Chile's SQM Halts Operations: The World's Largest Lithium Deposit in Turmoil
Editorial Team (ET)April 23, 2025
In a significant development that has sent shockwaves through the global lithium market, Chile's lithium mining giant, Sociedad Química y Minera de Chile S.A (NYSE: SQM), has suspended operations at the Atacama salt flat. The reason? Widespread protests by an indigenous community have disrupted the otherwise thriving lithium extraction activities in the region.
Protesters Disrupt Operations
Approximately 500 protesters hailing from the indigenous Toconao community have taken a bold stance by blocking six key spots on public roads in the southern area of the Atacama salt flat. This vast expanse of land is not only renowned for its extraordinary lithium reserves but also for its significance in the global lithium supply chain. These protests have not only disrupted the movement of workers but have also hindered the transportation of vital mining equipment.
Atacama: The Lithium Kingdom
The Atacama salt flat is often dubbed the crown jewel of lithium deposits globally. As the world's largest lithium reserve, it holds immense importance in meeting the rising demand for this critical component of batteries and electric vehicles. An estimated 90% of the world's lithium reserves are nestled within the Atacama desert, which further underscores the magnitude of the current upheaval.
President Gabriel Boric's Vision
Chile's millennial President, Gabriel Boric, has not remained a mere spectator in the ongoing turmoil. He has unveiled ambitious plans to nationalize the country's lithium sector, viewing it as a potential catalyst for economic growth and an avenue to safeguard biodiversity. Boric's vision includes pioneering environmentally-friendly mining technology and establishing dialogues with local indigenous communities.
In a strategic move, the government is exploring the possibility of expanding mining through public-private partnerships, under the purview of a new state lithium company. Negotiations with SQM for state control are already underway, and a similar approach is expected to be taken with Albemarle before their contract expires in 2043.
Community Concerns and Opposition
However, the road to nationalization is far from smooth. Local communities residing around the salt flats, who were once tightly aligned under a regional council, are proving to be a formidable challenge. Their demands are multifaceted; some community leaders insist on a more significant share of the profits from lithium mining, while others staunchly oppose any new mining operations within their lands.
Francisco Mondaca, a civil engineer and the head of the environmental unit of the Atacama Indigenous Council, articulates the concerns shared by many. He warns against the exchange of vital resources like water and vegetation for lithium batteries, emphasizing the potential dire consequences of such a trade-off.
Cristian Espindola, a Toconao security officer on the Tara flat, condemns the Chilean government's approach as "irresponsible" and a continuation of previous policies that have marginalized native communities.
Despite the challenges, some Indigenous leaders remain open to supporting lithium extraction, provided it is at a fair price. Since 2017, Albemarle Corp. (NYSE: ALB) has allocated 3.5% of its annual sales to the Atacama Indigenous Council, dividing it evenly among the 18 member communities. However, this profit-sharing model has also triggered disagreements, with significant disparities in allocations. Consequently, some communities are considering individual negotiations with the government, bypassing the council entirely. SQM has already adopted this approach, entering into separate agreements with communities closest to its operations.
Similar Challenges Across Latin America
This episode of indigenous protests and resource sector disruptions is not unique to Chile. In neighboring Ecuador, the state-run oil company, Petroecuador, recently declared force majeure on three oil blocks due to protests by the indigenous Kichwa community. These blocks were once responsible for producing approximately 142,000 barrels of oil equivalent, but production dwindled to around 122,500 after the disruptions. Petroecuador, however, maintains its willingness to engage in dialogue with the indigenous community, although accusations of breached agreements linger.
Ecuador's energy sector has been grappling with its share of difficulties, with fuel imports now surpassing exports for the first time in over half a century. The country's crude and fuel oil exports, which stood at $2.9 billion in the first six months of 2023, have dipped below the value of imports. This marks a significant shift in Ecuador's energy trade dynamics.
Furthermore, Ecuador's bid to drill for more oil has faced resistance. Last year, a referendum resulted in a rejection of oil drilling in Yasuni National Park, a UNESCO-designated biosphere reserve known for its rich biodiversity. This decision poses a challenge to Ecuadorian President Guillermo Lasso's efforts to revitalize the country's oil exports, as Petroecuador will have to look elsewhere for opportunities. S&P Global has projected a modest increase in Ecuador's crude production in the current year, followed by a gradual decline.
In conclusion, the suspension of lithium mining operations in Chile's Atacama salt flat underscores the complexities surrounding the global resource industry, indigenous rights, and environmental concerns. President Gabriel Boric's aspirations of nationalizing the lithium sector face hurdles, with indigenous communities demanding a fairer share of profits and a say in their land's destiny. Similar challenges in Ecuador's energy sector paint a broader picture of Latin America's evolving resource landscape, where the balance between economic development and environmental conservation remains elusive.
