Lithium is a fundamental building block for the future of the world. As an essential component that drives green technologies and an essential element for the manufacture of energy storage systems, it has become indispensable for life on earth. This has led to its demand growing exponentially globally. 

In order to boost the lithium market, promote sustainable production and increase competitiveness in the industry, the Chilean government has invited national and international companies to participate in a public search process for strategic partners to begin the exploration, exploitation and commercialization of new lithium deposits in the country. 

With this call, 57 companies have expressed interest in new contracts in Chile to explore and produce lithium.

Chile will open tenders for the exploration and production of 400,000 tons of lithium to meet the high demand, the Ministry of Mining confirmed in a statement. These are special operating contracts with private and foreign companies until 2050 to sell lithium as raw material in the form of lithium carbonate or lithium hydroxide. 

The Process

According to government information, the bidding process is in an initial phase, it is expected to have more information on the contracts by the end of this year, before the change of government. 

The national and international call for bids will be made through a public, competitive and transparent process in order to tender and award contracts to produce a total of 400,000 tons of marketable metallic lithium, divided in five installments of 80,000 tons each, without a specific geographic location, detailed by the Ministry of Mining. 

Participating companies may bid for 1 or 2 quotas, requesting each one, individually or through consortiums or related companies, to be awarded a maximum of 2 quotas for a total of 160,000 tons, in any area of the national territory. 

The awards will be for a term of seven years, extendable for another two years to carry out the geological exploration, studies and development of the project in general, to which will be added another 20 years of production. 

“It looks promising,” mentioned the minister of Energy and Mining Juan Carlos Jobet in an interview. 

Chilean Lithium

After Australia, Chile is the largest lithium producer with 29% of the world’s supply but its market share has been compromised in recent years. Due to high demand for electric vehicles, Chile has decided to open up more of its huge reserves with the promise that this demand will keep lithium supplies tight for the next few years. The benchmark lithium index has doubled this year, as have prices in China. 

Global lithium demand is expected to quadruple by 2030, reaching 1.8 million tons of lithium carbonate, according to ministry projections. 

A Confluence of Events Creates Mild Uncertainty

Potential bidders are taking a high political risk in Chile as the whole process is taking place on the eve of presidential and parliamentary elections. In addition, Chilean President Sebastián Piñera has been impeached following revelations from the Panama Papers leak. 

At least one opposition senator has accused the center-right government of trying to rush through the new contracts at a time when the country is reviewing its stance on natural resources while a new constitution is being drafted. 

Albemarle Corp. (NYSE:ALB), one of only two existing producers in Chile, has purchased the bidding documents, but said that part of its due diligence is to evaluate the next government’s stance on the process. 

Currently, the Chilean company and the US company Albemarle SQM operate in Chile at the Salar de Atacama, one of the richest lithium deposits in the world. Before the companies can develop their projects, they will have to carry out exploration work and process the necessary permits to produce up to 80,000 metric tons each for 20 years, the U.S. Geological Survey said. 

The above references an opinion and is for information purposes only. It is not intended to be investment advice. Seek a licensed professional for investment advice. The author is not an insider or shareholder of any of the companies mentioned above.