As the race for lithium continues to heat up, Chile will need to find a way to maintain its position as a major lithium producer while its neighbours continue to receive significant investment.

Looking to develop its Atacama and Ollagüe lithium licenses in Chile, Wealth Minerals is having to wait on the Chilean government to outline rules for drilling and testing on potential new resources of lithium projects. In recent years, the Chilean government has become increasingly nationalistic when it comes to its lithium sector. The government is aiming to capture more value for itself and prevent over-exploitation of its lithium resources, with concerns this can affect local communities and ecosystems. This has come off the back of significantly increased demand for lithium chemicals driven by forecast electric vehicle (EV) sales over the coming decades and despite lithium prices dropping in 2023. The Chilean government's reticence over new lithium licenses follows a similar pattern. In 2018 the Production Development Corporation (CORFO) renegotiated royalty rates for Chilean lithium producers substantially higher. This has forced production costs up significantly and led to Chilean producers being amongst the highest cost assets on the industry cost curve, despite very low direct cash costs.

Significant investment will be needed in the lithium sector to sustain forecast supply volumes for EV demand. However, in South America, it is Chile’s neighbour and fellow lithium producer Argentina, which is so far set to be the greater recipient of this investment. This is despite Argentinian lithium projects largely having higher capital investment requirements than Chilean lithium projects due to the brine resources having lower lithium grades and higher impurity contents leading to the requirement for more expensive Direct Lithium Extraction (DLE) flowsheets. Using Project Blue’s lithium extractive cost service, the total projected capital costs of Argentinian projects in development exceed Chilean projects by a factor of 10.

This demonstrates the extent to which less favourable mining legislation can disincentivise project development. Despite Chile’s advantages when it comes to lithium resources, the government's position is, at least for the moment, preventing larger-scale investment in the sector. However, lithium demand is forecast to remain high over the coming decades. If it wants to remain a key lithium producer, the Chilean government will have to find a way to incentivise new lithium projects while balancing the needs of local communities, mining developers in other commodities, and local ecosystems.