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Chile regulator backs SQM lithium production expansion

Brine pools and processing areas of SQM’s lithium mine on the Atacama salt flat. (Image courtesy of Nutrien)

Chile’s environmental watchdog (SMA) has appealed a lower court decision against a $25 million remediation plan by SQM, the world’s no. 2 lithium producer, which called into question the miner’s $380 million production expansion project.

The First Environmental Court of Antofagasta, where SQM’s operations are based, upheld in December a complaint made by local communities about the use of water in the Atacama Desert.

SMA has appealed a lower court decision that called into question SQM’s $380 million production expansion project

The ruling was based, according to filings, on the ecosystem’s “special condition of fragility” in Atacama, where more than a third of global lithium carbonate supply is sourced. The court also cited the high level of scientific uncertainty surrounding the impact of lithium mining on water in the region.

The environmental regulator, which had approved SQM’s plans in March last year, called the lower court’s arguments “unfounded,” especially those alleging the rejected plan failed to protect the environment.

SMA’s appeal must now be considered by Chile’s Supreme Court.

SQM’s current annual production capacity is 70,000 tonnes of lithium carbonate and 13,500 tonnes of lithium hydroxide. The company, however, wants to increase production to 120,000 tonnes of lithium carbonate and almost 30,000 tonnes of lithium hydroxide by the second half of 2021 and to 160,000 tonnes of lithium carbonate by the end of 2023.

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Wave of lithium supply coming online. (Source: BMO Capital Markets.)

Water has become a flashpoint for the expansion plans of both SQM and top competitor Albemarle (NYSE: ALB), both of which operate in the salt flats of the Atacama, the world’s driest desert.

The Chilean miner’s planned expansion would come as lithium prices are experiencing a welcomed rebound. The surge was prompted by expectations of a jump in electric vehicle sales in China after the government gave assurances that its subsidies for buyers would not be cut any further.

Chile, which holds about 52% of the world’s known lithium reserves, lost its top lithium producer crown to Australia in 2018.

The country, however, is working on reversing that situation. It predicts that lithium will soon become its second-largest mining asset, behind copper. The commodity is currently the country’s fourth-biggest export.