SQM - an over reaction?, page-7

Back to that point by Gerrit Fuelling

"The lease agreement between SQM and CORFO ends 2030. Based on the agreement the operations and assets at the Salar would be then taken over by Corfo. This has an considerable impact on investment decisions because of substantial capital requirements and amortization needs for new Lithium carbonate plants."

And yes, hand it over is what they are obliged to do - at book value.

(f) Extensive regulation regarding the return of assets upon termination of the Contracts and granting purchase options, including: (i) the restitution of the assets that Corfo made available to SQM Salar under the Contracts, (ii) a purchase option for all or part of the water rights that SQM Salar or its related parties currently own or will obtain in the future, that benefit or are necessary for the exploitation, either 3 currently or in the future of the mining concessions included in the Contracts (the "Mining Concessions"), (iii) a free transfer to CORFO of the easements, that benefit the Mining Concessions or the project, developed by SQM Salar, excluding the mining easements constituted in the Salar del Carmen, (iv) a purchase option on the assets that SQM Salar uses as productive facilities within the Mining Concessions and assets that benefit the project and that are located within the area of the Mining Concessions and within the area of 10 kilometers from the limit of the Mining concessions, (v) a purchase option on the mining concessions that SQM Salar or its related companies currently constitute or will constitute in the future within the area of 2 kilometers from the limit of the Mining Concessions.
(g) An option for SQM Salar to sell to CORFO the facilities that are necessary to increase the additional production and operation capacity related to the increased lithium quota. The exercise price of this option is the replacement value of the facilities including its economic depreciation.


So how much will it cost to expand from today's 50 ktpa to say 200 ktpa at Atacama?
Although the Olaroz Phase 2 project is coming in at a capital intensity of 10,840 USD/tpa, I would note that the LAC Cauchari project (with heavy SQM engineering involvement) is 425 mUSD for a 25 ktpa plant.
So 150 ktpa increase might cost 6 x 425mUSD perhaps?
It is certainly not hard to imagine a development cost of 2 to 2.5 billion USD.

And how long will it take to build that 150 ktpa of capacity?
How long to ramp up?
Thirteen years until end of contract - how many years of profitable production do you get before the end of contract forces you to sell the asset to the Chilean government who then becomes your competitor?

I'm sure there will be an expansion - just to keep the faith - but I expect it will be much slower, much more modestly scaled than the media reports suggest.