By Dave Sherwood and Fabian Cambero
SANTIAGO (Reuters) - With the global race to secure lithium heating up in 2016, Chile's president Michelle Bachelet wanted to be sure her country seized the moment. Home to half the world's lithium reserves, Chile tapping its state-run miner Codelco to ramp up production seemed a sure bet.
Chile's most trusted public enterprise, she said, could hunt for private partners to help it mine its own lithium for the good of all Chileans, and take part in the global boom for the battery metal used to power electric vehicles.
A review of regulatory filings, court documents and interviews with Codelco officials shows the strategy was deeply troubled from the start. Dwindling support inside Codelco to prioritize lithium projects over copper, company insiders said, was compounded by legal and regulatory hurdles that stalled development of the company’s two flagship salt flats known as Pedernales and Maricunga.
As a result, Codelco has yet to find a partner for either project years into the initiative to boost output of the metal. Global automakers, meanwhile, are planning a $300 billion surge in spending on electric vehicle technology, including the vital battery technology, over the next five to 10 years.
Codelco’s projects, once thought a shoo-in to boost global supply and lower prices, have largely fallen off forecasts, and Chile has ceded its position as the world’s top producer of lithium to Australia.
The stagnation means lithium supply from Chile, the world’s second largest producer of the white metal, will hinge on the water-constrained Atacama salt flat, home to privately held top producers SQM and Albemarle. Authorities are weighing water conservation measures at Atacama that could crimp Lithium output.
As the world’s largest copper miner, Codelco officials told Reuters they felt they had to choose between two metals, and it was an easy decision. Any enthusiasm for former President Bachelet's lithium drive fizzled once the center-right government of Sebastian Pinera took over from Bachelet last year, according to the Codelco officials, speaking on the condition of anonymity because they are not authorized to publicly discuss the projects.
Pinera’s government focused Codelco on its core Chilean copper assets and imposed an ambitious 10-year, $39 billion program to overhaul its mines, a necessity as ore grades have begun to decline for much of its century-old deposits.
One top Codelco official told Reuters the lithium business was simply "too marginal" compared with copper to warrant substantial investment given tight budget constraints. Chile's total lithium exports in 2017 were $800 million, less than one-tenth of copper revenues at Codelco, which hit $11.6 billion the same year. The sprawling public miner last year produced nearly one-tenth of the world´s copper, another key metal in the electric vehicle revolution.
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Another high level Codelco executive said that the company had assigned "zero priority" to its lithium projects, adding it was nonetheless "going through the motions."
A third Codelco executive told Reuters several miners, which they would not name, had met with the company to discuss a potential partnership in lithium. But they had been turned off by a lack of detailed studies quantifying Codelco's assets, the person said.
Codelco, in a written response to questions submitted by Reuters, acknowledged it had faced challenges at each site but added that it was nonetheless pushing forward with plans to begin explorations and to find partners at the Maricunga and Pedernales flats.
At Maricunga, Codelco said regulators had granted it a reasonable production quota but said it needed to partner with neighbors at the site in order to make developing its comparatively small piece of the flat worthwhile. At Pedernales, Codelco said the quota it had received was “insufficient to develop a long-term project,” while adding that regulators had left the door open for Codelco to provide evidence for increasing output there.
Codelco's struggles have thrown cold water on the conventional wisdom that partnering with a Chilean state enterprise is the best way to quickly and efficiently move a project forward in the country´s tightly controlled lithium industry. That has left potential investors with few other options, said Juan Carlos Guajardo, of Santiago consultancy Plusmining.
"There just isn´t much space for newcomers," Guajardo said. "Codelco could have done something about that...but progress has been slow."
TWO FLATS, ZERO PROGRESS
Chile´s mining ministry has called Maricunga and Pedernales among the most "economically viable" for development of Chile´s salt flats after Atacama, which currently supplies nearly 40 percent of the world´s lithium. While neither flat boasts the reserves of Atacama, each has relatively high concentrations of lithium beneath their white, salt-encrusted surfaces, according to promotional materials distributed by Chile's mining ministry.
But the state miner has faced lawsuits from a competing miner at its Maricunga project, delaying progress, and is grappling with regulators who express skepticism about its Pedernales salt flat and the amount of lithium it can yield. As a result, the company has yet to secure a partner to help it develop either asset.
According to filings reviewed by Reuters that have yet to be reported, the company in July 2017 asked nuclear regulator CCHEN, which authorizes sales and export of lithium from Chile, for a permit to mine 137,388 tonnes of lithium metal equivalent (LME) over 36 years.
One year later, CCHEN authorized Codelco to sell just 40,000 tonnes, less than one-third its initial request, saying outdated reserve studies failed to justify the larger sum, according to a CCHEN resolution in response to the request.
Codelco appealed the decision in September, then sent lobbyists to try to change CCHEN´s mind the following month, according to the filings and lobbyist transparency records viewed by Reuters. CCHEN has requested more information of the miner.
"The quota we´ve been given won´t permit us to seek a partner" at Pedernales, Codelco representatives told CCHEN´s director at the October meeting at the regulator´s offices, the minutes show.
Codelco told Reuters it had work to do at Pedernales.
"Pedernales doesn’t have logistical issues. It’s quota…is insufficient and requires further geological exploration in order to modify it. Currently, the focus at Codelco is on the development of Maricunga.”
The copper giant has fared little better there, however.
Though the company has secured rare export permits at Maricunga, it owns just 18 percent of mining rights at the 145 sq. km site, according to 2018 mining ministry data, forcing it to seek out its neighbors as partners.
Minera Salar Blanco, a joint venture that also holds mining rights at Maricunga, had once hoped to team with Codelco and begin mining the flats. But the company, 50 percent-owned by Australia’s Lithium Power International, with smaller stakes held by Canada’s Bearing Lithium, instead filed a lawsuit last year to block Codelco from developing its holdings, alleging its permits had been issued in error.
The private miner eventually dropped the suit and has struck off on its own, leaving Codelco with just a sliver of the flat and no partner as of yet to help in its development.
Salar Blanco delivered its environmental impact study to Chilean authorities in September - with no help from Codelco – in order to win approval to develop their property. It now plans to begin construction of its own Maricunga project early in 2020.
Jaime Alee, a Chilean lithium consultant who has advised foreign investors on opportunities in the local market, said outsiders like Salar Blanco were starting to get the message.
"Associating with a state enterprise creates more problems than it solves," Alee said.
(Editing by Amran Abocar and Edward Tobin)