SQM battles scandal, earthquakes and costs

By Liz Gyekye, Myles McCormick
Published: Saturday, 26 September 2015

Although SQM escaped damage following the major earthquake that hit Chile in September, the lithium miner faced fresh political outrage following leaked emails.

The revelation in early September of email communications between Sociedad de Quimica y Minera SA (SQM) and Chilean socialist party senator Fulvio Rossi has caused major embarrassment to the politician and returned the lithium, iodine and nitrates miner to the spotlight.

According to reports published by Chilean newspaper, El Mostrador, an email was sent by the Partido Socialista (PS) senator in August 2012 to former SQM CEO, Patricio Contesse Gonzalez, requesting financial support for 32 political candidates.

The total sum requested was Chilean peso (Ch$) 20m ($29,000*). This was later cut to Ch$17m ($25,000), when the list of candidates was reduced to 19 by Rossi.

Pressure on the company and the politician intensified when another local news source, La Tercera, exposed a further email message in which Rossi explicitly asked to issue receipts for false "communications advice" to justify the campaign contributions.

A source in the Chilean mining sector told IM that "it is not uncommon in Chile for companies to make donations to political parties – in fact, it almost has to be done because there is no other source of money". But, they added, "there are limits about how much money you are allowed to give and SQM broke the rules".

However, another source told IM that both Senator Rossi’s request and SQM’s donations were within the confines of the law, adding that press outrage over the matter stems from the fact that the senator had previously denied making any contributions to SQM and that such donations would have not been supported by the left wing PS.

SQM declined to comment in-depth on the matter. A company spokesperson simply told IM that "there is an ongoing investigation on legal political contributions". The spokesperson added that the company does not see any additional impact arising from the matter on either SQM or its ongoing arbitration process with state agency CORFO over mining leases at its Salar de Atacama lithium brine site.

News12_1 

Leaked emails show that SQM has been
involved in unauthorised funding of political
parties in Chile. (Source: Kay Adams)

Political storm

The senator’s colleagues, meanwhile, have been more outspoken. Describing the matter as "extremely distressing", PS president, Isabelle Allende, said that the actions of Rossi represented "individual behaviour, which does not in any way correspond to policy, let alone party leadership". Carlos Montes, another socialist party senator has insisted on the need to better regulate the relationship between money and politics. "Now the challenge is to move to another stage," he said.

Rossi has since had to suspend his party membership. He is currently on medical leave, recovering from surgery for throat cancer. A number of the 32 candidates listed by Rossi in his funding request have said that they intend to take legal action against the senator.

Former SQM chief Contesse had his employment terminated by the company’s board in March this year after 25 years as CEO, amid investigations into whether money from SQM and other companies was channelled illicitly to electoral campaigns for the right wing Independent Democratic Union (UDI). He was replaced by then-deputy CEO, Patricio de Solminihac.

Unscathed by earthquake

While SQM has failed to avoid being plunged into yet another political scandal, the company did at least escape its operations being materially affected by an earthquake, measuring 8.4 on the Richter scale, which hit Chile on 16 September. 

The tremor struck near the city of Illapel, located in the central part of the country, 280km north of Santiago in the Coquimbo region, killing at least 13 people.

SQM, which produces lithium, potash, iodine and nitrates at a handful of locations at some distance to the north of the epicentre, said that the earthquake "did not damage our production facilities, which continue to operate normally". The statement from the company further outlined that there were no accidents or injuries involving SQM’s workers that live in the areas affected by the earthquake.

Locally operating US lithium producer, Albemarle Corp., also said it was unaffected.  

Mining scaled back at Pedro de Valdivia

Towards the end of what proved to be an eventful September for SQM, the company announced that it is to partially close mining operations at its Pedro de Valdivia facility, which produces iodine and nitrates and is located in north Chile, as part of cost-cutting measures.

The facility is mostly focused on nitrates, producing around 500,000 tpa and approximately 2,800 tpa iodine. Under the plan, the company will partially continue to produce iodine at the facility but will stop all other operations.

SQM also produces iodine at its Nueva Victoria plant, near Iquique, in north Chile. CEO Solminihac, said: "Undoubtedly the mining operation of Pedro de Valdivia has been a very important part of SQM’s development."

"The advances in the processes and technology developed by the company in recent years allow us to replace the nitrates production at Pedro de Valdivia with nitrates production from the Nueva Victoria facility. The decision to close the mining operation and part of the production plants of Pedro de Valdivia is inevitable, given the current production capabilities of the company."

According to the company, in the next few months it expects iodine production at its Nueva Victoria facilities to reach more than 9,000 tpa. 

SQM also said its production costs continue to decrease. In the first seven months of 2015, production costs were 13.5% lower than the production costs for the same period in 2014, the company said.

SQM added that it expects to continue expanding its market share over the next few years.

*Conversions made September 2015.