Lithium Power International Ltd (fka LTHHF)

[Dr_Vonschellan]

Keep_your friends_close. Keep_your enemies_closer. Keep Eduardo_Bitran
very very close (to us) after he joins Codelco as the newest board director on May 1, 2023. https://www.latercera.com/pulso/noticia/eduardo-bitran-es-complejo-politicamente-negociar-con-sqm-pero-siempre-debe-priorizarse-el-interes-general/DRDS6Z43UBDAZC774VOKREBOVE/
See below for English translation... and an eye-opening peek into our slugfest-ing future for the next 18 months until everyone backs off for the 2025 presidential campaigning season when all the candidates want to appear non-divisive and lovey-dovey cooperative.

Eduardo Bitran is just so cute and cuddly, he looks like a little happy fuzzy teddy bear... the kind you want to take home and snuggle up to when you go to sleep at night. Granted you might wake up the next morning missing an arm, a leg or your wiener, but you will have had a good fuzzy-wuzzy sleep the night before with him tucked warmly between your legs.

Eduardo Bitran definitely has his eye on us (LPI) in the Maricunga, but sadly for us he is going to be going full-guns full-bore to get a repressive balls-crushing junior-lithium-miner-stomping CEOL put into effect over us (LPI), Simbalik, SIMCO and adjacent neighbor SQM... that is his ultimate plan, and make no mistake about it.

The Doctor

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Eduardo Bitran: "It is politically complex to negotiate with SQM, but the general interest must always be prioritized".
By Víctor Cofré

He (Eduardo Bitran) is a reference in the lithium debate. He headed CORFO between 2014 and 2018 and led a negotiation with SQM and Albemarle that allowed the State to raise more than US$5 billion in a single year. Eduardo Bitran says that Chile must increase its production to take advantage of a price boom that may still last a few years and that to do so it must focus on the Atacama salt flat, without forgetting the other deposits. "If production doubles, lithium mining could permanently generate more than 1% of GDP as resources for the State," he predicts.

Industrial civil engineer Eduardo Bitran Colodro (65 years old) knows many things. Today he is an academic focused on innovation issues at the Universidad Adolfo Ibáñez, but he has studied and worked in many fields. He has been director of companies: ENAMI, Transelec, Salcobrand and has directed organizations such as the National Innovation Council and the Chile Foundation. A former PPD member, he was general manager of CORFO in the administration of Eduardo Frei Ruiz-Tagle and Minister of Public Works in the first government of Michelle Bachelet. With a PhD in Economics from Boston University, he has studied the fishing sector, capital markets, electricity, concessions and mining.

His last relevant public position ended in 2018, with the second Bachelet government: he headed CORFO for four years. And so he knows quite a bit about lithium. In that position, Bitran renegotiated the contracts with SQM and Albemarle for the lease of the Atacama salt flats. Criticized at the time by some, this renegotiation is the basis for the extraordinary revenues of the Treasury in 2022. This has been recognized by authorities and private companies. The Minister of Mining spoke this week of "Bitran's contracts" to explain why the State achieved more than US$5 billion in a single year: the lithium boom triggered prices in 2022, something that was picked up by the re-negotiations of 2016 and 2017, which set variable lease fees that rose as the price skyrocketed. If the value exceeded US$10,000/mt of lithium carbonate, the royalty for CORFO jumped to 40%. And last year SQM sold at US$52,000/mt on average. In exchange, it increased the production quotas of both companies.

"We were not prophets of doom, we did not know that this was going to happen. We simply said: in the scenario [b[if this happens, the State has to participate significantly in the economic income that is generated", says Bitran modestly in what he believes will be his last interview to talk about lithium. In May he will take over as one of the nine directors of Codelco, appointed by Gabriel Boric, a position to which he applied via Alta Dirección Pública. And Codelco has a lithium project in the Maricunga salt flat.

Since the 1980s, he says, when he participated in the Center for Development Studies and studied the fishing industry, Bitran worked along a line that links almost everything he has done. "Since then, he began to work on an issue that was not easy: in the field of natural resources, when a country has advantages due to natural conditions, the exploitation of this activity generates economic income, a profit on normal capital, which is due to the characteristics of the natural resource. And to the extent that the resource is the property of all, the State has the right to appropriate a high proportion of the economic rent", he summarizes. Bitran declassifies in this interview unknown issues of the lithium negotiation in 2018 and gives his vision on the development of a resource that is currently exploited by only two companies, SQM and Albemarle, and that has pending a definition of national policy that the government has been working on for a year.

In 2018 what they estimated as proceeds from new contracts through 2030 was already met in 2022. What has changed?

