NTR Nutrien Ltd

Legal challenge looms in the race to control key component used in electric-car batteries

By Scott Patterson 

This article is being republished as part of our daily reproduction of WSJ.com articles that also appeared in the U.S. print edition of The Wall Street Journal (October 22, 2018).

A Chilean court is expected to rule in the coming week on a lawsuit aimed at derailing a deal critics say could create a cartel for lithium, a key component in batteries used in electric vehicles and smartphones.

The legal challenge is the latest twist in a nearly yearlong effort by China's Tianqi Lithium Corp. to acquire a large stake in Chile's biggest lithium producer, Sociedad Quimica y Minera de Chile SA, or SQM.

The battle has opened another front in a global scramble to control the ingredients that make up lithium-ion batteries, the power packs for much of the world's gadgets and electric cars.

Tianqi agreed in May to buy a 24% stake in SQM from Canadian mining giant Nutrien Ltd. for $4.1 billion. The sale, following months of negotiations, was required by regulators in China and India as a condition for approving the merger of two big Canadian miners that created Nutrien.

SQM is the world's second-biggest lithium miner by production. Tianqi also operates a big lithium mine in Australia with chemicals giant Albemarle Corp., the world's No. 1 producer of lithium based in Charlotte, N.C.

The SQM deal has won regulatory approval in Chile and other jurisdictions. Chile's competition regulator gave the agreement a green light after imposing restrictions on Tianqi, such as forbidding Tianqi-nominated directors to share SQM's commercially sensitive information.

Earlier this month, a group of companies controlled by SQM's biggest shareholder, the Chilean tycoon Julio Ponce Lerou who also is the son-in-law of the late Chilean dictator Augusto Pinochet, challenged the deal's approval process in the country's Constitutional Court.

Mr. Lerou has argued a Tianqi-SQM combination could result in the leaking of SQM trade secrets to Tianqi partner and SQM rival Albemarle. Outside critics say the deal also could create an OPEC-like lithium cartel that might be able to influence pricing and access to the metal at a time when demand is soaring.

"The biggest concern I have is about those few companies having monopolistic tendencies," said Jon Hykawy, president of Stormcrow Capital Ltd., a Toronto research firm that focuses on battery minerals. There is a risk that "these guys are going to charge what they want to charge," he said.

A court hearing is set for Monday, Oct 22, with a decision expected shortly after. If the court throws out the suit, it would pave the way for the sale of the SQM stake to close in the fourth quarter. If the court agrees to review the suit, the deal would be delayed for an indefinite period.

Tianqi and Nutrien say the deal won't be anticompetitive, citing limitations imposed by Chile's competition regulator, such as restricting Tianqi from placing its own employees on SQM's board.

"We look forward to vigorously defending our position before the Constitutional Court," a Tianqi spokesman said. Albemarle declined to comment.

SQM itself opposes the sale of the stake. In a statement, it said the agreement with Chile's competition regulator doesn't "effectively resolve the risks that it intends to mitigate."

Nutrien expects the court to strike down the lawsuit, company spokesman Richard Downey said. He said Mr. Ponce is "attempting to manipulate the legal system" in Chile.

A lawyer for Mr. Ponce didn't respond to requests for comment.

Lithium, once best known as a treatment for depression, was long a niche metal. The industry built around mining it out of the ground was small and low profile.

Demand skyrocketed with the rise of the lithium-ion batteries, raising scrutiny over who controls the world's supplies. Chile boasts nearly half of the world's known lithium reserves, according to the U.S. Geological Survey, and has the lowest cost of production.

The deal at the center of the suit -- and the separate joint venture between Tianqi and Albemarle -- draws together three companies that control about two-thirds of the world's lithium production, based on 2017 output, according to Benchmark Mineral Intelligence.

With demand soaring, lithium has joined other once-obscure metals, like cobalt, as an object of a global scramble. China has moved ahead in the world-wide race to control cobalt, locking up access to much of the metal in Congo.

In a similar way, companies are racing to lock up supplies of lithium. Japan's SoftBank Group this year paid nearly $80 million for a roughly 10% stake in Canada's Nemaska Lithium Inc. The trading arm of Toyota Group, parent of Toyota Motor Corp., said it was taking a 15% stake in Australian lithium producer Orocobre Ltd. for about $225 million. Tesla Inc. has signed a three-year supply agreement to secure lithium from an Australian operation partly owned by SQM.

The biggest deal by far -- and the most disputed -- is Tianqi's proposed investment in SQM.

The Chilean development agency overseeing the Salar de Atacama region where most of the country's lithium is produced filed an objection to the deal with the country's competition regulator earlier this year. It argued the deal would "gravely distort market competition." Despite those concerns, Chile's competition regulator approved the deal.

Write to Scott Patterson at scott.patterson@wsj.com

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October 22, 2018 02:47 ET (06:47 GMT)

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