V. Strategic Pillars

The strategic pillars that will enable us to achieve the objectives posed are outlined below.

a. Involvement of the State throughout the industrial cycle

The objectives stated in the National Lithium Strategy aim to boost the industry’s dynamism, involving the State in the entire production cycle (exploration, operation, and manufacturing) through public-private partnerships and the development of associated value chains. To achieve this, the State must participate in lithium mining operations in the Atacama Salt Flat in the short term and promote the development of projects in other salt flats, in accordance with industry player diversification and environmental sustainability criteria.

The reasons which justify the State’s participation in the production cycle are outlined below:

In the exploration phase, an active role the State will enable knowledge to be generated regarding the quantity and quality of lithium reserves and environmental conditions, as well as the various challenges associated with each project. This will contribute to designing not only better contracts to ensure the highest possible profitability from lithium mining operations for the State and public participation strategies in the supply chain, but also the specification of scientific-technological, innovation, and industrial policies, as well as social and environmental regulations and requirements, and other functions of public institutions.
State participation in the operation phase will enable it to better address the set of strategic decisions required to mitigate environmental and social risks, as well as the risk of the lithium industry becoming an enclave economy and increase the chance of success in terms of supply chains and harnessing opportunities for industrial development. It will also facilitate knowledge accumulation; the maximization of revenue for the State; access to accurate and reliable information on mining operations’ profits and public revenue generated; understanding of associated costs, raw materials required, and sales; and the refining process. Additionally, it will give the State a strong position to enter into public-private partnerships with companies operating in the added-value phase.

The preferred way for the State to participate in the lithium industry is via the creation of a National Lithium Company. Prior to its creation, the State will participate in lithium exploration and operation in salt flats through state-owned mining companies Codelco and Enami. In both cases, these companies will create subsidiaries that are exclusively dedicated to the lithium industry with all necessary administrative, operational, and financial safeguards to undertake this task and facilitate the development of public-private partnerships.

Additionally, the discussion, drafting, and implementation of measures related to the industrial aspects of this strategy will be articulate by a Corfo Committee.

This committee will be responsible for proposing policies for scientific-technological and industrial development that facilitate new upstream and downstream lithium production activities, and identifying and harnessing of emerging opportunities.

b. Capacity building

The harmonious and economically, socially, and environmentally sustainable development of the lithium industry requires the strengthening of a range of capacities. Some of these capacities may be considered to be public assets, in the extent that their development offers benefits for all industry players. As such they should be developed by an institution that is not involved in the production cycle to disseminate this knowledge publicly among all competitors and State institutions, including those responsible for assessment and decision-making and those responsible for regulation and oversight.

Knowledge and science hold the keys to understanding salt flats and conducting lithium mining operations in accordance with the highest standards. Through science and technology, we can develop and continuously improve these standards. Existing knowledge on lithium and salt flats in Chile is currently scarce and scattered among different specialized bodies, including the private sector, universities, technology and research institutes, and other public institutions such as the Chilean Nuclear Energy Commission (CCHEN), Sernageomin, and the General Water Department (DGA), in addition to Corfo, without any strategic coordination regarding their objectives and duties. The knowledge generated on lithium and salt flats is largely thanks to individual efforts, with scarce and temporary funding.

In this context, the creation of a public technology and research institute is recommended to generate and internalize knowledge on lithium and salt flats, including the lithium value chain. The main objective of this institute will be the generation of knowledge and technologies that enable, for example, improvements in extraction, production, and added-value processes; applications and recycling; better understanding of salt flats through the generation of robust models on their hydrogeology, biodiversity, and minimizing the impact associated with lithium extraction and processing. As such, the public technology and research institute will combine technological development efforts with research capabilities in ecology, geology, and social sciences related to salt flats, their biodiversity, and the communities that live near them.

This will contribute both to proper oversight and regulation of the sector, and efficient and informed decision-making where the State and its authorities require expert knowledge on these topics.

