Fynsa
A few days after President Boric's announcement of a new national lithium strategy, Fynsa organized a Webinar to allow our clients to better understand the impact of this public policy on the development of this industry in the country.
Of all the points that are known about this strategy, perhaps the most controversial is related to the intention of the state to participate in the complete lithium production cycle, with a majority participation in the event of a partnership with private companies.
The presidents of the business associations have been very critical of this announcement, mainly because of the leading role assigned to the State and the implicit distrust that this implies for the management of the private sector. And the criticisms seem to be well founded. A simple glance at the performance of the public and private sectors in the mining industry itself is enough to realize the fear generated by this announcement. Codelco has serious operational failures in all its divisions and delays in its projects. Its production recorded a drop of 172 thousand tons in 2022, the lowest in 14 years, and its profits recorded a 63% drop with respect to 2021. Our country's main public company has serious competitiveness problems, a debt of US$18 billion and a model that, in the words of its current president, has run out of steam. On the other hand, private mining (SQM and Abermale) contributed more than US$5,000 million to the State in 2022 for the exploitation of lithium, double Codelco's contribution to the Treasury and 39% of the revenues expected for the next twelve years.
And it is here where the first question naturally arises: why is it thought that the State can be a good manager in the lithium industry when it has not proven to be so in other industries? Today, five of the ten existing public companies are losing money, two of them potential lithium exploiters. Codelco earned US$4.4 billion less last year, EFE, Metro, Enami, TVN and Correos accumulated losses in the same period of US$376 million.
With these figures in mind, it is incomprehensible that a national lithium exploitation strategy does not promote a virtuous collaboration between the state and the private sector. In the proposed model, with the State as the majority partner, is there any possibility that a private company would invest US$700 million in the construction of a lithium plant when the company's key decisions are taken by the board of directors of a public company whose composition is more political than technical?
Chile has a unique opportunity in the exploitation of this mineral that should not be missed. The growing interest in the lithium business is explained by the projected growth rates in its demand. If, at present, the demand is approximately 700 thousand tons, conservative calculations estimate that by 2025 it will increase to 1.6 million tons and to 3 million tons by 2030. This demand is influenced by, among other factors, the penetration of electric vehicles, currently at an average of 12% and with a projection of 45% by 2030. The largest centers of lithium consumption will be in Europe and Asia, followed by the United States.
Importantly, these projections include new and growing market segments, such as energy storage. Demand in this sector could also drive an increase in lithium production and consumption, which reinforces the importance of developing a sound policy for the industry.
In terms of lithium reserves, Bolivia leads, followed by Argentina, which currently has more than 30 projects (it is important to mention that some companies have been operating for more than 20 years). Chile, the United States and Australia also have significant lithium reserves. However, although Australia does not have the largest reserves, it stands out as the world's largest lithium producer. This contrast shows the importance of efficiency in the exploitation and production of lithium, regardless of the size of reserves in a country.
Considering this reality, it is urgent to accelerate the development of this industry in order to satisfy an immediate demand. The time and cost involved in completing a mining project of this magnitude requires us to act quickly, and everything indicates that we are lagging behind.
Although there is still a long way to go and challenges to face, we must closely follow the evolution of the lithium market and the opportunities that arise. Collaboration between the public and private sector will be crucial to the success and sustainable growth of the lithium industry.
