Edgar Filing: CHEMICAL & MINING CO OF CHILE INC

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

Form 6-K/A

REPORT OF FOREIGN PRIVATE ISSUER PURSUANT TO RULE 13a-16 OR 15d-16 UNDER THE

SECURITIES EXCHANGE ACT OF 1934

For the month of October, 2014.

Commission File Number 33-65728

CHEMICAL AND MINING COMPANY OF CHILE INC.

(Translation of registrant’s name into English)

El Trovador 4285, Santiago, Chile (562) 2425-2000

(Address of principal executive office)

Indicate by check mark whether the registrant files or will file annual reports under cover of Form 20-F or Form 40-F.

Form 20-F: x Form 40-F

Indicate by check mark if the registrant is submitting the Form 6-K in paper as permitted by Regulation S-T Rule 101(b)(1): ¨

Note: Regulation S-T Rule 101(b)(1) only permits the submission in paper of a Form 6-K if submitted solely to provide an attached annual report to security holders.

Indicate by check mark if the registrant is submitting the Form 6-K in paper as permitted by Regulation S-T Rule 101(b)(7): ¨

Note: Regulation S-T Rule 101(b)(7) only permits the submission in paper of a Form 6-K if submitted to furnish a report or other document that the registrant foreign private issuer must furnish and make public under the laws of the jurisdiction in which the registrant is incorporated, domiciled or legally organized (the registrant’s “home country”), or under the rules of the home country exchange on which the registrant’s securities are traded, as long as the report or other document is not a press release, is not required to be and has not been distributed to the registrant’s security holders, and, if discussing a material event, has already been the subject of a Form 6-K submission or other Commission filing on EDGAR.

Statement

This Form 6-K/A amends and restates in its entirety the Form 6-K filed October 20, 2014. We have prepared this report to provide our investors with disclosure and financial information regarding recent developments in our business and results of operations for the six months ended June 30, 2013. The information in this report supplements information contained in our annual report on Form 20-F/A for the year ended December 31, 2013, filed with the Securities and Exchange Commission on April 29, 2014.

Index :

Forward-looking information	3
Risk Factors	4
Management’s discussion and analysis of financial condition and results of operations	15
Business	30

Forward-looking information

Statements contained herein that are or may constitute forward-looking statements within the meaning of the U.S. Private Securities Litigation Reform Act of 1995. These statements are not based on historical facts and reflect our expectations for future events and results. Words such as “believe,” “expect,” “predict,” “anticipate,” “intend,” “estimate,” “should,” “may,” “could,” “potential” and “achieve,” among other similar expressions, may identify forward-looking information. These statements include statements regarding our and our management’s intent, belief or current expectations, including, among others, statements concerning:

trends affecting the prices and volumes of the products we sell;

level of reserves, quality of the ore and brines, and production levels and yields;

our capital investment program and development of new products;

the future impact of competition; and

regulatory changes.

Forward-looking statements are not guarantees of future performance and involve risks and uncertainties. Actual results may differ materially from those described in such forward-looking statements. Factors that could cause actual results to differ materially include, among others, the following:

volatility of global prices for our products;

political, economic and demographic developments in certain emerging market countries, where we conduct a large portion of our business;

changes in production capacities;

the nature and extent of future competition in our principal markets;

our ability to implement our capital expenditures program, including our ability to obtain financing when required;

changes in raw material and energy prices;

currency and interest rate fluctuations;

risks relating to the estimation of our reserves;

changes in quality standards or technology applications;

adverse legal, regulatory or labor disputes or proceedings;

changes in governmental regulations; and

additional factors discussed under “Risk factors.”

References

All references to “SQM,” the “Company,” “we,” “our,” “ours” and “us” refer to Sociedad Química y Minera de Chile S.A. and its consolidated subsidiaries, except as otherwise provided or unless the context otherwise requires. All references to “US$” and “U.S. dollars” are to United States dollars, all references to “pesos” or “Ch$” are to Chilean pesos, and all references to “UF” are to Unidades de Fomento. The UF is an inflation-indexed, peso-denominated unit that is linked to, and adjusted daily to reflect changes in, the previous month’s Chilean consumer price index. As of June 30, 2014, UF 1.00 was equivalent to US$43.46 and Ch$24,023.61. All references to “Th. MT” are to thousand metric tons.

Adjusted EBITDA, which is not an IFRS financial measure, is defined as gross profit plus depreciation and amortization less administrative expenses. Adjusted EBITDA should not be considered as a substitute for profit, net cash from operating activities or other measures of financial performance or liquidity. Our measurements of Adjusted EBITDA may not be comparable to similarly titled measurements used by other companies.

Our consolidated financial statements as of and for the six months ended June 30, 2014 and 2013 have been prepared in accordance with International Financial Report Standards (“IFRS”).

All financial information presented in this report is on a consolidated basis, unless otherwise indicated. The basis of consolidation by SQM of other entities is set forth in note 2.5 to our unaudited consolidated financial statements.

Certain amounts (including percentage amounts) have been subject to rounding adjustments. Accordingly, figures shown for the same category presented in different tables or different parts of this report may vary slightly, and figures shown as totals in certain tables may not be the arithmetic aggregation of the figures that precede them.

Risk factors

Risks relating to our business

Volatility of world fertilizer and chemical prices and changes in production capacities could affect our business, financial condition and results of operations

The prices of our products are determined principally by world prices, which, in some cases, have been subject to substantial volatility in recent years. World fertilizer and chemical prices vary depending upon the relationship between supply and demand at any given time. Supply and demand dynamics for our products are tied to a certain extent to global economic cycles, and have been impacted by current global economic conditions. Furthermore, the supply of certain fertilizers or chemical products, including certain products that we provide, varies principally depending on the production of the major producers, including SQM, and their respective business strategies.

Since 2008, world prices of potassium-based fertilizers (including some of our specialty plant nutrients and potassium chloride) have fluctuated as a result of the broader global economic and financial conditions. Although prices of potassium-based fertilizers stabilized in 2009 after the conclusion of important contract negotiations between major producers and buyers, during the second half of 2013, potassium prices declined as a result of an unexpected announcement made by the Russian company OAO Uralkali (“Uralkali”) that it was terminating its participation in Belarus Potash Corporation (“BPC”). As a result of the termination of Uralkali’s participation in BPC, there was increased price competition in the market. In addition, during the first half of 2014, we observed lower pricing of contracts between Chinese purchasers and major potash producers, which has increased volatility in the price of fertilizers. We cannot assure you that potassium-based fertilizer prices and sales volumes will not decline in the future.

Iodine prices followed an upward trend from late 2008 through 2012, reaching an average price of approximately US$53 per kilogram in 2012, over 40% higher than average prices in 2011. During 2013, even though iodine demand reached record highs, demand growth softened, and supply increased, causing a decline in iodine prices. The average price of iodine seen by us was approximately US$50 per kilogram in 2013, approximately 6% less than average prices seen by the Company in 2012 and approximately US$40 per kilogram for the six months ended June 30, 2014, approximately 19% less than in 2013, in line with our expectations. We cannot assure you that iodine prices or sales volumes will not continue to decline in the future.

As a result of events in global markets during 2009, demand for lithium carbonate declined, causing a drop in lithium prices and sales volumes. In September 2009, we announced a 20% price cut for lithium carbonate and lithium hydroxide as a measure to stimulate demand. As a result, in 2010, we observed demand recovery in the lithium market, which continued in 2011 and 2012. In 2013, we continued to see strong market growth, driven mostly by an increase in demand related to battery use. However, demand growth was accompanied by an increase in supply from existing competitors. The average price of lithium carbonate for the six months ended June 30, 2014 was US$5,200 per ton. We cannot assure you that this positive demand trend will continue in the future or that lithium prices and sales volumes will not decline in the future.

We expect that prices for the products we manufacture will continue to be influenced, among other things, by worldwide supply and demand and the business strategies of major producers. Some of the major producers, including SQM, have increased or have the ability to increase production. As a result, the prices of our products may be subject to substantial volatility. High volatility or a substantial decline in the prices, or in volume demand, of one or more of our products could have a material adverse effect on our business, financial condition and results of operations.

Our sales to emerging markets and expansion strategy expose us to risks related to economic conditions and trends in those countries

We sell our products in more than 115 countries around the world. In 2013, 49% of our sales were made in emerging market countries: 17% in Central and South America (excluding the Republic of Chile, or “Chile”); 14% in Asia and others (excluding Japan); 11% in Chile; and 7% in Africa and the Middle East. We expect to expand our sales in these and other emerging markets in the future. In addition, we may carry out acquisitions or joint ventures in jurisdictions in which we currently do not operate, relating to any of our businesses or to new businesses in which we believe we may have sustainable competitive advantages. The results of our operations and our prospects will then depend, in part, on the general level of political stability and economic activity and policies of each country. Future developments in the political systems or economies or the implementation of future governmental policies, including the imposition of withholding and other taxes, restrictions on the payment of dividends or repatriation of capital, the imposition of import duties or other restrictions, the imposition of new environmental regulations or price controls or changes in relevant laws or regulations, could have a material adverse effect on our business, financial condition and results of operations.

Our inventory levels may increase because of the global economic slowdown

In general, the global economic slowdown experienced during 2008 and 2009 had an impact on our inventories. Demand decreased during 2009 and, as a result, inventories increased significantly and continued to be high in 2013. Higher inventories carry a financial risk due to increased need for cash to fund working capital. Higher inventory levels could also imply increased risk of loss of product. We cannot assure you that inventory levels will not continue to remain high or increase further in the future. These factors could have a material adverse effect on our business, financial condition and results of operations.

Our level of and exposure to unrecoverable accounts receivable may significantly increase

Potentially negative effects of the global economic slowdown on the financial condition of our customers may include the extension of the payment terms of our accounts receivable and may increase our exposure to bad debt. While we have implemented certain safe guards, such as using credit insurance, letters of credit and prepayment for a portion of sales, to minimize this risk, the increase in our accounts receivable coupled with the financial condition of customers may result in losses that could have a material adverse effect on our business, financial condition and results of operations.

New production of iodine or lithium carbonate from current or new competitors in the markets in which we operate could adversely affect prices

During 2013, supply of iodine and lithium carbonate increased due to new supply from existing competitors entering the market and increases in production from some of our current competitors, which affected prices for both products. Potential new production of iodine and lithium carbonate from current or new competitors in the markets in which we operate could adversely affect prices. There is limited information on the status of new iodine or lithium carbonate production capacity expansion projects being developed by current and potential competitors and, as such, we cannot make accurate projections regarding the capacities of possible new entrants into the market and the dates on which they could become operational. If these potential projects are completed in the short term, they could adversely affect market prices and our market share, which, in turn, could have a material adverse effect on our business, financial condition and results of operations.

Our capital expenditure program is subject to significant risks and uncertainties

Our business is capital intensive. Specifically, the exploration and exploitation of reserves, mining and processing costs, the maintenance of machinery and equipment and compliance with applicable laws and regulations require substantial capital expenditures. We must continue to invest capital to maintain or to increase our exploitation levels and the amount of finished products we produce. We require environmental permits for our new projects. Obtaining permits in certain cases may cause significant delays in the execution and implementation of new projects and, consequently, may require us to reassess the related risks and economic incentives. We cannot assure you that we will be able to maintain our production levels or generate sufficient cash flow, or that we will have access to sufficient investments, loans or other financing alternatives, to continue our activities at or above present levels, or that we will be able to implement our projects or receive the necessary permits required for them in time. Any or all of these factors may have a material adverse effect on our business, financial condition and results of operations.

High raw materials and energy prices could increase our production costs and cost of sales, and energy may become unavailable at any price

We rely on certain raw materials and various sources of energy (diesel, electricity, LNG, fuel oil and others) to manufacture our products. Purchases of raw materials that we do not produce and energy constitute an important part of our cost of sales, 17.7% in 2013. In addition, we may not be able to obtain energy at any price if supplies of our sources of energy are curtailed or otherwise become unavailable. To the extent we are unable to pass on increases in raw materials and energy prices to our customers or we are unable to obtain energy, our business, financial condition and results of operations could be materially adversely affected.

Currency fluctuations may have a material effect on our financial performance

We transact a significant portion of our business in U.S. dollars, and the U.S. dollar is the currency of the primary economic environment in which we operate. In addition, the U.S. dollar is our functional currency for financial statement reporting purposes. A significant portion of our costs, however, is related to the peso. Therefore, an increase or decrease in the exchange rate between the peso and the U.S. dollar would affect our costs of production. The peso has been subject to large devaluations and revaluations in the past and may be subject to significant fluctuations in the future. As of December 31, 2013, the peso exchange rate was Ch$524.61 per U.S. dollar, while as of December 31, 2012, the peso exchange rate was Ch$479.96 per U.S. dollar. The peso depreciated against the U.S. dollar by 9% in 2013. As of June 30, 2014, the peso exchange rate was Ch$ 550.60 per U.S. dollar. On October 16, 2014, the Observed Exchange Rate was Ch$591.16 per U.S. dollar.

As an international company operating in several other countries, we also transact business and have assets and liabilities in other non-U.S. dollar currencies, such as, among others, the euro, the South African rand, the Mexican peso, the Chinese yuan, the Thai baht and the Brazilian real. As a result, fluctuations in the exchange rates of such foreign currencies to the U.S. dollar may have a material adverse effect on our business, financial condition and results of operations.

Interest rate fluctuations may have a material impact on our financial performance

We have outstanding short and long-term debt that bears interest based on the London Interbank Offered Rate (“LIBOR”), plus a spread. Since we are currently hedging only a portion of these liabilities into fixed rates, we are exposed to interest rate risk relating to LIBOR fluctuations. As of June 30, 2014, 16% our financial debt had LIBOR-based pricing that was not hedged into fixed rates. A relative increase in the rate could materially adversely affect our business, financial condition and results of operations.

Our reserves estimates could be subject to significant changes

Our caliche ore mining reserves estimates are prepared by our own geologists, and were validated in January 2014, by Mrs. Marta Aguilera, a geologist with over 20 years of experience in the field. She is currently employed by SQM as Manager of Non-metallic Geology. Mrs. Aguilera is a Competent Person (Persona Competente), as the term is defined under Chilean Law No. 20,235 that Regulates the Position of Competent Person and Creates the Qualifying Committee for Competencies in Mining Resources and Reserves (Ley que Regula la Figura de las Personas Competentes y Crea la Comisión Calificadora de Competencias de Recursos y Reservas Mineras, or “Competent Person Law”). Our Salar de Atacama brine mining reserve estimates are prepared by our own geologists, and were validated by Mr. Orlando Rojas Vercelotti, a civil engineer currently employed by EMI-Ingenieros y Consultores S.A., an independent consulting firm, and a Competent Person (Persona Competente), as the term is defined under Chilean Law No. 20,235. Estimation methods involve numerous uncertainties as to the quantity and quality of the reserves, and reserve estimates could change upwards or downwards. In addition, our reserve estimates are not subject to review by external geologists or an external auditing firm. A downward change in the quantity and/or quality of our reserves could affect future volumes and costs of production and therefore have a material adverse effect on our business, financial condition and results of operations.

Quality standards in markets in which we sell our products could become stricter over time

In the markets in which we do business, customers may impose quality standards on our products and/or governments may enact or are enacting stricter regulations for the distribution and/or use of our products. As a result, if we cannot meet such new standards or regulations, we may not be able to sell our products. In addition, our cost of production may increase in order to meet any such newly imposed or enacted standards. Failure to sell our products in one or more markets or to important customers could materially adversely affect our business, financial condition and results of operations.

Chemical and physical properties of our products could affect their commercialization

Since our products are derived from natural resources, they contain inorganic impurities that may not meet certain customer or government standards. As a result, we may not be able to sell our products if we cannot meet such requirements. In addition, our cost of production may increase in order to meet such standards. Failure to sell our products or to meet such standards could materially adversely affect our business, financial condition and results of operations.

Our business is subject to many operating and other risks for which we may not be fully covered under our insurance policies

Our facilities and business operations in Chile and abroad are insured against losses, damages or other risks by insurance policies that are standard for the industry and that would reasonably be expected to be sufficient by prudent and experienced persons engaged in businesses similar to ours.

We may be subject to certain events that may not be covered under our insurance policies, which could have a material adverse effect on our business, financial condition and results of operations. Additionally, as a result of recent major earthquakes in Chile and other natural disasters worldwide, conditions in the insurance market have changed and may continue to change in the future, and as a result, we may face higher premiums and reduced coverage.

Changes in technology or other developments could result in preferences for substitute products

Our products, particularly iodine, lithium and their derivatives, are preferred raw materials for certain industrial applications, such as rechargeable batteries and LCD screens. Changes in technology, the development of substitute raw materials or other developments could adversely affect demand for these and other products which we produce and consequently our business, financial condition and results of operations.

We are exposed to labor strikes and labor liabilities that could impact our production levels and costs

Over 95% of our employees are employed in Chile, of which approximately 71% were represented by 25 labor unions as of June 30, 2014. As in previous years, during 2013 we renegotiated collective labor contracts with individual unions one year before the expiration of such contracts. As of June 30, 2014, we had concluded advanced negotiations with 13 labor unions, which represent 72% of our total unionized workers, signing new agreements with each for durations of three years. We are in the process of negotiating collective labor contracts with the 12 remaining unions. We are exposed to labor strikes that could impact our production levels. If a strike occurs, we could be faced with increased costs and even disruption in our product flow that could have a material adverse effect on our business, financial condition and results of operations.

Chilean Law No. 16,744, known as the Law on Work Related Accidents and Professional Diseases (Ley de Accidentes de Trabajo y Enfermedades Profesionales, or the “Labor Accidents Law”), provides that when a serious accident in the workplace occurs, a company must halt work at the site where the accident took place until authorities from either the National Geology and Mining Service (Servicio Nacional de Geología y Minería, or “SERNAGEOMIN”) or the Labor Board (Dirección del Trabajo, or “Labor Board”) or the Regional Health Service (Secretaría Regionales Ministeriales de Salud, or “Seremi de Salud”), inspect the site and prescribe the measures such company must take to prevent future risks. Work may not be resumed until such company has taken the prescribed measures, and the period of time before work may be resumed may last for a number of hours, days, or longer. We cannot assure you that compliance with the Labor Accidents Law will not result in a material increase to our labor costs. The effects of this law could have a material adverse effect on our business, financial condition and results of operations.

Lawsuits and arbitrations could adversely impact us

We are party to a range of lawsuits and arbitrations involving different matters as described under “Business—Legal proceedings” and in note 19.1 of our unaudited consolidated financial statements. Although we intend to defend our positions vigorously, our defense of these actions may not be successful. Judgments or settlements in these lawsuits may have a material adverse effect on our business, financial condition and results of operations. In addition, our strategy of being a world leader includes entering into commercial and production alliances, joint ventures and acquisitions to improve our global competitive position. As these operations increase in complexity and are carried out in different jurisdictions, we might be subject to legal proceedings that, if settled against us, could have a material adverse effect on our business, financial condition and results of operations.

The Chilean labor code (Código del Trabajo, or “Labor Code”) has recently established new procedures for labor matters which include oral trials conducted by specialized judges. The majority of these oral trials have found in favor of the employee. These new procedures could increase the probability of adverse judgments in labor lawsuits which could have a material adverse effect on our business, financial condition and results of operations.

