The point of this move is to move the country higher up in the processing and profit chain because right now they are not the ones processing the lithium or making the batteries. They are in a unique position and this absolutely is the best move for them. The biggest loser for this is China. Chile is aiming to eat their (EV) lunch.
I doubt that’s the move at all - I think they’re just trying to capture more of a share of the extraction revenues.
If you look at the history of the hydrocarbon industry during the 20th century, you saw the exact same trend over and over in countries without a history of private ownership of mineral resources. Exploration contracts were granted to foreign operators on favorable terms, and as the concessions were proved up (and petroleum gained geopolitical significance), those terms were slowly made less favorable to the operators, or the foreign operators were forced into local joint ventures, or their holdings were simply expropriated (or some combination of the above).
It looks to me like Chile thinks they have leverage and are beginning to turn the screws. If their reserves are sufficiently vast and economic, this might not appreciably affect the overall trajectory of the Chilean lithium industry for decades, if ever.
The Chilean government is under the delusion that mining firms will supply expertise and most of the capital in exchange for a minority stake under a government that’s already demonstrated its interest in nationalization. This is a terrible move for them, which is why Australian lithium miners saw their shares jump on the announcement.
Raising the royalties on the reserves, on the other hand, is something that could have actually worked.
Expertise and foreign capital? For pulling lithium out of the ground?
Sure, don’t nationalize your semi-conductor industry, but we’re talking about primitive mineral extraction for a very abundant and very in-demand commodity, and without the need for much exploration.
You know mining is like printing money but just darker and dustier, right? And I very much mean printing money. See: Dutch disease. A lack of a regulated economy and a free-for—all of resource extraction can lead to massive hangovers.
This is more in the ballpark of the machinations of the Federal Reserve than anything else.
The problems with Venezuela are not the problems with Norway. Norwegians are rich and can afford the time and energy to work within the practicalities of a mixed economy. Venezuelans are poor and seem more swayed by hope on big bets. It takes ample patience to throw out ideology and tease things apart for what they actually are. I don’t fault people in substandard conditions for being swayed by ideology, but for the rest of us can we be a bit more pragmatic?
That's one outcome, but they may find lots of companies and governments are willing to invest at more favorable conditions; the US is a logical candidate as well.
2005:
The leaders of La Concertacion, Chile’s center-left ruling government coalition, want to eliminate the private profits of the private bus system [1]. They sell the new system as a way to make public safer and cleaner [2].
2007:
A consensus builds, and Santiago (Chile's capital) nationalizes urban transport network. It is a customer service disaster. Commuters wait at stops for 2 hours[2] as they see multiple buses drive by [1]. The 3000 bus companies get cut to 10, one of which (the public company) becomes the target of the largest class-action lawsuit in Chile, with thousands of commuters suing the new entity [2]. It is also a financial bomb, as the system goes from $60M in profits, to > $600M in losses[1], overnight, with 290M bailout after only 9 months [2]
2019: The "Estallido Social" (Social explosion) riots start, centered in santiago. The reason * Rise in public transport fares in Santiago * [3]
2021: A student leader and prominent figure in the 2019 riots [4], with a coalition of leftist groups and the communist youth of chile [4], is elected president. A new left government is now in power
disingenuous and right wing biased sources. transportation and construction are the two major source of corruption in south America.
the govt tried to please the existing company owners and they of course undermined everything and came out better than before. (the "private" transportation business on south America runs 100% on subsidies, even though it's expensive for the users)
this is not an example against state ownership of a service cost center. but simply data that it can't be done by a centrist govt.
If you scratch the surface of the article you will realise that the biggest loser is Chile. This draconian law, if anything, will make investing in lithium production unattractive, regardless where in the value chain one invests.
Until and unless we get better battery chemistries that are not reliant on LI, you're going to find someone who will work with Chile's requirements.
It's a suppliers market and Chile has decided to "eminent domain" their resources and remove private ownership from the game, as is their right.
