January 9, 2019 / 1:17 PM / 10 days ago

Explainer: SQM and Chile reach lithium deal, but Atacama water woes continue

SANTIAGO (Reuters) - Chile’s environmental regulator this week approved a $25 million compliance plan by lithium miner SQM (SQMa.SN), ending a multi-year investigation by authorities that found the Chilean miner had overdrawn lithium-rich brine from the Atacama salt flat.

FILE PHOTO: Managers meet on a hill at the SQM nitrates plant in Coya Sur next to Maria Elena town, northern of Chile, October 13, 2016. REUTERS/Ivan Alvarado/File Photo/File Photo

The case, now resolved, raised questions about how much brine and fresh water was left beneath the Atacama, and how long it would last.

Those concerns, and others, still linger. Here’s why:

WHAT IS THE SALAR DE ATACAMA?

The Salar de Atacama is a high-altitude desert basin in northern Chile that, in 2017, supplied more than one-third of the world’s lithium, a key ingredient in the batteries that power cell phones and electric vehicles.

Rain and snow melt have for millennia washed lithium and other metals downslope, percolating into a salty solution that gathers beneath the volcano-rimmed salt flat.

Miners pump that brine into shallow rectangular lagoons, where the sun’s ultraviolet rays and the desert air evaporate the water, leaving behind the battery-grade lithium that has put Atacama at the heart of the electric vehicle revolution.

WHAT IS THE PROBLEM WITH WATER?

Soaring lithium demand has raised questions about whether the salt flat can support current and future levels of production.

The world’s top lithium miners, SQM and Albemarle Corp (ALB.N), share scarce water resources in the basin with BHP’s (BHP.AX) Escondida copper mine, the world’s largest, and Antofagasta’s(ANTO.L) smaller Zaldivar copper mine.

The government said last year that more of Atacama’s water was being pumped by miners than was being replaced by rain and snowfall.

A spokesman for Chile’s DGA water authority told Reuters that a benchmark assessment of the salt flat’s brine and water supply, initially due by December 2018, had been delayed until the second half of 2019.

WHAT IS THE GOVERNMENT DOING?

Chile’s water authority last year restricted new water rights in sectors of the salt flat that are currently overdrawn, citing excess pumping by the Zaldivar and Escondida copper mines.

Both miners have requested permits that would reduce the amount of water they draw from the flat, but regulators have put these reviews on hold while they assess the water supply, according to Chile Environmental Assessment Service (SEA) filings reviewed by Reuters.

The water authority has announced the creation of a drinking-water reserve for the Atacama’s local communities. A spokesman said the project was underway but gave no timeline for completion.

WILL NEW CURBS IMPACT LITHIUM PRODUCTION?

Regulators have yet to significantly curtail water extraction by lithium miners. Both Albemarle and SQM say approved expansions will use no more water than already permitted.

SQM, however, agreed on Monday to reduce pumping of lithium-rich brine by about 10 percent through May 2020 to remedy several years of overpumping from the salt flat.

SQM told Reuters its production plans had already incorporated the commitments made to regulators, and that the reductions in brine extraction would not impact lithium output.

Reporting by Dave Sherwood, additional reporting by Fabian Cambero; Editing by Ernest Scheyder and Bernadette Baum

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