We did expect prices to rise above US$10,000/mt, that is why we put a rate of 40% above that price. But to be very frank, we estimate that it would reach, in its best times, levels of US$20,000/mt. For one reason: economists calculate the long-term marginal cost of production of the marginal producer.

The marginal producer is the least efficient...

The least efficient. And we arrived at a value of US$18,000/mt, which would be the cost of the marginal producer. In the long term, the price should tend to those values. We did have a hypothesis that this was going to collect much more. But we never thought that in one year SQM could reach an average price of more than US$50,000/mt. There are other factors that explain the increase in revenues...

The increase in production...

Yes, the increase in production, from 80,000 tonnes to approximately 220,000 tonnes. And that has to do with the increase in the quota basically and the fact that the companies did what was reasonable to do: they invested in more capacity.

Lithium income for the Treasury surpassed Codelco in 2022. Is it Chile's new salary? (editorial, ie Cash cow?)

The first thing to point out is that lithium as a resource is abundant in the world and we are experiencing a transitory situation of excess demand and projects that take longer than estimated to produce, what happens is that the process of putting the resource into production, in a sustainable way, is complex. Even Chile has difficulties in the issue of sustainability. If you want to grow significantly, you have to change to direct extraction technology. What happened is that the United States, France, Germany, all countries set an expiration date for internal combustion cars and suddenly, in the West, the automakers realized that the critical issue was access to lithium. This generated a furor to buy lithium. And an imbalance is produced, with excess demand.

And that's going to disappear?

No. The boom will continue. The growth in demand is in the order of 30 to 40% per year! It doubles every three years, so the question...

... is at what point does supply connect with demand?

That is the point. All the predictions of when this or that project comes into production fell short and took much longer. But there is a worldwide effort to develop lithium. In Argentina, for example, without necessarily taking into account the environmental balance of the salt flats, almost all of it is by evaporation. Australia surpassed Chile with a very large growth...

Is Argentina a real threat?

Argentina is going to grow and surpass us if we do not do something. If we do nothing in the Salar de Atacama, basically, with the terms and production quotas that exist today, we are going to reach, in the best case scenario, a production of 300,000 tons per year by 2026. Today the world market is at 740 thousand tons per year, in 2026 it will be over 1.6 million. And Argentina will possibly pass us that year. But for me, the relevant issue is not whether Argentina is doing well and we are doing badly...

The relevant issue is Chile's position. did the country lose time from 2018 to date in developing the lithium industry?

Happily, what we did in 2017 and 2016 allowed us to grow from 80 thousand to more than 200 thousand tons. We could have developed other resources, Maricunga, the Siete Salares, Pedernales... We lost time, first, in the Institute of Clean Technologies. CORFO left it ready in 2017 with a US$200,000,000 budget: one of the main focuses of that institute was to pilot direct extraction technologies that would reduce water extraction. And what the next administration did was to ruin the process.

The second thing is to increase production. The quotas we set in 2016 and 2017 were intended to reach 300 thousand tons per year. There are investment commitments that are consistent with that quota and we assumed that it would be a matter for another government, two or three governments later, to resolve the issues going forward. Today there is a limit to what the companies can expand, because of the quotas. Albemarle has a 20-year term until 2043, but SQM has a term until 2030. And that is very short.

What should Chile do to increase its production?

Focus on the Atacama salt flat...

Why focus on the Atacama salt flat and not on the other salt flats?

It is necessary to do both things, but if one has the hypothesis that the mismatch of supply and demand is going to last four or five years, and one wants to benefit from these extraordinary rents (ref 40% rent to CORFO), which we are already enjoying in 2022, the fastest opportunities are in the Atacama salt flats. One could take the existing ponds, incorporate direct extraction technology (DLE) and start combining both technologies. Why haven't the companies that are there done it? Aren't they great innovators? Or are they only renters?

Is it because they have no incentive, because they run out of quota early? (ref CChEN LCE export quota licensing)

Indeed, there is a quota issue. There is a political risk, they have to negotiate with the State. Why the Atacama salt flats? Because if this windfall, ie this spiking price increase, is transitory, it is the only place where we can have a greater contribution with higher production. In the long term, US$18,000/mt, which is what we calculated as marginal cost, in the other salt flats, even with direct lithium extraction (DLE) technologies, we will probably continue to be low-cost producers and, therefore, there are also rents and opportunities to generate sustainable exploitation.

And in the Atacama salt flat, what would you suggest? Negotiate quota increases?

