The public-private partnership agreement between Chilean mining giants SQM and state-owned Codelco to extract and produce lithium salts in 2031-2060 faces mounting obstacles based on the results of Chile's presidential primary election and a congressional vote against the deal.
Chileans in the 29 June vote thrust far-left candidate and former labor minister Jeannette Jara — the primary's winner — into second place in the polls with 16pc of the votes, trailing only far-right candidate Jose Antonio Kast, with 24pc.
Right-leaning Evelyn Matthei ranks third at 10pc after polls showed her losing nine percentage points in the last four weeks. She spent several weeks as the front runner for the presidential elections, scheduled for November. The primary consolidates Jara as the candidate for left-leaning parties, while right-wing votes are still split but would likely consolidate in any eventual run-off election.
All three contenders oppose the SQM-Codelco deal that would allow the companies to jointly extract lithium from 2031 to 2060.
Since Codelco is state-owned, the president can advise in favor of cancelling the deal and opening a new public bidding process.
Jara used her celebratory speech to cast doubt on the agreement, pledging to review it if it is not finished by the time she is elected.
"If I take over the presidency and the deal is already done, I am going to honor it because this is a democratic country," she said. "But if it is not, I am going to look for alternatives."
She has previously called the deal an "inheritance of [dictator] Augusto Pinochet," citing SQM's historical ties to his regime and criticizing the agreement for being negotiated behind closed doors without a public bidding process.
SQM was led by Pinochet's son-in-law for more than 30 years before he resigned because of corruption claims in 2015. Now, his daughter runs SQM's top shareholder, the Pampa Group.
Kast, who is leading polls, shares a similar stance. He has called the agreement a "mistake," pleading to review the deal if it is not done before he is elected. The far-right candidate also wants a "transparent" process to take place and is a long-time critic of SQM following the company's 2015 corruption scandal.
Matthei is the deal's most vocal opposition. She has campaigned against it for the past four months because of the lack of transparency in the process, asking for a thorough review and a new, public bidding process.
Congress slams deal
On top of the opposition from the likely presidential candidates, a federal investigative commission set up by the Chilean government voted on 30 June overwhelmingly against the agreement between SQM and Codelco.
The commission head recommended that President Gabriel Boric advise the state-owned miner to cancel the deal.
The commission voted 96-2 against the deal, with 17 abstentions. The lawmakers also agreed that a public bidding process should take place to select a new partner for Codelco as soon as possible.
Cristian Tapia, a congressman leading the commission, criticized the deal, saying it was made without a public bidding process because of threats that SQM made to Codelco.
"Codelco says that a bidding process was impossible at the time because SQM threatened to leave the brine evaporation pools empty by 2030 if it did not get the deal," Tapia said, pointing out that the contract between both parties begins in 2031.
This week the commission cast doubt on SQM's credibility for the second time, claiming it got the concession for free despite owing more than $1bn in mining taxes.
SQM's chief executive Ricardo Ramos said in a board meeting that it will pay nothing for this, according to Tapia — and from 2031 onward, they will take 50pc of the lithium production in Salar de Atacama, he said.
The congressman said that the deal is unfair to Albemarle — which "pays all its taxes" — and Rio Tinto, which recently acquired two mining concessions in Chile through a public bidding process.
SQM would be entitled to 165,000 metric tonnes (t)/yr of lithium carbonate without paying anything based on the terms of the deal, according to findings from the commission.
"Rio Tinto paid $6.7bn for the same amount of lithium, but SQM is getting it for free," Tapia said. "We cannot let another $6.7bn slip away just like that."
Codelco scrambles to get deal done before elections
The state-owned miner is focused on getting the deal fully approved by late September, hoping that Boric — who supports the agreement — helps keep the joint venture in place before the elections.
One day after Jara won the primaries and congress voted against the deal, Codelco and SQM received a landmark approval by Chile's nuclear agency CChEN, allowing the company to extract up to 2.5mn t of lithium metal equivalent (LME) in 2031-2060, with a potential increase to 3.02mn t pending updated resource evaluations and environmental approvals.
The joint venture still needs to clear community consultations with the indigenous people that its operations will affect and an approval from China's antitrust body because Chinese company Tianqi Lithium is a major SQM shareholder.
A government-approved contract also needs to be drafted, according to Tapia — the lack of one makes the deal easier to reverse but harder for the parties to close a contract before the new administration is sworn into office.
"It is just an agreement," he said. "There is still no contract because everything was made behind closed doors, with no bidding process."
