The Chilean government made a historical decision in March to auction off a quota and licence under a Special Lithium Operations Contract (CEOL), opening up new investment possibilities in the world’s largest lithium-producing country.
 
Politicians have locked horns over the issue since then due to the strategic nature of the mineral, but after much debate the winner was announced on Monday.
 
Local powerhouse Sociedad Química y Minera de Chile (SQM) won the auction by a landslide with its $A39 million bid, giving it the right to mine 100,000 tonnes equivalent of lithium over a 20-year period.
 
The bid was more than double that of the closest offer of $16.7 million from the Posco Consortium, which is made up of Posco, Mitsui & Co, Daewoo International Corp and Minera Li Energu SPA.
 
The third-highest bidder was Chilean company NX UNO de Peine with an offer of $5.56 million.
 
Li3 Energy CEO Luis Saenz, whose business was part of the Posco Consortium through its local subsidiary, said that while the government had received a good price the auction did not deliver on its aims.
 
“This was part of the competitive measures put forth by minister Pablo Longueira to promote competition and attract new players, and on that objective the government has failed miserably,” Saenz said.
 
“With the structure they chose there wasn’t much the government could do, as they wanted it to be a fair and transparent process, and when SQM is there you know you’re at a disadvantage.
 
“These were the cards we were dealt. We have a very strong consortium with an advanced project, we’ve spent the better part of $US20 million ($A19 million) on exploration and acquisitions, but now we’re sitting in limbo.”
 
Saenz said the auction reinforced the oligopoly of SQM and US-based Rockwood.
 
His comments were echoed by NX Uno de Peine president Francisco Javier Errázuriz, but the Chilean executive took a much stronger tone.
 
“Under the terms of the tender, SQM doesn’t have any obligation to produce in 20 years so this is not generating any additional sources of work here in Chile,” Errázuriz told newspaper Diario Financiero.
 
“This has been done so that SQM wins, doesn’t produce, and so they keep the competition and global monopoly on lithium.
 
“In an oligopolistic industry it is better not to produce – it is more profitable because if there is a greater supply prices fall. SQM doesn’t have any incentive to produce in Chile.”
 
Saenz said the industry would have to wait and see whether SQM would actually use the CEOL, but the Chilean giant has indicated it would announce exploitation projects associated with it during the next 12 months.
 
“Everyone wins if we do well: the state wins, workers win. In terms of us being a competitive company, we will have higher profits and we will generate more taxes,” SQM vice president Ricardo Ramos told newspaper El Mercurio.
 
“We have the experience, the knowledge, the financial resources and qualified workers that allow us to go forward with this project and others, which helps us to keep our leadership in the lithium business.”
 
Saenz is hopeful the government will initiate auctions for new CEOLs.
 
“It would be positive if the government could show it is opening the industry to new players; Chile is not going to run out of lithium, not if SQM uses 100,000 tonnes or if they use another 100,000 tonnes,” he said.
 
The US Geological Survey Mineral Commodity Summaries 2011 highlights 7.5 million tonnes of identified lithium resources in the country, which the Chilean government says is sufficient for 1.5 millennia of production.
 
*Matthew Ogg is a Santiago-based journalist.