Yesterday would have been the best time to do this, and now is the next best time. At some point battery chemistries will shift to Na or solid state will take the crown, but until then...
Biggest one in that region is Argentina, and the US has been sanctioning them a lot lately, to the point where their country reached 3 digit increased inflation, 3 digits!
So I suspect this is all done on purpose to further lower the price of lithium (corroborated with the lithium price in the global market, fishy fishy) so the US can have their green transition at lower cost, it's a sad era for South Americas yet again..
This nationalization is a step in the right direction, but that doesn't matter if it ends up in the hands of foreign countries for cheap...
They should keep the lithium for themselves, manufacture batteries themselves and sell them with very high margins, if they don't do that, then something is fishy in the Chile/Argentina government..
Obviously don't have the technology to manufacture the whole chain themselves or they would do that, right? That's why they need to partially auction stuff off to outsiders.
> Future lithium contracts would only be issued as public-private partnerships with state control, he said.
> The government would not terminate current contracts, but hoped companies would be open to state participation before they expire, he said, without naming Albemarle and SQM, the world's No.1 and No.2 lithium producers respectively.
This is very different from what I was expecting with the word "nationalize". Unless they're seizing property that isn't mentioned in the article.
From what I have read the state will own 51% of new mines and levy special taxes on the profits. They won't be offering any capital to build the mines or refineries though. It will be interesting to see if there are any takers.
The mineral reserves are already public property as prescribed by the Chilean Constitution:
> The State has absolute, exclusive, inalienable and imprescriptible domain over all mines, including guano deposits, metalliferous sands, salt mines, coal and hydrocarbon deposits and the other fossil substances, with the exception of superficial clays, despite the ownership held by individuals or body corporates over the land in which the above should be contained. The superficial landed property shall be subject to the obligations and limitations prescribed for by law to facilitate exploration, exploitation and development of said mines.
What changes is that new mining concession will no longer be granted without accepting a majority stake from the state in exchange for the right to mine those deposits. The profit split might be different though, allowing firms to recover the capital.
"SQM's contract is set to expire in 2030 and Albemarle's in 2043."
Worth noting!
badtake/This looks like the national electricity model in Quebec, where the public absorbs risk and the private part of the private-public partnership absorbs profits. Just the best!/badtake
Edit: looks like this is an outdated take - please diregard
> This looks like the national electricity model in Quebec, where the public absorbs risk and the private part of the private-public partnership absorbs profits. Just the best!
I'm not super sure what you're referring to, Hydro Quebec's (often significant) profits are returned as dividends to the government. This year was $3.4 billion[0], and while I'm sure they have private contractors, but I can't imagine they're raking in anywhere near that.
Well, since these will mostly be foreign companies partnering with the government, I imagine that it'll be a little closer to the Chinese model, but maybe with a bit less IP theft.
The thing about lithium is that it still isn't as big or valuable of a market as some headlines might make you believe. Chile exports, per the graph, about $900M worth of lithium per annum. For comparison, they also export about $33B worth of copper. And about $2B of wine. Pretty decent wine, I might add.
So it's not such a surprise that Chile is taking a very slow approach with this "nationalization". Mining doesn't usually grow at the speed of software. Plus, competition will arise. The quantity of known lithium resources globally doubled from 2014–21:
You’re talking about the lithium itself. Chile specifically is taking steps to go upstream to capture more of the value as well so that 0.9B number would be severely undercounting.
Chile would certainly benefit from having more battery manufacturing in its economy. They've recently joined the short list of countries where solar power is more than 10% of consumption — growing fast — and they still generate and consume much less total electricity than a typical developed country. This implies that they're going to end up with a very large solar fraction, and a need for stabilization.
