Chile is one of the world’s largest lithium producers, especially with large reserves concentrated in the country’s north. The demand for the battery metal has been growing exponentially as it is an important material for manufacturing various products, most importantly electric vehicles (EVs). With that in mind, Chile, with its geographical and lithium neighbors Bolivia and Argentina, has announced a future tripartite meeting to pursue joint lithium production. The three countries sit on the so called lithium triangle, home to more than 55% of the world’s lithium resources.

Chilean President Boric made a statement about the creation of a national lithium company. “We want you to know that one of the pillars of our government program was the creation of a national lithium company and we reaffirm this commitment,” he said during his first public account.

Meanwhile, Western media has been criticizing the lithium nationalization efforts in Latin America, arguing that production is suffering at the hands of leftist governments, who want more control over the battery metal and a greater share of the profit.

Demand for lithium has driven product prices up 750% since 2021 and analysts have expressed concern that this could become a deterrent to EV adoption.

In Bolivia, the government nationalized its lithium industry years ago and has yet to produce significant amounts of the metal. Mexico, a smaller producer, also recently nationalized lithium. In Argentina, production is just starting.

In Chile, where lithium is strictly regulated, the new government plans to nationalize the resource and if the new constitution is approved in a September referendum, tighter environmental regulations and indigenous rights over mining will come into effect.

Chilean Mines Minister Hernando said, acknowledging that the government does not have a way to extract lithium, that the mineral is a strategic resource and the government wants majority control of any joint ventures with private firms.

A few years ago, Chile was the world’s largest producer of lithium, producing slightly more than Australia. While Chile has increased production at its current operations by 80% from 2016 to about 140,000 tonnes per year, it has not opened a new mine in some 30 years. Meanwhile, Australia has quadrupled its output in the past five years and currently producing more than double that of Chile.

Lithium is a relatively rare mineral, with South America, Australia and China are the major places that produce the battery metal. Unlike other places where it is mined from hard rock, South American lithium is found in brackish groundwater that is evaporated by the sun after being pumped into large ponds. South American lithium is less expensive to produce, but the downside is that it takes about eight years to build the mine.

Chilean officials and environmentalists are concerned about lithium mining’s impact on water supply. 2,800 cubic meters of water is needed to produce a ton of lithium in Chile, while 70 cubic meters of water is needed for a ton of copper.

Chile lost its top spot in lithium production partly because the state has maintained tight control over it since the 1970s.  Back then, Pinochet’s military dictatorship declared it a strategic resource because it is a component of the atomic bomb.

Lithium miners lease their land to a state agency, which limits how much they can produce. Exports also require special permission from the government’s nuclear agency.

As an example, Albemarle signed a new contract in 2016 to expand its operation, which would require it to pay royalties of up to 40%, an industry high. Hoping to add value domestically, rather than simply as an export feedstock, the government required Albemarle to provide up to 25% of its lithium production at a lower market price to companies that process it locally. The company also gives part of its sales to indigenous communities.

Argentina’s openness to private investment has made the country a brighter spot for lithium production in South America. The government needs every foreign currency it can get its hands on to help its cash-strapped economy. The authorities have provided businesses with financial stability deals and eased some foreign exchange controls that are affecting other sectors.

As a result, the country has seen an influx of investors, including Anglo-Australian miner Rio Tinto, Chinese battery maker Ganfeng Lithium and French multinational Aramet. The global auto giants are also betting more on Argentina, with Toyota having a stake in a local mine and Ford and BMW having entered into agreements to acquire Argentine Lithium.