China’s Tianqi Lithium buys stake in Chile’s SQM for $4.07bn

Chile's Atacama salt flats contain some of the world's biggest reserves of lithium, a relatively rare light metal.

SANTIAGO – China’s Tianqi Lithium has agreed to acquire a 24 percent stake in Chile’s SQM, one of the world’s largest lithium producers, from Canada’s Nutrien (TSX:NTR) in a deal worth $4.07 billion, the companies announced Thursday.

Lithium is a key component needed in the making of batteries that power electric vehicles. China is the world’s biggest market for electric cars.

“This is an attractive investment for Tianqi Lithium which fits well within our existing business strategy,” Vivian Wu, president of the Chengdu-based company, said in a statement. “Tianqi Lithium’s shareholders will greatly benefit from this transaction given SQM’s long-term stable financial returns and steady dividends.”

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Tianqi has agreed to buy about 62.6 million class A shares in SQM, for about $65 a share in cash, the reported. While Nutrien will sell all of its A shares of SQM it said it’s keeping almost 20.2 million B shares, which the company said it “expects to divest…in due course.”

SQM exploits what is considered the world’s largest lithium deposit in Chile’s northern Atacama desert, an area with high concentrations of lithium with low levels of impurity, as well as byproducts like potassium.

Global demand for lithium, on the rise since 2014, is expected to grow at rates of six to eight percent over the next decade.

In March, Chile’s development agency Corfo filed a complaint to block Tianqi from acquiring the stake in SQM, arguing that would give China an unfair advantage in the global race to secure resources to develop electric vehicles.

According to Corfo, Tianqi and SQM combined will control 70% of the global lithium market.

Beijing criticized the move, saying any efforts to block the deal could harm bilateral relations. The Chinese Ambassador Xu Bu’s remarks were followed by comments from China’s trade and economic representative to Chile Liu Rutao. Last week, he said he suspected other countries, racing to secure lithium supplies, had lobbied Chile to block Chinese firms from purchasing Nutrien’s coveted share in the Chilean firm.

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Listed on the Shenzhen stock exchange, Tianqi Lithium is one the world’s biggest suppliers of lithium products, with operations in China and Australia. It has a 50% stake in the Greenbuses lithium mine in Australia, one of the world’s largest lithium mines. It also owns lithium assets in Sichuan and Tibet.

With 52 percent of the world’s reserves, Chile competes neck and neck with Australia for the global markets, with each accounting for close to 40 percent of the world’s production.

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Argentina, which increased its lithium production by 58 percent in 2016, has about 15 percent of the market.

Chile expects to nearly double its lithium production by 2021, from 77,000 tons in 2017 to 147,000, as US chemical company Albemarle and SQM expand their operations in the Atacama salt flats.