The institute will also collaborate with the lithium resource registration process that will be carried out by private and state-owned companies to provide both a general overview and detailed information on each salt flat. This knowledge will serve as an input for the adequate design of lithium mining contracts, including the creation of a list of salt flats and salt lakes that should be included in a Network of Protected Salt Flats. Furthermore, it will be responsible for collecting and making available information on lithium resources and exploration and operation projects, both in their formulation and design as well as implementation phases, in accordance with the provisions on access to information contained in the Escazú Agreement.

c. Public-private partnerships

Since the Mining Concessions Law and Mining Code took effect, in 1983, lithium has been designated as a substance that is not eligible to be concessioned (except for the concessions managed by Corfo in the Atacama Salt Flat and Codelco in the Pedernales Salt Flat, which were granted prior to 1979). Therefore, lithium exploration and/or operation can only be carried out by the State directly; by state-owned companies; through administrative concessions; and through special lithium operation contracts in accordance with the requirements and under the conditions set by the President of the Republic in each case by supreme decree.

Although lithium in Chile is owned by the State, the private sector can contribute to lithium mining and added-value operations through their industry knowledge, commercial technology, and capital investments.

As such, while the creation of the National Lithium Company aims to develop some of these capacities for the State, the private sector’s capacity must also be harnessed through the developmentof public-private partnerships that, by maximizing the financial and social returns of lithium mining, can align the objectives of private-sector players and the State.

The high profitability of lithium mining and the fact that lithium resources are not eligible to be concessioned in Chile give rise to a mutually beneficial relationship between public and private-sector interests, including in the exploration phase. Private-sector players that want to participate in the industry may be willing to enter into partnerships with the State, ceding a share of the operation and paying the corresponding royalties, given the industry’s potential. In addition to participating in lithium mining operations, the State will contribute a long-term vision regarding the country’s development, promoting the enhancement of technological capabilities, supply chains, and added value, while ensuring the protection of ecosystems and local communities.

Types of public-private partnerships

There are many possible types of public-private partnerships and mechanisms for selecting private-sector partners, depending on the characteristics of each salt flat, the activities to be carried out (exploration versus operation), and the presence of incumbents. Nevertheless, all these partnerships must promote the objectives set out in this strategy, and public interest will be a decisive factor in the decisions made. To ensure the State’s involvement throughout the lithium production cycle, this strategy recommends the formation of public-private partnerships through joint-ventures.

The various salt flats with potential for lithium mining are outlined below, together with the recommended type of public-private partnership and a mechanism for selecting partners.

As indicated above, there are two salt flats with lithium reserves that were concessioned prior to 1979, and the holders of these concessions can conduct mining operations without requiring a special State permit or lithium operation contract. These reserves are managed by Codelco in the Pedernales Salt Flat and Corfo in the Atacama Salt Flat.

Salt flats with lithium reserves concessioned prior to 1979: Pedernales and Atacama

In the Pedernales Salt Flat, a subsidiary of Codelco could develop a lithium mining project on its own or through a public-private partnership to initiate exploration and operation.

The case of the Atacama Salt Flat is especially relevant for Chile, not only because it is home to the largest identified lithium reserves in the country, but it is also the only salt flat with ongoing lithium mining operations, constituting an important source of public revenue.

Against this backdrop, it is important to note that the lithium reserves in the Atacama Salt Flat are managed by the State through Corfo, and are extracted through lease agreements with SQM Salar and Albemarle S.A, which expire in 2030 and 2043, respectively.

As such, the following urgent actions must be undertaken in relation to these agreements, especially in light of one contract due to expire in 2030: (I) ensuring continuity of lithium mining operations in the Atacama Salt Flat; (II) increasing lithium production in a sustainable way; and (III) ensuring State participation in lithium production.

As such, while fully respecting the contracts in force between Corfo and both companies, negotiations must be initiated with these parties, considering the specific situation of each.

Para ello, es necesario que, partiendo de la base del respeto irrestricto de los contratos vigentes entre Corfo y ambas empresas, se abran espacios de negociación con estas, teniendo en cuenta la situación particular de cada una.

Salt flats without lithium mining concessions

No lithium mining concessions have been granted for the remaining salt flats in Chile, and as such any exploration or extraction operation with the participation of private-sector players will require a special lithium operation contract.

