Chile's development agency, Corfo, has asked the country's antitrust regulators to block the sale of Nutrien's stake in lithium producer Sociedad Quimica y Minera de Chile (NYSE:SQM), or SQM, to China's Tianqi Lithium "on the grounds that it would give China an unfair advantage in the global race to secure resources to develop electric vehicles," according to an exclusive report by Reuters on Friday.
Here's what you should know.
The white-hot 32% stake in SQM that's on the selling block
As background, the former Potash Corp., now named Nutrien following its merger on Jan. 2 with Agrium, was required by regulators to sell its 32% stake in SQM as a condition of the corporate marriage receiving regulatory approval. Potash and now Nutrien apparently have been shopping the white-hot stake around for some time, as SQM stock surged last July when Reuters reported that Chinese private equity firm GSR Capital was exploring buying a substantial stake in SQM.
In early February, Nutrien CFO Wayne Brownlee said on the company's fourth-quarter earnings call that the Canada-based fertilizer company has "a robust bidding process" for the SQM stake. Indeed, the stake is probably the belle of the ball in the commodity world, as the market for the silvery white mineral has been booming since 2016, driven largely by increasing demand for lithium-ion batteries to power electric vehicles (EVs). Lithium producers have been benefitting from selling larger quantities of their lithium products and fetching higher prices for them, which has sent their stocks surging since 2016, though they have pulled back this year due to concerns about future oversupply in the market.
Corfo's move to block Chinese companies from buying SQM stake
Corfo asserted in its complaint filed on Friday with Chilean antitrust regulator FNE that the purchase of a stake in SQM by "Tianqi Lithium, or any entity related to it directly or indirectly (including companies controlled by the government of China)" would "gravely distort market competition," Reuters said. The news outlet also reported that Corfo head Eduardo Bitran stated in an interview on the same day that Tianqi Lithium late in 2017 made a nonbinding offer for Nutrien's 32% stake in SQM and that the offer was more than 20% over market value at that time. Moreover, he reportedly said that three other Chinese companies, along with London-based global mining giant Rio Tinto, were also competing for the stake.
It's not surprising that the South American country is trying to block Nutrien from selling its SQM stake to Tianqi, as the probability does seem high that such a sale "would have serious anti-competitive impacts on the market," as Bitran wrote in the complaint. Together, SQM (the world's second-largest producer of lithium behind U.S.-based Albemarle) and Tianqi (widely regarded as the No. 3 producer) control 70% of the global lithium market, according to the filing. Chile has a huge vested interest in making sure the lithium market remains competitive, as it generates royalties from its leases with SQM and Albemarle at the Salar de Atacama, where the two companies "mine" lithium from underground reservoirs of lithium-rich brine. This is a gem of a resource, as it has the world's lowest costs for mining lithium.