Frank Ha, CEO of Tianqi: "Some proposals on the development of lithium and mining in general have raised us some concern"

Frank Ha took over the command of Tianqi Lithium in February of this year and until now, due to the pandemic, he was unaware of the company in which the Chinese firm has its biggest bet outside its extensive borders: SQM. This week and next, the CEO of Tianqi is in Chile, he traveled a few days to the Atacama salt flats and will meet with the administration and his Chilean partners, the Pampa Calichera group, which Julio Ponce Lerou controls. Ha has an MBA from the Chinese University of Hong Kong Business School and two master's degrees in Australia and Austria. Before Tianqi, he worked at the Italian shoe group OLIP, at the tool manufacturer Swarovski and at Steyr Motors GmbH, the latter in Austria.

Ha runs a company worth more than US$23 billion and which in 2018 made an ambitious bet: it spent more than US$4 billion to buy 25.86% of SQM from the Canadian Nutrien. Tianqi, then directed by Vivian Wu, had bad years after the purchase, partly due to the drop in that investment: if in 2018 it paid US$65 for each share, in March 2020 SQM's ADRs dropped to the US$ basement. 15. That loss damaged Tianqi's finances, but according to Ha, the bad times are over. "We knew it was going to be a short-lived situation," says the executive. Tianqi's stake dropped to 23.75% after a recent capital increase to which the Chinese did not attend.

Ha's visit to Chile coincides with a spectacular recovery. SQM's price has risen to a record US$66 per share and its market capitalization exceeds US$17 billion. This revival has been driven by the rise in the price of lithium, a resource that is vital to SQM and that its Chinese partner, Tianqi, intends to keep in its hands when the Atacama salt flat lease expires in 2030. “It is It is very important for SQM that these rights be renewed, but I would also say that it is even more so for Chile itself," says Ha in his first written interview with a Chilean media outlet.

Frank Ha also points to the suspicion that falls on the industry, where some presidential candidates, such as Yasna Provoste and Gabriel Boric, have proposed creating state-owned lithium companies and have questioned their lack of added value. "What has worried us in recent months has to do with some opinions about the lithium industry in Chile, the role of the private sector in general and SQM in particular," he says.

-Tianqi invested US$4.3 billion for 25.86% of SQM. Has your investment in SQM been profitable? Are you satisfied with that investment? Vivian Wu defined Tianqi as a “financial investor” in SQM.

-We greatly value our investment in SQM, given our plans to be invested in world-class lithium assets in different regions, such as the Atacama salt flat. We are very happy with our position as a relevant shareholder in SQM. Since we first invested in SQM, we have seen a lot of progress in the company. It has not only been successful in increasing its lithium production in Chile, but has also started building a new project in Australia. In addition, SQM has implemented a demanding sustainability plan to maintain its leading position in value-added lithium production. We are proud of its progress so far and we believe that SQM has a bright future that will allow Chile to maintain its good position as a key player for the future of clean energy through electromobility.

Our entry into SQM has always been based on a long-term perspective and we are happy to have been able to contribute over the years to developing corporate governance actions that have directly supported the company thanks to the work of the three members we have nominated to your board of directors.

-Tianqi's entry into SQM was its largest investment in history and, therefore, it assumed a large financial burden. Are those problems behind you already? How much did the decline in the value of SQM affect you after 2018, before the takeoff of the last year?

-We never doubted the benefits that the large investment we made in SQM would bring to our company. It is true that our financial situation was not the best last year when, during the pandemic, lithium prices experienced a sharp drop due to the sudden interruption in demand for electric vehicles. However, we knew it was going to be a short-winded situation, with prices now recovering strongly and with growing confidence in the long-term outlook for the sector. In fact, we recently repaid a significant portion of our debt and are therefore confident about the future of our company.

Tianqi's decision to invest in Chile and in SQM in particular is a decision, as I told you, thought in the long term and in which we continue to trust in any event. At no time have we considered divesting ourselves of our interest in SQM's series A shares.

-In one year the price of SQM has almost doubled and is at one of the highest values ​​in its history. What do you attribute it to?