Our market reputation could be adversely affected by the negative outcome of certain proceedings against certain members of our Board and certain other named defendants

On September 10, 2013, the Chilean Securities and Insurance Commission (Superintendencia de Valores y Seguros or “SVS”) issued a press release disclosing it had instituted certain administrative proceedings (the “Cascading Companies Proceedings”) against (i) Mr. Julio Ponce L., who is Chairman of the Board of the Company, (ii) Mr. Patricio Contesse Fica, who is a director of the Company and the son of the Company’s CEO, and (iii) other named defendants. The Company has been informed that Mr. Ponce and related persons beneficially owned 29.93% of SQM’s total shares as of June 30, 2014. The SVS alleged breaches of Chilean corporate and securities laws in connection with entities with direct or indirect share ownership interests in the Company (the “Cascading Companies”). The allegations made in connection with the Cascading Companies Proceedings do not relate to any acts or omissions of the Company or of any of its directors, officers or employees in their capacities as such.

In connection with the Cascading Companies Proceedings, the SVS alleged the existence of a scheme, involving the named defendants, whereby, through a number of transactions occurring between 2009 and 2011, the Cascading Companies sold securities of various companies, including securities of the Company, at below-market prices to companies related to Mr. Ponce and to other named defendants, which companies, after a lapse of time, sold such securities, in most instances back to the Cascading Companies, at prices higher than those at which they were purchased. The SVS alleged violation by the defendants of a number of Chilean corporate and securities laws in furtherance of the alleged scheme.

On January 31, 2014, the SVS added a number of Chilean financial institutions, asset managers, and certain of their controlling persons, executives or other principals, as named defendants to the Cascading Companies Proceedings. On September 2, 2014, the SVS issued a decision against the defendants imposing an aggregate fine against all the defendants of UF 4,010,000 (approximately US$164.6 million), including a fine against Mr. Ponce of UF 1,700,000 (approximately US$69.5 million) and a fine against Mr. Contesse Fica of UF 60,000 (approximately US$2.4 million). The defendants are currently challenging the administrative decision of the SVS before a Chilean Civil Court.

The High Complexity Crimes Unit (Unidad de Delitos de Alta Complejidad) of the Metropolitan District Attorney’s Office (Fiscalía Metropolitana Centro Norte) is also investigating various criminal complaints filed against various parties to the Cascading Companies Proceedings. In addition, the Chilean IRS (Servicio de Impuestos Internos) announced an investigation of the nature and characteristics of the transactions alleged to have occurred in the Cascading Companies Proceedings in order to determine whether the individuals or companies involved violated Chilean tax laws or filed false returns with the purpose of evading taxes.

In accordance with Chilean corporate law, the two directors of the Company affected by the Cascading Companies Proceedings or by the investigations described above and related matters may continue to be members of the Company’s Board and continue to participate in Board matters until, and depending on, the final and non-appealable disposition by the courts of any criminal complaints made against them in the Cascading Companies Proceedings.

If, for any reason, the Company is unable to differentiate itself from the named defendants, such failure could have a material adverse effect on the Company’s market reputation and commercial dealings. In addition, during the course of the Cascadas Companies Proceedings, Mr. Ponce and Mr. Contesse Fica may devote time and energy to defending their appeals. Furthermore, we cannot assure you that a non-appealable disposition of claims in connection with the current Cascading Companies Proceedings or the investigations of the High Complexity Crimes Unit or the Chilean IRS in relation to the allegations described above that is adverse to Mr. Ponce or Mr. Contesse Fica will not have a material adverse effect on our market reputation, commercial dealings and the price of our securities, or that the Cascading Companies will not sell shares of the Company or vote to increase the dividends we pay to our shareholders.

Arbitration proceedings under the Lease Agreement for the Salar de Atacama, if determined adversely to us, would materially adversely affect our business and operations

SQM Salar S.A. (“SQM Salar”), our subsidiary, holds exclusive exploitation rights to the mineral resources existing in 81,920 hectares in the Salar de Atacama pursuant to a lease agreement entered into between SQM Salar and Corporación de Fomento de la Producción (“Corfo”), a Chilean government entity, in 1993 (the “Lease Agreement”). The exploitation mining concessions related to such rights are owned by Corfo and leased to SQM Salar in exchange for lease royalty payments to Corfo based on specified percentages of the value of the products resulting from the minerals extracted from the Salar de Atacama brines. For the six months ended June 30, 2014 and the year ended December 31, 2013, revenue related to products originating from the Salar de Atacama represented 38% and 37%, respectively, of our consolidated revenues (corresponding to revenues from our potassium and lithium and its derivatives product lines for such periods). All of our products originating from the Salar de Atacama are derived from our extraction operations under the Lease Agreement with Corfo.

In May 2014, Corfo commenced arbitration proceedings against SQM Salar by filing a claim alleging that (i) SQM Salar had incorrectly applied the formulas to determine lease royalty payments resulting in an underpayment to Corfo of at least US$8.9 million for the period from 2009 through 2013, and (ii) SQM Salar had not complied with its obligation to protect the mining rights of Corfo by failing to mark on site the “HM”, or milestones of measurement, of some of Corfo’s exploitation mining concessions. Based on such alleged breaches of the Lease Agreement, Corfo seeks (i) the payment of at least US$8.9 million plus any other amount that may be due in respect of periods after 2013, (ii) early termination of the Lease Agreement, (iii) the lease royalty payments that would have been paid through 2030 as compensation for such early termination of the Lease Agreement, and (iv) punitive damages (daño moral) in an amount equal to 30% of contractual damages awarded. SQM Salar asserts that both parties applied formulas in accordance with their joint understanding and in a manner consistent with the course of dealing of the parties during the term of the Lease Agreement. SQM Salar also asserts that the breaches alleged by Corfo to have occurred under the Lease Agreement would be technical breaches, and that Corfo may terminate the Lease Agreement solely based on a material breach. While SQM Salar believes that it is likely it will prevail in the arbitration proceeding, an adverse ruling against SQM Salar awarding damages in the amount sought by Corfo or permitting early termination of the Lease Agreement by Corfo would have a material adverse effect on the Company, its business, results of operations and cash flows. In addition, we cannot assure you that Corfo will not use this arbitration proceding to seek to renegotiate the terms of the Lease Agreement in a manner that is not favorable to us. See “Business—Legal proceedings—Corfo arbitral claims.” In addition, we cannot assure you that Corfo will not take other actions in the future in respect of the Lease Agreement that are contrary to our interests.

We have operations in multiple jurisdictions with differing regulatory, tax and other regimes

We operate in multiple jurisdictions with complex regulatory environments subject to different interpretations by companies and respective governmental authorities. These jurisdictions may each have their own tax codes, environmental regulations, labor codes and legal framework, which could complicate efforts to comply with these regulations, which could have, in turn, a material adverse effect on our business, financial condition and results of operations.

Environmental laws and regulations could expose us to higher costs, liabilities, claims and failure to meet current and future production targets

Our operations in Chile are subject to national and local regulations relating to environmental protection. We are required to conduct environmental impact studies or statements of any future projects or activities (or significant modifications thereto) that may affect the environment and we are required to obtain an environmental license for certain projects and activities. The environmental assessment service (Servicio de Evaluación Ambiental, or “Environmental Assessment Service”) currently evaluates environmental impact studies submitted for its approval, and private citizens, public agencies or local authorities may challenge projects that may adversely affect the environment, either before these projects are executed or once they are already operating, if they fail to comply with applicable regulations. Enforcement remedies available include fines up to approximately US$10 million and temporary or permanent closure of facilities and revocation of the environmental license.

Chilean environmental regulations have become increasingly stringent in recent years, both with respect to the approval of new projects and in connection with the implementation and development of projects already approved, and we believe that this trend is likely to continue. Given public interest in environmental enforcement matters, these regulations or their application may also be subject to political considerations that are beyond our control.

We regularly monitor the impact of our operations on the environment and have, from time to time, made modifications to our facilities to minimize any adverse environmental impacts. Future developments in the creation or implementation of environmental requirements, or in their interpretation, could result in substantially increased capital, operation or compliance costs or otherwise adversely affect our business, financial condition and results of operations. The success of our current investments at the Salar de Atacama and Nueva Victoria is dependent on the behavior of the ecosystem variables being monitored over time. If the behavior of these variables in future years does not meet environmental requirements, our operation may be subject to important restrictions by the authorities on the maximum allowable amounts of brine and water extraction.

Our future development depends on our ability to sustain future production levels, which requires additional investments and the submission of the corresponding environmental impact studies or statements. If we fail to obtain approval or required environmental licenses, our ability to maintain production at specified levels will be seriously impaired, thus having a material adverse effect on our business, financial condition and results of operations.

In addition, our worldwide operations are subject to international and other local environmental regulations. We may incur liabilities and face claims in respect of such regulations. We have entered into and will continue to enter into contractual arrangements that may impose indemnity or other obligations and liabilities relating to environmental matters resulting from the conduct of our business.

In addition, environmental laws and regulations in the different jurisdictions in which we operate may change. We cannot guarantee that claims made against us or liabilities we may incur in respect of existing environmental liabilities and future environmental laws, or changes to existing environmental laws, will not materially adversely impact our business, financial condition and results of operations.

Our water supply could be affected by geological changes or climate changes

Our access to water may be impacted by changes in geology, climate change or other natural factors, such as wells drying up, that we cannot control, and which may have a material adverse effect on our business, financial condition and results of operations.

Any loss of key personnel may materially and adversely affect our business

Our success depends, in large measure, on the skills, experience and efforts of our senior management team and other key personnel. The loss of the services of key members of our senior management or of employees with critical skills could have a negative effect on our business, financial condition and results of operations. If we are not able to attract or retain highly skilled, talented and qualified senior managers or other key personnel, our ability to fully implement our business objectives may be materially and adversely affected.

Risks relating to Chile

As we are a company based in Chile, we are exposed to Chilean political risks

Our business, results of operations, financial condition and prospects could be affected by changes in policies of the Chilean government, other political developments in or affecting Chile, and regulatory and legal changes or administrative practices of Chilean authorities, over which we have no control.

Changes in regulations regarding, or any revocation or suspension of our concessions could negatively affect our business

Any changes to regulations to which we are subject or adverse changes to our concession rights, or a revocation or suspension of our concessions, could have a material adverse effect on our business, financial condition and results of operations.

Changes in mining or port concessions could affect our operations

We conduct our mining (including brine extraction) operations under exploitation and exploration concessions granted in accordance with provisions of the Chilean constitution and related laws and statutes. Our exploitation concessions essentially grant a perpetual right to conduct mining operations in the areas covered by the concessions, provided that we pay annual concession fees. Our exploration concessions permit us to explore for mineral resources on the land covered thereby for a specified period of time and to subsequently request a corresponding exploitation concession. SQM Salar holds exclusive exploitation rights to the mineral resources existing in 81,920 hectares in the Salar de Atacama in northern Chile. These rights are owned by Corfo, a state-owned entity, and leased to SQM Salar pursuant to the Lease Agreement between Corfo and SQM Salar. Under the regulations of the Chilean Nuclear Energy Commission (Comisión Chilena de Energía Nuclear, or “CCHEN”), we are limited to 180,100 tons of total lithium extraction in the aggregate for all periods. More than halfway through the term of the Lease Agreement, we have extracted approximately half of the total accumulated extraction limit of lithium. However, there can be no assurance that we will not reach the lithium extraction limit prior to the term of the Lease Agreement. In addition, we cannot assure you that Corfo will not take other actions in the future in respect of the Lease Agreement that are contrary to our interests.

We also operate port facilities at Tocopilla, Chile for the shipment of our products and the delivery of certain raw materials, pursuant to concessions granted by Chilean regulatory authorities. These concessions are renewable provided that we use such facilities as authorized and pay annual concession fees.

Any significant changes to any of these concessions could have a material adverse effect on our business, financial condition and results of operations.

Changes in water rights laws could affect our operating costs

We hold water rights that are key to our operations. These rights were obtained from the Chilean Water Authority (Dirección General de Aguas) for supply of water from rivers and wells near our production facilities, which we believe are sufficient to meet current operating requirements. However, the Chilean water rights code (Código de Aguas, or the “Water Code”) is subject to changes, which could have a material adverse impact on our business, financial condition and results of operations. For example, an amendment published on June 16, 2005 modified the Water Code, allowing, under certain conditions, the granting of permanent water rights of up to two liters per second for each well built prior to June 30, 2004, in the locations where we conduct our mining operations, without considering the availability of water, or how the new rights may affect holders of existing rights. Therefore, the amount of water we can effectively extract based on our existing rights could be reduced if these additional rights are exercised. In addition, we must pay annual concession fees to maintain water rights we are not exercising. These and potential future changes to the Water Code could have a material adverse effect on our business, financial condition and results of operations.

The Tax Reform recently enacted in Chile amended the corporate tax regime and increased the corporate tax rate, and in the future the Chilean government could levy additional taxes on corporations operating in Chile

In 2005, the Chilean Congress approved Law No. 20,026 that establishes a specific tax on mining activity (Ley que Establece un Impuesto Específico a la Actividad Minera, or the “Royalty Law”), establishing a royalty tax to be applied to mining activities developed in Chile.

As a result of the earthquake and tsunami in February 2010, the Chilean government raised the corporate income tax rate in order to pay for reconstruction following the earthquake and tsunami. Such legislation increased the general corporate tax rate from its historic rate of 17.0% to 20.0% for the income accrued in 2011, which was declared and paid in 2012. On September 27, 2012, Law No. 20,630 introduced new amendments to existing tax legislation. Among the amendments introduced, the corporate income tax was maintained at 20% effective for 2013.

On September 29, 2014, Law No. 20,780 was published in the Chilean Official Gazette (the “Tax Reform”), introducing significant changes to the Chilean taxation system and strengthening the powers of the Chilean IRS to control and prevent tax avoidance. The Tax Reform contemplates, among other matters, changes to the corporate tax regime to create two tax regimes. Starting on January 1, 2017, Chilean companies will be able to opt between two tax regimes: (i) the partially integrated regime (sistema parcialmente integrado); or (ii) the attributable taxation regime (sistema de renta atribuida). In both regimes, the corporate tax rate will be gradually increased to 24% in 2016 (21% in 2014, 22.5% in 2015 and 24% in 2016). On or after January 1, 2017, and depending on the tax regime chosen by a company, tax rates may gradually be increased to a maximum rate of 25% in 2017 in the case of the attributable taxation regime or 27% in 2018 in the case of the partially integrated regime. See “Management’s discussion and analysis of financial condition and results of operations—Impact of Chilean Tax Reform.”

As a sociedad anónima abierta, the default regime that applies to us is the partially integrated regime, unless at a future shareholders’ meeting our shareholders agree to opt for the attributable taxation regime. In accordance with IFRS, we will be required to recognize the effect of the increase in the tax rate based on the partially integrated regime on our deferred tax liability in our consolidated statements of income in our financial statements for the nine months ended September 30, 2014. We estimate that the one-time increase in deferred tax liability will be in the range of US$55 million to US$60 million. The increase will result in a charge to profit in an equivalent amount that will be reflected in our financial statements for the nine months ended September 30, 2014. The increase in deferred tax liability will adversely affect our financial condition and results of operations for the nine months ended September 30, 2014, but will not affect our cash flows. We cannot assure you that the actual amount of such increase will be consistent with our estimate for the nine months ended September 30, 2014 or that additional adjustments will not be necessary when our financial statements for the year ending December 31, 2014 are audited.

In addition, the Tax Reform may have other material adverse effects on our business, financial condition and results of operations.

Likewise, we cannot assure you that the manner in which the Royalty Law or the corporate tax rate are interpreted and applied will not change in the future. In addition, the Chilean government may decide to levy additional taxes on mining companies or other corporations in Chile. Such changes could have a material adverse effect on our business, financial condition and results of operations.

Ratification of the International Labor Organization’s Convention 169 concerning indigenous and tribal peoples might affect our development plans

Chile, a member of the International Labor Organization (“ILO”), has ratified the ILO’s Convention 169 (the “Indigenous Rights Convention”) concerning indigenous and tribal peoples. The Indigenous Rights Convention established several rights for indigenous individuals and communities. Among other rights, the Indigenous Rights Convention outlines that (i) indigenous groups be notified of and consulted prior to the development of any project on land deemed indigenous (without any veto or approval right) and of any legislative or administrative measure that may affect them directly; and (ii) indigenous groups have, to the extent possible, a stake in benefits resulting from the exploitation of natural resources in alleged indigenous land. The extent of these benefits has not been defined by the Chilean government. The new rights outlined in the Indigenous Rights Convention could affect the development of our investment projects in alleged indigenous lands which could have a material adverse effect on our business, financial condition and results of operations.

Chile is located in a seismically active region

Chile is prone to earthquakes because it is located along major fault lines. The most recent major earthquake in Chile occurred in April 2014, offshore, and had a magnitude of 8.2 on the Richter scale. This earthquake followed one in February 2010, which caused substantial damage to some areas of the country. A major earthquake or a volcano eruption could have significant negative consequences for our operations and for the general infrastructure, such as roads, rail, and access to goods, in Chile. Although we maintain insurance policies standard for this industry with earthquake coverage, we cannot assure you that a future seismic event will not have a material adverse effect on our business, financial condition and results of operations.

Management’s discussion and analysis of
financial condition and results of operations

The following discussion should be read in conjunction with our unaudited consolidated financial statements as of and for the six months ended June 30, 2014, and the notes thereto.

Overview of our results of operations

We divide our operations into the production and sale of the following product lines:

specialty plant nutrients;

iodine and its derivatives;

lithium and its derivatives;

potassium, including potassium chloride and potassium sulfate;

industrial chemicals, principally industrial nitrates and solar salts; and

the purchase and sale of other commodity fertilizers for use primarily in Chile.

We sell our products through three primary channels: our own sales offices; a network of distributors; and, in the case of our fertilizer products, through Yara International ASA’s (formerly Norsk Hydro ASA) (“Yara”) distribution network in countries where its presence and commercial infrastructure are larger than ours. Similarly, in those markets where our presence is larger, both our specialty plant nutrients and Yara’s are marketed through our offices.

Factors affecting our results of operations

Our results of operations substantially depend on:

trends in demand for and supply of our products, including global economic conditions, which impact prices and volumes;

efficient operations of our facilities, particularly as some of them run at production capacity;

our ability to accomplish our capital expenditures program in a timely manner;

the levels of our inventories;

trends in the exchange rate between the U.S. dollar and peso, as a significant portion of the cost of sales is in pesos, and trends in the exchange rate between the U.S. dollar and the euro, as a significant portion of our sales is denominated in euros; and

energy, logistics, raw materials, labor and maintenance costs.

Results of operations and market outlook

The following table sets forth our revenues and the percentage accounted for by each of our product lines for each of the periods indicated:

	Year ended December 31,												Six months ended June 30,
	2013				2012				2011				2014				2013
	US$		%		US$		%		US$		%		US$		%		US$		%
	(in millions of U.S. dollars, except for percentages)
Specialty plant nutrients		687.5		31		675.4		28		721.7		34		379.5		36		378.6		32
Iodine and its derivatives		461.0		21		578.1		24		454.5		21		183.3		17		254.6		21
Lithium and its derivatives		196.5		9		222.2		9		183.4		9		104.1		10		92.4		8
Potassium		606.3		28		605.1		25		555.7		26		299.6		28		317.0		27
Industrial chemicals		154.0		7		245.2		10		139.5		7		60.6		6		109.8		9
Other commodity fertilizers⁽¹⁾		97.9		4		103.2		4		90.5		4		29.2		3		37.4		3
Total		2,203.2		100		2,429.2		100		2,145.3		100		1,056.4		100		1,189.9		100

(1)

Primarily consists of imported fertilizers distributed in Chile.

