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Lithium in Chile

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Lithium opportunities in Chile

The Republic of Chile is a country located in South America. It is on the west side where it meets with the Pacific Ocean, and it narrowly extends meeting with the borders of Peru, Bolivia and Argentina in the east. Chile is the 38th largest country in the world, it has 756,096 km2. In Chile the official language spoken is Spanish. The country is full of natural resources, the most known ones are copper, nitrate and timber, and thus those are being the ones most exploited. But we live in a world that is in constant changing, and nowadays everything is becoming more and more technological and green. Which is why everyday the demand for batteries is increasing, pretty much anything we use nowadays has a battery. The main resource used in the fabrication of such is lithium, but lithium is not easy to find, not many countries have such resources, but Chile does.

To better understand the business opportunity it is important to look at Chile’s economy:

GDP (PPP) | $335.4 billion | GDP per Capita | $19,100 | Unemployment | 6% | Corporate Tax Rate | 20% | Income Tax Rate | 40% | GDP growth Rate | 4.2% | Poverty Rate | 11% | Inflation Rate | 1.7% | Exports | 81.411 billion | Imports | 70.619 billion | Minimum Wage | 225,000 pesos or 360 US $ | Literacy Rate | 98% | Life Expectancy | 78 years | Population | 17,819,054 | Labor Force | 8.3 million |
Current mining situation in Chile:

As it is seen from the table, Chile exports more than it imports, this is greatly because of all the amounts of natural resources that they have and produce. Chile owns 70% of the world’s know lithium reserves. However right now there is a constitutional ban on the concessions of Lithium mining. At the moment the mineral never belongs to the company, companies are allowed to rent lithium producing properties. Furthermore there are special contracts for the production of Lithium that are legally allowed. Up to now they were focusing on the production of Copper, accounting for 34% of the global production. But this market has not been performing as expected over the last years, there was a hype about copper where prices went really high after they had vastly dropped, and then they stabled again. So now the new government is interested in promoting their Lithium industry. At the beginning of 2015 they announced that "The National Lithium Commission proposes a public policy that would allow for the adequate productive development of the country's lithium industry through public-private partnerships, protecting the Chilean state's control of the mineral”. The reason that they want to keep this industry partially owned by the government is because lithium can be also used for nuclear weapons, so they do not want to take risks.

The expectations with the reforms:

At the moment the world’s demand for lithium is 158,000 tonnes per year, but there is an expected increase to 250,000-300,000 tonnes per year by 2018. As it has already been mentioned lithium is mainly used for the fabrication of batteries. Until a few years back the main use of batteries was to power electronic gadgets, but now bigger batteries are being made to power cars. As we know the car industry is huge market that extends everywhere in the world, and most brands now either have at least one fully electric vehicle on sale or hybrid vehicles which combines the petrol engine and the electric engine. So already by the increase in demand from the automotive industry it’s going to make a substantial increase in the batteries/lithium market. The Chilean government knows that this projections means that there is still potential in this sector, and that the best way to attain these projections is to open the market for new investors. Recently Michelle Bachelet, president, and Aurora Williams, mining minister, have created a National Lithium Commission in order to prioritize the lithium industry and determine the state of the industry. The goal of setting this commission is, to improve the current concession system, which will boost the exploration and mining of lithium, as well as lift the entrance barrier for new players.

Conclusion

Chile has the potential to be the biggest exporter and producer of lithium in the world, and as many people say “Lithium is the resource of the future”. Not only they have the biggest reserves in the world, but they haven’t exploited them much yet. That means that there is still a lot of work to be done, but they know that they need help for this, which is why they want to open it for investors. Already the new President directly addressed lithium mining on several occasions during her campaign, this helps to boosts the confidence of potential investors. Chile enjoys from a relatively low corporate tax rate, which is always an incentive for corporations looking to set up there. As it can be seen from the table their economy is doing ok, but with the amount of natural resources that they have they could be doing better. Due to all of these reasons, I strongly believe that the government is going to open the lithium market for foreign investors. This is a great business opportunity because the industry still has a lot of potential, and if you manage to be one of the first companies to establish there you have a very high percentage of success. Although it would require a big investment it won’t take long for the investors to get back, because as we have already said the lithium market is growing ever year, and the demand for it is rapidly increasing.

Bibliography; http://www.mining.com/chile-gives-lithium-another-try-50515/ http://www.prnewswire.com/news-releases/chile-establishes-national-lithium-commission-262857251.html
https://www.cia.gov/library/publications/the-world-factbook/geos/ci.html

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