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.
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.
“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.
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