Chile’s assertion of state control over its lithium industry has sent shock waves through the new energy metals sector.
The country’s two big lithium producers, SQM (SQMA.SN) and Albemarle (ALB.N), have seen their share prices fall on the prospect of having to relinquish majority control of their operations or risk losing their licences once they expire in 2030 and 2043 respectively.
Shares in companies such as Pilbara Minerals (PLS.AX), Australia’s biggest lithium producer, have risen on the premise of slower investment and project growth in Chile, which hosts the world’s largest deposits of the battery metal.
Chile has been here before.
The country nationalised its copper sector in 1971, provoking international outrage, particularly in the United States.
President Gabriel Boric’s lithium “nationalisation” is a more benign version, using an even earlier copper model.
Moreover, Chile is far from the only country seeking to channel the new energy metals boom.
The Copper Model – Good and Bad
If President Boric’s lithium policy is an echo of past copper policy, the comparison is with the “Chileanisation” programme of the Eduardo Frei Montalva administration in the late 1960s.
Frei embarked on a creeping nationalisation, buying 51% stakes in existing copper mines and projects and wrapping them into the Copper Office, renamed in 1966 as the Corporacion Nacional de Cobre (Codelco).
All the U.S. companies that then controlled Chile’s copper production negotiated a reduction of their holdings. Kennecott Copper led the way, selling in 1967 a 51% stake in the El Teniente mine with the proceeds reinvested in an expansion programme.
The “win-win” state-private balancing act was upset in 1971 when President Salvador Allende won Chilean elections on a platform of speeding up the process.
The hard nationalisation that followed saw U.S. copper companies stripped of their shares for minimal compensation after the government offset book value with previous “excess profits”.
There was legal blowback, including court seizures of physical copper cargoes, and economic and political blowback from the United States.
Chile’s copper grab was part of a broader trend of developing countries taking state control of their mineral riches. Zambia, the world’s second largest copper producer at the time, did exactly the same three years later in 1974.
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