The following table sets forth certain of our financial information and the percentage of our revenues of such financial information for each of the periods indicated:

	Year ended December 31,															Six months ended June 30,
	2013					2012					2011					2014					2013
	US$			%		US$			%		US$			%		US$			%		US$			%
	(in millions of U.S. dollars, except for percentages)
Revenue		2,203.2			100		2,429.2			100		2,145.3			100		1,056.4			100		1,189.9			100
Cost of sales		(1,481.7	)		67		(1,400.6	)		58		(1,290.5	)		60		(756.2	)		72		(763.2	)		64
Gross profit		721.5			33		1,028.6			42		854.8			40		300.1			28		426.7			36
Other income		96.7			4		12.7			1		47.7			2		5.3			0		9.0			1
Administrative expenses		(105.2	)		5		(106.4	)		4		(91.8	)		4		(44.8	)		4		(50.7	)		4
Other expenses		(49.4	)		2		(34.6	)		1		(63.0	)		3		(29.9	)		3		(24.6	)		2
Other gains (losses)		(11.4	)		1		0.7			0		5.8			0		0.5			0		0.3			0
Finance income		12.7			1		29.1			1		23.2			1		6.7			1		7.4			1
Finance expenses		(58.6	)		3		(54.1	)		2		39.3			2		(30.9	)		3		(27.5	)		2
Share of profit of associates and joint ventures accounted for using the equity method		18.8			1		24.4			1		21.8			1		8.8			1		10.0			1
Foreign currency translation differences		(12.0	)		1		(26.8	)		1		(25.3	)		1		(4.3	)		0		(8.8	)		1
Profit before income tax expense		613.1			28		873.5			36		733.8			34		211.6			20		341.8			29
Income tax expense		(138.5	)		6		(216.1	)		9		(179.7	)		8		(57.8	)		5		(80.2	)		7
Non-controlling interests		(7.5	)		1		(8.2	)		0		(8.4	)		1		(1.8	)		1		(2.4	)		0
Controlling interest		467.1			21		649.2			27		545.8			25		152.1			14		259.2			22
Profit for the period		474.6			22		657.4			27		554.1			26		153.8			15		261.6			22

Specialty plant nutrition revenues for the six months ended June 30, 2014 totaled US$379.5 million, and were virtually unchanged compared to the six months ended June 30, 2013. Although potassium chloride prices have decreased significantly since July 2013, there is less price elasticity in the specialty plant nutrition market. We feel confident in the future of this market as food quality requirements increase and land and fresh water scarcity impacts some parts of the world.

Revenues for iodine and its derivatives for the six months ended June 30, 2014 totaled US$183.3 million, a 28% decrease compared to US$254.6 million for the six months ended June 30, 2013. Iodine prices have decreased significantly in the first half of 2014, and have continued to decrease during the third quarter of 2014. We expect continued price declines during the fourth quarter of 2014. Our sales volumes have decreased as a consequence of new supply from our Chilean competitors entering the market. We intend to work to recapture our market share in the coming quarters. However, we expect our overall gross profit for the third quarter of 2014 to decline from our second quarter gross profit at levels similar to the decline in our second quarter gross profit from first quarter gross profit, as a result principally of the continued decrease in iodine prices.

Revenues for lithium and its derivatives totaled US$104.1 million for the six months ended June 30, 2014, a 13% increase compared to US$92.4 million for the six months ended June 30, 2013. We expect demand to increase approximately 10% in 2014 compared to 2013, predominately led by uses related to lithium batteries. While new supply projects have been announced in the market, we did not see much new supply become available in the first half of 2014. We expect prices to remain relatively flat for the remainder of 2014. In addition, in 2014, the Chilean Ministry of Mines created a commission to review lithium mining. As a result of our experience in the lithium business, we have been invited to actively participate in this commission by offering relevant industry information. We believe the lithium market is positioned to grow in the short- and long-term resulting from the development of new technologies, as well as due to the steady growth in industrial applications.

The potassium chloride market continued to see strong demand growth during the first half of 2014 compared to 2013, and it is expected that demand will reach between 55 and 57 million metric tons during 2014. Prices in the potassium chloride market experienced volatility during the second half of 2013. We were not immune to the lower prices that impacted the potassium chloride market, and we saw our prices decrease over 20% during the six months ended June 30, 2014 when compared to the six months ended June 30, 2013. However, in recent months, we have seen prices slightly increase in Brazil, our most important market, and are hopeful that this pricing trend could continue in coming quarters.

Industrial chemicals revenues for the six months ended June 30, 2014 totaled US$60.6 million, a decrease of 44.8% compared to US$109.8 million for the six months ended June 30, 2013. The industrial chemicals market related to traditional uses continued to see growth rates of 2-3% in the first half of 2014, and demand growth related to explosives in Latin America is currently growing at rates closer to 5%. Sales volumes in this product line in 2014 are expected to be lower than sales volumes seen in 2013, as we expect that solar salts sales volumes will be significantly less in 2014 than sales volumes seen in 2013. However, our long-term prospects in the solar salts market remain positive. We have entered into supply agreements for solar salts of approximately 240,000 metric tons to be supplied to four new projects in Africa and Latin America between 2015 and 2017. These sales are expected to be recorded in the sales volumes during those periods.

Impact of Chilean Tax Reform

On September 29, 2014, the Tax Reform introduced significant changes to the Chilean taxation system and strengthened the powers of the Chilean IRS to control and prevent tax avoidance. The Tax Reform contemplates, among other matters, changes to the corporate tax regime to create two tax regimes. Starting on January 1, 2017, Chilean companies will be able to opt between two tax regimes: (i) the partially integrated regime (sistema parcialmente integrado), or (ii) the attributable taxation regime (sistema de renta atribuida). In both regimes, the corporate tax rate will be gradually increased to 24% in 2016 (21% in 2014, 22.5% in 2015 and 24% in 2016). On or after January 1, 2017, and depending on the tax regime chosen by a company, tax rates may gradually be increased to a maximum rate of 25% in 2017 in the case of the attributable taxation regime or 27% in 2018 in the case of the partially integrated regime.

As a sociedad anónima abierta, the default regime that applies to us is the partially integrated regime, unless at a future shareholders’ meeting our shareholders agree to opt for the attributable taxation regime. Under the partially integrated regime, the corporate tax rate will be gradually increased to 27% in 2018 (21% in 2014, 22.5% in 2015, 24% in 2016, 25.5% in 2017 and 27% in 2018), while at the shareholder level, a 35% withholding tax will generally apply until profits are effectively distributed. Only a 65% credit of the corporate tax will be allowed to be used against the withholding tax (in principle, a credit of 100% is recognized, and a restitution of an amount equivalent to 35% must subsequently be paid by the shareholder), unless the shareholder is resident of a country with which Chile has signed a Convention for the Avoidance of Double Taxation. Accordingly, for a taxpayer with a Convention for the Avoidance of Double Taxation, the effective rate will remain at 35%, while for the other foreign investors the effective rate will be 44.45%. If, at a future shareholders’ meeting, our shareholders opt for the attributable taxation regime, the corporate tax rate will be gradually increased to 25% in 2017 (21% in 2014, 22.5% in 2015, 24% in 2016 and 25% in 2017), while at the shareholder level, a 35% withholding tax will apply on an attributed basis. Corporate tax will be credited against the applicable withholding tax.

In accordance with IFRS, we will be required to recognize the effect of the increase in the tax rate based on the partially integrated regime on our deferred tax liability in our consolidated statements of income in our financial statements for the nine months ended September 30, 2014. We estimate that the one-time increase in deferred tax liability will be in the range of US$55 million to US$60 million. The increase will result in a charge to profit in an equivalent amount that will be reflected in our financial statements for the nine months ended September 30, 2014. The increase in deferred tax liability will adversely affect our financial condition and results of operations for the nine months ended September 30, 2014, but will not affect our cash flows. We cannot assure you that the actual amount of such increase will be consistent with our estimate for the nine months ended September 30, 2014 or that additional adjustments will not be necessary when our financial statements for the year ending December 31, 2014 are audited. See “Risk factors—Risks relating to Chile—The Tax Reform recently enacted in Chile amended the corporate tax regime and increased the corporate tax rate, and in the future the Chilean government could levy additional taxes on corporations operating in Chile.”

Results of operations—six months ended June 30, 2014 compared to six months ended June 30, 2013

Our results of operations as of and for the six months ended June 30, 2014 are not necessarily indicative of results to be expected for the full year.

Revenue

During the six months ended June 30, 2014, we generated total revenues of US$1,056.4 million, a 11.2% decrease compared to US$1,189.9 million for the six months ended June 30, 2013.

The main factors causing the decrease in revenues and the variation in the different product lines are described below.

Specialty plant nutrition

Specialty plant nutrition revenues for the six months ended June 30, 2014 totaled US$379.5 million, and were virtually unchanged compared to the six months ended June 30, 2013. Set forth below are sales volume data for the specified periods by product category in this product line.

	Six months ended June 30,				Change
(in Th. MT)	2014		2013
Potassium nitrate and sodium potassium nitrate		303.8		312.0		(3	)%
Specialty blends		82.8		74.8		11	%
Other specialty plant nutrients ^(*)		51.9		52.2		(1	)%
Sodium nitrate		12.3		18.4		(33	)%

* Includes trading of other specialty fertilizers.

Sales volumes for the six months ended June 30, 2014 decreased 1.4% compared to sales volumes reported during the six months ended June 30, 2013. Sales volumes in this product line increased 0.4% during the second quarter of 2014 when compared with sales volumes for the second quarter of 2013. Average prices in this product line increased slightly, thereby offsetting the slightly lower sales volumes.

Iodine and its derivatives

	Six months ended June 30,				Change
(in Th. MT)	2014		2013
Iodine and its derivatives		4.54		4.95		(8	)%

The decrease in revenues in this product line for the six months ended June 30, 2014 was a result of lower sales volumes and significantly lower average prices. Our sales volumes in the iodine product line decreased just over 8% during the first half of 2014 compared to the first half of 2013, and prices decreased by over 20%. This decrease in sales volumes was caused by a loss in our market share caused by new supply from Chilean competitors. We lowered our costs of production in this product line during the six months ended June 30, 2014, which helped us offset the decrease in sales and prices in this product line.

Lithium and its derivatives

	Six months ended June 30,				Change
(in Th. MT)	2014		2013
Lithium and its derivatives		19.6		16.7		17	%

The increase in revenues in this product line was largely due to an increase in our sales volume in the lithium product line by 17% in the first half of 2014 compared to the first half of 2013, attributable to strong demand in the lithium market during the first half of 2014. We believe we are the lowest cost producer of lithium in the world. We produce lithium as a subproduct of potassium chloride, which gives us a unique competitive advantage.

Potassium

Potassium revenues totaled US$299.6 million for the six months ended June 30, 2014, a 5% decrease compared to US$317.0 million for the six months ended June 30, 2013. Set forth below are sales volume data for the specified periods.

	Six months ended June 30,				Change
(in Th. MT)	2014		2013
Potassium chloride and potassium sulfate		837.7		681.3		23	%

We experienced a 23% increase in our potassium chloride and potassium sulfate sales volumes for the six months ended June 30, 2014 compared to the six months ended June 30, 2013, due to strong market demand. At the same time we experienced a decrease in our revenues from potassium chloride and potassium sulfate due to decreased average prices in this product line during the first half of 2014. In addition, this product line has benefited from company-wide cost reduction efforts.

Industrial chemicals

Industrial chemicals revenues for the six months ended June 30, 2014 totaled US$60.6 million, a decrease of 45% compared to US$109.8 million for the six months ended June 30, 2013. Set forth below are sales volume data for the specified periods by product category.

	Six months ended June 30,				Change
(in Th. MT)	2014		2013
Industrial nitrates		73.4		121.3		(39	)%
Boric acid		0.3		0.7		(57	)%

The decrease in revenues in this product line was largely due to a decrease of 39% in sales volumes for the six months ended June 30, 2014, compared to the six months ended June 30, 2013. The lower sales volumes were attributable to lower sales of solar salts used in alternative energy projects during the period.

Other products and services

Revenues from sales of other commodity fertilizers and other products totaled US$29.2 million for the six months ended June 30, 2014, a decrease of 22% from US$37.4 million for the six months ended June 30, 2013.

Cost of sales

Cost of sales includes, among others, the costs of depreciation and amortization. Cost of sales decreased by 1% to US$756.2 million for the six months ended June 30, 2014 from US$763.2 million for the six months ended June 30, 2013, representing 72% of revenues in the first half of 2014 as compared to 64% of revenues in the first half of 2013. This increase in the percentage of revenues was principally caused by significantly lower prices in our potassium chloride and potassium sulfate and iodine and its derivatives product lines.

Gross profit

Gross profit decreased by 30% to US$300.1 million for the six months ended June 30, 2014 from US$426.7 million for the six months ended June 30, 2013, and decreased as percentage of revenues, representing 28% of revenues in the first half of 2014 as compared to 36% of revenues in the first half of 2013. Gross margin was impacted by significantly lower average prices for the six months ended June 30, 2014 2014 compared for the six months ended June 30, 2013 in the iodine and its derivatives product line and our potassium chloride and potassium sulfate product lines, and a slight increase in average prices in the specialty plant nutrients product line in the same period.

Administrative expenses

Administrative expenses as a percentage of revenues remained relatively stable for the six months ended June 30, 2014 as compared to the six months ended June 30, 2013. Administrative expenses totaled US$44.8 million (4% of revenues) for the six months ended June 30, 2014, a decrease of 12% compared to US$50.7 million (4% of revenues) for the six months ended June 30, 2013.

Other expenses

Other expenses increased by 22% to US$29.9 million for the six months ended June 30, 2014 from US$24.6 million for the six months ended June 30, 2013. Other expenses represented 3% of revenues in the first half of 2014 as compared to 2% of revenues in the first half of 2013.

Other gains (losses)

Other gains (losses) increased by 67% to a gain of US$0.5 million for the six months ended June 30, 2014 from a gain of US$0.3 million for the six months ended June 30, 2013, but remained stable as a percentage of revenues, representing less than 1% of revenues for the first half of 2014 compared to the same period of 2013.

Finance income

Finance income decreased by 9% to US$6.7 million for the six months ended June 30, 2014 from US$7.4 million for the six months ended June 30, 2013 but remained stable as percentage of revenues, representing 1% of revenues for both periods.

Finance expenses

Finance expenses increased by 13% to US$30.9 million for the six months ended June 30, 2014, from US$27.5 million for the six months ended June 30, 2013, and increased as a percentage of revenues, representing 3% of revenues for the first half of 2014 compared to 2% of revenues for the first half of 2013. The increase in finance expenses was attributable to higher interest payments in the six months ended June 30, 2014 compared to the six months ended June 30, 2013 attributable to the US$300 million 3.625% Notes due 2023 issued on April 3, 2013. We made one interest payment on the 3.625% Notes in the six months ended June 30, 2014, compared to none in the six months ended June 30, 2013.

Share of profit of associates and joint ventures accounted for using the equity method

Share of profit of associates and joint ventures accounted for using the equity method decreased by 12% to US$8.8 million for the six months ended June 30, 2014 from US$10.0 million for the six months ended June 30, 2013, representing 1% of revenues for both periods.

Foreign currency translation differences

Losses from foreign currency translation differences decreased by 51% to a loss of US$4.3 million for the six months ended June 30, 2014, from a loss of US$8.8 million for the six months ended June 30, 2013, and decreased as a percentage of revenues, representing 1% of revenues for the first half of 2014 compared to 1% of revenues for the first half of 2013. Since most of our operations are in Chile, part of our costs of sales are related to the peso. Although we have an active hedging program and policy, we are subject to currency fluctuations. During the first half of 2014, the peso depreciated by 5% against the U.S. dollar.

Income tax expense

Income tax expense was US$57.8 million for the six months ended June 30, 2014, compared to income tax of US$80.2 million for the six months ended June 30, 2013. The effective tax rate for the six months ended June 30, 2014 was 27% compared to 23% for the six months ended June 30, 2013. The Chilean corporate tax rate was 20% during both periods. The difference between the statutory and effective tax rates is due primarily to royalty taxes on income.

Profit for the period

Profit for the period decreased by 41% to US$153.8 million for the six months ended June 30, 2014 from US$261.6 million for the six months ended June 30, 2013, as a result of the foregoing factors.

Liquidity and capital resources

We had US$993.9 million and US$908.5 million of cash and cash equivalents and time deposits as of June 30, 2014 and December 31, 2013, respectively. In addition, we had US$520.6 million and US$555.0 million unused uncommitted working capital credit lines as of June 30, 2014 and December 31, 2013, respectively.

Equity attributable to controlling interests increased from US$2,132.8 million as of December 31, 2012 to US$2,376.6 million as of December 31, 2013 and to US$2,456.4 million as of June 30, 2014. Our ratio of total liabilities to total equity (including non-controlling interest) on a consolidated basis decreased from 1.02 as of December 31, 2012 to 0.96 as of December 31, 2013, and increased to 0.87 as of June 30, 2014.

We evaluate from time to time our cash requirements to fund capital expenditures, dividend payouts and increases in working capital. As debt requirements also depend on the level of account receivables and inventories, we cannot accurately determine the amount of debt we will require.

The table below shows our cash flows for the years ended December 31, 2013, 2012, and 2011 and the six months ended June 30, 2014 and 2013:

	As of December 31,									As of June 30,
(in millions of U.S. dollars)	2013			2012			2011			2014			2013
Net cash from (used in):
Net cash from operating activities		651.7			650.2			571.3			385.5			324.4
Net cash used in financing activities		(2.3	)		(197.7	)		(105.2	)		(238.0	)		217.3
Net cash used in investing activities		(487.4	)		(562.9	)		(516.2	)		(70.4	)		(484.2	)
Effects of exchange rate fluctuations on cash and cash equivalents		(9.8	)		(10.3	)		(29.6	)		(8.3	)		(4.7	)
Net increase (decrease) in cash and cash equivalents		152.3			(120.6	)		(79.7	)		68.8			52.8

We operate a capital-intensive business that requires significant investments in revenue-generating assets. Our growth strategy has included the purchase of production facilities and equipment and has also included the improvement and expansion of existing facilities. Funds for capital expenditures and working capital requirements have been obtained from net cash from operating activities, borrowings under credit facilities and issuance of debt securities.

The Board of Directors has approved a capital expenditures plan for 2014 of US$135 million in connection with investments to be made in Chile, of which approximately US$56.5 million have been used primarily in connection with plant maintenance (US$36.7 million) and operations improvements (US$11.6 million) as of June 30, 2014. The 2014 capital investment program is primarily focused on the maintenance of our production facilities. Our 2014 capital investment program will not require any external financing; however, we may access capital markets in order to optimize our financial position. See “Business—Business strategy—Capital expenditure program.”

Our other major use of funds is the payment of dividends. We paid dividends of US$279.7 million and US$334.8 million during 2013 and 2012, respectively.

Our 2014 dividend policy, as approved by shareholders, is to pay 50% of our profit for each fiscal year in dividends. Under Chilean law, the minimum dividend payout is 30% of profit for each fiscal year. In July 2014, our shareholders approved an eventual dividend payment (dividendo eventual) in the amount of US$230 million. This payment was made in July 2014.

Financing activities

Our current ratio (current assets divided by current liabilities) was 4.22 as of June 30, 2014, a change from 3.4 as of June 30, 2013. The following table shows key information about our outstanding long- and short-term debt as of June 30, 2014.

