In Chile, the Chilean Organic Law on Mining Concessions (“LOCM”) and the Chilean Mining Code (“CMC”) provide that lithium may not be granted in a mining concession without prejudice of the mining concessions validly granted before lithium was declared as a mineral the exploration and exploitation of which could not be the object of a mining concession. As a result, only mining exploitation concessions initiated before January 1, 1979 are authorized for the exploitation of lithium. For all other cases, the CMC establishes the reserve of lithium to Chile and expressly provides that the exploration or exploitation of “non-concessible” substances (including lithium) can be performed only directly by the State of Chile, or its companies, or by means of administrative concessions or special operation contracts, fulfilling the requirements and conditions set forth by the President of Chile for each case. Additionally, Law 16,319, which created the Chilean Nuclear Energy Commission (the “NEC”), provides in its article 8 th that, for reasons of national interest, any act or contract in connection with lithium will require the previous authorization of NEC (or have NEC as a party thereto). NEC is entitled to subject any such authorization to the fulfillment by the applicant of certain conditions. Once any such authorization is granted, NEC is not authorized to amend it or terminate it, nor the applicant to resign it, for reasons other than those set forth in the resolution granting it.
Since the constitution process of the SLM Litio 1-6 Mining Concessions was initiated in 2000, the Maricunga Companies are not authorized to exploit lithium in the area covered by such concessions, unless they also obtain a CEOL authorizing such exploitation.
As the constitution process of the Cocina Mining Concessions was initiated in 1937, Minera Li (a wholly-owned subsidiary of Li3), as the owner of the Cocina Mining Concessions, is authorized to exploit lithium in the area covered by the Cocina Mining Concessions.
In June 2012, the Chilean Government’s Ministry of Mining established its first ever auction for the award of lithium, production quotas and licenses (Special Lithium Operations Contracts, or “CEOL”) which would permit the exploitation of an aggregate of 100,000 tons of lithium metal (approximately 530,000 tons of lithium carbonate equivalent) over a 20 year period, subject to a seven percent royalty. In September 2012, we formed a consortium consisting of us, POSCO, Daewoo International Corp, and Mitsui & Co. (the “Consortium”) for the purpose of participating in such CEOL auction. As required under the rules established by the Ministry of Mining, the Consortium submitted its bid for the CEOLs and in September 2012, the Company was informed that the Consortium’s bid was not the winning bid.
The Chilean government has since decided to invalidate the CEOL process due to an administrative error, as well as rescinding the CEOL Basis, which defined the regulations of the CEOL process. The Company submitted several appeals to the Chilean government requesting it to reconsider the invalidation and award the CEOL to the second highest bidder - the Consortium. To date, the appeals have been rejected by the Chilean government. The Company continues to seek a concession for the SLM Litio 1-6, however, if no permit for lithium exploitation is acquired, the Company plans to develop and exploit potassium from this property.
Due to the uncertainty regarding the ability to obtain a lithium permit for our SLM Litio 1-6 property, we sought to acquire a property that did not require a CEOL to exploit lithium. Under these efforts, we acquired the Cocina Mining Concessions in April 2013.The Cocina Mining Concessions now enhance the viability of a combined project (the Maricunga Project) with the SLM Litio1-6 properties, from which we aim to exploit lithium and potassium from the Cocina Mining Concessions and potassium from SLM Litio 1-6. The majority of the past and current technical work performed on the project is applicable to the production of lithium and/or potash.
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the CEOL Process