Canada's Wealth Minerals, Chinese firm to bid for world’s largest lithium miner

Canada's Wealth Minerals (TSX-VE:WML) and Chinese private equity firm GSR Capital are said to be weighing an investment in Chile’s Chemical and Mining Society (SQM), the world's largest lithium producer.

The two firms, mentioned in a Reuters report, are just the latest names in a long list of companies said to be interested in grabbing a stake in the Santiago-based miner.

Last week, world’s second largest mining company Rio Tinto (ASX, LON:RIO) was also said to be considering a bid for a stake in the Chilean lithium producer.

Canada’s PotashCorp must sell its interest in Chile's SQM — worth about $4.5 billion at current market values — within 18 months of merging with Agrium.

Vancouver-based Wealth Minerals’ main focus is the acquisition of lithium projects in South America, with interests in Chile, Mexico, Peru and its home country.

In Chile, the company already has concessions covering an area of about 46,200 hectares located in the northern part of the Atacama Salar, relatively close to SQM's main production facilities.

GSR Capital’s interest in SQM, in turn, can be explained by China’s drive to decrease air pollution by promoting the use of electric vehicles. The government, reports Reuters, is taking steps to help domestic car manufacturers leapfrog combustion engines and build global auto brands. This makes battery and lithium producers attractive assets for Chinese firms.

Rio's current incursion in the lithium market is mostly limited to its 100%-owned lithium and borates mineral project in Jadar, Serbia, which is still in the early stages of development.

While the company’s chief executive Jean-Sebastien Jacques has not ruled out acquisitions in recent comments to the market, he has also noted the company would only consider opportunities that make a "smart buy".

That’s why purchasing a stake in SQM would not be inconsistent with Rio's current strategy, said Investec in a note to clients, adding that such move would only provide a foothold in a sector where the company has some exposure, but with Jadar still many years away, "if it is developed at all".

Attractive target

SQM became a target of international firms after Canada’s Potash Corp. of Saskatchewan (TSX, NYSE:POT), the world’s largest producer of the fertilizer by capacity, announced it was selling its 32% stake in the Chilean miner, worth about $4.5 billion at current market values. The move was made to comply with some of the conditions imposed by regulators to let PotashCorp merge with smaller rival Agrium (TSX, NYSE:AGU).

SQM, which has a market value at just over $15 billion, produced roughly 44,000 tonnes of lithium carbonate last year and is developing new projects in Chile and Australia.

Canada's Wealth Minerals, Chinese firm to bid for world’s largest lithium miner

Source: Wealth Minerals’ NI 43-101 Technical Report on its Atacama Lithium Project.

Sources familiar with PotashCorp’s stake sale said in September that US chemical company Albenarle Corporation (NYSE:ALB) had already expressed its interest in acquiring a piece of SQM.

If successful, such deal would give the Charlotte, North Carolina-based firm a leading position in Chile’s lithium sector, something the country’s government would try blocking at all costs.

Laws enacted in the 1970s and 1980s classify lithium as a “strategic” commodity for Chile on the grounds it can be used in nuclear-fusion power plants. While the South American nation is very unlikely to build one of those facilities any time soon, controls on lithium production remain and only two companies — SQM and Albemarle — are currently allowed to mine the white metal used in electric car batteries.