Debt Instrument⁽¹⁾⁽²⁾	Interest rate	Issue date	Maturity date	Amortization
Bilateral loan — US$20 million	0.58%	Nov. 27, 2013	Jul. 16, 2014	Bullet⁽³⁾
Bilateral loan — US$20 million	0.46%	Sep. 5, 2013	Aug. 26, 2014	Bullet⁽³⁾
Bilateral loan — US$50 million	1.18%	Sep. 12, 2011	Sep. 12, 2014	Bullet⁽³⁾
Bilateral loan — US$20 million	0.46%	Apr. 17, 2014	Oct. 14, 2014	Bullet⁽³⁾
Bilateral loan — US$20 million	0.45%	Jun. 16, 2014	Dec. 15, 2014	Bullet
Bilateral loan — US$20 million	0.58%	Jun. 19, 2014	Jun. 10, 2015	Bullet
Bilateral loan — US$50 million	1.37%	Oct. 19, 2012	Oct. 19, 2015	Bullet
6.125% Notes due 2016 — US$200 million	6.125%	Apr. 5, 2006	Apr. 15, 2016	Bullet
Bilateral loan — US$40 million	1.23%	Oct. 6, 2011	Oct. 6, 2016	Bullet
Bilateral loan — US$50 million	0.97%	Oct. 12, 2011	Oct. 12, 2016	Semiannual, beginning in 2014
Bilateral loan — US$50 million	1.27%	Dec. 21, 2011	Dec. 21, 2016	Semiannual, beginning in 2014
Series M Bond — UF 1.00 million	3.30%	Apr. 4, 2012	Feb. 1, 2017	Bullet
Bilateral loan — US$140 million	2.33%	Sep. 13, 2012	Sep. 13, 2017	Bullet
5.50% Notes due 2020 — US$250 million	5.50%	Apr. 21, 2010	Apr. 21, 2020	Bullet
3.625% Notes due 2023 — US$300 million	3.625%	Apr. 3, 2013	Apr. 3, 2023	Bullet
Series C Bond — UF 1.875 million	4.00%	Jan. 24, 2006	Dec. 1, 2026	Semiannual, beginning in 2007
Series H Bond — UF 4.00 million	4.90%	Jan. 13, 2009	Jan. 5, 2030	Semiannual, beginning in 2019
Series O Bond — UF 1.50 million	3.80%	Apr. 4, 2012	Feb. 1, 2033	Bullet

(1)

UF-denominated bonds are fully hedged to U.S. dollars with cross-currency swaps.

(2)

Some floating rate bilateral loans are currently hedged to fixed rate loans using interest rate swaps.

(3)

Repaid in full at maturity.

As of June 30, 2014, we had total debt of US$1,595.5 million, compared to US$1,848.2 million as of June 30, 2013. Taking into account the effects of financial derivatives, our total financial debt amounted to US$1,601.2 million as of June 30, 2014 and US$1,816.4 million as of June 30, 2013. Of the total debt as of June 30, 2014, US$209.7 million was short-term debt. All of our UF- and Ch$-denominated local bonds, as of June 30, 2014, were hedged with cross-currency swaps to the U.S. dollar.

All of our long-term debt (including the current portion) as of June 30, 2014, was denominated in U.S. dollars, and all our UF- and Ch$-denominated local bonds were hedged with cross-currency swaps to the U.S. dollar. The financial covenants related to our debt instruments include: (i) limitations on the ratio of total liabilities to equity (including non-controlling interest) on a consolidated basis, (ii) minimum net worth requirements, (iii) limitations on net financial debt to EBITDA, (iv) limitations on interest indebtedness of operating subsidiaries and (v) minimum production assets. We believe that the terms and conditions of our debt agreements are standard and customary and that we are in compliance in all material respects with such terms and conditions as of December 31, 2013.

The following table shows the maturities of our long-term debt by year as of June 30, 2014:

Maturity⁽¹⁾ (in millions of U.S. dollars)	Amount
2015		96.5
2016		286.5
2017		190.0
2018		6.5
2019		14.4
2020 and thereafter		826.8
Total		1,420.8

(1)

Only the principal amount has been included. For the UF- and Ch$-denominated local bonds, the amounts presented reflect the real U.S. dollar obligation as of June 30, 2014, not including the effects of the cross currency swaps that hedge these bonds to the U.S. dollar and which had, as of June 30 2014, a market value of US$4.5 million against SQM.

Derivative financial instruments and hedging

We use derivative financial instruments, including foreign currency forwards and options contracts as well as cross currency and interest rate swaps, to mitigate the risks associated with fluctuations in interest and exchange rates. Such derivative financial instruments are initially recognized at fair value as of the date of the derivative contract and are subsequently remeasured at fair value quarterly. Derivatives are recorded as assets when fair value is positive and as liabilities when fair value is negative. Any gain or loss that arises from the changes of the fair value of derivatives during the year that does not qualify for hedge accounting is recorded directly to the statement of income. The fair value of cross currency and interest rate swaps is calculated using market information to estimate their net present values, which later are confirmed with the corresponding counterparty.

Off-balance sheet arrangements

We have not entered into any transactions with unconsolidated entities whereby we have financial guarantees, retained or contingent interests in transferred assets, derivative instruments or other contingent arrangements that would expose us to material continuing risks, contingent liabilities, or any other obligations arising out of a variable interest in an unconsolidated entity that provides financing, liquidity, market risk or credit risk support to us or that engages in leasing, hedging or research and development services with us.

Market risk analysis

We are exposed to market risk from changes in currency exchange rates and interest rates. Through various arrangements described below, we seek to hedge our foreign currency exposures.

For additional information concerning our hedging transactions, see note 3.1 to our unaudited consolidated financial statements.

Foreign currency risk

We transact a significant portion of our business in U.S. dollars, and the U.S. dollar is the currency of the primary economic environment in which we operate. In addition, the U.S. dollar is our functional currency for financial statement reporting purposes. A significant portion of our costs, however, is related to the peso. Therefore, an increase or decrease in the exchange rate between the peso and the U.S. dollar would affect our costs of production. The peso has been subject to large devaluations and revaluations in the past and may be subject to significant fluctuations in the future. As of December 31, 2013, the peso exchange rate was Ch$524.61 per U.S. dollar, while as of December 31, 2012, the peso exchange rate was Ch$479.96 per U.S. dollar, representing a depreciation of the peso against the U.S. dollar of 9% in 2013. On October 16, 2014, the Observed Exchange Rate was Ch$591.16 per U.S. dollar.

Interest rate risk

We have outstanding short and long-term debt that bears interest based on LIBOR, plus a spread. Since we are currently hedging only a portion of these liabilities into fixed rates, we are exposed to interest rate risk relating to LIBOR fluctuations. As of June 30, 2014, 16% of our financial debt had LIBOR-based pricing that was not hedged into fixed rates. A material increase in the rate could materially impact our business, financial condition and results of operations.

Critical accounting policies

Critical accounting policies are defined as those that are reflective of significant judgments and uncertainties, which would potentially result in materially different results under different assumptions and conditions. For more information regarding our critical accounting policies, see note 3 to our unaudited consolidated financial statements.

We believe that our critical accounting policies applied in the preparation of our consolidated financial statements are limited to those described below. It should be noted that in many cases, IFRS specifically dictates the accounting treatment of a particular transaction, limiting management’s judgment in their application. There are also areas in which management’s judgment in selecting available alternatives would not produce materially different results.

Trade and other accounts receivable

Trade and other accounts receivable relate to non-derivative financial assets with fixed payments that can be determined and are not quoted in any active market. These arise from sales operations involving products and/or services that we sell directly to our customers that are not within the following categories:

those which we have the intention of selling immediately in the near future and which are held-for-sale;

those designated at their initial recognition as available-for-sale; and

those through which we do not intend to recover for reasons other than credit impairment and therefore must be classified as available-for-sale.

These assets are initially recognized at their fair value (which is equivalent to their face value, discounting implicit interest for installment sales) and subsequently at amortized cost according to the effective interest rate method less a provision for impairment loss. When the face value of the account receivable does not significantly differ from its fair value, it is recognized at face value. An allowance for impairment loss is established for trade accounts receivable when there is objective evidence that we will not be able to collect all the amounts owed to us according to the original terms of accounts receivable.

Implicit interest in installment sales is recognized as interest income when interest is accrued over the term of the sale.

Income tax

Corporate income tax for the year is determined as the aggregate of current taxes from all of the consolidated companies. Current taxes are calculated on the basis of the tax laws enacted or substantively enacted as of the date of our statements of financial position in the countries in which we and our subsidiaries operate and generate taxable income.

Deferred tax is recognized using the liability method on temporary differences arising between the tax basis for assets and liabilities and their carrying amounts in our audited consolidated financial statements. Deferred income taxes are calculated using the tax rates expected to be applicable when the assets are realized or the liabilities are settled.

In conformity with current Chilean tax regulations, the provision for corporate income tax and taxes on mining activity is recognized on an accrual basis, presenting the net balances of accumulated monthly tax provisional payments for the fiscal period and credits associated with it. The balances of these accounts are presented in current income taxes recoverable or current taxes payable, as applicable.

Tax on companies and variations in deferred tax assets or liabilities that are not the result of business combinations are recorded in income statement accounts or net shareholders’ equity accounts in our consolidated statements of financial position, depending on the origin of the gains or losses which have generated them.

At year end, the carrying value of deferred tax assets has been reviewed and reduced for as long as it is possible for there to be no sufficient taxable income to allow the recovery of all or a portion of the deferred tax asset. Likewise, at the date of the statement of financial position, deferred tax assets not recognized are revalued and recognized as long as it has become possible that future taxable income will allow the recovery of the deferred tax asset.

With respect to deductible temporary differences associated with investments in subsidiaries, associated companies and interests in joint ventures, deferred tax assets are recognized solely provided that there is a possibility that the temporary differences will be reversed in the near future and that there will be taxable income with which they may be used.

The deferred income tax related to entries directly recognized in equity is recognized with an effect on equity and not with an effect on profit or loss.

Deferred tax assets and liabilities are offset if there is a legally receivable right of offsetting tax assets against tax liabilities and the deferred tax is related to the same tax entity and authority.

Inventory

We state inventory as the lower of cost and net realizable value. The method used to determine the cost of inventory is weighted average cost. The cost of finished products and products-in-progress includes direct costs of materials and, as applicable, labor costs, indirect costs incurred to transform raw materials into finished products and general expenses incurred in carrying inventory to their current location and conditions.

The net realizable value represents the estimate of the sales price less all finishing estimated costs and costs that will be incurred in sales and distribution processes. Commercial discounts, rebates obtained and other similar entries are deducted in the determination of the cost. We conduct an evaluation of the net realizable value of inventory at the end of each year, recording a provision with a charge to income when circumstances are warranted. When the circumstances that previously gave rise to the reserve cease to exist, or when there is clear evidence of an increase in the net realizable value due to a change in economic circumstances or prices of main raw materials, the estimate made previously is modified. The valuation of obsolete, impaired or slow-moving products relates to their estimated net realizable value.

Provisions on our inventory have been made based on a technical study which covers the different variables affecting products in stock (density, humidity, among others).

Raw materials, supplies and materials are recorded at the lower of acquisition cost or market value. Acquisition cost is calculated according to the annual average price method.

Obligations related to staff severance indemnities and pension commitments

Our obligations with respect to our employees are established in collective bargaining agreements and individual employment contracts. In the case of certain employees in the United States, our obligations are established through a pension plan, which was terminated in 2002.

These obligations are valued using an actuarial calculation that considers factors such as mortality rate, employee turnover, interest rates, retirement dates, effects related to increases in employees’ salaries, as well as the effects on variations in services derived from variations in the inflation rate.

Actuarial losses and gains that may be generated by variations in previously defined obligations are directly recorded in profit or loss for the year.

Actuarial losses and gains originating from deviations between the estimate and the actual behavior of actuarial hypotheses or in the reformulation of established actuarial hypotheses are recorded in equity.

The discount rate used for calculating obligations outside the United States was 6% for the six months ended June 30, 2014 and the periods ended as of December 31, 2013.

Our United States subsidiary, SQM North America Corp., has established pension plans for its retired employees that are calculated by measuring the projected benefit obligation in accordance with International Accounting Standards (“IAS”) using a net salary progressive rate net of adjustments to inflation, mortality and turnover assumptions, deducting the resulting amounts at present value using a 5.0% interest rate for 2013. The net balance of this obligation is presented in the line item called Provisions for Employee Benefits, Non-Current.

Mining development costs

Mine exploration costs and stripping costs to maintain production of mineral resources extracted from operating mines are considered variable production costs and are included in the cost of inventory produced during the period. Mine development costs at new mines, and major development costs at operating mines outside existing areas under extraction that are expected to benefit future production, are capitalized under “other long-term assets” and amortized using a units-of-production method over the associated proven and probable reserves. We determine our proven and probable reserves based on drilling, brine sampling and geostatistical reservoir modeling in order to estimate mineral volume and composition.

All other mine exploration costs, including expenses related to low grade mineral resources rendering reserves that are not economically exploitable, are charged to the statement of income in the period in which they are incurred.

Asset value impairment

We assess on an annual basis any impairment on the amount of buildings, plant and equipment, intangible assets, goodwill and share of profit of associates and joint ventures accounted for using the equity method of accounting in accordance with IAS 36 “Impairment of Assets.” Assets to which this method applies are:

investments recognized using the equity method of accounting;

property, plant and equipment;

intangible assets; and

goodwill.

Assets are reviewed for impairment as to the existence of any indication that the carrying value is lower than the recoverable amount. If such an indication exists, the asset recoverable amount is calculated in order to determine the extent of the impairment, if any. In the event that the asset does not generate any cash flows independent from other assets, we determine the recoverable amount of the cash generating unit to which this asset belongs according to the corresponding business segment (specialty plant nutrients, iodine and its derivatives, lithium and its derivatives, industrial chemicals, potassium and other products and services.)

We conduct impairment tests on intangible assets and goodwill with indefinite useful lives on an annual basis and every time there is indication of impairment. If the recoverable value of an asset is estimated at an amount lower than its carrying value, the latter decreases to its recoverable amount.

Financial derivatives and hedging transactions

Derivatives are recognized initially at fair value at the date in which the derivatives contract has been signed and subsequently they are valued at fair value at each period end. The method for recognizing the resulting loss or gain depends on whether the derivative has been designated as an accounting hedging instrument and if so, the type of hedging, which may be:

fair value hedge of assets and liabilities recognized (fair value hedges); or

hedging of a single risk associated with an asset or liability recognized or a highly possible foreseen transaction (cash flow hedge).

At the beginning of the transaction, we document the relationship between hedging instruments and those entries hedged, as well as their objectives for risk management purposes and the strategy to conduct different hedging operations.

We also document our evaluation both at the beginning and the end of each period of whether derivatives used in hedging transactions are highly effective to offset changes in the fair value or in cash flows of hedged entries.

The fair value of derivative instruments used for hedging purposes is shown in note 9.3 to our unaudited consolidated financial statements.

Non-hedge instruments are classified as current assets or liabilities, and the change in their fair value is recognized directly in profit or loss.

Fair value hedge

The change in the fair value of a derivative is recognized with a debit or credit to profit or loss, as applicable. The change in the fair value of the hedged entry attributable to hedged risk is recognized as part of the carrying value of the hedged entry and is also recognized with a debit or credit to profit or loss.

For fair value hedging related to items recorded at amortized cost, the adjustment of the fair value is amortized against income on the remaining year to its expiration. Any adjustment to the carrying value of a hedged financial instrument for which the effective rate is used is amortized with a debit or credit to profit or loss at its fair value attributable to the risk being covered.

If the hedged entry no longer meets the criteria for hedge accounting, the fair value not amortized is immediately recognized with a debit or credit to profit or loss.

Cash flow hedge

The effective portion of gains or losses from the hedging instrument is initially recognized as “other revenue” with a debit or credit to other comprehensive income whereas any ineffective portion is immediately recognized with a debit or credit to profit or loss, as applicable.

Amounts accumulated in equity are transferred to profit or loss when the hedged transaction affects income for the period, such as when the hedged interest income or expense is recognized when a forecasted sale occurs. When the hedged item is the cost of a non-financial asset or liability, amounts taken to equity are transferred to the initial carrying value of the non-financial asset or liability.

Should the expected firm transaction or commitment no longer be expected to occur, the amounts previously recognized other comprehensive income are transferred to income. If a hedging instrument expires, is sold, finished, and exercised without any replacement, or if a rollover is performed or if its designation as hedging is revoked, the amounts previously recognized in equity are maintained in equity until the expected firm transaction or commitment occurs.

Business

Business overview

We believe that we are the world’s largest producer of potassium nitrate and iodine chemicals. We also produce specialty plant nutrients, iodine and its derivatives, lithium and its derivatives, potassium chloride, potassium sulfate and certain industrial chemicals (including industrial nitrates and solar salts). Our products are sold in more than 115 countries through our worldwide distribution network, with 93% of our sales in 2013 derived from countries outside Chile.

Our products are mainly derived from mineral deposits found in northern Chile. We mine and process caliche ore and brine deposits. The caliche ore in northern Chile contains the only known nitrate and iodine deposits in the world and is the world’s largest commercially exploited source of natural nitrates. The brine deposits of the Salar de Atacama, a salt-encrusted depression in the Atacama desert in northern Chile, contain high concentrations of lithium and potassium as well as significant concentrations of sulfate and boron.

From our caliche ore deposits, we produce a wide range of nitrate-based products used for specialty plant nutrients and industrial applications, as well as iodine and its derivatives. At the Salar de Atacama, we extract brines rich in potassium, lithium, sulfate and boron in order to produce potassium chloride, potassium sulfate, lithium solutions, boric acid and bischofite (magnesium chloride). We produce lithium carbonate and lithium hydroxide at our plant near the city of Antofagasta, Chile, from the solutions brought from the Salar de Atacama. We market all of these products through an established worldwide distribution network.

Our products are divided into six categories: specialty plant nutrients; iodine and its derivatives; lithium and its derivatives; potassium chloride and potassium sulfate; industrial chemicals; and other commodity fertilizers. Specialty plant nutrients are premium fertilizers that enable farmers to improve yields and the quality of certain crops. Iodine and its derivatives are mainly used in the X-ray contrast media and pharmaceutical industries and in the production of polarizing film, which is an important component in LCD screens. Lithium and its derivatives are mainly used in batteries, greases and frits for production of ceramics. Potassium chloride is a commodity fertilizer that is produced and sold by us worldwide. In addition, we complement our portfolio of plant nutrients through the buying and selling of other commodity fertilizers for use mainly in Chile. Industrial chemicals have a wide range of applications in certain chemical processes such as the manufacturing of glass, explosives and ceramics, and, more recently, industrial nitrates are being used in solar thermal energy plants as a means for energy storage. In addition, we complement our portfolio of plant nutrients with the purchase and sale of other fertilizers for use mainly in Chile.

For the year ended December 31, 2013, we had revenues of US$2,203.2 million, gross profit of US$721.5 million and profit attributable to controlling interests of US$467.1 million. For the six months ended in June 30, 2014, we had revenues of US$1,056.4 million, gross profit of US$300.1 million and profit attributable to controlling interests of US$152.1 million. Our worldwide market capitalization as of October 16, 2014 was US$6.1 billion.

