Resource nationalism is on the rise. As commodity prices soar, governments are clamoring for a bigger slice of the pie. Chile is the latest to exercise increased control over key resources. This week, President Gabriel Boric plans unveiled nationalize the country’s vast lithium industry.
The plan, which has yet to be approved by lawmakers, will not affect existing lithium mining contracts. These are owned 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 have to tread carefully, lest he risk killing Chile’s golden goose. The country has the third largest lithium reserves in the world with around 11 million tonnes, behind Bolivia and Argentina. SQM says that under current agreements it already pays two-thirds of its gross profits to the Chilean government.
Lithium is a key element in the batteries that power electric vehicles. Prices fell about 70% from their November highs due to weaker demand for electric vehicles in China. But Boric is betting that long-term demand trends will provide the necessary clout to keep foreign investors in place, despite new government demands.
It’s a bet. Albemarle and SQM are publicly traded companies to which shareholders must answer. In the past, Chile has been receptive to foreign investment. This decision casts doubt on this legacy. If the country makes contracts too expensive or difficult to operate, it stands to lose to other lithium-rich countries like Australia.
South America’s state-owned companies don’t have the best track record when it comes to managing natural resources. But more changes may be coming. Of greater concern is how the change in policy on lithium will affect sentiment in the copper mining industry, which accounts for more than half of Chile’s exports.
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