production may not be fully realized until 2016.

Could be Argentina will do something similar to what Chile is doing