The following table shows the percentage breakdown of our revenues for the years ended December 31, 2013, 2012, 2011 and the six months ended June 30, 2014 and 2013, according to our product lines:

	Year ended December 31,									Six months ended June 30,
	2013			2012			2011			2014			2013
Specialty plant nutrients		31	%		28	%		34	%		36	%		32	%
Iodine and its derivatives		21	%		24	%		21	%		17	%		21	%
Lithium and its derivatives		9	%		9	%		9	%		10	%		8	%
Potassium		28	%		25	%		26	%		28	%		27	%
Industrial chemicals		7	%		10	%		7	%		6	%		9	%
Other commodity fertilizers		4	%		4	%		4	%		3	%		3	%
Total		100	%		100	%		100	%		100	%		100	%

History

We were formed on June 17, 1968 through a joint venture between Compañía Salitrera Anglo Lautaro S.A. (“Anglo Lautaro”) and Corfo, a Chilean government entity. Three years after our formation, in 1971, Anglo Lautaro sold all of its shares to Corfo, and we were wholly owned by the Chilean government until 1983. In 1983, Corfo began a process of privatization by selling our shares to the public and subsequently listing such shares on the Santiago Stock Exchange. By 1988, all of our shares were publicly owned. Our Series B ADRS have traded on the New York Stock Exchange (“NYSE”) under the ticker symbol “SQM” since 1993.

Since our inception, we have produced nitrates and iodine, both of which are obtained from caliche ore deposits in northern Chile. Between 1994 and 1999, we invested approximately US$300 million in the development of the Salar de Atacama project in northern Chile, which enabled us to produce potassium chloride, lithium carbonate, potassium sulfate, and boric acid. Between 2000 and 2004, we focused on consolidating our business to reduce costs and improve efficiencies.

Starting in 2005, we begun strengthening our leadership position in our core businesses through a combination of capital expenditures and advantageous acquisitions and divestitures. Our acquisitions have included Kemira Emirates Fertiliser Company (“Kefco”) in Dubai and the iodine business of Royal DSM N.V. (“DSM”). We have also entered into a number of joint ventures, including a joint venture with Migao Corporation (“Migao”) for the construction of a potassium nitrate plant with a production capacity of 40,000 metric tons per year, and SQM VITAS, our joint venture with the French Roullier Group, through which we have built new plants in Brazil (Candeias), Peru and South Africa (Durban) for the production of water soluble fertilizers containing different relative amounts of nitrogen, phosphorus and potassium, and occasionally, smaller amounts of other chemicals. We have sold: (i) Fertilizantes Olmeca, our Mexican subsidiary, (ii) our butyllithium plant located in Houston, Texas and (iii) our stake in Impronta S.R.L., our Italian subsidiary. These sales allowed us to concentrate our efforts on our core products.

Our capital expenditure program has enabled us to add new products and to increase the production capacity of our existing products. In 2005, we started production of lithium hydroxide at a plant in the Salar del Carmen. In 2007, we completed the construction of a new prilling and granulating plant. In 2008 and 2011, we completed expansions in our lithium carbonate production capacity, achieving 40,000 metric tons per year and 48,000 metric tons per year, respectively. In 2011, we completed the construction of a new potassium nitrate facility in Coya Sur, increasing our overall production capacity of potassium nitrate by 300,000 metric tons. Since 2010, we have continued to expand our production capacity of potassium products in our operations in the Salar de Atacama. In 2011 and 2013, we completed expansions in our iodine plants in Nueva Victoria reaching 5,000 and 5,500 metric tons of production capacity respectively.

Business strategy

Our general business strategy is to:

maintain leadership in specialty plant nutrients, iodine, lithium and industrial nitrates, in terms of production capacity, competitive pricing and the development of new products;

maintain our competitiveness through the continued increase in the efficiency of our production processes and cost reduction;

evaluate and execute acquisitions, joint ventures or commercial alliances which have concrete synergies with our current core businesses or provide sustainable competitive advantages; and

maintain a solid, conservative financial position and investment grade ratings for our debt securities.

We have identified market demand in each of our major product lines, both within our existing customer base and in new markets, for existing products and for additional products that can be produced from our natural resources. In order to take advantage of these opportunities, we have developed specific strategies for each of our product lines.

Specialty plant nutrition

Our strategy in our specialty plant nutrients business is to: (i) continue expanding our sales of natural nitrates by continuing to leverage the advantages of our specialty products over commodity-type fertilizers; (ii) selectively expand by increasing our sales of higher margin specialty plant nutrients based on potassium and natural nitrates, particularly soluble potassium nitrate and water soluble NPK blends; (iii) pursue investment opportunities in complementary businesses to enhance our product portfolio, increase production, reduce costs, and add value to, and improve the marketing of, our products; (iv) develop new specialty nutrient blends produced in our mixing plants that are strategically located in or near our principal markets, in order to meet specific customer needs; (v) focus primarily on the markets for plant nutrients in soluble and foliar applications in order to establish a leadership position; (vi) further develop our global distribution and marketing system directly and through strategic alliances with other producers and global or local distributors; (vii) reduce our production costs through improved processes and higher labor productivity so as to compete more effectively; and (viii) supply a product with consistent quality according to the requirements of our customers.

Iodine and its derivatives

Our strategy in our iodine business is to (i) increase or at least maintain our market share in order to optimize the use of our available production capacity; (ii) encourage demand growth and promote new iodine uses; (iii) participate in iodine recycling projects through Ajay-SQM Group (“ASG”), a joint venture with the U.S. company Ajay Chemicals Inc. (“Ajay”); (iv) reduce our production costs through improved processes and higher productivity in order to compete more effectively; and (v) supply a product with consistent quality according to the requirements of our customers.

Lithium and its derivatives

Our strategy in our lithium business is to (i) strategically allocate our lithium carbonate and lithium hydroxide sales; (ii) encourage demand growth and promote new lithium uses; (iii) selectively pursue opportunities in the lithium derivatives business by creating new lithium compounds; (iv) reduce our production costs through improved processes and higher productivity in order to compete more effectively; and (v) supply a product with consistent quality according to the requirements of our customers.

Potassium

Our strategy in our potassium business is to (i) offer a portfolio of potassium products, including potassium sulfate, potassium chloride and other fertilizers to our traditional markets; (ii) create flexibility to offer crystalized (standard) or granular (compacted) form products according to market requirements; (iii) focus on markets where we have logistical advantages and synergies with our specialty plant nutrition business; and (iv) supply a product with consistent quality according to the requirements of our customers.

Industrial chemicals

Our strategy in our industrial chemical business is to (i) maintain our leadership position in the industrial nitrates market, as well as increase our supply of potassium chloride in markets where we have natural advantages; (ii) encourage demand growth in different applications; (iii) become a long-term, reliable supplier for the thermal storage industry; (iv) reduce our production costs through improved processes and higher productivity in order to compete more effectively; and (v) supply a product with consistent quality according to the requirements of our customers.

New business ventures

From time to time we evaluate opportunities to expand in our current core businesses or within new businesses in which we believe we may have sustainable competitive advantages, both within and outside Chile, and we expect to continue to do so in the future.

We are continuously exploring the possibility of acquiring controlling interests in companies that have mining properties in our core business areas, and that are in early stages of development. Consistent with our business strategy, we will continue to evaluate acquisitions, joint ventures and alliances in our core businesses and, depending on all facts and circumstances, may seek to acquire controlling stakes or other interests related to our core businesses outside of Chile and Latin America, including in other emerging markets.

In addition we are actively conducting exploration for metallic minerals in the mining property we own. If such minerals are found, we may decide to exploit, sell or enter into a joint venture to extract these resources. We may decide to acquire part or all of the equity of, or undertake joint ventures or other transactions with, other companies involved in our businesses or in other businesses. We have already identified several areas in which we are conducting more targeted exploration. Fiel Rosita, a copper-gold deposit located close to the city of Vallenar, is our most advanced prospect. It is located in the same district as other deposits currently being developed by other companies. We are updating the geological model and additional exploration may be undertaken to confirm the updated geological model and test extensions to the known mineralized areas. We may decide not to move forward with any potential metallic prospects discovered from our exploration operations.

In parallel to our own exploration operations, we have entered into 12 arrangements with third-party exploration and mining companies relating to metallic minerals exploration. In all these agreements, we retain the rights to non-metallic minerals such as nitrate, iodine, potassium, lithium and their respective derivatives. We continue to develop our program of exploration alliances with third parties through option contracts, in particular through minority participation and/or royalties on sales. Our current plan is to achieve and maintain close to one million hectares under exploration alliances and to establish a projected exploration investment of US$20 to US$30 million per year through existing and future exploration alliances. Our direct investment in the exploration program, between 2011 and 2013, was US$29 million, including exploration in greenfield areas and other areas of interest, while a total investment of US$5 million is expected for 2014.

Capital expenditure program

We regularly review different opportunities to improve our production methods, reduce costs, increase production capacity of existing products and develop new products and markets. Additionally, significant capital expenditures are required every year in order to sustain our production capacity. We are focused on developing new products in response to identified customer demand, as well as new products that can be derived as part of our existing production or other products that could fit our long-term development strategy. Our capital expenditures during the past five years were mainly related to the acquisition of new assets, construction of new facilities and renewal of plant and equipment, and performed with internal financing through our capital expenditure program for investments in Chile.

Our capital expenditures include investments aimed at sustaining, improving or increasing production levels, including acquisitions and investments in related companies.

Our capital expenditures for the periods set forth below were as follows:

	Year ended December 31,						Six months ended June 30,
(in millions of U.S. dollars)	2013		2012		2011		2014		2013
Capital expenditures		386.5		450.0		501.1		56.5		226.3

During 2011, we had total capital expenditures of US$501.1 million, primarily relating to:

increased production capacity of potassium-based products at the Salar de Atacama, with the continued construction and completion of potassium chloride and granulated potassium chloride facilities at the Salar de Atacama;

increased capacity and efficiencies at nitrate and iodine facilities;

optimization of our rail system; and

various projects designed to maintain production capacity, increase yields and reduce costs.

During 2012, we had total capital expenditures of US$450.0 million, primarily relating to:

capacity expansion projects in the Tarapacá region, significantly increasing our production of iodine and nitrates;

continued investments related to increasing production capacity of potassium-based products at the Salar de Atacama, including several projects related to production of finished products; and

various projects designed to maintain production capacity, increase yields and reduce costs.

During 2013, we had total capital expenditures of US$386.5 million, primarily related to:

improvement of nitrate-based products at Coya Sur;

investment relating to increasing production capacity of potassium-based products at the Salar de Atacama;

ongoing investment relating to increasing production capacity and efficiency in our nitrate and iodine facilities;

optimization of our potassium chloride facility at the Salar de Atacama;

projects to increase the efficiency of our human resources and logistics departments; and

various projects designed to maintain production capacity, increase yields, and reduce costs.

After several years of significant investment, we have reached the capacity levels which we set out to achieve. In the short term, SQM plans to reduce its capital expenditure plan to less than amounts invested in recent years. Capital expenditures for the first half of 2014 were US$56.5 million used primarily for plant maintenance and operations improvement, and are expected to reach approximately US$135 million for the year 2014, of which approximately 65% will be related to maintenance and 35% will be related to expansion, productivity, cost efficiency and exploration. By the end of 2014 we will conclude our major potassium projects in the Salar de Atacama, reaching 2.3 million tons of KCL equivalent production per year.

Our products

Specialty plant nutrition

We believe we are the world’s largest producer of potassium nitrate. We estimate that our sales accounted for approximately 48% of global potassium nitrate sales by volume in 2013. This estimate does not include potassium nitrate we produced and sold locally in China, only net imports. During 2013, the potassium nitrate market remained stable, with global sales at one million metric tons. We also produce the following specialty plant nutrition products: sodium nitrate, sodium potassium nitrate and specialty blends (containing various combinations of nitrogen, phosphate and potassium and generally known as “NPK blends”).

These specialty plant nutrients have specific characteristics that increase productivity and enhance quality when used on certain crops and soils. Our specialty plant nutrients have significant advantages for certain applications over commodity fertilizers based on nitrogen and potassium, such as urea and potassium chloride.

In particular, our specialty plant nutrients:

are fully water soluble, allowing their use in hydroponics, fertigation, foliar applications and other advanced agricultural techniques;

improve the water use efficiency of crops and help conserve water;

are chlorine-free, which prevents chlorine toxicity in certain crops associated with high levels of chlorine in plant nutrients;

provide nitrogen in nitric form, thereby allowing crops to absorb nutrients faster than they absorb urea or ammonium-based fertilizers;

do not release hydrogen after application, thereby avoiding increased soil acidity;

possess trace elements, which promote disease resistance in plants; and

are more attractive to customers who prefer products of natural origin.

In 2013, our specialty plant nutrients revenues were US$687.5 million, representing 31% of our total revenues for that year, compared to US$675.4 million for 2012. For the six months ended June 30, 2014 our specialty plant nutrients revenues were US$379.5 million, representing 36% of our total revenues for this period, and were virtually unchanged with respect to the six months ended June 30, 2013.

Market

The target market for our specialty plant nutrients includes producers of high-value crops such as vegetables, fruits, industrial crops, flowers, cotton and others. Furthermore, we sell specialty plant nutrients to producers of chloride-sensitive crops. Since 1990, the international market for specialty plant nutrients has grown at a faster rate than the international market for commodity-type fertilizers. This is mostly due to: (i) the application of new agricultural technologies such as fertigation and hydroponics, and the increasing use of greenhouses; (ii) the increase in the cost of land and the scarcity of water, which has forced farmers to improve their yields and reduce water use; and (iii) the increase in demand for higher quality crops, such as fruits and vegetables.

Over the last 10 years, the compound annual growth rate for vegetable production per capita was 3.0% while the compound annual growth rate for the world population was only 1.5%.

Worldwide scarcity of water and arable land drives the development of new agricultural techniques to maximize the use of these resources. Irrigation has grown at an average annual rate of 1.5% during the last 20 years (a pace equal with population growth). However, micro-irrigation has grown at 10% per year over the same period. Microirrigation systems, which include drip-irrigation and micro-sprinklers, are the most efficient forms of technical irrigation. Global microirrigation acreage is estimated at 10 million hectares, which represents approximately 3% of total worldwide irrigated area. These applications require fully water-soluble plant nutrients. Our nitrate-based specialty plant nutrients provide nitrogen in nitric form, which helps crops absorb these nutrients faster than they absorb urea- or ammonium-based fertilizers, facilitating a more efficient application of nutrients to the plant and thereby increasing the crop’s yield and improving its quality.

Our products

Potassium nitrate, sodium potassium nitrate and specialty blends are higher margin products derived from, or consisting of, sodium nitrate, and they are all produced in crystallized or prilled form. Specialty blends are produced using our own specialty plant nutrients and other components at blending plants operated by us or our affiliates and related companies in Chile, the United States, Mexico, United Arab Emirates, South Africa, Spain, Turkey, China, India, Thailand, Brazil and Peru.

The following table shows our sales volumes of and revenues from specialty plant nutrients for the periods set forth below:

	Year ended December 31,						Six months ended June 30,
(in Th. MT)	2013		2012		2011		2014		2013
Potassium nitrate and sodium potassium nitrate.		512.6		469.3		551.1		303.8		312.0
Blended and other specialty plant nutrients⁽¹⁾		308.9		286.5		276.0		134.7		127.0
Sodium nitrate		26.4		24.4		22.2		12.3		18.4
Revenue (in millions of U.S. dollars)		687.5		675.4		721.7		379.5		378.6

(1)

Includes blended and other specialty plant nutrients. It also includes Yara’s products sold pursuant to our commercial agreement.

Marketing and customers

In 2013, we sold our specialty plant nutrients in close to 90 countries. During the same year, sales of our specialty plant nutrients were as per the table below. No single customer represented more than 10% of our specialty plant nutrient sales during 2013, and we estimate that our 10 largest customers accounted in the aggregate for approximately 23% of sales during that period.

The following table shows the geographical break down of our sales for the periods set forth below:

	Year ended December 31,									Six months ended June 30,
	2013			2012			2011			2014			2013
North America		27	%		27	%		25	%		32	%		27	%
Europe		20	%		17	%		35	%		24	%		23	%
Central and South America		32	%		38	%		30	%		28	%		29	%
Asia and others		21	%		18	%		10	%		16	%		21	%

We sell our specialty plant nutrition products outside Chile mainly through our own worldwide network of representative offices and through our distribution affiliates.

We maintain stocks of our specialty plant nutrients in the main markets of the Americas, Asia, Europe, the Middle East and Africa in order to facilitate prompt deliveries to customers. In addition, we sell specialty plant nutrition products directly to some of our large customers. Sales are made pursuant to spot purchase orders and short-term contracts.

In connection with our marketing efforts, we provide technical and agronomical assistance and support to some of our customers. By working closely with our customers, we are able to identify new, higher-value-added products and markets. Our specialty plant nutrients products are used on a wide variety of crops, particularly value-added crops, where the use of our products enables our customers to increase yield and command a premium price. In 2013, we launched the global Speedfol™ Crop SP project in order to promote a range of crop-specific, predominantly potassium nitrate-based, locally-produced, water-soluble NPK formulations for foliar spray applications. The Speedfol™ Crop SP project has a duration of five years and targets a variety of crops such as cereals grains, rice, citrus, mango, cotton, soybean and coffee, in countries such as Brazil, China, India, Mexico, South Africa and the Unites States of America. Scientifically proven benefits of Speedfol™ Crop SP applications include increased yields, better quality (e.g., larger-sized fruits) and reduced crop losses (e.g., less premature fruit drop, less lodging incidence in cereals).

Our customers are located in both the northern and southern hemispheres. Consequently, we do not believe there are any seasonal or cyclical factors that can materially affect the sales of our specialty plant nutrient products.

Joint ventures and agreements

From time to time we evaluate opportunities to expand in our current core businesses, including our specialty plant nutrients business, or within new businesses in which we believe we may have sustainable competitive advantages, both within and outside Chile. Consistent with our business strategy, we evaluate potential acquisitions, joint ventures and alliances in our core businesses with companies outside of Chile and Latin America, including in emerging markets.

In November 2001, we signed an agreement with Yara. This agreement allows us to make use of Yara’s distribution network in countries where its presence and commercial infrastructure are larger than ours. Similarly, in those markets where our presence is larger, both our specialty plant nutrients and Yara’s are marketed through our offices. Both parties, however, maintain an active control over the marketing of their own products.

In 2005, SQM acquired 100% of the shares of Kefco, which has a urea phosphate plant located in Dubai. Urea phosphate is a specialty plant nutrient that is used primarily in drip irrigation systems. The plant has an annual production capacity of 30,000 metric tons.

In 2005, SQM and Yara formed a joint venture called MISR Specialty Fertilizers, for the production of tailor-made liquid NPK (nitrogen-phosphate-potassium) fertilizers. The plant is located in Egypt and has a production capacity of 80,000 metric tons per year. We sold our stake in this joint venture in 2012.

In May 2008, we signed a commitment letter for a joint venture with Migao for the production and distribution of specialty plant nutrients in China. In 2009, we signed a shareholders agreement in connection with this joint venture. Through the joint venture, we constructed a potassium nitrate plant with a production capacity of 40,000 metric tons per year. The plant began operating in January 2011. This joint venture will enable us to increase our presence in China, which represents one of the most important and fastest-growing markets for the fertilizer industry.

In May 2009, our subsidiary Soquimich European Holdings entered into an agreement with Coromandel Fertilizers Ltd. to create a joint venture for the production and distribution of water soluble fertilizers in India. The agreement established a 50⁄50 contribution to the joint venture. As part of the agreement, a new 15,000 metric ton facility was constructed in the city of Kakinada to produce water soluble fertilizers (NPK grades). This new facility required a total investment of approximately US$2.6 million and began operating in January 2012.

