It is the world’s second largest lithium producer after Australia

Chile’s President Gabriel Boric declared on April 20 that his government intended to nationalise the country’s lithium mines. Chile is the world’s second largest lithium producer, after Australia, at an annual output of 39,000 million tonnes. The announcement has generated a degree of concern amongst investors who are unsure of how the revenue and profit sharing deals will be structured between the state and the mining companies.

Fig. 1: Engineers at a lithium mining field in Chile’s salt flats | Image: Foreign Policy

At the same time, it has raised hopes that it will spur the emergence of multiple alternative suppliers and tilt the investments towards economies that favour privatised lithium production. Australia, where the lithium mines are overwhelmingly privately-owned, overtook Chile in gross lithium production in 2017 and now accounts for 47% of the global lithium supplies.

It’s an intention, not a law

There are only two companies that mine lithium in Chile at the moment. The first is Albemarle (headquartered in the US) and the second is the locally-owned SQM. Albemarle’s contract to mine the metal expires in 2043, while SQM has its contract till 2030. President Boric’s government is already reported to be in talks with the two miners and is possibly renegotiating their contracts to affect changes to their ownership stakes and finances.

Yet, the government does not hold a majority in Chile’s National Congress (the equivalent of India’s Parliament) and the nationalisation proposal has not been formally presented as a bill. It may not even pass as there has been strong opposition to President Boric on other matters, and so the discussions with the miners may be pointless. But if the proposal is signed into law, it would radically change the country’s lithium mining sector and transfer the control of its lithium mines to a national lithium company. Albemarle paid $600 million (in 2022) to the government — which it says are the highest commissions in the world — and state-ownership of the mines may see it have to part with even more of its revenue and profits.

Inspired by previous experiments?

Bolivia holds around 23% of the world’s lithium deposits and is one of the three members of the so-called “lithium triangle”, which accounts for 54% of the global lithium supply. The country’s government though is led by President Evo Morales, who is staunchly against opening Bolivia’s share of the lithium mines — and other industries — to private (western) entities. While the ecological impact of lithium mining has been greatly discussed and private ownership tends to prioritise profits over preserving ecosystems, it has meant that Bolivia’s lithium mines have had little to no advancement since the state assumed control and the Yacimientos de Litio Bolivianos (the entity operating the mines) does not produce lithium at commercial scales even after 20 years in existence.

Fig. 2: Miners at a lithium mine in Bolivia | Image: Daily Mail

Chile itself wrestled control of its copper mines from private miners and put them under Codelco in 1971, under the leadership of Salvador Allende. Codelco is today the largest copper producer in the world — it incidentally is opposed to the nationalisation of the lithium mines — and is a major revenue spinner for the Chilean government. However, state control of the country’s lithium mines would mean that the government would always hold the majority stake at a minimum of 50.01%, which could change in the future. This is what has some investors worried because even if new miners were to be licensed for operations, unless they are compensated fairly and are able to return a certain margin of profit, operating in Chile would not make financial sense.

Environmental concerns

Lithium mining has long been derided by the indigenous people of Chile, Argentina and Bolivia for the sheer amount of water it consumes. The metal is mined by evaporating several thousand litres of brine (concentrated saltwater) under the sun in large shallow pools. Pumped from under the ground, 200,000 litres of brine must be evaporated over 12-18 months to obtain one tonne of lithium carbonate as the concentration of the metal is a mere 500 to 1000 miligrams per litre of brine. The issue is that this water-intensive process is centered in one of the driest regions of the planet — the Atacama desert. Water here is so scarce that the desert itself receives less than a millimeter of rainfall a year, and some parts of it have never been recorded to have received any rainfall.

Fig. 3: The Atacama desert is one of the driest regions of the world with virtually no rainfall | Image: Landed Travel

Chile itself is in the midst of a decade-long drought. While the mining companies point out that the brine is unsuitable for drinking and thus does not deplete any of the local freshwater, some environmentalists suggest that extracting the vast quantities of subterranean brine may alter the inflow of the local freshwater reserves to replenish the brine extracted. Estimates suggest that by 2025, the amount of water lost to evaporation in Chile’s lithium mines will nearly be as much as the drinking water consumption of its Antofagasta region, where the lithium is processed to higher purity. The extraction process is already affecting local microorganisms that are reportedly essential to the local biodiversity. The salt flats of Chile, Bolivia and Argentina are fragile ecosystems, and while Chile has promised to preserve at least 30% of its share for the indigenous population, adversely affecting 70% of it is still a high cost to pay.

Emerging technologies

Chile’s current process of extracting lithium is known to be quite inefficient, with only 30-40% of the lithium dissolved in the brine actually being recovered. Albemarle claims that it loses 45% of the lithium it sets out to extract to the evaporative process.

A race is therefore on amongst BMW, Tesla, General Motors, Renault, Panasonic and even the oil giant Schlumberger, to devise a commercial extraction process that achieves the highest efficiency. One of the forerunners is US firm Livent, which employs 25-tonne columns of gibbsite (a form of aluminium hydroxide) to isolate the lithium as the brine is pumped through it. The columns are powered by an electric current that is obtained from solar panels, and the process is reported to extract 70-90% of the dissolved lithium without using any water or losing any lithium through evaporation. The metal must still be refined up to at least 99% purity to be used in EVs, but the columns offer vastly superior efficiencies and the lithium is isolated in a matter of hours.

Another process, currently under lab testing, involves the use of a solvent that produces a lithium chloride solution at 99.9% purity in only one day. It is being researched by Israel’s Tenova Advanced Technologies and could be a game changer if adopted commercially.

Possible new players

Investors and automakers have already been scouting for options away from Chile, and the latest announcement is likely to boost their efforts further. The other top lithium producing nations (in 2023) are China (19,000 million tonnes annually), Argentina (6,200 MT), Brazil (2,200 MT), Zimbabwe (800 MT), Portugal (600MT), Canada (500 MT) and the US (production quantity withheld).

General Motors is already investing in Nevada’s Thacker Pass lithium mining project, while China’s Sinomine Resource Group now owns Zimbabwe’s largest lithium producer, which reportedly holds the right to the world’s largest lithium deposit at more than 11 MT. India’s 5.9 million tonne lithium deposit in Jammu and Kashmir, as and when it reaches commercial extraction, will also be a significant contributor but its output may be consumed mostly within the country.

Fig. 4: The Thacker Pass in Nevada, US holds massive lithium reserves that has already garnered interest from General Motors | Image: Seeking Alpha

The consensus therefore is that lithium’s consumers want access to cheaper quantities of the metal at a much faster pace than what is possible at Chile’s salt flats. Diversifying their acquisition sources is an essential strategy against sudden supply failures or price gouging, and even though there is feverish research around the alternatives to lithium itself, the metal will be critical to the EV industry for at least another 10-15 years. Thus, unless Chile dramatically increases the efficiency of its operations and makes it profitable for its lithium miners, its decision to transfer the mines’ control to the state may backfire and in fact wrest it away from its most lucrative resource.