SQM: Outside the box; inside the triangle

By Myles McCormick
Published: Monday, 25 April 2016

The embattled lithium major is looking to reform itself as it deals with the fallout from a number of allegations, Myles McCormick, Reporter, writes from the company’s operations in northern Chile.

In the late 1980s, the then Soviet leader, Mikhail Gorbachev, sought to bring the USSR into the modern age and reboot its economy following a period of stagnation.

To reform the bloc, he implemented two key policies – glasnost (openness) and perestroika (restructuring). 

Today, on the other side of the world, Sociedad de Quimica y Minera SA (SQM), the Chilean producer of lithium, potash, nitrates and iodine, is a company under siege. 

On one side, the company is alleged to have engaged in the bribery of politicians. On the other it stands to lose its leases at the Salar de Atacama amid accusations of underpaying rent to state development agency Corporacion de Fomento de la Producción de Chile (CORFO). 

But rather than batten down the hatches and shut itself off from the world, the company is implementing a philosophy change not dissimilar to Gorbachev’s, with transparency and a strategic rethink central to its message as it looks to expand its lithium production capacity.

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SQM’s lithium carbonate and hydroxide production facilities at the Salar del Carmen
in northern Chile. 


Telenovelas y escándalos

SQM has been the subject of increasing heavy scrutiny in Chile over the past two years. 

In an ongoing trial, prosecutors argue that false invoices or boletas were signed off by the company to facilitate payment to a range of politicians across the political spectrum in exchange for favourable treatment under a revision to Chile’s mining code. Patricio Contesse, SQM’s former CEO, remains at the centre of allegations. 

Separately, an arbitration process between SQM and CORFO has been active since May 2014, with CORFO alleging that SQM deliberately sold products at below the market value to reduce earnings and subsequent retal payments, owing $8.9m in unpaid fees.

The miner originally agreed to lease and manage CORFO’s 81,920 ha (819.2km2) mineral claims in the salar in 1993, with rental fees to be calculated according to revenues accrued from the sale of minerals extracted.

SQM has indicated that 39% of its total revenue depends on exploitation at the salar, while CORFO estimates that this percentage
is really between 60% and 75%.

With court procedures ongoing, Patricio de Solminihac, SQM’s incumbent CEO, declined to comment on the former matter to IM.

Regarding the latter, though, he said that the company was "confident that we have complied with our obligations in the contract". 

Open doors, open borders

The fallout from both cases has led to negative domestic and international media coverage for the organisation, with its public image not helped by perceived links to the regime of Augusto Pinochet – its owner and former chairman Julio Ponce was once the dictator’s son-in-law.

But under De Solminihac, who took charge last year, the company has become more open in its dealings with the press. Managers are drilled in media relations and the company has received journalists from around the world in recent months, from papers including the Financial Times and the Economist as well as this publication.

SQM has also changed tack strategically. 

It announced in late March that it would for the first time seek to expand its lithium extraction business beyond the Chilean border. In a joint venture with mining junior Lithium Americas Corp., it has taken a 50% stake in Minera Exar SA, owner of the Cauchari Olaroz project in Salta, Northern Argentina.

De Solminihac described Cauchari as "a clear complement to our [current] operations". 

"We have the technology, knowhow and experience to develop a competitive project in Cauchari given the characteristics of these resources," he added.

Confident that the CORFO arbitration procedure will work out in its favour , SQM has insisted that the move into Argentina is an exercise in expansion as opposed to risk management.

"We plan to increase our production with the development of the project in Argentina. And at the same time, we look forward to solving differences with CORFO and be able to increase our production in Salar de Atacama," said de Solminihac.

Others have suggested that the move may represent an attempt to vary jurisdictional homogeneity, moving away from sole reliance on the Atacama, given the fact that in a worst case scenario, there is a chance its existing leases may be terminated.

"I think they are making an effort to diversify - just in case," one senior market observer told IM at the Lithium in South America conference in Jujuy, Argentina, in April.

Bright future

SQM remains confident about its future. The price of lithium continues to buck the trend of the mining industry generally, climbing increasingly higher as new supply fails to keep pace with rising demand, largely from lithium-ion (Li-ion) batteries for the electric vehicle sector and most notably
in Asia. 

