LITHIUM INDUSTRY AND THE CHILEAN CASE

• Jurisdiction: Derecho Internacional

International Mining and Oil & Gas Law, Development, and Investment
(Apr 2011)
CHAPTER 12B
LITHIUM INDUSTRY AND THE CHILEAN CASE
Rafael Vergara
Carey Abogados
Santiago

RAFAEL VERGARA is partner and head of Carey y Cia.'s Natural Resources and Environment Group. His practice focuses on natural resources, mining, water rights, energy, environment, surface lands, project financing, corporate/commercial, municipal and planning, health and medicines. Mr. Vergara was Assistant Professor of Mining Law at the Universidad de Chile from 1988-90, and at the Universidad Catolica de Chile from 1992-93. Since 1996, he has been Professor of Mining Law at the Universidad de Chile, and from 2003 at the Universidad de Los Andes. He has given special courses on mining law organized by the Judiciary Academy of Chile, for judges and members of the Courts of Appeals. He has also presented papers on Chilean energy and natural resources regulations at numerous meetings, both in Chile and abroad. He is member of the Chilean Bar Association, of the legal committee of the National Mining Association (SONAMI) and of the informal association Abogados Mineros Latinoamericanos (AMLA). Mr. Vergara studied law at the Universidad de Chile being admitted to the Bar in 1987. He was a participant in the 1993 course of the Academy of American and International Law of the Southwestern Legal Foundation in Dallas, Texas, USA and in the 1997 Program of Instruction for Lawyers of the Harvard University Law School.

Rafael Vergara & José Tomás Hurley Carey y Cía.

I. CURRENT FEATURES.

1.1. Lightest Metal on earth.

Lithium is a soft, silver-white metal that belongs to the alkali metal group of chemical elements. Under standard conditions it is the lightest metal and the least dense solid element, contained in continental brines (100-2,700 ppm) and minerals (2,300-18,000 ppm).¹

Like all alkali metals, lithium is highly reactive and flammable. For this reason, it is typically stored in mineral oil. Because of its high reactivity, lithium never occurs free in nature, and instead, only appears in compounds, usually ionic ones.²

1.2. Lithium Products.

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1.3. Abundant and Spread.

"Abundant and Spread" is not a pacific feature for lithium since it has been gone from its shortage availability to its high abundance.

As Evans³ explains, "in 1975 the United States Geological Survey convened a symposium in Golden, Colorado, on lithium demand and resources prompted by the premise that lithium resources would be inadequate to meet future demand in fusion power generation (expected from the year 2000 onward!) and in load leveling storage batteries. Demand estimates were astronomic and in the light of these projections the availability of adequate reserves was seriously questioned". In the introduction to the symposium reference was made to the "gravity" of the impending shortage of lithium.⁴

A few years later, bearing in mind what was reported by the symposium held in Golden, Colorado, and the potential of lithium in nuclear power generation, the National Academy of Sciences and Engineering created a National Research Council Committee on Nuclear and Alternative Energy Systems ("CONEAS") to report on the role of nuclear power in the context of alternative energy systems for the time period 1985 to 2010. One of the Panels formed by CONEAS was dedicated to Lithium and its worldwide availability.⁵

The Lithium Panel reported in 1978 that an estimate of 10.6 million was available for the future years. Notwithstanding this report does not include the Eastern World since very little data was available at that time, specifically for Russia and China.⁶ The 1978 report was added with the estimated reserves in the Greenbushes, Western Australia; Salar de Uyuni, Bolivia; Geothermal brines in Southern California; and others.

As of 2008, Evans' report lists a total of approximately 29.8 million tons of lithium resources and reserves, equivalent to nearly 150 million tons of lithium carbonate equivalent (MT-LCE)- equal to 1,340 years of supply at the current rate of demand (approximately 112,000 MT-LCE).⁷⁸

Notwithstanding, as of the prior years, Evans estimation has been criticized. In Tahil's opinion, lithium resources are only 17.3 million tons of metallic lithium, and lithium reserves are approximately 4 million tons. Tahil differs from Evans, because he considers that many of the resources and reserves pointed out by Evans are not worth it from an economic perspective since lithium concentration in such reserves is very modest and unexploitable at any level.⁹¹⁰

Furthermore, some players of the lithium industry sustain that the total resources are 300 million MT-LCE, white the reserves are 100 million MT-LCE.¹¹

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1.4. Lithium by End Use.