It is a complex issue. Politically complex because the "unmentionable", as someone told me at the time, is still there. We established a change and forced the termination of the shareholders' agreement with KOWA. But nobody knows who KOWA is. I don't. (editorial insert by The Doctor: Kowa Company Ltd established the Chilean-based affiliate company Kochi SA 1987, Kowa Company Ltd established the investment company Kochi SA in Chile. Kochi invested in SQM company in 1987, the Chilean government’s chemical mining corporation, and started the export of potassium nitrate to Japan https://www.kowa.co.jp/eng/history/detail/index.html ). Therefore, it is likely that although Julio Ponce cannot participate in the management, he is still the factotum (ie behind-the-scenes player) there. That is the same political pitfall that I had to face before, which is very complex. And as I am now going to assume a position as a director at Codelco, I will keep my opinion to myself as to what to do.

Would you be in favor of raising the 40% rate for extraordinary prices?

There are several ways to be able to participate to a greater extent in the income, one is to effectively make higher tranches (definition: one part or division of a larger unit, as of an asset pool or investment)...

Is it possible to go higher?

Yes, of course, if you put it on a high price, what is the problem? That will be triggered when there is an extraordinarily positive situation and everybody will win. The important thing is to calculate when it is still attractive for everyone.

You raised an option of partnering in the ownership of some companies in the Salar de Atacama.

If there is a political decision to create a National Lithium Company (NLC), one possible option is for the State to become a partner in the Salar de Atacama with some of the actors (ie junior lithium miners) and expand production with new technologies.

Politically it is difficult to negotiate with SQM?

It is politically complex to negotiate with SQM, but the general interest must always be prioritized.

Albemarle offered to partner on the property in 2014, why didn't you take that option?

At that time we said: What is the best way to participate in the revenues? We thought that with adequate royalties we would be able to participate in the economic income. And if we knew that politically to participate as a shareholder would have to go through Congress and that was a very complex task, because CORFO, by the law of 89, cannot participate as a shareholder in companies, then we were going to open a political debate that was going to stall this discussion for the whole period of government. Rockwood offered it 20% or 30%, in 2014, but for the sake of pragmatism we opted for royalties.

You’re coming to Codelco (in May 2023), did Codelco waste/lose valuable precious time by undervaluing the lithium business?

Codelco is doing explorations, but I am not going to refer to issues that Codelco has done or not done because in some way it would limit my role as an independent director. I am giving this interview before taking office because here there is a story and some lessons that, in some way, I want to transmit. And there are two major issues: the importance of continuing to make progress in improving the regulation of the link between business and politics, as there are still pending issues. Secondly, capturing rents when prices are very high is perfectly feasible and does not inhibit business development at all.

Is lithium going to replace copper?

In strengthening climate action, there are several resources that will be key. Electrification in the world will increase from 20% to 50% by the year 2050, and copper is the king.

I am referring to whether lithium will replace copper as income for the Chilean State?

I don't think that in the long term that will happen, but lithium can be very significant. Under current conditions, how much of that 2% of GDP in 2022 is long-term? It depends on what happens with production and price. There are important rents here and one could calculate it: perhaps we will reach up to 1% of GDP with production of more than 300,000 tons, but it will depend on the price. If you double production, which you could do with a policy in which the State and the private sector participate, addressing the challenges of sustainability and linkage with the communities, you could achieve that lithium mining permanently generates more than 1% of the GDP as a resource for the State. And that is very significant. And that can be as significant as copper mining. However, I hope that, given the progress of electrification in the world, copper will have that kind of phenomenon of prices soaring and rents will start to be very high at some point, and at that point hopefully we will have a better copper royalty law, so that the Chilean State will participate in the mining income in a significant way, without inhibiting investment.

What should a lithium policy have?

It should allow the development of salt flats in general, with well thought out CEOLs (Special Lithium Operating Contracts), with very strict environmental requirements. And with the possibility for the State to partner with private parties directly in certain developments. And there are also possibilities of added value. Here (in Chile) we are not going to make batteries: they gave as an example what Elon Musk was doing in Mexico. Please! Mexico sells 3 million cars, Musk is going to install himself next to where his factory is located, with a lower transportation cost, and he is going to take advantage of Mexico's cheap labor force. That is not the situation in Chile, so it is absurd to make movies about that, but there are other value-added products that we can develop.

Could developing four or five more salt flats be equivalent to the Atacama Salt Flat?

No, I doubt it. I have seen the numbers. The Atacama salt flat has 1,500 parts per million. Maricunga has between 700 to 1,000ppm and all the others have less. The Salar de Atacama is the jewel in the crown. We are not an empire or a kingdom, but that is what the lithium people called it, the Crown Jewel.