While the high prices will not last forever, SQM intends to take full advantage of the increase in demand.

"We are an important player in the
lithium industry and we plan to continue
to be. We look forward to be able to increase our production in the Salar de Atacama
and complement it with production in the Salar de Cauchari in Argentina," said de Solminihac.

An accumulated wealth of knowledge gained through its years of operation gives SQM a distinct advantage over the would-be producers seeking to enter the market. 

Entering into the JV Cauchari deal with the company, Lithium Americas cited SQM’s "decades of development and operating experience" and "strong team of technical and commercial talent" as being invaluable in advancing the project.

Awareness of the quirks and particulars of brine operations, as illustrated by Orocobre Ltd’s delays in bringing its Olaroz project online are far from a given. 

Experience remains SQM’s key strength as it looks forward to a more competitive future in the lithium business. 

Lithium: From brine to battery

SQM extracts lithium (alongside potash) from the brines of the Salar de Atacama, the world’s largest such resource currently under exploitation. 

Over 300 wells across the salar are used to extract the brine, with quality checks conducted weekly. The positioning of the wells takes a lot of thought, with the location of each one affecting the pump efficiency of the next. 

Pump rates are carefully monitored by the government, with a cap of 1,500 litres/second (l/s), aggregated across all wells. 

Fresh water is pumped in from nearby mountains, primarily to clean the equipment, with salt build-up the biggest drain on efficiency, which constantly needs to be addressed. Devices known as "pollypigs" or "bullets" are also sent down the piping at high pressure to clean out blockages.

The brine is then concentrated into salar evaporation ponds, with a constant process of recycling the material in and out through various stages. 

Lithium is extracted as a byproduct in a process primarily designed to produce potassium chloride, or muriate of potash (MOP).

Various products are then precipitated off the brines in a number of different stages: first, halite is precipitated out as a waste product; then silvenite is precipitated off and taken to potash ponds for harvesting; carnalite is subsequenctly precipitated off for use as a raw material in the production of nitrate of potassium; and finally the lithium is precipitated out, ultimately reaching around 6% purity, before being transported to Antofagasta for processing into lithium chloride and lithium hydroxide. 

The evaporation process takes an average of nine months from end to end. 

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SQM’s lithium production process.
SQM 


"It is a very cost effective process, as most of the energy is taken from the sun," Enrique Peña, superintendent of inventory control and and salar resources at SQM’s Salar de Atacama operations, told IM, during a site visit in April.

Peña emphasised, however, that the details and precision of the process requires constant monitoring: "You will not believe the amount of work involved (…) A lot of know-how and expertise about how brines behave has been built up through the years."

The 6% material is transported by truck to a location just outside the port town of Antofagasta, where SQM’s Salar del Carmen facility is situated. It is initially stored here once again in ponds, before being brought through the process to create lithium carbonate and lithium hydroxide.

The process to create lithium carbonate takes two to three days. 

An initial step, known as the solvent extraction or SX stage, removes the boron naturally found in the raw materials, before the product is purified, extracting magnesia. 

Treatment with soda ash then forms the lithium carbonate, with about two tonnes soda ash required for every one tonne lithium carbonate produced.

When the carbonation is complete, the material is dried and compacted before being stored in the company’s onsite warehouse ahead of shipping out of Antofagasta. 

The process of creating lithium hydroxide takes a further day.Quicklime is the main addition at this stage, with one part lithium carbonate and one part quicklime combining to create one part lithium hydroxide.

The hydroxide conversion process is also carried out onsite before storing and shipping the product out to customers.

As with the evaporation stage, the processing stage at Salar del Carmen requires minute attention to detail.

"We need to control every part and closely monitor the chemical and physical properties at every single step," said Ronald Contreras, lithium production manager at the facility.

SQM has the capacity to produce 48,000 tpa lithium carbonate and 6,000 tpa lithium hydroxide. 

It sold 39,000 tonnes lithium products in 2015, a level it means to increase to over 45,000 this year.