Lithium is used as raw material in several industrial procedures and components, such as batteries, greases, glass and ceramics, air treatment, aluminium, rubber and thermoplastics, pharmaceutical, continuous casting and others. It is interesting that not only the quantity of the demand has changed in the last ten years, but also its distribution among the different industries:¹²

Year 1999	Year 2009
7%	Batteries	27%
17%	Greases	12%
47%	Glass and Ceramics	8%
5%	Air Treatment	5%
4%	Aluminium	4%
3%	Rubber and Thermoplastic	4%
2%	Pharmaceutical	3%
_	Continous Casting	3%
15%	Others	25%

According to the aforementioned, lithium-ion batteries have become the main and most relevant application of lithium since these kind of batteries are used in almost every electronic devices, such as cameras, laptops, cell phones, PDAs, MP3, among others. In addition, the use of these batteries is highly attractive due to its weight lightness, power and life cycle, their range support in terms of temperature and, in particular, because they have no "memory effect".¹³

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Compania	Paid HQ	Recurso	Yaomento	Cap. (idMI-LCE)
SQM	Chile	Salmueras	Salar de Atacama	40,0
Chemetall	Alemania	Salmueras	Salar de Atacama	28,0
Alemania	Salmueras	Silver Peek	5,0
FMC	EEUU.	Salmueras	Salar del Hombre Muerto	17,5
Citic	China	Salmueras	Lago Taijinaier	5,0
QLL	China	Salmueras	Lago Taijinaier	2,0
Tibet	China	Salmueras	Lago Zhabuye	2,5
ABA	China	Espodumeno	Condado Maerkong	2,5
Jiangd	China	Espodumeno	Ningdu	2,0
Minfeng	China	Espodumeno	Condado Maerkong	2,0
Ni&Co	China	Espodumeno	Condado Maerkong	5,0
XLP	China	Espodumeno	Keketuhai/Greenbushes	5,5
Panasia	China	Espodumeno	Greenbushes	4,0
Tianqi	China	Espodumeno	Greenbushes	9,5
CBL	Brasil	Espodumeno	Cachoeira	2,3
Quimicos de Litio	133
Talison	Australia	Espodumeno - Q	Greenbushes	19,0
Talison	Australia	Espodumeno - T	Greenbushes	12,0
Bikita	Zimbabwe	Petalita	Bikita y Al Hayat	6,0
Soc. Min. de Pegmatitas	Portugal	Petalita	Mesquitela y Guarda	2,0
Minera del Duero	Esparia	Lepidolita	Mina Feli	0,7
Tanco	Canada	Espodumeno	Bernic Lake	4,4
Fuente: SQM	Concentrados de Litio	4414

1.5. Lithium Producers.

At the time of the National Research Council report the production of lithium chemicals was a duopoly in the Western world and demand at that time approximated to 3,200 tons/year of lithium. Little was known about Russian and Chinese production and reserves. The two main producers were Lithium Corporation of America ("LCA") and the Foote Mineral Company ("Foote"). Both processed spodumene concentrates from their mines near Bessemer City and Kings Mountain, North Carolina.¹⁵ Currently, the situation is different, with several producers and much more consumption: 22,400 tons per year. The main producers are the following:

i. The Chemetall Case.

In 1975 Foote, then owned by Cyprus Minerals, signed an agreement with CORFO, a Chilean Government agency and owner of the mineral claims covering the nucleus of the Salar de Atacama ("Salar"), to evaluate the brine deposit there. At the end of the evaluation the company was allowed to lease a percentage of the claims. Sociedad Chilena del Litio was formed and production commenced in 1984. Foote/Cyprus was subsequently purchased by Chemetall and later by Rockwood Holdings.

Nowadays, Chemetall has a capacity of 28,000 tons of MT-LCE.¹⁶

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ii. The SQM Case.

In 1980, Amax Exploration visited the Salar as part of a global search for potash but on discovering that the Foote agreement granted them exclusive rights for lithium recovery for only eight years pressed for the right to co-produce lithium.

In 1984 CORFO invited bids for the development of much of the remainder of the Salar's nucleus. Amax were successful in bidding against LCA but Amax, following the completion of an evaluation programme, decided to dispose of its interest and this was acquired by Socieded Quimica y Minera ("SQM") a major producer of iodine and sodium nitrate. SQM came into production at the Salar in 1997.

Nowadays, SQM has a capacity of 40,000 tons of MT-LCE.¹⁷

iii. The FMC Case.

Having lost the bid in Chile, FMC turned its attention to the Salar de Uyuni in Bolivia but failed in its negotiations with the Government there but successfully negotiated with the Argentinian authorities for rights to the Salar de Hombre Muerto. Although a much smaller salar the brine is an extremely 'clean' one and produced a quality of lithium chloride unavailable elsewhere. However, both capital and operating costs were much greater than anticipated and carbonate production was suspended for several years.

Nowadays, FMC has a capacity of 17,500 tons of MT-LCE.¹⁸

1.6. Lithium Current Demand and Market.

Lithium current demand approximates to 112,000 MT-LCE according to the following chart:¹⁹

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II. FUTURE DEMAND AND PROJECTS.

2.1. Future and Expected Demand.

In all recent discussions and thematic meetings, the central topic was the concern about whether the growing demand for lithium and its...