The Chilean government’s move to take greater control over the country’s largest lithium reserve in a deal with local giant SQM has put its Chinese shareholder Tianqi Lithium in a bind, and comes as developing nations around the world take a greater interest in their mineral resources needed for a green transition.

Since the partnership with state copper miner Corporación Nacional del Cobre de Chile (Codelco) was announced in December, Tianqi Lithium Corp. (002466.SZ -1.46%) has repeatedly called for Sociedad Quimica y Minera de Chile SA (SQM) to hold extraordinary shareholder meetings “to obtain more open, transparent and sufficient information” and to put the deal to a shareholder vote, according to a filing with the Hong Kong Stock Exchange on Monday.

The Chinese miner, SQM’s second-largest shareholder, made its third and most recent petition through Chile’s securities regulator, who “notified SQM” of Tianqi’s request and asked the company to respond by Monday. As of the filing, the firm had not “received any response or feedback.”

Tianqi’s predicament serves as a warning for Chinese companies trying to capitalize on the global green energy transition through overseas investment in mining assets, as many countries are increasingly taking a greater interest in their key mineral resources through state investment and policy.

In parts of Latin America, Africa and Southeast Asia, governments are restricting or even banning the export of certain raw minerals used to make EV batteries, including lithium, copper and nickel. This approach, which effectively requires miners to build processing plants locally, is reshaping supply chains that underpin the shift toward clean energy.

Similar to Chile, Mexico is also seeking greater state control over its lithium reserves, taking steps that include passing a bill in 2022 to nationalize the mining and extraction of the light metal.

Chile had taken back control of copper mines from foreign companies in the past. As a result, there was already a risk that the government would nationalize its lithium resources when Tianqi invested in SQM in 2018, an industry insider told Caixin.

Diluted profits

One of Tianqi’s concerns is the return on its nearly $4.1 billion investment in SQM, the world’s second largest lithium producer.

On Friday, SQM and Codelco jointly announced they had signed an agreement to form a joint venture responsible for producing refined lithium in the Atacama salt flat from 2025 to 2060. The deal could take effect early next year, giving Codelco a 51% stake in the new entity and by extension the Chilean government access to the majority of the new entity’s operating profits.

As the partnership risks diluting Tianqi’s interests in SQM’s lithium business, the Chinese firm will “continue to follow up SQM’s response” and “may consider actions to ensure the protection of its shareholder interests,” according to Monday’s filing.

The agreement clears the way for the new public-private partnership to ramp up production at Atacama from less than 200,000 metric tons of lithium carbonate equivalent per year to 300,000 tons, giving battery-makers greater assurances on future supplies of the key raw material.

The Chilean state will receive approximately 70% of the venture’s operating margin from new production between 2025 and 2030, after which that percentage will rise to 85%, according to Codelco’s statement.

The deal is also a pillar of President Gabriel Boric’s agenda to have more state control in key lithium assets while boosting output of the battery metal in the transition away from fossil fuels.

Chile is the world’s second largest lithium producer, with only two private companies — Santiago-based SQM and U.S.-based Albemarle Corp. — extracting lithium there, both in the Atacama salt flat. The country produced an estimated 44,000 tons of lithium last year, accounting for nearly 25% of the global total, according to data from the United States Geological Survey.

Last year, Chilean Mining Minister Marcela Hernando said the government hoped to open talks with Albemarle soon to “reach a public-private partnership” after the latter signaled a willingness to renegotiate its lithium contract in Chile before 2043, Reuters reported.

While the deal doesn’t give SQM an equal share, the company has no choice if it doesn’t want to lose its mining rights in the region after 2030, a person familiar with the Chilean lithium industry previously told Caixin.

SQM is using its dominant position at Atacama in exchange for longer mining and production rights, industry groups said, explaining why the company chose the public-private partnership that could hurt its profits. The deal means SQM can still exploit lithium in the salt flat until 2060, after its current lease expires in 2030, they said.

Goldman Sachs Group Inc. said the deal would make SQM a minority shareholder in a state-owned company and advised investors to look out on whether Tianqi would take legal action to block the partnership.

Changes in future returns from SQM may reduce Tianqi’s investment income and dividends from SQM, it warned. As a result, it “will closely monitor updates from SQM and will promptly conduct prudent assessments from financial, commercial, legal and governance perspectives,” according to Monday’s filing.

The company swung to a net loss attributable to shareholders of 3.9 billion yuan ($536 million) in the first quarter of 2024 compared with a 4.9 billion-yuan profit for the same time last year.

In 2018, Tianqi, which at the time had a net worth of around 12 billion yuan, acquired a 23.77% stake in SQM for nearly $4.1 billion, as it was making a big bet to gain a strategic foothold in one of the world’s largest lithium reserves amid rising interest in EVs.

Tianqi currently owns 22.16% of SQM and remains its second-largest shareholder. However, under an investment agreement signed by both sides in 2018, Tianqi’s role is limited to that of a financial investor in SQM and can only profit from dividends.

The agreement came after Corfo, Chile’s economic development agency, filed a complaint with the national economic prosecutor alleging that Tianqi’s involvement in SQM could seriously affect free competition in the lithium and related markets.

Subsequently, the prosecutor launched an investigation into Tianqi, which resulted in the signing of an out-of-court agreement prohibiting the Chinese company from nominating or electing its employees to SQM’s board of directors and from receiving commercially sensitive information related to SQM’s lithium business.

The settlement was due to expire this month, but was extended until October, according to an April statement from SQM.

Tianqi’s compromises have put it in a difficult position when it comes to SQM’s partnership with Codelco. The Chinese shareholder twice asked SQM in March to call a general meeting to disclose information related to the tie-up and to hold a shareholder vote on it.

SQM held two meetings as a result, but the board rejected the requests for a shareholder vote.

Chile’s Financial Market Commission has yet to decide on Tianqi’s latest effort asking it to formally clarify whether the tie-up between Codelco and SQM should be put to a vote of SQM shareholders.