Life-blood of Tesla batteries hits supply limits in Andean mine
For the past nine months, a U.S. company that is the world's largest producer of lithium — a key ingredient in electric-car batteries — has been locked in battle with the Chilean government over pricing issues, production quotas and environmental compliance. With no resolution in sight, the fight is sending tremors all the way up the electric vehicle supply chain that provides batteries to Tesla Inc., Nissan Motor Co., Bayerische Motoren Werke AG and other car makers.
The drama is playing out in the northern reaches of Chile's Andes Mountains amid the arid and austere Atacama Desert, a vast, high-altitude bowl surrounded by snow-capped volcanic peaks named after ancient gods of the indigenous people. The U.S. company, Albemarle Corp., has taken over a massive salt-flats mine, pumping scarce briny water through dried-out salt marshes and lagoons to extract the prized mineral. A dozen or so miles away, thick flocks of Andean flamingos feed peacefully in a lagoon teaming with tiny shrimp, as they have for countless millennia. But as mining activity surges, water tables are falling amid growing environmental concerns.
At least two government agencies responsible for lithium permits have rejected Albemarle's request for licenses it needs to expand.
It's bad news for the flamingos — and boom times for the miners. Automakers have moved so fast to boost production that prices have tripled in less than four years, sending miners in a frantic search for lithium all over the world. And it's still early days. Demand for lithium for electric vehicle batteries is projected to rise to around 500,000 tons over the next seven years, from a current 64,000 tons, according to estimates by Bloomberg NEF. And Charlotte, North Carolina-based Albemarle aims to invest almost $1 billion to more than triple its production capacity in Chile, which has more lithium reserves than anywhere else on the planet.
Not so fast, says the Chilean government, which has slapped the company with a myriad of complaints that threaten to slow that expansion push. The government alleges the company has ignored its requests to adequately detail its expansion plans. At least two government agencies responsible for lithium permits have rejected the company's request for licenses it needs to expand. A third agency has said it will file for international arbitration before the end of the year over a pricing spat between the company and the government. It will be the first time the government has ever taken such a step against a foreign company.
Albemarle, which declined to comment for this article, has previously said that it believes “very strongly” in the legality of its position. Until a few years ago, lithium was a minor business, mined mostly for medical uses. In 2015, Albemarle acquired the Atacama lithium operation from another U.S. company; as production rose and prices skyrocketed, several executives from the former ownership were edged out, including John Mitchell, lithium operations president.
As production ramped up, Albemarle failed to respond to Chilean officials’ calls, emails and formal requests for information about changes at the mining operations, according to government officials. When they did respond, their answers were lacking, according to Maria Elina Cruz, a prosecutor at government development agency Corfo, suggesting that the always delicate relationship between a foreign, multinational company and its hosts might have turned sour as the company changed hands.
As production ramped up, Albemarle failed to respond to Chilean officials’ calls, emails and formal requests for information about changes at the mining operations, according to government officials.
“Their proposals haven’t been reasonable,” Cruz said in an interview in Santiago. “It is not such a complex issue. In the end, the problem is that they are not ready to lose one single peso — that’s the issue.”
At a conference call with analysts in November, Chairman and Chief Executive Officer Luke Kissam acknowledged that “there’s a dispute” with Corfo, but didn’t elaborate on the overall relationship with the Chilean government.
In 2016, Corfo signed a contract with Albemarle that awarded the company authorization to mine increasing levels of lithium through 2043. In exchange, Albemarle agreed to give a break on the price of up to 25 percent of its increased production to companies developing lithium products in Chile. The idea is for Chile to turn the corner from being a mere supplier of raw materials to getting a toe-hold in the lucrative and more technologically advanced world of battery design and production. The clause is part of the government’s broader push to develop lithium-based components for batteries.
In March, Corfo picked Chile’s Molibdenos y Metales SA, or Molymet, a consortium of South Korea’s Samsung SDI and Posco and China’s Sichuan Fulin Industrial Group Co. The companies vowed to invest a combined $754 million in northern Chile. The plan is now frozen after Corfo and Albemarle couldn't come to terms on lithium prices.
“Albemarle’s position is that they won’t negotiate anything that impacts their benefit — and this does, because it involves selling lithium at a price lower than the market price,” said Cruz, who has led the negotiations with Albemarle. “The problem is that this was a clause in the contract.”
“If I thought there was the smallest chance of Albemarle fulfilling its contract, we wouldn’t be in this position.”
Company executives see it differently. “With Corfo, it’s been very public what that confusion is; it’s a matter of what price needs to be offered to any third party who would build a cathode facility in Chile” to build lithium components for electric autos, Kissam told analysts in November. “We believe very strongly in our position — we think it’s clear.”
Arbitration is expected to last about 18 months, Cruz said, likely delaying investments that would allow the country to become a hub for the industrialization of lithium products in South America.
“We haven’t made this decision lightly,” Cruz said. “If I thought there was the smallest chance of Albemarle fulfilling its contract, we wouldn’t be in this position. This is our last resort; there’s no other way of reaching an agreement.”
Albemarle’s troubles with Chilean authorities don’t end there. The country's environmental authority, SEA, turned the company down for a license it would need to build a planned $584 million lithium processing plant needed to increase production. The rejection came after the company failed to submit a thorough report on the project’s impact on the environment in the area. Obtaining such licenses typically takes months, sometimes years. The company is confident that it will be able to bring new capacity in line “in the coming 12 to 18 months,” Kissam told analysts earlier this month.
Both Corfo and another agency known as Cchen detected that Albemarle was selling Chilean lithium at a price much lower than the market average to its own subsidiaries in the U.S. and Germany. This could constitute a violation of price parity rules from the Organisation for Economic Cooperation and Development and could mean that the company would be paying lower taxes than it should. Both agencies reported the issue to Chile’s internal revenue service, known as SII, which declined a request for comment on whether an investigation is ongoing.
Cchen also recently rejected a permit Albemarle needed to extend operations beyond 2021. The agency said the company didn’t sufficiently explain how the use of a new technology would make the mine more efficient, allowing Albemarle to increase production without pumping more brine from the salt flat.
Albemarle's recent actions signal it has no intention to negotiate anytime soon with the Chilean government. The company has now put its long-term Atacama expansion plan on hold as it focuses on its Australian operations. “When you cross a regulator, it doesn’t matter in what country," said Chris Berry, a New York-based battery-metals analyst and founder of research firm House Mountain Partners. Whether “the U.S., China, Argentina or Chile, you got a real problem on your hands.”
(By Laura Millan Lombrana)