A Bright Future For Lithium Investors Amid Evolving Regulations

• Published date: 11 January 2024
• Subject Matter: Environment, Energy and Natural Resources, Energy Law, Environmental Law, Mining
• Law Firm: Urzua Abogados
• Author: Mr Daniel Weinstein

Introduction

As the world increasingly turns its focus toward green energy, Chile's pivotal role as a global leader in lithium becomes ever more significant. Home to the largest lithium reserves in the world, Chile is on the brink of a transformative era in regulatory and operational landscapes. This article is designed to guide foreign investors through the current developments in Chile's lithium sector, spotlighting opportunities and offering insight into the future of lithium investments in the country.

1. The Evolving Regulatory Landscape

Chile's regulatory framework for lithium, rooted in the 1979 Decree Law 2,886, is undergoing a significant transformation, the likes of which haven't been seen in over four decades. The National Lithium Strategy (NLS) announced in 2023 is a beacon of this change, aiming to revitalize the sector in alignment with global sustainable practices and investor interests. An article about its key ideas can be found here. While the NLS does not immediately overhaul existing laws, it seeks to boost private investment and cultivate public-private partnerships. It is opening doors for a wider range of market participants, including smaller enterprises and technological innovators.

The government's commitment to a process for awarding Special Operation Lithium Contracts (CEOLs) starting in the first half of 2024 heralds a more investor-friendly environment. Furthermore, a bipartisan bill proposed in the Chilean Chamber of Deputies aims to integrate lithium into Chile's general mining regulatory framework. This represents a potential sea change, eliminating the need for special contracts for lithium exploitation and setting the stage for a more dynamic lithium market in the medium term.

2. The Codelco-SQM Partnership and Its Implications

The recent Memorandum of Understanding between Codelco and SQM is a landmark event for Chile's lithium industry. This partnership, formed in response to SQM's lease expiring in 2030, enables SQM not only to increase its production but also to extend its operations for an additional 30 years. In this unique arrangement, Codelco will own a slight majority share, a model deemed beneficial by both parties and the market at large.

It is important to note that this majority state-ownership model will be exceptional and primarily applied to lithium projects in strategic salt flats. The government is expected to clarify which salt flats, besides Atacama, will be considered 'strategic'. It is reasonable to...