In Depth: Chinese Lithium Giant’s Chile Headache Telling of Growing Global Resource Protectionism

The Chilean government's decision to gain more control over its major lithium reserves via a partnership with local giant SQM has created complications for Chinese shareholder Tianqi Lithium, highlighting a global trend of countries asserting control over key mineral resources vital for green energy transitions [para. 1]. Since December's announcement of this partnership with state copper miner Codelco, Tianqi has demanded extraordinary shareholder meetings for transparency and to vote on the deal, but as of their recent filing, SQM has not responded [para. 2][para. 3].

The growing interest of countries in their mineral reserves underscores the challenges Chinese companies like Tianqi face when investing in overseas mining assets, especially as nations in Latin America, Africa, and Southeast Asia impose restrictions on the export of crucial minerals like lithium, copper, and nickel to boost local processing industries [para. 4][para. 5][para. 6]. For instance, Mexico has also moved towards nationalizing its lithium resources, reinforcing this trend [para. 6].

When Tianqi invested $4.1 billion for a nearly 24% stake in SQM in 2018, there was already a looming risk of nationalization of Chile’s lithium resources, a now-realized concern as shown through the new joint venture arrangements [para. 7][para. 15]. Codelco and SQM's new agreement grants Codelco a 51% stake in the entity responsible for lithium production from 2025 to 2060, with the Chilean government receiving a significant portion of the operating profits, thereby reducing returns for existing shareholders like Tianqi [para. 9][para. 11][para. 12]. As a result, Tianqi expressed concerns over potentially diluted profits and is contemplating measures to protect its interests [para. 8][para. 10][para. 15].

Moreover, the deal aligns with President Gabriel Boric's strategy of increasing state control over vital lithium assets while expanding lithium output for the green energy shift [para. 13]. Chile, being the second largest lithium producer globally, accounted for 25% of the world’s lithium production last year, with two private firms, SQM and Albemarle Corp., extracting lithium in the Atacama salt flat region [para. 14].

While SQM may not get an equal share in the new venture, it has opted for this public-private partnership to retain mining rights up to 2060, which would otherwise expire in 2030 [para. 18]. Goldman Sachs cautioned that the arrangement might make SQM a minority stakeholder in a state-controlled company and advised investors to watch out for legal actions from Tianqi [para. 18][para. 20].

Tianqi's financial performance has also suffered, swinging to a net loss of 3.9 billion yuan in the first quarter of 2024 compared to a profit of 4.9 billion yuan the previous year [para. 21]. Originally, Tianqi's significant investment aimed to secure a foothold in the growing EV market, but an investment agreement restricted it to dividend earnings without direct involvement in SQM's management due to anti-competitive concerns raised by Chile's economic development agency Corfo [para. 23][para. 24].

Despite two attempts in March to call for shareholder transparency and voting on the new deal, SQM's board rejected the requests, and Chile’s Financial Market Commission has yet to rule on Tianqi’s latest appeal for a formal shareholder vote [para. 28][para. 30]. The situation remains unresolved as Tianqi waits for further developments while its strategic and financial stakes hang in the balance [para. 30].