But you can't just make a battery out of lithium. You also need graphite and either nickel or iron phosphate. And you need some fine chemicals (the electrolyte). The good news is that Chile does produce some iron and phosphorus. But I don't think they currently produce much in the way of graphite or organic chemicals. I'm not sure, either, if they can process their iron and phosphorus ore into battery-grade iron phosphate. So it's not just "refining lithium". Lithium carbonate of commerce is already pretty pure. This isn't petroleum we're talking about.
The danger is trying too hard to achieve autarky. The CPTPP (of which Chile is a member) at least in theory does have existing sources for those other components. But it seems like the Boric administration is skeptical of cooperation. Environmentalists are another potential barrier, since anything involving chemical engineering tends to get them riled up, justified or otherwise.
By the way, I think you mean "downstream" when you say "upstream". Mines are generally the proverbial headwaters.
This public-private partnership approach is likely weak enough to not significantly impact the profits of the multinational mining companies. Or Gabriel Boric is overconfidently playing his hand because a similar move in the past would get you dropped from a CIA helicopter over the ocean.
Good to see countries realize that if they just export raw materials and don't do any industrial processing locally, then they are mere colonies of a foreign power.
Even if the bigger part of the profits travels abroad, if the industrial knowledge stays in the country and also has a network effect on other industries and businesses, then it's a win on it's own.
Specially in this case where I doubt Chile even has the know-how and funds to explore the lithium on their own without foreign help.
setting up a whole industrial value chain from mine to manufacturing & servicing is not guaranteed to succeed in any shape or form, "forcing it" has historically only been pet projects for the hegemons of the time, and a lot still failed, like Soviet computing industry and now (probably) the PRC chip manufacturing (sudsidized with at least like 120 billion$)
2. Too bad they let foreign companies exploit their natural riches so far. But of course - that was how world powers set up their colonies everywhere, and it's been mostly the same with neo-colonies (which are supposedly sovereign, but foreign companies and governments call most of the shots).
3. I just wish the export profits are distributed more fairly, effectively and reasonably (which, right now, I somewhat doubt).
4. Lithium alternatives for batteries are being actively worked on and there's a lot of potential in some of these. Here is a survey of 5 examples:
More like RIP Chilean democracy, as the US stages yet another coup, and installs yet another brutal far-right dictatorship that tortures, murders and disappears its citizens.
Chile still hasn't yet replaced the constitution drafted by the last US installed brutal far-right murderous dictatorship after the last time a US backed coup overthrew Chile's democracy. Many of the bodies of the disappeared have not yet been recovered. The mothers of the disappeared still gather to mourn their still missing children in neighboring Argentina where the US also overthrew their democracy and installed a brutal far-right murderous regime. The US hand in Central America was even more brutal-- even engaging in genocide.
And, RIP the many who will lose their lives fighting the US oligarchy installed coup government.
Sadly, realistically, the best case will be a repeat of what happened in Bolivia, where the US (Trump administration) staged a coup, against the most popular president in Bolivian history, and installed a brutal far-right government in an attempt to steal Bolivia's lithium. The US installed coup government fired live ammunition into protesters trying to regain their democracy and freedom. The Bolivians won their freedom back in only a few months, but there were many losses.
Readit News
If you look at the history of the hydrocarbon industry during the 20th century, you saw the exact same trend over and over in countries without a history of private ownership of mineral resources. Exploration contracts were granted to foreign operators on favorable terms, and as the concessions were proved up (and petroleum gained geopolitical significance), those terms were slowly made less favorable to the operators, or the foreign operators were forced into local joint ventures, or their holdings were simply expropriated (or some combination of the above).
It looks to me like Chile thinks they have leverage and are beginning to turn the screws. If their reserves are sufficiently vast and economic, this might not appreciably affect the overall trajectory of the Chilean lithium industry for decades, if ever.
In other words, would an economist be able to point out any benefits?
Raising the royalties on the reserves, on the other hand, is something that could have actually worked.
Sure, don’t nationalize your semi-conductor industry, but we’re talking about primitive mineral extraction for a very abundant and very in-demand commodity, and without the need for much exploration.
