Exclusive: China's Ningbo Shanshan in bid to buy SQM stake – sources

HONG KONG/SANTIAGO (Reuters) - Ningbo Shanshan Co Ltd 600884.SS, a Chinese manufacturer of lithium battery materials, is in advanced talks to buy a stake in Chile's Sociedad Quimica Y Minera (SQM), one of the world's biggest lithium producers, according to two sources with direct knowledge of the matter.

An aerial view of the brine pools and processing areas of the Soquimich (SQM) lithium mine on the Atacama salt flat, the world's second largest salt flat and the largest lithium deposit currently in production, with over a quarter of the world's known reserves, in the Atacama desert of northern Chile, January 10, 2013. REUTERS/Ivan Alvarado

The deal talks highlight growing interest in the renewable battery ingredient, the price of which is rocketing on hopes of an electric vehicle boom. They are also the latest sign of a Chinese acquisition binge in Latin America that in some cases has been fueled by hunger for the region’s raw materials.

SQM B shares rose 3.4 percent in local trading while the ADRs jumped 6.1 percent in New York.

An indirect stake in SQM SQM.NSQMa.SNSQM_pb.SN has been up for sale since December, when holding company Oro Blanco ORO.SN invited buyers to make an offer for its entire 88 percent interest in Pampa Calichera CALa.SN.

Pampa Calichera in turn owns about 23 percent of SQM, a major producer of lithium and an important supplier of iodine and potash.

The stake sale has sparked significant interest, thanks to SQM’s exclusive access to vast, low-cost lithium bearing deposits in northern Chile.

Oro Blanco and Pampa Calichera are largely controlled by Julio Ponce, a former son-in-law of late dictator Augusto Pinochet. Ponce was forced to resign as SQM chairman last year after investigations uncovered insider trading and illicit political financing.

Ponce owns a total 29.97 percent stake in once state-owned SQM and since 2006 has formed a controlling group with Japan’s Kowa, which owns 2.1 percent.

Shanshan is interested in buying over 30 percent of SQM, one source said, suggesting it may be looking to acquire Ponce’s other shares as well as the Pampa Calichera stake.

The sources did not give an estimate of what Shanshan was looking to spend, but at current market prices the Pampa Calichera stake is worth around $1.5 billion.

Shanshan declined to comment and referred Reuters to an announcement it made on Aug. 18 when it said it was planning a major acquisition and requested its shares suspended. SQM declined to comment other than to say that the holding companies are in a public process to seek buyers for the shares.

In June, Shanshan’s chairman and general manager, Wei Zhuang, and deputy GM Cheng Qian met with Chile’s state development agency Corfo, according to the Chilean government’s transparency website.

The reason given for their meeting was to ask about the government’s position on foreign companies buying shares related to SQM. SQM’s relationship with Corfo, which leases out the lithium deposits, has soured in recent months over a royalties dispute.

Chile’s Mining Minister Aurora Williams said in March that the country would not block a foreign takeover of SQM.

Founded in 1989, Shanshan started as a garment maker in the major eastern Chinese port city of Ningbo and became China’s first publicly traded clothing company, according to the company website. It has since expanded into other industries, including manufacturing lithium battery materials.

The revenue from Shanshan’s lithium batteries business accounted for 79 percent of its total at the end of 2015, according to Thomson Reuters data.

Lithium is not a traded commodity and its pricing is opaque, but many industry observers say the cost in China of lithium has been considerably higher than elsewhere.

Other companies reported to have been interested in the stake include China's CITIC CLSA Capital Markets Ltd, Israeli chemical firm ICL ICL.TA, and Canada's Potash Corp POT.TO, which already owns 32 percent.

Reporting by Carol Zhong in Hong Kong and Rosalba O’Brien in Santiago, Editing by Denny Thomas, Christian Plumb and Jeffrey Benkoe