-I think the markets, like us, are very excited about the future of the lithium industry and the prospects for SQM, and the recent rise in stock price that you mention certainly chimes with this notion. It must also be said that this increase reflects great faith in the company's investment plans. For our part, we support the company's announced growth initiatives and plans to diversify its portfolio in Australia, and we also strongly support all the progress the company has been making to add value to lithium production, reaching different degrees of purity and technical standards. In addition, we also view with approval all the advances that the company has been making in terms of sustainability and in its work to build relationships with the community around the Atacama salt flat.

-They have a percentage that allows them to choose 3 directors. Would you like to further increase your stake in the company if such an opportunity existed?

We are very happy with our current position in the company.

-What is your assessment of the three directors elected by Tianqi at SQM, Robert J. Zatta, Francisco Ugarte and Georges de Bourguignon? Will they renew those names or change them in the next board election?

We believe that the independent directors we have nominated for SQM's board of directors have done a great job. They have participated in all the recent decisions at SQM that we, as shareholders, have viewed very favorably, such as the ones we have already commented on. But, above all, our directors have been a contribution to improving the corporate governance of the company, which now has five independent members on its board. We are pleased that this scheme has also contributed to successfully facing SQM's historical challenges.

-Because of the out-of-court agreement with the National Economic Prosecutor's Office, Tianqi has elected independent directors and has refrained from accessing information about the lithium business. How do you evaluate that restriction? Tianqi has invested a lot of money without being able to directly control its investment.

We agreed to join SQM with these conditions and we continue to abide by the same terms of our agreement reached with the FNE.

-The restrictions of the agreement with the FNE last for four years, which expire in 2022. Although they could be extended for another two years, Tianqi could request a review of those restrictions in 2022. Do you intend to do so?

Once these four years are over, the natural thing is to make a new balance of the global lithium industry in 2022 versus what it was in 2018. If after this evaluation we believe that the market conditions have changed in such a way that the restrictions contained in the agreement with the FNE no longer have further justification, we could eventually discuss the matter with the FNE.

-Do you think that SQM's corporate governance has worked well?

I think so. As an investor, I see that SQM has a solid and independent board of directors made up of people with diverse experiences and who bring fresh perspectives. I also see that the board has appointed a very good management team and that the work of the board is very well organized around various committees that are well thought out for the future development of the company. A reflection of the existing good corporate governance is the constant annual renewal of our agreement with the Pampa group, with which we have progressed smoothly.

-How has Tianqi's relationship been with his final partner, Julio Ponce Lerou?

I am pleased that we have been able to build a good relationship with the Pampa group over the past few years while working together to support SQM's future growth. I will have the opportunity to meet them in person during this trip to further cement our relationship.

-Do you know Ponce? Have you been able to talk to him? What impression do you have of him?

-Given the international travel restrictions that have been implemented, this trip is my first to Chile to meet in person with the Pampa group and the SQM management team.

-The investment of Chinese capital has generated a stir in Chile in the last year, due to its growing presence in various sectors (electricity, concessions, passport manufacturing). Have you felt any of that hostility?

-For many years, due to its economic stability, its clear and constant rules for foreign investors and its generally open attitude towards foreign capital, Chile has been the main destination for foreign investment in Latin America. I think it was a matter of time before more and more Chinese companies looked at Chile and decided to invest here. For our part, we have felt very comfortable in Chile and we have not faced any problems.

What has concerned us in recent months has to do with some opinions about the lithium industry in Chile, the role of the private sector in general and SQM in particular. SQM has developed unique expertise in the world thanks to the fact that it has gradually acquired complex technical knowledge and patented technological processes that add significant value to lithium, allowing it to export high-purity products. Achieving this level of product quality requires technological skills and innovations that require years of research and trial and error. In this sense, we trust that the Chilean State will continue to support a long-term vision in lithium research and development, promoting a stable and lasting private investment regime, thus ensuring that Chile continues to play a leading role in the world lithium market. .

-How does Tianqi relate to his government and the Chinese Communist Party? Do they receive central orientations?

-Tianqi is a private company listed on the Shenzhen Stock Exchange and hopefully soon to be listed on the Hong Kong Stock Exchange as well. We follow the rules that govern private companies in China, as well as in all the markets in which we operate. We have a good working relationship with the Chinese government and we feel very supported by them, but they do not affect our business decisions or the day-to-day running of the company.