In December 2009, we signed an agreement with the French Roullier Group to form the joint venture SQM VITAS. This agreement joins two of the largest companies in the businesses of specialty plant nutrients, specialty animal nutrition and professional hygiene. Peru, Brazil and South Africa are the main focus markets of this joint venture and Dubai is the main productive unit. As part of the agreement, our phosphate plant located in Dubai became part of this joint venture.

In the second half of 2011, we effected a corporate reorganization whereby our subsidiary Soquimich European Holding B.V. acquired a 66.6% ownership in Fertilizantes Naturales S.A. (later renamed SQM Iberian S.A.) from Nutrisi Holding N.V. Soquimich European Holding B.V. owned a non-controlling 50% stake in Nutrisi Holding N.V. which was sold following this acquisition. The effect of these transactions has been that we indirectly control SQM Iberian S.A. through Soquimich European Holding B.V. SQM Iberian S.A. sells and distributes fertilizers, primarily in Spain.

In 2012, SQM VITAS started the construction of new plants in Brazil (Candeias), Peru and South Africa (Durban) and in 2013, in Spain, for the production of water soluble fertilizers containing different relative amounts of nitrogen, phosphorus and potassium, and at times, smaller amounts of other chemicals. The Brazilian plant (Candeias Industrial Complex) began operating in March 2012.

Between 2010 and 2012, we continued to expand our production capacity of potassium products in our operations in the Salar de Atacama. In 2011, we completed the construction of a new potassium nitrate facility in Coya Sur, increasing our overall production capacity of potassium nitrate by 300,000 metric tons. In addition, as mentioned above, we entered into a joint venture with Migao in 2008 for the construction of a potassium nitrate plant with a production capacity of 40,000 metric tons per year that began operating in January 2011.

In 2010 we entered into a joint venture for the production of water soluble NPK in China, with a capacity of 15,000 metric tons.

During 2013, the marketing activities of our joint ventures integrated in SQM (Beijing). This change aims to enhance the efficiency of distribution channels for fertilizer products by consolidating marketing into a unified brand and management team, thus reducing costs. In addition, our strategy in this segment is to increase production of water-soluble fertilizers and extend our technologies for applications in order to increase popularity and expand the use of these products.

On March 8, 2013, SQM VITAS acquired the Controlled Release Fertilizer (“CRF”) Technology and Plantacote® business and brand name from AGLUKON. Plantacote® is highly efficient in nutrient utilization and is environmentally friendly due to prevention of leaching, volatilization and fixation of nutrients in the soils as well as the degradation of the coating by microorganisms after complete nutrient release. The unique coating technology and quality standards make Plantacote® very reliable for growing high-quality plants. This new global facility will produce both premium and standard CRFs under the Plantacote® brand name in order to supply worldwide customers that are active in horticulture, agriculture, turf, growing media and consumer markets. Due to this acquisition, SQM VITAS will be able to further expand its current product portfolio of specialty plant nutrition solutions for the benefit of its customers.

Fertilizer sales in Chile

We market specialty plant nutrition products in Chile through our subsidiary Soquimich Comercial S.A., either as a standalone product or in blends with other imported products, in particular triple super phosphate (TSP) and diammonium phosphate (DAP).

Soquimich Comercial S.A. sells commodities fertilizers to farmers in Chile and specialty plant nutrition products principally for use in the production of sugar beets, cereals, industrial crops, potatoes, grapes and other fruits. Most of the fertilizers that Soquimich Comercial S.A. imports are purchased on a spot basis from different countries in the world, including China, Mexico and Venezuela.

All contracts and agreements between Soquimich Comercial S.A. and its suppliers of imported fertilizers generally contain standard and customary commercial terms and conditions. During the preceding 10 years, Soquimich Comercial S.A. has experienced no material difficulties in obtaining adequate supplies of such fertilizers at satisfactory prices.

Soquimich Comercial S.A.’s sales of fertilizers represented approximately 30% of total fertilizer sales in Chile during 2013. Soquimich Comercial S.A.’s consolidated revenues were US$230 million and US$256 million in 2013 and 2012, respectively. Soquimich Comercial S.A.’s consolidated revenues were US$66 million and US$79 million during the six months ended June 30, 2014 and June 30, 2013, respectively.

Competition

We believe we are the world’s largest producer of sodium and potassium nitrate for agricultural use. Our sodium nitrate products compete indirectly with specialty and commodity-type substitutes, which may be used by some customers instead of sodium nitrate depending on the type of soil and crop to which the product will be applied. Such substitute products include calcium nitrate, ammonium nitrate and calcium ammonium nitrate.

In the potassium nitrate market our largest competitor is Haifa Chemicals Ltd. (“Haifa”), in Israel, which is a subsidiary of Trans Resources International Inc. We estimate that sales of potassium nitrate by Haifa accounted for approximately 33% of total world sales during 2013 (excluding sales by Chinese producers to the domestic Chinese market), compared to our share of the market which accounted for approximately 48% of global potassium nitrate sales by volume for the period.

ACF, another Chilean producer, mainly oriented to iodine production, has produced potassium nitrate from caliche ore and potassium chloride since 2005. Kemapco, a Jordanian producer owned by Arab Potash, produces potassium nitrate in a plant located close to the Port of Aqaba, Jordan. In addition, there are several potassium nitrate producers in China, the largest of which are Wentong and Migao. Most of the Chinese production is consumed by the Chinese domestic market

The principal means of competition in the sale of potassium nitrate are product quality, customer service, location, logistics, agronomic expertise and price.

In Chile, our products mainly compete with imported fertilizer. Our specialty plant nutrients, NPK blends, also compete indirectly with lower-priced synthetic commodity-type fertilizers such as ammonia and urea, which are produced by many producers in a highly price-competitive market. Our products compete on the basis of advantages that make them more suitable for certain applications as described above.

In the potassium chloride market we had 3% market share in 2013.

Iodine and its derivatives

We believe we are the world’s largest producer of iodine. In 2013, our revenues from iodine and its derivatives amounted to US$461.0 million, representing 21% of our total revenues in that year. We estimate that our sales accounted for approximately 28% of world iodine sales by volume in 2013.

For the six months ended June 30, 2014, our revenues from iodine and its derivatives were US$183.3 million, representing 17% of our total revenues for this period.

Market

Iodine and its derivatives are used in a wide range of medical, agricultural and industrial applications as well as in human and animal nutrition products. Iodine and its derivatives are used as raw materials or catalysts in the formulation of products such as X-ray contrast media, pharmaceuticals, antiseptics and disinfectants, pharmaceutical intermediates, polarizing films for LCD/LED screens, chemicals, herbicides, organic compounds and pigments. Iodine is also added in the form of potassium iodate or potassium iodide to edible salt to prevent iodine deficiency disorders. We have seen consistent growth in the iodine market over the last 10 years, with the exception of 2009, which was affected by the global financial crisis, with demand being led by uses related to X-ray contrast media and pharmaceuticals. During 2013, iodine demand only saw a moderate increase compared to 2012 as a consequence of high prices and stock optimization. We estimate that the global market size in 2013 was around 31 thousand metric tons, with close to 60% of supply coming from Chilean producers, including us. Increased supply entered the market in 2012 and 2013.

Our products

We produce iodine in the Nueva Victoria plant, near Iquique, and Pedro de Valdivia plant, close to María Elena. We have a total production capacity of 12,500 metric tons /year of iodine, including the Iris plant, next to the Nueva Victoria plant, which remained idle during 2013.

Through ASG, we produce organic and inorganic iodine derivatives. ASG was established in the mid-1990s, and has production plants in the United States, Chile and France. ASG is the world’s leading inorganic and organic iodine derivatives producer.

Consistent with our business strategy, we are constantly working on the development of new applications for our iodine-based products, pursuing a continuing expansion of our businesses and maintaining our market leadership.

We manufacture our iodine and its derivatives in accordance with international quality standards and have qualified our iodine facilities and production processes under the ISO-9001:2008 program, providing third party certification of the quality management system and international quality control standards that we have implemented.

The following table shows our total sales and revenues from iodine and its derivatives for the periods set forth below:

	Year ended December 31,						Six months ended June 30,
(in Th. MT)	2013		2012		2011		2014		2013
Iodine and its derivatives		9.3		11.0		12.2		4.5		5.0
Revenue (in millions of U.S. dollars)		461.0		578.1		454.5		183.3		254.6

Our revenues from iodine and its derivatives decreased from US$578.1 million in 2012 to US$461.0 million in 2013. This decrease was primarily attributable to slower demand growth than seen in previous years, and supply outpacing demand.

Marketing and customers

In 2013, we sold our iodine products to approximately 300 customers in over 70 countries and most of our sales were exports: 36% was sold to customers in Europe, 35% to customers in North America, 25% to customers in Asia and other regions and 4% to customers in Central and South America. No single customer accounted for more than 13% of our iodine sales in 2013, and we estimate that our 10 largest customers accounted in the aggregate for approximately 50% of sales

The following table shows the geographical breakdown of our sales for the periods set forth below:

	Year ended December 31,									Six months ended June 30,
	2013			2012			2011			2014			2013
North America		35	%		36	%		32	%		32	%		33	%
Europe		36	%		30	%		42	%		34	%		37	%
Central and South America		4	%		3	%		3	%		3	%		3	%
Asia and others		25	%		31	%		23	%		31	%		27	%

We sell iodine through our own worldwide network of representative offices and through our sales, support and distribution affiliates. We maintain inventories of iodine at our facilities throughout the world to facilitate prompt delivery to customers. Iodine sales are made pursuant to spot purchase orders or within the framework of supply agreements. Supply agreements generally specify annual minimum and maximum purchase commitments, and prices are adjusted periodically, according to prevailing market prices.

Competition

The world’s main iodine producers are based in Chile, Japan and the United States. Iodine is also produced in Turkmenistan, Azerbaijan, Indonesia, Russia and China.

Iodine production in Chile starts from a unique mineral ore known as caliche ore, whereas in Japan, the United States, Turkmenistan, Azerbaijan, Indonesia and Russia producers extract iodine from underground brines that are mainly obtained together with the extraction of natural gas and petroleum. In China, iodine is extracted from seaweed.

Six Chilean companies (SQM; Atacama Chemical S.A. (Cosayach), controlled by the Chilean holding Inverraz S.A.; ACF Minera S.A. owned by the Chilean family De Urruticoechea; Algorta Norte S.A., a joint venture between ACF Minera S.A. and Toyota Tsusho; SCM Bullmine; and RB Energy, a joint-venture between the Canadian companies Sirocco Mining and Canada Lithium) accounted for approximately 56% of global iodine sales in 2013 (28% by SQM and 28% by the other five Chilean producers).

We estimate that eight Japanese iodine producers accounted for approximately 31% of global iodine sales in 2013, including recycled iodine.

We estimate that iodine producers in the United States (one of which is owned by Ise Chemicals Ltd., a Japanese company) accounted for 5% of world iodine sales in 2013.

Iodine recycling is an increasing trend worldwide. Several Japanese producers have recycling facilities where they recover iodine and its derivatives from iodine waste streams. Iodine recycling, mainly related to LCD consumption, has increased over the past few years and currently represents approximately 17% of world iodine sales. It is estimated that approximately 70% to 75% of the world recycling was done by Japanese iodine producers.

We, through ASG, are also actively participating in the iodine recycling business using iodinated side-streams from a variety of chemical processes in Europe, the United States and Asia.

The prices of iodine and iodine derivative products are determined by market conditions. World iodine prices vary depending upon, among other things, the relationship between supply and demand at any given time. As a result of new supply from other Chilean producers, our annual average iodine sales prices decreased to US$50 per kilogram in 2013.

Demand for iodine varies depending upon overall levels of economic activity and the level of demand in the medical, pharmaceutical, industrial and other sectors that are the main users of iodine and iodine-derivative products. Certain substitutes for iodine are available for certain applications, such as antiseptics and disinfectants, which could represent a cost-effective alternative to iodine depending on prevailing prices. We believe that some substitution has taken place during 2012 and 2013.

The main factors of competition in the sale of iodine and iodine derivative products are reliability, price, quality, customer service and the price and availability of substitutes. We believe we have competitive advantages compared to other producers due to the size and quality of our mining reserves and the available production capacity. We believe our iodine is competitive with that produced by other manufacturers in certain advanced industrial processes. We also believe we benefit competitively from the long-term relationships we have established with our largest customers.

Lithium and its derivatives

We believe we are the leading producer of lithium carbonate and one of the world’s largest producers of lithium hydroxide. In 2013, our revenues from lithium and its derivatives amounted to US$196.5 million, representing 9% of our total revenues. We estimate that our sales accounted for approximately 27% of the sale of global lithium chemicals sales in volume.

For the six months ended June 30, 2014, our revenues from lithium and its derivatives were US$104.1 million, representing approximately 10% of our total revenues for this period.

Market

Lithium carbonate is used in a variety of applications, including electrochemical materials for batteries, ceramic and enamel frits, heat resistant glass (ceramic glass), primary aluminum smelting process, air conditioning chemicals, continuous casting powder for steel extrusion, synthesis of pharmaceuticals and lithium derivatives.

Lithium hydroxide is primarily used as a raw material in the lubricating grease industry, as well as in the dyes and electrochemical material for batteries.

During 2013, lithium chemicals demand increased 4% reaching 130 thousand metric tons, with close to 50% supplied by Chilean producers. We expect energy storage applications to continue driving demand growth over the next few years.

Our products

We produce lithium carbonate at the Salar del Carmen facilities, near Antofagasta, Chile, from solutions with high concentrations of lithium, in the form of lithium chloride, coming from the potassium chloride production at the Salar de Atacama. The annual production capacity of our lithium carbonate plant is 48,000 metric tons per year. We believe that the technologies we use, together with the high concentrations of lithium and unique characteristics of the Salar de Atacama, such as high evaporation rate and concentration of other minerals, allow us to be one of the lowest cost producers worldwide. Solutions of lithium chloride are also sold directly to the market.

We also produce lithium hydroxide at our facilities at the Salar del Carmen, next to the lithium carbonate operation. The lithium hydroxide facility has a production capacity of 6,000 metric tons per year and is one of the largest plants in the world.

The following table shows our total sales and revenues from lithium carbonate and its derivatives for the periods set forth below:

	Year ended December 31,						Six months ended June 30,
(in Th. MT)	2013		2012		2011		2014		2013
Lithium and its derivatives		36.1		45.7		40.7		19.6		16.7
Revenue (in millions of U.S. dollars)		196.5		222.2		183.4		104.1		92.4

Our revenues from lithium and its derivatives in 2013 were US$196.5 million, a 11.6% decrease from US$222.2 million in 2012, due to lower sales volumes resulting from an increase in supply in 2013.

Marketing and customers

In 2013, we sold our lithium products to over 300 customers in approximately 50 countries. No single customer accounted for more than 10% of our lithium sales in 2013, and we estimate that our 10 largest customers accounted in aggregate for approximately 50% of sales.

The following table shows the geographical breakdown of our sales for the periods set forth below:

	Year ended December 31,									Six months ended June 30,
	2013			2012			2011			2014			2013
North America		12	%		10	%		11	%		11	%		12	%
Europe		25	%		22	%		52	%		25	%		31	%
Central and South America		2	%		2	%		1	%		1	%		2	%
Asia and others		61	%		66	%		36	%		63	%		55	%

We sell lithium carbonate and lithium hydroxide through our own worldwide network of representative offices and through our sales, support and distribution affiliates. We maintain inventories of these products at our facilities throughout the world to facilitate prompt delivery to customers. Sales of lithium carbonate and lithium hydroxide are made pursuant to spot purchase orders or within the framework of supply agreements. Supply agreements generally specify annual minimum and maximum purchase commitments, and prices are adjusted periodically, according to prevailing market prices.

Competition

Our main competitors in the lithium carbonate and lithium hydroxide businesses are Rockwood Lithium (“Rockwood”), a subsidiary of Rockwood Specialties Group Inc. (“Rockwood Specialties”), and FMC Corporation (“FMC”). In addition, a number of Chinese producers together accounted for approximately 40% of the world market in 2013, in terms of volume. The main producer in China is Sichuan Tianqi Lithium Industries (“Tianqi”). Rockwood produces lithium carbonate at its operations in Chile and in Nevada, United States. Its production of downstream lithium products is mostly performed in the United States, Germany and Taiwan. Rockwood and Tianqi are 49-51% partners in Talison Lithium Pty Ltd., an Australian company that produces lithium mineral concentrate in Western Australia. FMC has production facilities in Argentina through Minera del Altiplano S.A., where it produces lithium chloride and lithium carbonate. Production of its downstream lithium products is mostly performed in the United States and the United Kingdom.

We believe that lithium production will increase in the near future, balancing the expected growth in demand. A number of new projects to develop lithium deposits have been announced recently, some of them are already under advanced development and others could materialize in the medium-term.

Potassium

We produce potassium chloride and potassium sulfate by extracting brines from the Salar de Atacama that are rich in potassium chloride and other salts.

Since 2009, our end product capacity has increased to over two million metric tons per year, granting us improved flexibility and market coverage.

In 2013, our revenues from potassium chloride and potassium sulfate amounted to US$606.3 million, representing 28% of our total revenues. We are currently completing projects in the Salar de Atacama, which will enable us to increase production and sales of potassium-based products. For the six months ended June 30, 2014, our revenues from potassium chloride and potassium sulfate were US$299.6 million, representing 28% of our total revenues for this period.

Potassium is one of the three macronutrients that a plant needs to develop. Although potassium does not form part of a plant’s structure, it is essential to the development of its basic functions. Potassium chloride is the most commonly used potassium-based fertilizer. It is used to fertilize crops that can tolerate relatively high levels of chloride, and to fertilize crops that are grown under conditions with sufficient rainfall or irrigation practices that prevent chloride from accumulating to excess levels in the rooting systems of the plant.

Some benefits that may be obtained through the use of potassium are:

·	increased yield and quality;

·	increased production of proteins;

·	increased photosynthesis;

·	intensified transport and storage of assimilates;

·	prolonged and more intense assimilation period;

·	improved water efficiency;

·	regulated opening and closure of stomata; and

·	synthesis of lycopene.

Potassium chloride is also an important component for our specialty plant nutrition product line, where it is used as a raw material to produce potassium nitrate.

Market

During the last decade, the potassium chloride market has experienced rapid growth due to several key factors such as a growing world population, higher demand for protein-based diets and less arable land. All of these factors have contributed to growing demand for fertilizers and, in particular, potassium chloride, as efforts are being made to maximize crop yields and use resources more efficiently. For the last 10 years, the compound annual growth for the global potassium chloride market was approximately 1.6%.

According to the most recent studies prepared by the International Fertilizer Industry Association in 2010-2011, cereals received 10.3 metric tons of K2O, (i.e., 37.4% of world potassium consumption, with a low contribution of wheat (6.2%) compared to rice (12.6%) and maize (14.9%)). In contrast, oilseeds represented 19.8% of the total (5.4 metric tons of K2O), with more than four fifths being applied to soybean (9.0%) and oil palm (7.2%) together. Potassium fertilizer use on fiber crops and roots and tubers was modest (2.8 and 3.8%, respectively) compared to sugar crops (7.7%) and fruits and vegetables (16.6%). The remaining 11.8% were applied to other crops.