You know mining is like printing money but just darker and dustier, right? And I very much mean printing money. See: Dutch disease. A lack of a regulated economy and a free-for—all of resource extraction can lead to massive hangovers.
This is more in the ballpark of the machinations of the Federal Reserve than anything else.
The problems with Venezuela are not the problems with Norway. Norwegians are rich and can afford the time and energy to work within the practicalities of a mixed economy. Venezuelans are poor and seem more swayed by hope on big bets. It takes ample patience to throw out ideology and tease things apart for what they actually are. I don’t fault people in substandard conditions for being swayed by ideology, but for the rest of us can we be a bit more pragmatic?
So likely what will happen is that China will do it and pay below market rate for the lithium.
I would not be surprised if the entire Boric fiasco is just Chinese infiltration.
Large claims require citation. Got any?
Dead Comment
2005: The leaders of La Concertacion, Chile’s center-left ruling government coalition, want to eliminate the private profits of the private bus system [1]. They sell the new system as a way to make public safer and cleaner [2].
2007: A consensus builds, and Santiago (Chile's capital) nationalizes urban transport network. It is a customer service disaster. Commuters wait at stops for 2 hours[2] as they see multiple buses drive by [1]. The 3000 bus companies get cut to 10, one of which (the public company) becomes the target of the largest class-action lawsuit in Chile, with thousands of commuters suing the new entity [2]. It is also a financial bomb, as the system goes from $60M in profits, to > $600M in losses[1], overnight, with 290M bailout after only 9 months [2]
2019: The "Estallido Social" (Social explosion) riots start, centered in santiago. The reason * Rise in public transport fares in Santiago * [3]
2021: A student leader and prominent figure in the 2019 riots [4], with a coalition of leftist groups and the communist youth of chile [4], is elected president. A new left government is now in power
[1] https://scholars.duke.edu/display/pub1127207
[2] https://www.npr.org/2007/10/08/15100976/in-chile-commuters-s...
[3] https://en.wikipedia.org/wiki/2019%E2%80%932021_Chilean_prot...
[4] https://en.wikipedia.org/wiki/Gabriel_Boric#Role_in_the_Esta...
the govt tried to please the existing company owners and they of course undermined everything and came out better than before. (the "private" transportation business on south America runs 100% on subsidies, even though it's expensive for the users)
this is not an example against state ownership of a service cost center. but simply data that it can't be done by a centrist govt.
It's a suppliers market and Chile has decided to "eminent domain" their resources and remove private ownership from the game, as is their right.
Yesterday would have been the best time to do this, and now is the next best time. At some point battery chemistries will shift to Na or solid state will take the crown, but until then...
Biggest one in that region is Argentina, and the US has been sanctioning them a lot lately, to the point where their country reached 3 digit increased inflation, 3 digits!
So I suspect this is all done on purpose to further lower the price of lithium (corroborated with the lithium price in the global market, fishy fishy) so the US can have their green transition at lower cost, it's a sad era for South Americas yet again..
This nationalization is a step in the right direction, but that doesn't matter if it ends up in the hands of foreign countries for cheap...
They should keep the lithium for themselves, manufacture batteries themselves and sell them with very high margins, if they don't do that, then something is fishy in the Chile/Argentina government..
Huh? Second largest producer with by far the largest reserves.
https://www.volkswagenag.com/en/news/stories/2020/03/lithium...
Deleted Comment
> The government would not terminate current contracts, but hoped companies would be open to state participation before they expire, he said, without naming Albemarle and SQM, the world's No.1 and No.2 lithium producers respectively.
This is very different from what I was expecting with the word "nationalize". Unless they're seizing property that isn't mentioned in the article.
