China’s Tianqi Lithium is attempting to take control of the world’s biggest producer of the metal, as its use in batteries to power smartphones and electric cars fuels rapid growth in global demand.

Earlier this week, Tianqi bought a 2 per cent stake in Chile’s SQM from a US asset manager, with an option on another 7 per cent. Now, the Shenzhen-listed group is seeking to acquire a separate 23 per cent stake controlled by a vehicle of Julio Ponce Lerou, the former son-in-law of the late Chilean dictator Augusto Pinochet.

Tianqi’s move highlights China’s ambition to carve out a leading position in the supply chain for the electric car industry. It is aiming to become a leading source of lithium for manufacturers of lithium-ion batteries, which are the default type used in electric cars.

In May, mining group China Molybdenum announced it was buying a large African copper mine that also contains abundant sources of cobalt — a once niche raw material that is also crucial to developing batteries for electric cars.

Battery manufacturing — with the exception of Tesla’s $5bn plant in Nevada — is also heavily Asia focused, with the majority of production taking place in China. This reflects the fact that the country is already the world’s largest electric car market, and has set a target of having 3m electric vehicles on its roads by 2025.

Driven by this growth in electric vehicles, the market for rechargeable batteries is expected to double by 2025, according to consultancy CRU — increasing demand for raw materials such as lithium.

Control of SQM would give Tianqi exposure to lithium from beneath Chile’s Atacama Desert, one of the lowest-cost sources of the metal. It would also make Tianqi one of the world’s most influential producers.

Tianqi currently produces lithium from the Greenbushes lithium mine in Australia, the other big source of lithium outside of South America, in a joint venture with US producer Albemarle. This month, it announced plans to invest $300m in a lithium conversion facility in Australia.

But gaining control of SQM will depend on a deal to buy the 23 per cent stake owned by one of Mr Ponce Lerou’s companies. At present, he controls the board via his 29.97 per cent total stake, held through various entities, and an agreement with Japanese company Kowa, which owns another 2 per cent of the Chilean group. That gives Mr Ponce Lerou an effective stake of 32 per cent, allowing him to nominate seven board members.

Under SQM’s bylaws, no shareholder may have more than 32 per cent of the company. However, this policy can be changed by an extraordinary shareholder meeting.

Analysts at China’s Southwest Securities expect more stakebuilding by the Chinese group.

“We forecast that Tianqi is very likely to buy more shares in SQM, even eventually become a controlling shareholder,” they wrote in a research note. “This will change the competitive structure of the global lithium industry, and Tianqi will have greater voice within the industry.”

Tianqi said this week it would invest $209.6m in a 2 per cent stake in SQM held by San Francisco-based fund SailingStone Capital Partners. It also said it has an option to buy the rest of SailingStone’s 9 per cent stake.

Under Mr Ponce Lerou’s control, SQM has run into political opposition to its plans — restricting its ability to increase lithium production in the Atacama Desert just as demand for the metal lifts its price to record highs.

Chile’s government has threatened to revoke SQM’s lease to the lithium and potassium deposits in the Atacama, alleging that the company underpaid the royalties due to the state under the terms of its contract. SQM believes it has calculated and made the appropriate rental payments since it began selling lithium in 1997, and maintains that it has not committed any errors.

Ben Isaacson, an analyst at Scotiabank, said: “My view is that whoever is bidding on this stake needs to have reassurance from the government that [the Chilean regulator] Corfo is going to settle with SQM.”

Others have suggested that a sale by Mr Ponce Lerou would help to ease the concerns of Corfo, allowing SQM to expand production to meet the rising demand.

Edward Waitzer, vice-chairman of the SQM board, told the Financial Times that the group held “an extraordinarily unique set of assets that can’t be replicated and that are well managed”.

“It’s hard to imagine why the government would want to shut it down,” he said.



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