Demand in the potassium chloride market increased in 2013. We estimate that demand reached the level of 54 million metric tons for potassium chloride during 2013, an increase of approximately 6% as compared to 2012. After unfavorable farming conditions in several countries during 2012, production had to increase in order to meet demand (in a year with historical low inventory levels). We expect the potassium chloride market to maintain its growth trend to up to 57 million metric tons during 2014.

Average prices in the potassium market decreased significantly during 2013 due to unusual events. Uralkali, a leading company in the potash market, abandoned the business arrangement that it held with BPC and generated market uncertainty which affected the commodity’s price levels. In the first half of 2014, the market saw major industry contracts close at significantly lower prices than previous years.

Our products

Potassium chloride differs from our specialty plant nutrition products because it is a commodity fertilizer and contains chloride. We offer potassium chloride in two grades: standard and compacted. Potassium sulfate is considered a specialty fertilizer and we offer three grades: standard, compacted and soluble.

The following table shows our sales volumes of and revenues from potassium chloride and potassium sulfate for the periods set forth below:

	Year ended December 31,						Six months ended June 30,
(in Th. MT)	2013		2012		2011		2014		2013
Potassium chloride and potassium sulfate		1,434.9		1,209.5		1,103.4		837.7		681.3
Revenue (in millions of U.S. dollars)		606.3		605.1		555.7		299.6		317.0

Marketing and customers

In 2013, we sold potassium chloride and potassium sulfate in approximately 70 countries. No single customer accounted for more than 20% of our sales of potassium chloride and potassium sulfate in 2013, and we estimate that our 10 largest customers accounted in the aggregate for approximately 53% of such sales.

The following table shows the geographical breakdown of our sales for the periods set forth below:

	Year ended December 31,							Six months ended June 30,
		2013		2012		2011			2014		2013
North America		17	%	15	%	12	%		24	%	22	%
Europe		16	%	21	%	40	%		15	%	22	%
Central and South America		44	%	47	%	35	%		41	%	38	%
Asia and others		23	%	17	%	13	%		20	%	18	%

Competition

The prices in the potassium chloride market declined during the second half of 2013 as a result of the unexpected announcement made by the Russian company, Uralkali, on July 30, 2013, that it was terminating its participation in BPC. As a result of the termination of Uralkali’s participation in BPC, there was increased price competition in the market. We believe that world market demand is the most important indicator when assessing pricing and the overall future of the potash market. We remain confident that total potash demand levels in 2014 will surpass levels recorded during 2013, which could lead to a positive change in the prices.

We estimate that we accounted for less than 3% of global sales of potassium chloride in 2013. Our main competitors are Uralkali, PCS, Belaruskali and Mosaic. We believe that in 2013 the leading producer in the market was Uralkali Group, which accounted for approximately 18% of global sales. PCS and Mosaic, accounted each 15% and 14% respectively, and Belaruskali, who accounted for approximately 13% of global sales.

In the potassium sulfate market, we have several competitors, of which the most important are K+S KALI GmbH (Germany), Tessenderlo Chemie (Belgium) and Great Salt Lake Minerals Corp. (United States). We believe that these three producers account for approximately 40% of the world production of potassium sulfate.

Industrial chemicals

In addition to producing sodium and potassium nitrate for agricultural applications, we produce three grades of sodium and potassium nitrate for industrial applications: industrial, technical and refined grades. The three grades differ mainly in their chemical purity. We enjoy certain operational flexibility when producing industrial sodium and potassium nitrate because they are produced from the same process as their equivalent agricultural grades, needing only an additional step of purification. We may, with certain constraints, shift production from one grade to the other depending on market conditions. This flexibility allows us to maximize yields and to reduce commercial risk.

In addition to producing industrial nitrates, we produce and market other industrial chemicals such as boric acid, a by-product of the production of potassium sulfate, and industrial-grade potassium chloride, both of which are sold into industrial markets in crystalline form.

In 2013, our revenues from industrial chemicals were US$154.0 million, representing 7% of our total revenues for that year. For the six months ended June 30, 2014, our revenues from industrial chemicals were US$60.6 million, representing 6% of our total revenues for this period.

Market

Industrial sodium and potassium nitrates are used in a wide range of industrial applications, including the production of glass, ceramics, explosives, charcoal briquettes, metal treatments and various chemical processes. In addition, this product line enjoys long-term growth potential from industrial nitrates for thermal storage in solar energy projects. Solar salts for this specific application contain a blend of 60% sodium nitrate and 40% potassium nitrate by weight ratio. Boric acid is primarily used as raw material in the manufacturing of glass, fiberglass, ceramic and enamel frits, and LCD flat panel displays.

Potassium chloride is a basic chemical used to produce potassium hydroxide, and is used as an additive in oil drilling as well as in food processing, among others uses.

Our products

The following table shows our sales volumes of industrial chemicals and total revenues for the periods set forth below:

	Year ended December 31,						Six months ended June 30,
(in Th. MT)	2013		2012		2011		2014		2013
Industrial nitrates		173.5		277.7		181.2		73.4		121.3
Boric acid		2.0		1.8		2.4		0.3		0.7
Revenue (in millions of U.S. dollars)		154.0		245.2		139.5		60.6		109.8

Our revenues from industrial chemicals decreased from US$245.2 million in 2012 to US$154.0 million in 2013, primarily as a result of a decrease in demand for solar salts for new alternative energy projects that utilize industrial grade sodium and potassium nitrate solar thermal energy.

Marketing and customers

We sold our industrial nitrate products in over 50 countries in 2013, with 45% percent of our sales of industrial chemicals to customers in North America, 34% to customers in Europe, 12% to customers in Central and South America and 9% to customers in Asia and other regions. No single customer accounted for more than 22% of our sales of industrial chemicals in 2012, and we estimate that our 10 largest customers accounted in the aggregate for approximately 59% of such sales.

The following table shows the geographical breakdown of our sales for the periods set forth below:

	Year ended December 31,									Six months ended June 30,
	2013			2012			2011			2014			2013
North America		45	%		49	%		22	%		31	%		47	%
Europe		34	%		35	%		51	%		47	%		37	%
Central and South America		12	%		10	%		17	%		10	%		9	%
Asia and others		9	%		6	%		10	%		12	%		7	%

We sell our industrial chemical products mainly through our own worldwide network of representative offices and through our sales and distribution affiliates. We maintain inventories of our different grades of sodium nitrate and potassium nitrate products at our facilities in Europe, North America, South Africa and South America to achieve prompt deliveries to customers. Our research and development team, together with our foreign affiliates, provides technical support to our customers and continuously works with them to develop new products or applications for our products.

Competition

We believe we are the world’s largest producer of sodium and potassium nitrate for industrial use. In the case of industrial sodium nitrate, we estimate that our sales represented close to 50% of world demand in 2013 (excluding China and India internal demand, for which we believe reliable estimates are not available). Our competitors are mainly based in Europe and Asia, producing sodium nitrate as a by-product of other production processes. In refined grade sodium nitrate, BASF AG, a German corporation and several producers in China and Eastern Europe are highly competitive in the European and Asian markets. Our industrial sodium nitrate products also compete indirectly with substitute chemicals, including sodium carbonate, sodium hydroxide, sodium sulfate, calcium nitrate and ammonium nitrate, which may be used in certain applications instead of sodium nitrate and are available from a large number of producers worldwide.

Our main competitor in the industrial potassium nitrates business is Haifa Chemicals, an Israeli company, which we estimate had a 23% of the market share. We estimate that our market share was approximately 28% for 2013.

Producers compete in the market for industrial sodium and potassium nitrate based on reliability, product quality, price and customer service. We believe that we are a low cost producer of both products and are able to produce high quality products.

In the potassium chloride and boric acid markets, we are a relatively small producer mainly supplying regional needs.

Other products

A large part of our other revenue is related to fertilizer trading, usually commodities. These fertilizers are traded in large volumes worldwide. We have developed a trade, supply, and inventory management business that allows us to respond quickly and effectively to the changing fertilizer market in which we operate and profit on these trades.

Production process

Our integrated production process can be classified according to our natural resources:

·	caliche ore deposits, which contain nitrates and iodine; and

·	salar brines, which contain potassium, lithium, sulfate, boron and magnesium.

Caliche ore deposits

Caliche ore deposits are located in northern Chile. During 2013, we operated three mines in this region: Pedro de Valdivia, El Toco (mining site of Maria Elena production facilities) and Nueva Victoria. In December 2013, mining operations at El Toco were temporarily suspended in an effort to optimize our production facilities with lower production costs.

Caliche ore is found under a layer of barren overburden in seams with variable thickness from one meter to five meters, and with the overburden varying in thickness between zero and two meters.

Before proper mining begins, a full exploration stage is carried out, including full geological reconnaissance, sampling and drilling caliche ore to determine the features of each deposit and its quality. Drill-hole samples are properly identified and tested at our chemical laboratories. With the exploration information on a closed grid pattern of drill holes, the ore evaluation stage provides information for mine planning purposes. Mine planning is done on a long-term basis (10 years), medium-term basis (three years) and short-term basis (one year). After drill holes are made, information is updated to offer the most accurate ore supply schedule to the processing plants.

The mining process generally begins with bulldozers first ripping and removing the overburden in the mining area. This process is followed by production drilling and blasting to break the caliche seams. Front-end loaders load the ore on off-road trucks. In the Pedro de Valdivia mine, trucks deliver the ore to stockpiles next to rail loading stations. The stockpiled ore is later loaded onto railcars that take the mineral to the processing facilities.

At the Pedro de Valdivia facility, the ore is crushed and leached to produce concentrated solutions containing the nitrate and iodine. The crushing of the ore produces a coarse fraction that is leached in a vat system and a fine fraction that is leached by agitation. These are followed by liquid-solid separation, where solids precipitate as sediment and liquids containing nitrate and iodine are sent to be processed. In Nueva Victoria the run of mine ore is loaded in heaps and leached with water to produce concentrated solutions.

Caliche ore-derived products

Caliche ore-derived products are: sodium nitrate, potassium nitrate, sodium potassium nitrate, iodine and its derivatives.

Sodium nitrate

During 2013, sodium nitrate for both agricultural and industrial applications was produced at the Pedro de Valdivia facility using the Guggenheim method, which was originally patented in 1921, and is based on a closed-circuit method of leaching vats. This process uses heated brines to leach the crushed caliche in vats and selectively dissolve the contents. The concentrated solution is then cooled, producing sodium nitrate crystals, which can then be separated from the brine using basket centrifuges. After the crystallization process, the brine is pumped to the iodine facilities, where the iodide is separated in a solvent extraction plant. The brine is returned to the vat leaching process. The fine fraction of caliche’s crushing process is leached at ambient temperature with water, producing a weak solution that is pumped to the iodine facilities. After a solvent extraction process, the brine is pumped to solar evaporation ponds in Coya Sur, 15 km south of María Elena.

Our total current crystallized sodium nitrate production capacity at the Pedro de Valdivia facility is approximately 500,000 metric tons per year. Crystallized sodium nitrate is processed further at the Coya Sur and María Elena production plants to produce potassium nitrate in different qualities, sodium potassium nitrate and/or crystallized or prilled nitrates (potassium or sodium), which are transported to our port facilities in Tocopilla by railway for shipping to customers and distributors worldwide.

Potassium nitrate

Potassium nitrate is produced at our Coya Sur facility using a production process developed by us. The brine leached with the fine fraction process at Pedro de Valdivia and the brines produced by heap leaching process in Maria Elena are pumped to Coya Sur’s solar evaporation ponds for a nitrate concentration process. After the nitrate concentration process, the brine is pumped to a conversion plant where potassium salts are added and where a chemical reaction begins and produces brine with dissolved potassium nitrate. This brine is pumped to a crystallization plant, which crystallizes the potassium nitrate by cooling it and separating it from the liquid by centrifuge.

Concentrated nitrate salts were produced at Pampa Blanca until March 2010, and are currently produced at Nueva Victoria by leaching caliche ore in heaps in order to extract solutions that are rich in iodine and nitrates. These solutions are then sent to plants where iodine is extracted through both solvent-extraction and blow out processes. The remaining solutions are subsequently sent to solar evaporation ponds where the solutions are evaporated and rich nitrate salts are produced. These concentrated nitrate salts are then sent to Coya Sur where they are used to produce potassium nitrate.

Our current potassium nitrate production capacity at Coya Sur is approximately 1,000,000 metric tons per year. A new potassium nitrate plant began operations in 2011. During 2013, we produced approximately 247,000 tons and for 2014, we expect to produce close to 260,000 tons of potassium nitrate at this plant. This new plant was designed to use raw material salts harvested in Nueva Victoria and potassium salts from the Salar de Atacama.

The nitrates produced in crystallized or prilled form at Coya Sur have been certified by TÜV-Rheiland under the quality standard ISO 9001:2008. Potassium nitrate produced at Coya Sur and María Elena is transported to Tocopilla for shipping to customers and distributors.

Sodium potassium nitrate

Sodium potassium nitrate is a mixture of approximately two parts sodium nitrate per one part potassium nitrate. We produce sodium potassium nitrate at our Coya Sur and María Elena prilling facilities using standard, non-patented production methods we have developed. Crystallized sodium nitrate is mixed with the crystallized potassium nitrate to make sodium potassium nitrate, which is then prilled. The prilled sodium potassium nitrate is transported to Tocopilla for bulk shipment to customers.

The production process for sodium potassium nitrate is basically the same as that for sodium nitrate and potassium nitrate. With certain production restraints and following market conditions we may supply sodium nitrate, potassium nitrate or sodium potassium nitrate either in prilled or crystallized form.

Iodine and its derivatives

We produce iodine at our Pedro de Valdivia, Maria Elena and Nueva Victoria facilities. During 2013, iodine was produced by extracting it from the solutions resulting from the heap leaching of caliche ore at María Elena and Nueva Victoria, including the Iris facility as part of the Nueva Victoria facility, and from the vat leaching of caliche ore at the Pedro de Valdivia facilities. Production of iodine at the Iris plant was stopped in October 2013.

As in the case of nitrates, the process of extracting iodine from the caliche ore is well established, but variations in the iodine and other chemical contents of the treated ore and other operational parameters require a high level of know-how to manage the process effectively and efficiently.

The solutions resulting from the leaching of caliche carry iodine in iodate form. Part of the iodate solution is reduced to iodide using sulfur dioxide, which is produced by burning sulfur. The resulting iodide is combined with the rest of the untreated iodate solution to release elemental iodine in low concentrations. The iodine is then extracted from the aqueous solutions and concentrated as iodide form using a solvent extraction and stripping plant in the Pedro de Valdivia and Nueva Victoria facilities and using a blow out plant in Iris. The concentrated iodide is oxidized to solid iodine, which is then refined through a smelting process and prilled. We have obtained patents in the United States and recently in Chile under the Chilean patent number 47,080, for our iodine prilling process.

Prilled iodine is tested for quality control purposes, using international standard procedures that we have implemented, then packed in 20 to 50 kilogram drums or 350 to 700 kilogram maxibags and transported by truck to Antofagasta or Iquique for export. Our iodine and its derivatives production facilities have qualified under the new ISO-9001:2008 program, providing third-party certification—by TÜV-Rheiland—of the quality management system. The last recertification process was approved in February 2011. Iodine from the Iris plant was certified under ISO-9001:2008 in April 2012.

Our total iodine production in 2013 was approximately 10,757 metric tons: approximately 6,119 metric tons from Nueva Victoria and Iris, 3,165 metric tons from Pedro de Valdivia, and 1,474 metric tons from María Elena. The Nueva Victoria facility is also used for recycling iodine from the potassium iodide contained in the LCD waste solutions imported mainly from Korea. Nueva Victoria is also equipped to toll iodine from iodide delivered from other SQM facilities. We have the flexibility to adjust our production according to market conditions. Our total current production capacity at our iodine production plants is approximately 12,500 metric tons per year.

We use a portion of the produced iodine to manufacture inorganic iodine derivatives, which are intermediate products used for manufacturing agricultural and nutritional applications, at facilities located near Santiago, Chile. We also produce inorganic and organic iodine derivative products together with Ajay, which purchases iodine from us. In the past, we have primarily marketed our iodine derivative products in South America, Africa and Asia, while Ajay and its affiliates have primarily sold their iodine derivative products in North America and Europe.

In September 2010, the National Environmental Commission of Chile (Comisión Nacional del Medioambiente, or “CONAMA”) approved the environmental study of our Pampa Hermosa project in the Region of Tarapacá in Chile. This approval allowed us to increase the production capacity of our Nueva Victoria operations from 4,500 to 11,000 metric tons of iodine per year and to produce up to 1.2 million metric tons of nitrates, mine up to 33 million metric tons of caliche per year and use new water rights of up to 570.8 liters per second. During 2012, we made investments in order to increase the water capacity in the Nueva Victoria operations from two water sources approved by the environmental study of Pampa Hermosa, expand the capacity of solar evaporation ponds and to implement new areas of mining and collection of solutions. Additional expansions may be done from time to time in the future, depending on market conditions.

In October 2013, the National Assessment Comission (Comisión de Evaluación Ambiental, or “CEA”) approved the environmental study for the expansion of our Pampa Blanca operations. This project will expand our areas of extraction of caliche ore in the region of Antofagasta, increasing production capacity by 10,000 tons of iodine and 1.3 million tons of nitrates per year. The project envisions the construction of a pipeline from the Pacific Ocean to the mining site.

Salar de Atacama brine deposits

The Salar de Atacama, located approximately 250 kilometers east of Antofagasta, is a salt-encrusted depression in the Atacama desert, within which lies an underground deposit of brines contained in porous sodium chloride rock fed by an underground inflow from the Andes mountains. The brines are estimated to cover a surface of approximately 2,800 square kilometers and contain commercially exploitable deposits of potassium, lithium, sulfates and boron. Concentrations vary at different locations throughout the Salar de Atacama. Our production rights to the Salar de Atacama are pursuant to the Lease Agreement with Corfo, which expires in 2030. The Lease Agreement permits the CCHEN to establish a total accumulated extraction limit of 180,100 tons of lithium extraction in the aggregate for all periods. More than halfway through the term of the Lease Agreement, we have extracted less than half of the total accumulated extraction limit of lithium. See “—Legal proceedings—Corfo arbitral claims.”

Brines are pumped from depths of 1.5 to 60 meters below surface, through a field of wells that are located in areas of the Salar de Atacama that contain relatively high concentrations of potassium, lithium, sulfate, boron and other minerals.

We process these brines to produce potassium chloride, potassium sulfate, lithium carbonate, lithium hydroxide, lithium chloride, boric acid and bischofite (magnesium chloride).

Potassium chloride

We use potassium chloride in the production of potassium nitrate. Production of our own supplies of potassium chloride provides us with substantial raw material cost savings.

In order to produce potassium chloride, brines from the Salar de Atacama are pumped to solar evaporation ponds. Evaporation of the brines results in a complex crystallized mixture of salts of potassium, sodium and magnesium. Waste sodium chloride salts are removed by precipitation. After further evaporation, the sodium and potassium salts are harvested and sent for treatment at one of the potassium chloride plants where potassium chloride is separated by a grinding, flotation, and filtering process. Potassium salts also containing magnesium are harvested and sent for treatment at one of the cold leach plants where magnesium is removed. Potassium chloride is transferred for approximately 300 kilometers to our Coya Sur facilities via a dedicated truck transport system, where it is used in the production of potassium nitrate. We sell potassium chloride produced at the Salar de Atacama in excess of our needs to third parties. All of our potassium-related plants in the Salar de Atacama currently have a production capacity in excess of up to 2.6 million metric tons per year. Actual production capacity will depend on volume, metallurgical recovery rates and quality of the mining resources pumped from the Salar de Atacama. We expect to finish expansion capacity of compacted potassium chloride to 1.4 million metric tons per year during 2014.