> The State has absolute, exclusive, inalienable and imprescriptible domain over all mines, including guano deposits, metalliferous sands, salt mines, coal and hydrocarbon deposits and the other fossil substances, with the exception of superficial clays, despite the ownership held by individuals or body corporates over the land in which the above should be contained. The superficial landed property shall be subject to the obligations and limitations prescribed for by law to facilitate exploration, exploitation and development of said mines.
What changes is that new mining concession will no longer be granted without accepting a majority stake from the state in exchange for the right to mine those deposits. The profit split might be different though, allowing firms to recover the capital.
Worth noting!
badtake/This looks like the national electricity model in Quebec, where the public absorbs risk and the private part of the private-public partnership absorbs profits. Just the best!/badtake
Edit: looks like this is an outdated take - please diregard
I'm not super sure what you're referring to, Hydro Quebec's (often significant) profits are returned as dividends to the government. This year was $3.4 billion[0], and while I'm sure they have private contractors, but I can't imagine they're raking in anywhere near that.
0. https://globalnews.ca/news/9503363/hydro-quebec-record-finan...
So it's not such a surprise that Chile is taking a very slow approach with this "nationalization". Mining doesn't usually grow at the speed of software. Plus, competition will arise. The quantity of known lithium resources globally doubled from 2014–21:
https://bibliotekanauki.pl/articles/2090756.pdf
To some extent, nationalizing lithium is as much a publicity stunt as it is an economic policy.
But you can't just make a battery out of lithium. You also need graphite and either nickel or iron phosphate. And you need some fine chemicals (the electrolyte). The good news is that Chile does produce some iron and phosphorus. But I don't think they currently produce much in the way of graphite or organic chemicals. I'm not sure, either, if they can process their iron and phosphorus ore into battery-grade iron phosphate. So it's not just "refining lithium". Lithium carbonate of commerce is already pretty pure. This isn't petroleum we're talking about.
The danger is trying too hard to achieve autarky. The CPTPP (of which Chile is a member) at least in theory does have existing sources for those other components. But it seems like the Boric administration is skeptical of cooperation. Environmentalists are another potential barrier, since anything involving chemical engineering tends to get them riled up, justified or otherwise.
By the way, I think you mean "downstream" when you say "upstream". Mines are generally the proverbial headwaters.
[1] https://en.wikipedia.org/wiki/Operation_Gideon_(2020)
https://seekingalpha.com/article/4595845-chilean-lithium-nat...
Even if the bigger part of the profits travels abroad, if the industrial knowledge stays in the country and also has a network effect on other industries and businesses, then it's a win on it's own.
Specially in this case where I doubt Chile even has the know-how and funds to explore the lithium on their own without foreign help.
2. Too bad they let foreign companies exploit their natural riches so far. But of course - that was how world powers set up their colonies everywhere, and it's been mostly the same with neo-colonies (which are supposedly sovereign, but foreign companies and governments call most of the shots).
3. I just wish the export profits are distributed more fairly, effectively and reasonably (which, right now, I somewhat doubt).
4. Lithium alternatives for batteries are being actively worked on and there's a lot of potential in some of these. Here is a survey of 5 examples:
https://www.youtube.com/watch?v=n1TBAWlbXKI
Chile still hasn't yet replaced the constitution drafted by the last US installed brutal far-right murderous dictatorship after the last time a US backed coup overthrew Chile's democracy. Many of the bodies of the disappeared have not yet been recovered. The mothers of the disappeared still gather to mourn their still missing children in neighboring Argentina where the US also overthrew their democracy and installed a brutal far-right murderous regime. The US hand in Central America was even more brutal-- even engaging in genocide.
And, RIP the many who will lose their lives fighting the US oligarchy installed coup government.
Sadly, realistically, the best case will be a repeat of what happened in Bolivia, where the US (Trump administration) staged a coup, against the most popular president in Bolivian history, and installed a brutal far-right government in an attempt to steal Bolivia's lithium. The US installed coup government fired live ammunition into protesters trying to regain their democracy and freedom. The Bolivians won their freedom back in only a few months, but there were many losses.