Agreement to create the legal challenge of giant lithium faces in China
Agreement to create the legal challenge of giant lithium faces in China
A Chilean court is expected to rule next week on a lawsuit aimed at derailing an agreement that critics say could create a cartel for lithium, a key component in batteries used in electric vehicles and smartphones.
The legal challenge is the latest turn in an almost one-year effort by China's Tianqi Lithium Corp. to acquire a large stake in Chile's largest lithium producer,
or SQM.
The battle has opened another front in a global struggle to control the ingredients that make up lithium-ion batteries, the power packs for most of the world's electric cars and devices.
Tianqi agreed in May to buy a 24% stake in SQM from the Canadian mining giant
Nutrien
Limited.
NTR -3.96%
for $ 4.1 billion. The sale, after months of negotiations, was required by regulators in China and India as a condition to approve the merger of two large Canadian miners who created Nutrien.
SQM is the second largest lithium mining company in the world in production. Tianqi also operates a large lithium mine in Australia with a chemical giant
Albemarle
Corp.
SUNRISE -2.62%
, the world's first lithium producer based in Charlotte, N.C.
The SQM agreement has won regulatory approval in Chile and other jurisdictions. Chile's competition regulator gave the green light to the agreement after imposing restrictions on Tianqi, such as banning Tianqi-nominated directors from sharing sensitive commercial information from SQM.
Earlier this month, a group of companies controlled by SQM's largest shareholder, Chilean billionaire Julio Ponce Lerou, who is also the son-in-law of the late Chilean dictator Augusto Pinochet, challenged the process of approving the agreement in the country's Constitutional Court.
Mr. Lerou has argued that a combination of Tianqi-SQM could result in SQM's trade secrets being leaked to its Tianqi partner and SQM rival Albemarle. Critics say the agreement could also create a lithium cartel similar to OPEC that could influence prices and access to metal at a time when demand is increasing.
"The biggest concern I have is about those few companies that have monopolistic tendencies," said Jon Hykawy, president of Stormcrow Capital Ltd., a Toronto-based research firm that focuses on battery minerals. There is a risk that "these guys are going to charge what they want to charge," he said.
A court hearing is scheduled for Monday, October 22, and a decision is expected soon after. If the court dismisses the claim, it would pave the way for the sale of SQM's share to close in the fourth quarter. If the court agrees to review the claim, the agreement will be delayed for an indefinite period.
Tianqi and Nutrien say the agreement will not be anti-competitive, citing the limitations imposed by Chile's competition regulator, such as restricting Tianqi from placing its own employees on the SQM board.
"We hope to vigorously defend our position before the Constitutional Court," said a Tianqi spokesman. Albemarle declined to comment.
SQM opposes the sale of the participation. In a statement, he said that the agreement with Chile's competition regulator does not "effectively resolve the risks it intends to mitigate."
Nutrien expects the court to quash the lawsuit, company spokesman Richard Downey said. He said that Mr. Ponce is "trying to manipulate the legal system" in Chile.
A lawyer for Mr. Ponce did not respond to requests for comment.
An employee who has lithium processed in a facility in Greenbushes, Australia, of a joint venture between Tianqi Lithium Corp. and Albemarle Corp., in August 2017.
Photo:
Carla Gottgens / Bloomberg News
Lithium, once known as a treatment for depression, was for a long time a metal niche. The industry developed around the mining outside the ground was small and of low profile.
The demand skyrocketed with the increase in lithium-ion batteries, which increased control over who controls the world's supplies. Chile has almost half of the world's known lithium reserves, according to the United States Geological Survey, and has the lowest production cost.
The agreement at the center of the lawsuit, and the separate joint venture between Tianqi and Albemarle, brings together three companies that control about two-thirds of world lithium production, based on production in 2017, according to Benchmark Mineral Intelligence.
With the increase in demand, lithium has joined other metals that were once dark, such as cobalt, as an object of a global struggle. China has He advanced in the world race for the control of cobalt., closing the access to a large part of the metal in the Congo.
Similarly, companies are competing to block lithium supplies. From Japan
this year he paid almost $ 80 million for a share of approximately 10% in Canadian stocks.
Nemaska Lithium
Inc.
The commercial arm of Toyota Group, parent company of
Toyota engine
Corp.
, said he was taking a 15% stake in Australian lithium producer Orocobre Ltd. for approximately $ 225 million.
Tesla
Inc.
has signed a three-year supply agreement to obtain lithium from an Australian operation that is owned in part by SQM.
The largest agreement, by far, and the most disputed, is the investment proposed by Tianqi in SQM.
The Chilean development agency that oversees the Salar de Atacama region, where most of the country's lithium is produced, filed an objection to the agreement with the country's competition regulator earlier this year. He argued that the agreement "would seriously distort competition in the market." Despite these concerns, Chile's competition regulator approved the agreement.
Write to Scott Patterson in scott.patterson@wsj.com
.
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