[SMM Analysis] Lithium Giants Join Forces, Marking a Key Step in Chile's Nationalization Strategy

Global top lithium producer SQM and Chile's state-owned copper company Codelco are expected to reach a landmark cooperation agreement to jointly develop lithium resources in the Atacama Salt Flat. This deal, initiated in December 2023, stems from President Boric's national lithium strategy, which grants Codelco operational control over all strategic salt lakes.

Under the agreement, SQM will transfer majority ownership of its Atacama operations to Codelco in exchange for mining rights extension until 2060. The deal is anticipated to be finalized within weeks but still requires antitrust approvals, including from Chinese regulators, with SQM expecting clearance by late this month or early October.

Supporters argue this partnership will help Codelco diversify revenue streams. The company currently faces dual pressures from declining copper production and surging debt caused by budget-overrun projects. Entering the lithium sector allows Codelco to access core markets in the global energy transition, while leveraging SQM's mature infrastructure technology and expertise could effectively reduce costs and accelerate production.

However, critics warn Codelco conceded too much in the deal. Economist Macarena Vela directly called it a "sovereign concession," emphasizing that although lithium is legally classified as non-concessionable under Chilean law, the agreement permits SQM to retain nearly half of Atacama's future profits. In her column, Vela cited Rio Tinto's $6.7 billion acquisition of Argentina's Arcadium Lithium as comparison, arguing Chile significantly undervalued its assets.

"Under various price and production scenarios, full nationalization or international tender could have generated state revenues between $45 billion and $365 billion," Vela wrote, "plus the loss of at least $6.7 billion upfront payment, making the potential fiscal loss enormous."

Codelco's lithium venture comes as the copper giant faces deep structural challenges. The company must address both declining ore grades at aging mines and severe budget overruns/schedule delays at four flagship expansion projects. Its debt has surged to approximately six times EBITDA, reigniting debates about Codelco's long-term financial health.

During Piñera's first presidency, despite copper prices remaining high, Codelco's debt still grew 84%, yet proposals to sell minority stakes triggered such public backlash they were shelved. For this mining titan, lithium presents a rare diversification opportunity to reduce reliance on a single commodity.

Given that successive governments in Santiago have consistently honored existing resource contracts, this agreement is likely to remain valid even after President Boric's term ends in 2026. For now, the deal is hailed as "historic," as it strengthens Chile's regulatory capacity over lithium resources while preserving the role of key private-sector players in the industry.