Lithium is a soft, silver-white metal that belongs to the alkali metal group of chemical elements. Historically it was used to make lubricants and heat-resistant glass as well as used by the pharmaceutical industry, first to treat gout and then as a mood-stabilizer.
However, over the past 20 years it has emerged as a key component of the rechargeable batteries used to power every kind of electronic device from cell phones and personal computers to digital cameras, and it is now being studied as the battery material of the future that will power everything from autos to industrial equipment.
Chile produces more lithium than any other country in the world. The north of Chile and the south of Bolivia in South America have approximately 85% of the world’s known reserves of lithium. These lithium reserves are located in vast salt flats that can be easily exploited, and are located in close proximity to a number of Chile’s major ports on the Pacific Ocean.
Lithium is becoming a mining resource of significant value as use of battery operated devices increases. . Lithium mining concessions and operations in Chile might be a significant commercial opportunity to Chinese companies involved in the mining industry, specialty alkali metals, specialty chemicals or the production of batteries and electronic devices. . Not surprisingly, major international electronics, metals and chemical companies, including Samsung, KORES and POSCO from Korea and Mitsubishi and Sumitomo from Japan have recently invested in lithium mining interests in Chile. CITIC from China has also been exploring possible lithium investments in Bolivia, but to date there is not yet an active Chinese investor in the field.
Investment in lithium mining interests would present a valuable opportunity for many Chinese companies. However, with this opportunity there are also certain legal challenges that must be studied and considered. This short article will examine some of the principal legal considerations.
Legal Considerations Governing Lithium
The legal regime for mining in effect in Chile allows any person, whether an individual or a company, local or foreign, to claim or apply for the granting of a mining concession. To that end, a non-contentious judicial proceeding must be followed before the ordinary lower courts with jurisdiction in the area where the concession is located. This judicial system makes the Chilean mining concession granting process very unique, since there is no intervention of an administrative or political authority. The concession is granted by a court resolution. . The mining property system in Chile is regulated principally by the following laws and regulations:
• Constitution of the Republic, article 19 No. 24, paragraphs 6 to 10 (the property right on a mining concession is constitutionally protected);
• Constitutional Organic Law No. 18,097 on Mining Concessions (of 21 January 1982);
• Mining code (Law No. 18,248 of 14 October 1983); and
• Regulations of the Mining code (of 27 February 1987).
In the early 1980s, when Chile reformed its mining legislation, opening the way to huge new investments principally in copper, it made a distinction between “concessionable” and “non-concessionable” minerals. Most, including copper, were placed in the former category, but lithium and hydrocarbons were defined as non-concessionable. In the case of lithium, that was because it was then considered a “strategic” material due to its potential application in nuclear warheads and potential use in nuclear fusion power plants. Nuclear fusion remains a distant prospect and the use in nuclear warheads is no longer a concern. However, to date, Chile has not changed its legislation and the national law continues to treat lithium as a strategic material.
As a result, at the current time, lithium can only be produced in Chile by the state or state-owned companies. The state-owned copper company, CODELCO, is in possession of several lithium concessions that it is not exploiting. In addition, Chile’s Economic Development Agency (CORFO) was granted some lithium concessions that predated the 1980s reform, and that it has licensed to private companies or joint ventures that have been exploiting them.
Given the growing demand and interest in lithium, and a realization that the current legal regime for lithium is untenable, a government roundtable to study the issue was established with representation from different government agencies. Among the solutions being examined are a change to the current law to make lithium concessionable. Another solution would be to tender operating contracts for the development of individual lithium deposits. Similar to the so-called CEOPs offered for the development of hydrocarbons reserves in the Magallanes Region of the far south of Chile, this solution has the advantage of not requiring a change in the law. Although issuing tenders for the contracts would take time, the necessary regulation could be drawn up quite quickly. Yet another possible solution involves linking lithium exploitation to other mining concessions. A significant amount of lithium is obtained as a by-product of other mining activities (for example, nitrate mining). In theory, the state must be informed and can claim its right to market the resulting lithium, although in practice this does not happen. In summary, the existing law presents some challenges to securing concessions or permissions to exploit lithium, but various alternatives are being studied and the legal issues surrounding concessions for lithium mining will be undergoing significant changes in the near future.
Beyond the legal issues relating to obtaining concessions, which appear to be on their way to finding some resolution, there are two other legal hurdles worthy of mentioning. The first involves the topic of water rights, and the other issues of environmental regulation.
The issue of water rights arises because of the unique nature of lithium extraction.
That is to say, the vast majority of lithium reserves would be located in brines (high salt content waters) located at or below the surface. The extraction process is accomplished when the brines are pumped from bores to solar evaporation ponds. . Article 110 of the Mining Code provides that “[t]he owner of record of a mining concession is entitled, by operation of law, to use waters found in the works within the limits of the concession, to the degree said waters are required for exploratory work, exploitation and processing, according to the type of concession said owner might engage in. These rights are inseparable from the mining concession and are extinguished therewith.. Obviously, this method of extraction of water is not what is usually conceived in the mining industry. This is an interesting legal issue that will require some examination as lithium mining operations begin (whether by a mining concession, an administrative concession or a CEOP).
A final but related legal issue that will be confronted in examining lithium mining operations will be environmental considerations. Chile’s environmental authorities will want to assess, as part of an environmental impact study, the maximum rates of extraction of brines. In addition, several possible lithium salares are located in areas designated as wetlands or areas for vulnerable wildlife (especially flamingos), and thus environmental issues will have to be studied carefully.
Lithium mining in Chile will present huge commercial and investment opportunities in the coming years. These opportunities may be particularly interesting to Chinese companies and investors. However, with these opportunities come certain legal challenges relating to the regime through which Chile will grant mining concessions for lithium, possibly requiring changes to the law, as well as legal issues related to water rights and environmental considerations. The challenges can be overcome, but it is incumbent on interested companies to start exploring the opportunities and studying the legal issues as early as possible.