Lithium King's Abdication May Be Cheered by Carmakers

(Bloomberg) -- The lithium industry is set to lose one of its key figures just as a nascent electric-car boom transforms the mineral from niche to mainstream status. That may be good news for Tesla Inc.

Julio Ponce, once the son-in-law of dictator Augusto Pinochet, has controlled Soc. Quimica & Minera de Chile SA since the early nineties, fending off larger shareholder Potash Corp. of Saskatchewan Inc. thanks to a series of holding companies and a pact with Japan’s Kowa Co. Once predominantly a crop-nutrient producer, SQM has become the world’s biggest exporter of lithium carbonate just as prices soar.

But thwarting SQM’s chances of meeting rising demand for the mineral used in rechargeable batteries is a bitter three-year dispute over terms of its main concession. Tarnished by allegations of illicit campaign financing and running a share-trading scheme that enriched himself at the expense of his shareholders, government agency Corfo pushed doggedly for Ponce to relinquish control as a condition for renewing its concession.

On Monday, a day after opposition candidate Sebastian Pinera won the presidential election, Ponce finally yielded.

His holding companies committed to the following as a way to restart talks with Corfo:

• That neither Ponce nor any family member occupies a board or executive position, in a move that would see the departure of Julio’s brother Eugenio as chairman
• End the agreement with Kowa on voting for independent board members
• Not enter into agreements to acquire a controlling stake until 2030
• Designating at least one independent director to represent A shares 

Now talks with Corfo will focus on increasing an extraction limit through the end of the lease agreement, which expires in 2030 and raising royalties to levels similar to those signed by Albemarle Corp.

SQM is increasing its lithium carbonate capacity to 63,000 metric tons from 48,000 tons a year, meaning it will reach a production quota before its contract expires. That figure could be doubled with the new agreement, according to analysts at LarrainVial.

“Corfo said that if negotiations are successful, Chile would be able to expand its lithium production significantly, which leads us to believe that this increase in production is likely,” they wrote in a note to clients.

That would be welcomed by battery makers being squeezed by a tight lithium market that has sent prices surging.

--With assistance from Laura Millan Lombrana

To contact the reporters on this story: James Attwood in Santiago at jattwood3@bloomberg.net, Sebastian Boyd in Santiago at sboyd9@bloomberg.net.

To contact the editors responsible for this story: James Attwood at jattwood3@bloomberg.net, Philip Sanders, Stephen Cunningham

©2017 Bloomberg L.P.