Coup aftershocks driving Chile's lithium miners to Australia

The $4 billion (A$6 billion) offer from US-based Albemarle followed weeks of painful debate in Chile which today (September 11) remembers the 50th anniversary of the coup which plunged the country into 17 years of dictatorship under Augusto Pinochet.Time should have healed the wounds opened by Pinochet and his hard right followers but the election less than two years ago of a left-leaning president in Gabriel Boric, and his plans to impose greater government control of the mining industry, is ringing alarm bells.Albemarle, which has been an investor in Chile's lithium industry for 40 years is one of the foreign investors wondering how it fits into Boric's vision of a lithium production run as a "public/private" industry.Exactly how a government/industry partnership might work has not been spelled out but it has been reported that Boric wants to take "a controlling stake" in operations considered strategically significant, whatever that means.Smaller salt flats with potential to yield lithium from underground brine are believed to not be a government target whereas big salt flats are, including as those worked by Albemarle and Chile's local lithium leader SQM, a business once closely associated with Pinochet's family.Those historic links to Pinochet are believed to have been a factor in SQM investing in Australian lithium four years ago when it teamed up with Wesfarmers, a diversified industrial company, to from the Covalent joint venture which is developing the Mt Holland lithium mine and associated processing plant in Western Australia.Australia attractiveWith demand for lithium booming Albemarle faced a choice of waiting to see exactly what Chile's government is proposing, and when the new laws might come into effect, or find other sources of raw material to put through its chemical processing plants which supply a variety of lithium chemicals to companies making batteries for electric vehicles (EVs).Australia, which is already home to a number of Albemarle operations in joint venture with local miners, was an easy investment alternative with the orebody at Liontown's Kathleen Valley project big enough to meet Albemarle's needs. There might still be room for Albemarle to expand in Chile but the timing of what's happening is significant because it appears that Chile's hothouse politics has become a factor in the US company moving to the sidelines until the rules are clearer.Liontown bidThe timing of the bid for Liontown is significant, as is the initial firm rejection by Liontown management of Albemarle's original offer made in late March.Pitched at A$2.50 per Liontown share, the price was a 67% premium to the on-market price of A$1.50 at the time of the bid. The offer was so generous that questions were asked about whether it was wise of Liontown's directors to reject it.By the time Albemarle returned last week with its bid increased to A$3 (double the original price) it really was not only too good to refuse but it posed questions about why Albemarle was so desperate to acquire the Kathleen Valley orebody and other lithium assets controlled by Liontown including the Buldania project.The obvious answer to that question is that global demand for EVs and their lithium powered batteries is so strong that Albemarle can see decades of demand for the lithium chemicals it produces.A less obvious answer is the same as that which drove SQM to Australia, the political pendulum of Chile.Chile pollsPublic opinion polls in Chile reported by Reuters and The Financial Times show a significant swing to the right as concern grows over how far left Boric might take the country.A poll by Mori, a research firm, showed that 36% of Chileans now believe that it was right for the military to mount a coup in 1973, removing the socialist leader at the time, Salvador Allende. Ten years ago support for the coup stood at 13%.Boric is reported to have planned to use the 50th anniversary of the coup as a rallying moment of national unity, but the opposite appears to have happened with the politics of Chile becoming more polarised.Share pricesFinancial markets are also showing a divide with Albemarle and SQM, the big two of Chile lithium, seeing their share prices fall this year while companies exposed to lithium in Australia have been rising.SQM on the New York stock exchange is down 23%. Albemarle is down 14%.On the Australian stock exchange the leading local lithium producer, Pilbara Minerals, is up 22% while IGO, a co-owner of the world's biggest lithium mine at Greenbushes in the south of Western Australia is up 7%. Liontown, not surprisingly, leads the way with a share price rise of 144%. It might not be noticed in Santiago but Chile's politics are delivering a commercial win for Australia.

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