-Is the presence in the lithium business strategic for China or for Tianqi? Many once said that it was China's decision to take positions in natural resources in Latin America.

-Lithium is a key mineral for the adoption of electric vehicles, a fundamental transformation process for a world that increasingly demands clean energy. Chile has the largest lithium deposits in the world and economic advantages for its extraction, but it is also essential to be able to count on experienced operators, who can add the necessary added value that the world demands today, technical requirements that will be increasingly sophisticated. . It must be understood that today SQM is part of the electromobility technological ecosystem, that is, it is much more than a mere exporter of raw materials. As such, Tianqi's investment in SQM is of paramount importance to our company, on a par with our investments in lithium processing plants in mainland China or lithium extraction from spodumene in Australia.

-How does a Chinese company like Tianqi, which has invested so much money in a Chilean company, view the political uncertainty in Chile? Have you continued the constitutional discussion and the electoral dispute in Chile?

-We are respectful of the internal processes of the countries in which we invest. Logically, we have closely followed the political debate in Chile and we are aware of the proposals that have been presented regarding the development of lithium and mining in general. Some of them have caused us some concern, but we are confident that the proposals to be implemented in the industry will guarantee the development of the lithium industry rather than harm it.

For example, we see with some concern that in some political sectors it seems that they are not aware of the future challenges of the lithium industry, nor of how Chile can better position itself within the coming electromobility revolution. At the same time, I have seen politicians from all sectors who are very concerned about climate change, as they should be, calling for a “greener country”, and well, SQM's work is precisely in the same vein. SQM produces three lines of products that make a significant contribution to a greener world: natural fertilizers to grow plants without negative impacts on the soil, lithium to produce batteries for electric vehicles, and solar salts that replace fossil fuels in the generation of energy. I see that several misconceptions about SQM and its important contributions to local communities, to Chile, to the State of Chile and to the world have been installed.

But, in general, we trust that the long-term vision that Chile has always shown, based on the country's respect for institutions, for binding contracts (such as the contract between SQM and Corfo), and commercial treaties with a long list of countries, including China, to hold.

-One of the central things for SQM's future is the renewal of its lease permits for the Atacama salt flat in 2030. How strategic is it for Tianqi for SQM to maintain those rights to the exploitation of lithium?

I would say that it is very important for SQM that these rights be renewed, but I would also say that it is even more so for Chile itself. The company has done a great job in the management of the salt flat, and has acquired complex technological knowledge, many of them patented, that are transformed into processes that add value to lithium and that allow them to export a highly pure product throughout the world. . The highest quality standards that the market demands today are extremely difficult to achieve, and SQM is one of the few in the world that achieves them.

As a 23.75% shareholder, we will give SQM our full support to competitively bid the lease extension with Corfo when that time comes. We believe that an extension of the lease would be a beneficial outcome for both the company and the Chilean State. The 2018 renegotiation between Corfo and SQM of its contract in Atacama has made it possible for SQM to deliver extraordinary financial contributions to the Chilean State. For example, SQM shares more than 50% of its lithium earnings with the state either in taxes or as payments included in the lease, more than any other non-lithium mining company operating in Chile.

-The demand for lithium in the world has good projections, especially due to the future growth of electric cars. How do you see the future of lithium?

-We see a very bright future for the global lithium market in the coming decades as the world moves towards cleaner modes of transportation, energy generation and storage. While there are numerous forecasts that attempt to predict the growth of the industry over the next 5, 10, and 20 years, one thing everyone agrees on is that the lithium industry will become exponentially larger in the future. We are very excited to be able to participate in this growth through our exposure to the best quality and lowest cost lithium sources globally, both in brine and spodumene resources.

-Has Tianqi explored other investments in South America in the lithium business, in countries like Bolivia and Argentina, which have significant reserves, the same as Chile?

We have plans and a strategy to continue to grow as the lithium market grows. These include the expansion of our existing assets and the possible purchase of new ones as well, but obviously I cannot go into detail about those investments at this time.