Chile’s economic development agency, CORFO, announced on Wednesday that it has made a new agreement with Albemarle, a U.S. company. This deal gives Albemarle the option to increase its lithium production quota by 240,000 metric tons of lithium metal equivalent (LME). This is a big increase of almost 50%, raising Albemarle’s total production quota from about 460,000 metric tons of LME to around 700,000 metric tons.
However, Albemarle can only get this higher quota if it meets certain conditions. First, it needs to show that it can use sustainable technology, like direct lithium extraction, which is better for the environment. It also needs to talk with local indigenous communities and get the necessary environmental permits.
This agreement is part of a settlement reached in April. The settlement requires Albemarle to pay $15 million to CORFO. This payment resolves a complaint CORFO made in 2021 to the International Chamber of Commerce (ICC). CORFO had claimed that Albemarle underpaid commissions to the state.
Albemarle is one of only two companies that produce lithium in Chile. Chile is the world’s second-largest producer of lithium, which is a key material used in batteries for electric vehicles (EVs).
Jose Miguel Benavente, the Vice President of CORFO, said that this agreement includes several important clauses. These clauses will help ensure that lithium production in the Salar de Atacama, a lithium-rich salt flat where Albemarle operates, meets higher sustainability standards. This is important because it means the production will be more environmentally friendly.
The agreement also introduces new terms for setting a “preferential price” for companies that produce lithium products in Chile. CORFO hopes these changes will make it easier for these companies to negotiate with Albemarle for a long-term supply of lithium carbonate. This will give them more flexibility and help them reach better agreements.
However, some parts of a 2016 agreement with Albemarle remain unchanged. This includes the validity of the deal through 2043 and the option for CORFO to purchase assets in the Salar de Atacama.
To explain further, let’s break down some key points:
Increase in Lithium Production
- New Quota: Albemarle has the chance to increase its lithium production by 240,000 metric tons of LME.
- Total Production: This increase would bring Albemarle’s total production to around 700,000 metric tons of LME.
- Conditions: To access this higher quota, Albemarle must use sustainable technology, consult with indigenous communities, and get environmental permits.
Settlement Details
- Payment: Albemarle will pay $15 million to CORFO.
- Complaint Resolution: This payment resolves a 2021 complaint where CORFO claimed Albemarle underpaid commissions.
Sustainability and Community Involvement
- Sustainable Technology: Albemarle must prove it can use direct lithium extraction, which is less harmful to the environment.
- Indigenous Consultation: The company must talk with local indigenous groups about its plans.
- Environmental Permits: Albemarle needs to secure all necessary environmental approvals.
Market Impact and Preferential Pricing
- Preferential Price Terms: The agreement outlines new terms for setting prices for companies producing lithium products in Chile.
- Flexibility and Negotiation: These new terms aim to give companies more flexibility and help them reach better deals with Albemarle.
Existing Agreement Terms
- Unchanged Terms: Parts of a 2016 agreement with Albemarle remain the same. This includes the deal’s validity through 2043 and the option to buy assets in the Salar de Atacama.
Importance of Lithium
- Global Production: Chile is the second-largest producer of lithium in the world.
- Usage: Lithium is a crucial component in batteries for electric vehicles, making it highly valuable as the world moves towards more sustainable transportation options.
Environmental and Social Responsibility
- Higher Standards: The agreement with Albemarle aims to ensure lithium production meets higher environmental and social standards.
- Sustainable Practices: By requiring sustainable technology and community consultation, the deal emphasizes responsible mining practices.
In summary, this new agreement between CORFO and Albemarle represents a significant step in increasing lithium production in Chile while also emphasizing sustainability and community involvement. The deal not only boosts Albemarle’s production capabilities but also ensures that the company adheres to higher environmental standards and maintains good relationships with local indigenous communities. This is crucial for the long-term success and acceptance of lithium mining projects in the region.