The State has asked Codelco to find an optimal solution for the development of projects in the Maricunga Salt Flat with interested parties.

In the Aguilar, Infieles, La Isla, Las Parinas, and Grande salt flats, Enami has requested Chile’s Ministry of Mining to be granted a special lithium operation contract to develop the “Cinco Salares Project”.

Notwithstanding any future decisions regarding the Network of Protected Salt Flats, the State will tender projects to identify lithium resources in those salt flats where preliminary studies on their potential have already been conducted, granting special lithium exploration contracts to private-sector companies. This tender will be public, competitive, and transparent, and technical bids must include, among other requirements: reports and instruments to provide updates on the information collected to the State, a proposal for a local and supply chain value creation plan, and an estimation of the environmental impacts associated with each project. Finally, public-private partnerships may also compete in tenders for exploration contracts that will enable them to conduct lithium extraction in the future.

The granting of exploration contracts is due to the need to make swift progress on the identification of available resources in order to develop lithium mining operations. If the results of this exploration indicate potential for lithium extraction, the private-sector player that was awarded the exploration contract will have the option of first refusal for future lithium mining projects in that specific salar in partnership with a state-owned company (the National Lithium Company or subsidiaries of Codelco or Enami). In those salt flats that subsequently defined as strategic, the State will maintain a majority share in any such partnerships.

d. Institutional framework

A key aspect of the strategy involves making progress on structuring the institutional framework for lithium and salt flats to enable the development and growth of the industry with a minimum environmental impact and fully respecting local communities and indigenous peoples. This undertaking was initiated between May and October 2022 by an Interministerial Task Force, which identified the main gaps in this area. This task force concluded that a review is required of regulatory aspects, the operation of regulatory bodies, and the relationship between decisions made by the central government and regional and local governments.

Chile has extensive and robust experience in underground hard-rock mining, which is governed by the Mining Code and associated regulations, as well as specific bodies and procedures that have been created for this purpose. However, in the case of lithium, which is obtained from brines in salt flats, many of the regulations that are in place for underground hard-rock mining do not apply. This matter must be addressed urgently.

The public bodies whose roles and duties are related to lithium and salt flats also require review. These institutions have a range of duties (oversight, regulation, or advisory) which have been incorporated over time. For this reason, the institutional framework must be restructured to address the complexity and importance of salt flats and activities related to brine extraction and lithium mining.

e. Social sustainability: Community engagement

To ensure the sustainability of lithium mining in Chile, the State must establish and promote adoption of the most stringent social and environmental standards. This requires opportunities for engagement and participation with all stakeholders interested in submitting their opinions for the discussion of this strategy, especially indigenous communities related to salt flats.

This engagement and participation process will aim to identify the concerns and expectations of various stakeholders regarding the development of the lithium industry, which will contribute to the recommendations for modernization of the institution framework to ensure the sector’s sustainable development, including the creation of the National Lithium Company and the specific activities to be carried out by the Public Technology and Research Institute for Lithium and Salt Flats.

As such, the implementation of this strategy will be accompanied by an engagement process with all stakeholders, including indigenous communities, academia and scientific institutions, civil society organizations, companies, and grassroots organizations. This engagement process will be implemented under the framework of international agreements ratified by Chile (ILO Convention 169 and the Escazú Agreement); international standards for stakeholder engagement in the mining industry; Chilean regulations on the implementation of public participation processes with the plans, policies, and programs developed by the Ministry of Mining; and human rights plans.

The application of these principles will provide legitimacy in discussions with local communities, offering greater legal certainty in future regulatory and legislative efforts. This participation process will be led by the Ministry of Mining, with the support of the Ministry of the Environment and Ministry of Social Development in its design and implementation.

The executive branch will be responsible for:

Generating a new institutional framework which incorporates these guidelines and provides coherence to the objectives of this strategy. The reports prepared by the National Lithium Commission in 2015 and the Interministerial Task Force led by the Ministry of Mining in 2022 will
also be considered.
Generating the necessary conditions to transfer this knowledge organically to State institutions, given the long-term nature of this strategy