Chile/lithium: Boric needs to avoid killing the golden goose

Resource nationalism is on the rise. As commodity prices climb, governments are clamouring for a bigger piece of the pie. Chile is the latest to exert more control over key resources. This week, president Gabriel Boric unveiled plans to nationalise the country’s vast lithium industry.

The plan, which still needs to be approved by lawmakers, will not affect existing lithium mining contracts. These are held by two companies, Albemarle and Sociedad Química y Minera de Chile, or SQM. Both of their shares fell sharply in response. Future contracts will only be issued as public-private partnerships, with the state taking majority control.

Boric will need to tread carefully, lest he risk killing Chile’s golden goose. The country has the world’s third-largest lithium reserves at about 11mn tonnes, behind Bolivia and Argentina. SQM claims that under current arrangements it already pays two-thirds of its gross profits to the Chilean government.

Lithium is a key component in the batteries that power electric vehicles. Prices have dropped some 70 per cent from their November highs on weakening EV demand in China. But Boric is betting long-term demand trends will provide the clout needed to keep overseas investors in place, despite the government’s new demands.

It is a gamble. Albemarle and SQM are publicly listed companies with shareholders to answer to. Chile in the past has been receptive to foreign investment. This decision casts some doubt on that legacy. If the country makes contracts too costly or difficult to operate, it risks losing out to other lithium rich nations such as Australia.

State-owned companies in South America do not have the best record in managing natural resources. But more change may be coming. A bigger worry is how the shift in lithium policy will affect sentiment in the larger copper mining industry, which accounts for more than half of Chile’s exports.