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Useful resource nationalism is on the rise. As commodity costs climb, governments are clamouring for a much bigger piece of the pie. Chile is the most recent to exert extra management over key sources. This week, president Gabriel Boric unveiled plans to nationalise the nation’s huge lithium business.
The plan, which nonetheless must be authorised by lawmakers, won’t have an effect on present lithium mining contracts. These are held by two firms, Albemarle and Sociedad Química y Minera de Chile, or SQM. Each of their shares fell sharply in response. Future contracts will solely be issued as public-private partnerships, with the state taking majority management.
Boric might want to tread fastidiously, lest he danger killing Chile’s golden goose. The nation has the world’s third-largest lithium reserves at about 11mn tonnes, behind Bolivia and Argentina. SQM claims that underneath present preparations it already pays two-thirds of its gross income to the Chilean authorities.
Lithium is a key part within the batteries that energy electrical automobiles. Costs have dropped some 70 per cent from their November highs on weakening EV demand in China. However Boric is betting long-term demand traits will present the clout wanted to maintain abroad buyers in place, regardless of the federal government’s new calls for.
It’s a gamble. Albemarle and SQM are publicly listed firms with shareholders to reply to. Chile up to now has been receptive to overseas funding. This determination casts some doubt on that legacy. If the nation makes contracts too pricey or tough to function, it dangers shedding out to different lithium wealthy nations equivalent to Australia.
State-owned firms in South America wouldn’t have the very best report in managing pure sources. However extra change could also be coming. A much bigger fear is how the shift in lithium coverage will have an effect on sentiment within the bigger copper mining business, which accounts for greater than half of Chile’s exports.
Lex recommends the FT’s Due Diligence publication, a curated briefing on the world of mergers and acquisitions. Click on right here to enroll.
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