SQM hits back at royalty dodging and nuclear export allegations

By Laura Syrett, Myles McCormick
Published: Friday, 18 March 2016

SQM says it was “given no economic advantage” adding that media reports are untrue. It also denied any link to North Korea.

Storm clouds continue to gather over SQM as its lease to extract lithium from Chile’s
Salar de Atacama (pictured) faces further threats. (Terry Feuerborn, via Flickr)

In separate statements released in the second week of March, the lithium, potash and iodine producer referred to reports published by various Chilean media outlets containing allegations that SQM had used its influence to persuade politicians to amend royalty legislation to its advantage and that it had failed to register all of its exports with the CCHEN.

On the royalties issue, SQM said the Chilean Law to Establish a Specific Tax on Mining Activity, enacted by the country’s government in 2005 and modified in 2010, contained "no special regiment, benefits, or economic advantages for SQM and its subsidiaries".

"In 2010, SQM expressed its view that the modification of the law should consider equitable and non-discriminatory treatment for both Chilean and foreign companies, just as the original law had established in 2005," SQM said in a statement released on 10 March.

"This view was considered logical and therefore was accepted by all of the parties who participated in the final drafting and approval of the law (…) Both the original law and the modified version were subjected to thorough public scrutiny and were ultimately approved by a majority of both houses of congress," it added.

The company asserted that between 2010 and 2012 – the first three years during which the modification to the mining royalty law was in force – SQM paid royalty taxes of approximately $75m, compared with $29m over the preceding three-year period.

SQM further pointed out that at no point since 2010 has it been alleged that the law was either discriminatory or advantageous to any of the companies it covers and that it is continuing to support an investigation by Chile’s public prosecutor into SQM’s tax affairs and its previous dealings with politicians.

The company’s former CEO, Patricio Contesse, remains under house arrest in Santiago as his trial concerning alleged payments made to Chilean political parties.

Nuclear lithium

In a separate document released a day later, SQM insisted that all of its exports are properly registered, with information consistently sent to all relevant authorities.

"The CCHEN has been informed of all the uses and types of customers to whom SQM has sold its finished lithium," the company said.

Local news service CIPER had accused the nuclear regulator of failing in its supervisory duties, allowing SQM to bypass various controls since 1995, which should have required CCHEN authorisation for all lithium sales and exports, taking into account volume, technical characteristics, final destination and end use.

The report stated that, in the case of most export authorisation requests submitted by SQM to CCHEN, it had not specified clearly either the end use or final destination of lithium exports, which it alleged included North Korea.

"[SQM] reported something general, that it would be used for batteries, glass and generally for 'industrial uses’, a concept that encompasses practically everything," CIPER quoted a former CCHEN official as saying.

The news service suggested that failure to comply with these regulations may be grounds for the termination of SQM’s lease of its principle source of lithium brine, the Salar de Atacama, from state resource body Corporacion de Fomento de la Produccion (CORFO), a subject which is already a source of ongoing conflict between the two organisations due to a rent payment dispute.

But SQM told IM that the piece "contains several untruths and assumptions and for which we never even  contacted". It has insisted that it maintains "clear and complete" records and that its international sales network allows it to maintain direct contact with its final customers.

"These procedures allow the company to assert that the lithium exported has not been used in processes oriented at nuclear fusion, in accordance with CCHEN regulations," it said.

It further noted that there are no physical-chemical processes that allow the controlled production of energy through nuclear fusion and that it is unlikely that this technology will be developed in the short-to-medium term.

Parcels to Pyongyang

Regarding the allegation that it had sold lithium to North Korea, the company said this was patently untrue.

"Two exports to the South Korean port of Busan were erroneously reflected as having been sent to North Korea in the export records," SQM said, adding that the numerical codes for the two countries are very similar.

It said that information provided to the authorities made it clear that South Korea was the effective final destination of the shipments in question, where it has longstanding business relationships with a number of battery producers.

"SQM and its subsidiaries do not carry out business activities of any kind in North Korea," it clarified.