The by-products of the potassium chloride production process are (i) brines remaining after removal of the potassium chloride, which are used to produce lithium carbonate as described below, with the excess amount being reinjected into the Salar de Atacama; (ii) sodium chloride, which is similar to the surface material of the Salar de Atacama and is deposited at sites near the production facility; and (iii) other salts containing magnesium chloride.

Lithium carbonate and lithium chloride

A portion of the brines remaining after the production of potassium chloride is sent to additional solar concentration ponds adjacent to the potassium chloride production facility. Following additional evaporation, the remaining concentrated solution of lithium chloride is transported by truck to a production facility located near Antofagasta, approximately 230 kilometers from the Salar de Atacama. At the production facility, the solution is purified and treated with sodium carbonate to produce lithium carbonate, which is dried and then, if necessary, compacted and finally packaged for shipment. A portion of this purified lithium chloride solution is packaged and shipped to customers. The production capacity of our lithium carbonate facility is approximately 48,000 metric tons per year. Future production will depend on the actual volumes and quality of the lithium solutions sent by the Salar de Atacama operations, as well as prevailing market conditions.

Lithium carbonate production quality assurance program has been certified by TÜV-Rheiland under ISO 9001:2000 since 2005 and under ISO 9001:2008 since October 2009.

Lithium hydroxide

Lithium carbonate is sold to customers, and we also use it as a raw material for our lithium hydroxide monohydrate facility, which started operations at the end of 2005. This facility has a production capacity of 6,000 metric tons per year and is located in the Salar del Carmen, adjacent to our lithium carbonate operations. In the production process, lithium carbonate is reacted with a lime solution to produce lithium hydroxide brine and calcium carbonate salt, which is filtered and piled in reservoirs. The brine is evaporated in a multiple effect evaporator and crystallized to produce the lithium hydroxide monohydrate, which is dried and packaged for shipment to customers.

Lithium hydroxide production quality assurance program has been certified by TÜV-Rheiland under ISO 9001:2000 since 2007 and under ISO 9001:2008 since October 2009.

Potassium sulfate and boric acid

Approximately 12 kilometers northeast of the potassium chloride facilities at the Salar de Atacama, we use the brines from the Salar de Atacama to produce potassium sulfate, potassium chloride (as a by-product of the potassium sulfate process) and boric acid. The plant is located in an area of the Salar de Atacama where high sulfate and potassium concentrations are found in the brines. Brines are pumped to pre-concentration solar evaporation ponds where waste sodium chloride salts are removed by precipitation. After further evaporation, the sulfate and potassium salts are harvested and sent for treatment at the potassium sulfate plant. Potassium sulfate is produced using flotation, concentration and reaction processes, after which it is crystallized, dried and packaged for shipment.

Production capacity for the potassium sulfate plant is approximately 340,000 metric tons per year of which approximately 95,000 metric tons correspond to potassium chloride production as by product of the potassium sulfate process. This capacity is part of the total plant capacity of 2.6 million metric tons per year. In our dual plant complex we may switch, to some extent, between potassium chloride and potassium sulfate production.

Part of the pond system in this area is also used to process potassium chloride brines extracted from the low sulfate concentration areas found in the salar.

The principal by-products of the production of potassium sulfate are: (i) non-commercial sodium chloride, which is deposited at sites near the production facility, and (ii) remaining solutions, which are re-injected into the Salar de Atacama or returned to the evaporation ponds. The principal by-products of the boric acid production process are remaining solutions that are treated with sodium carbonate to neutralize acidity and then are reinjected into the Salar de Atacama.

Raw materials

The main raw material that we require in the production of nitrate and iodine is caliche ore, which is obtained from our surface mines. The main raw material in the production of potassium chloride, lithium carbonate and potassium sulfate is the brine extracted from our operations at the Salar de Atacama.

Other important raw materials are sodium carbonate (used for lithium carbonate production and for the neutralization of iodine solutions), sulfur, sulfuric acid, kerosene, anti-caking and anti-dust agents, ammonium nitrate (used for the preparation of explosives in the mining operations), woven bags for packaging our final products, electricity acquired from electric utilities, and liquefied natural gas and fuel oil in heat generation. Our raw material costs (excluding caliche ore and salar brines and including energy) represented 17.7% of our cost of sales in 2013.We have several electricity supply agreements signed with major producers in Chile which are expected to cover our electricity needs until 2030. We are connected to the northern power grid in Chile, which currently supplies electricity to most cities and industrial facilities in northern Chile, since April 2000.

We obtain ammonium nitrate, sulfur, sulfuric acid, kerosene and soda ash from several large suppliers, mainly in Chile and the United States, under long-term contracts or general agreements, some of which contain provisions for annual revisions of prices, quantities and deliveries. Diesel fuel is obtained under contracts that provide fuel at international market prices.

We believe that all of our contracts and agreements with third-party suppliers with respect to our main raw materials contain standard and customary commercial terms and conditions.

Chilean government regulations

We are subject to the full range of government regulations and supervision generally applicable to companies engaged in business in Chile, including labor laws, social security laws, public health laws, consumer protection laws, environmental laws, tax laws, securities laws and anti-trust laws. These include regulations to ensure sanitary and safety conditions in manufacturing plants.

We conduct our mining operations pursuant to exploration concessions and exploitation concessions granted pursuant to applicable Chilean law. Exploitation concessions essentially grant a perpetual right to conduct mining operations in the areas covered by the concessions, provided that annual concession fees are paid (with the exception of the Salar de Atacama rights, which have been leased to us until 2030). Exploration concessions permit us to explore for mineral resources on the land covered thereby for a specified period of time, and to subsequently request a corresponding exploitation concession.

Under Law No. 16,319 that created the CCHEN (Chilean Nuclear Energy Commission), we have an agreement with the CCHEN regarding the exploitation and sale of lithium from the Salar de Atacama. The agreement sets quotas for the tonnage of lithium authorized to be sold.

We also hold water rights obtained from the Chilean water regulatory authority for the supply of water from rivers or wells near our production facilities sufficient to meet our current and anticipated operating requirements. See “Risk factors—Risks relating to Chile.” The Water Code is subject to changes, which could have a material adverse impact on our business, financial condition and results of operations. Law No. 20,017, published on June 16, 2005, modified the Chilean laws relating to water rights. Under certain conditions, these modifications allow the constitution of permanent water rights of up to two liters per second for each well built prior to June 30, 2004, in the locations where we conduct our mining operations. In constituting these new water rights, the law does not consider the availability of water, or how the new rights may affect holders of existing rights. Therefore, the amount of water we can effectively extract based on our existing rights could be reduced if these additional rights are exercised. These and other potential future changes to Chilean laws relating to water rights could have a material adverse impact on our business, financial condition and results of operations.

We operate port facilities at Tocopilla for shipment of products and delivery of certain raw materials pursuant to maritime concessions, under applicable Chilean laws, which are normally renewable on application, provided that such facilities are used as authorized and annual concession fees are paid.

In 2005, the Chilean Congress approved the Royalty Law, which established a royalty tax to be applied to mining activities developed in Chile. In 2010, modifications were made to the law and taxes were increased. In 2012, new modifications to the tax laws were enacted to set the corporate tax rate at 20%. The Chilean government may again decide to levy additional taxes on mining companies or other corporations in Chile, and such taxes could have a material adverse impact on our business, financial condition and results of operations.

In 2006, the Chilean Congress amended the Labor Code, and effective January 15, 2007, certain changes were made affecting companies that hire subcontractors to provide certain services. This new law, known as the Subcontracting Law (Ley de Subcontratación), further amends the Labor Accidents Law No. 16,744 to provide that when a serious accident in the workplace occurs, a company must halt work at the site where the accident took place until authorities from the SERNAGEOMIN, the Labor Board or the Seremi de Salud, inspect the site and prescribe the measures such company must take to prevent future risks. Work may not be resumed until the company has taken the prescribed measures, and the period of time before work may be resumed may last for a number of hours, days, or longer. The effects of this law could have a material adverse effect on our business, financial condition and results of operations.

On December 2, 2009, Law No. 20,393 went into effect, establishing a system of criminal liability for legal entities. The objective of the new regulation is to allow legal entities to be prosecuted for the crimes of (a) asset laundering, (b) financing terrorism and (c) bribery, where such crimes are committed by people who hold relevant positions within a legal entity in order to benefit that legal entity. The law establishes a prevention model that includes, among others, the designation of a person in charge of prevention and the establishment of special programs and policies. The implementation of this model can exempt a company from liability.

On January 1, 2010, Law No. 20,382 went into effect, introducing modifications to the Chilean Law No. 18,045, known as the Chilean Securities Market Law (Ley de Mercado de Valores) Securities Law and Law No. 18,046 on Corporations (Ley de Sociedades Anónimas, or the “Chilean Corporations Act”). The new law relates to corporate governance and, in general, seeks to improve such matters as the professionalization of senior management at corporations, the transparency of information, and the detection and resolution of possible conflicts of interest. The law establishes the concept of an independent director for certain corporations, including SQM. Such director has a preferential right to be a member of the Directors’ Committee, a position which, in turn, grants the director further powers. The new independent director may be proposed by any shareholder with an ownership interest of 1% or more in a company, but he or she must satisfy a series of independence requirements with respect to the company and the company’s competition, providers, customers and majority shareholders. The new law also refines the regulations regarding the information that companies must provide to the general public and to the SVS, as well as regulations relating to the use of inside information, the independence of external auditors, and procedures for the analysis of transactions with related parties.

On January 26, 2010, the Chilean Congress amended the Environmental Law to create the Ministry of Environment, the Environmental Assessment Service and the Environmental Enforcement Superintendence (Superintendencia del Medioambiente, or “Environmental Enforcement Superintendence”). These changes introduced important amendments to environmental regulations by setting up new agencies and introducing new provisions and procedures applicable to projects whose operations bear an impact on the environment. The new Ministry designs and implements environmental policies relating to environmental conservation, sustainable growth and the protection of Chile’s renewable energy resources. In addition, the Ministry is responsible for enacting emission and quality standard regulations, as well as recovery and decontamination plans. The Environmental Assessment Service pursues procedures of the Environmental Impact Assessment System, pursuant to which projects are environmentally approved or rejected. In procedures for obtaining an environmental license, any person, including legal entities and companies, will be allowed to file oppositions and comments. Summary procedures, such as Environmental Impact Statements, allow comments in support or opposition under certain circumstances. Technical reports from governmental agencies are considered to be final. The Environmental Enforcement Superintendence is an independent agency which oversees and coordinates with other governmental agencies in charge of supervision of suspended projects and projects requiring environmental approval. Likewise, it will receive, investigate and rule on complaints concerning the infringement of environmental regulations and will sanction violators, deliver injunction orders and levy relevant fines. The Environmental Enforcement Superintendence had its powers suspended until the First Environmental Court was installed in Santiago on December 28, 2012.

There are currently no material legal or administrative proceedings pending against us, except as discussed under “—Legal Proceedings” and in note 16.1 to our unaudited consolidated financial statements and below under “—Safety, health and environmental regulations in Chile,” and we believe that we are in compliance in all material respects with all applicable statutory and administrative regulations with respect to our business.

Safety, health and environmental regulations in Chile

Our operations in Chile are subject to both national and local regulations related to safety, health, and environmental protection. In Chile, the main regulations on these matters that are applicable to SQM are the Mine Health and Safety Act of 1989 (Reglamento de Seguridad Minera, or the “Mine Health and Safety Act”), the Health Code (Código Sanitario), the Health and Safety Act 1999 (Reglamento sobre Condiciones Sanitarias y Ambientales Básicas en los Lugares de Trabajo, or the “Health and Basic Conditions Act”), the Subcontracting Law, and the environmental framework law of 1994, amended in 2010 (Ley sobre Bases Generales del Medio Ambiente, or the “Environmental Law”).

Health and safety at work are fundamental aspects in the management of mining operations, which is why SQM has made constant efforts to maintain good health and safety conditions for the people working at its mining sites. In addition to the role played by us in this important matter, the Chilean government has a regulatory role, enacting and enforcing regulations in order to protect and ensure the health and safety of workers. The Chilean government, acting through the Ministry of Health and the SERNAGEOMIN, performs health and safety inspections and oversees mining projects, among other tasks, and it has exclusive powers to enforce standards related to environmental conditions and the health and safety of the people performing activities related to mining.

The Mine Health and Safety Act protects workers and nearby communities against health and safety hazards, and it provides for enforcement of the law where compliance has not been achieved. SQM’s Internal Mining Standards (Reglamentos Internos Mineros) establish our obligation to maintain a workplace that is safe and free of health risks, in as much as this is reasonably practicable. We must comply with the general provisions of the Health and Basic Conditions Act, our own internal standards, and the provisions of the Mine Health and Safety Act. In the event of non-compliance, the Ministry of Health and particularly the SERNAGEOMIN are entitled to use their enforcement powers to ensure compliance with the law.

In November 2011, the Ministry of Mining enacted Law No. 20,551 that Regulates Mine Closure and its Facilities (Ley que Regula el Cierre de Faenas e Instalaciones Mineras). This new statute entered in force in November 2012. Its main requirements are related to disclosures to the SERNAGEOMIN regarding decommissioning plans for each mining site and its facilities, along with the estimated cost to implement such plans. There is a requirement to provide a form of financial assurance to the SERNAGEOMIN to secure compliance with the decommissioning plans. There are various types of financial assurance that satisfy the requirement. By November 2014, we have to inform the SERNAGEOMIN of the estimated costs for each of our decommissioning plans and the corresponding financial assurances we propose to provide, which are subject to approval by the SVS.

The Environmental Law was subjected to several important modifications that entered into effect in January 2010, including the creation of the Ministry of the Environment, the Environmental Assessment Service, and the Environmental Enforcement Superintendence. The Environmental Enforcement Superintendence began operations on December 28, 2012. The new and modified Environmental Law replaced the CONAMA with both the Ministry of the Environment, which is currently the governmental agency responsible for coordinating and supervising environmental issues, and the Environmental Assessment Service. Under the new Environmental Law, we will continue to be required to conduct environmental impact studies or statements of any future projects or activities (or their significant modifications) that may affect the environment. With the above mentioned modifications to the Environmental Law, the Environmental Assessment Service, together with other public institutions with mandates related to the environment, evaluates environmental impact studies or statements submitted for its approval. The Environmental Enforcement Superintendence is responsible for auditing environmental performance during the construction, operation, and closure of the projects. The Environmental Law also promotes citizen participation in project evaluation and implementation, providing more opportunities during the environmental evaluation process. Annually, the Environmental Enforcement Superintendence audits a sample of approved projects to verify compliance with the environmental permits, and it may pursue fines or sanctions if applicable, which can be challenged in the Environmental Court.

On August 10, 1993, the Ministry of Health published in the Official Gazette a resolution establishing that atmospheric particulate levels at our production facilities in María Elena and Pedro de Valdivia exceeded air quality standards, affecting the nearby towns. The high particulate matter levels came principally from dust produced during the processing of caliche ore, particularly the crushing of the ore before leaching. Residents of the town of Pedro de Valdivia were relocated to the town of María Elena, practically removing Pedro de Valdivia from the scope of the determination of the Ministry of Health. In 1998, authorities approved a plan to reduce the atmospheric particulate levels later modified by Decree No. 37/2004 in March 2004, which called for an 80% reduction of the emissions of atmospheric particulate material. This was achieved by 2008 through the implementation of a project that modified the milling and screening systems used in the processing of the caliche ore at the María Elena facilities. Due to international market conditions, this project ceased its operation in March 2010, and today the milling and screening systems used in the processing of the caliche ore at the María Elena facilities remain closed. Air quality in the area has improved significantly and compliance of air quality standards required by law is being assessed. When the average of three consecutive years meets the Chilean air quality standard, the resolution of 1993 of the Ministry of Health may be reviewed.

On March 16, 2007, the Ministry of Health published in the Official Gazette a resolution establishing that atmospheric particulate levels exceeded air quality standards in the coast-town of Tocopilla, where we have our port operations. The high particulate matter levels are caused mainly by two thermoelectric power plants that use coal and fuel oil and are located next to our port operations. Our participation in particulate matter emissions is very small (less than 0.20% of the total). However, a decontamination plan was developed by the environmental authority, and its implementation began in October 2010. During 2008 and 2009, earlier than required, SQM implemented control measures for mitigating particulate matter emissions in its port operations according to the requirements of this plan. We do not expect any additional measures to be required of SQM following the implementation of the plan.

We regularly monitor the impact of our operations on the environment and have made, from time to time, modifications to our facilities in an effort to eliminate any adverse impacts. Also, over time, new environmental standards and regulations have been enacted, which have required minor adjustments or modifications of our operations for full compliance. We anticipate that additional laws and regulations will be enacted over time with respect to environmental matters. While we intend to comply with all environmental regulations applicable to us, there can be no assurance that we have always maintained, or will always be able to maintain, such compliance or that future legislative or regulatory developments will not impose new restrictions on our operations. We are committed to both complying with all applicable environmental regulations and applying an Environmental Management System to continuously improve our environmental performance.

We have submitted and will continue to submit several environmental impact assessment studies related to our projects to the relevant governmental authorities. We require the authorization of these submissions in order to maintain and to increase our production capacity.

International regulations

SQM employs its best efforts to ensure compliance with the complex regulatory environments in which it operates.

In May 2013, the second deadline for registration of chemicals under European regulation REACH (Regulation, Evaluation, Authorization and Restriction of Chemical Substances) expired. SQM registered 10 substances imported to the European market in the tonnage threshold of 100-1000 metric tons /year.

In July 2013, the Health and Consumers Directorate-General of the European Commission (“DG Sanco”) released a statement about the presence of perchlorate in food, setting provisional maximum levels in all foods, including fruits and vegetables, and indicating that fertilizers, in addition to soil and water, are considered to be potential sources of perchlorate contamination in food. In October 2014, the European Food Safety Authority (“EFSA”) released a scientific opinion on the risks to public health related to the presence of perchlorate in food, in particular fruits and vegetables. The scientific opinion concluded, among other things, that the use of natural fertilizers and perchlorate contaminated irrigation water may lead to substantial concentrations in vegetables and some fruits. The EFSA scientific opinion recommended that additional data gathering be undertaken to improve risk assessment. DG Sanco may seek to change provisional values for foods based on the report or the recommended data gathering. Fertilizers marketed in the European market contain less than 0.01% of perchlorate, and uptake studies in targeted crops are being performed by the industry to demonstrate compliance with the above referred values.

In 2012, the U.S. Occupational Health and Safety Administration (“OSHA”) aligned its Hazard Communication Standard to comply with the Globally Harmonized System, which requires companies to review hazard information for all chemicals imported into the US, classify chemicals according to the new classification criteria, and update labels and safety data sheets by June 2015. We are already working on a program which aims to comply with the requirements of this new regulation in line with the stages and deadlines established by OSHA. The updating of the Safety Data Sheets for all products sold in the US has been finished, and the update of labels is in progress and will be completed the first quarter of 2015.

Organizational structure

All of our principal operating subsidiaries are essentially wholly-owned, except for Soquimich Comercial S.A., which is 61% owned by us and whose shares are listed and traded on the Santiago Stock Exchange, and Ajay SQM Chile S.A., which is 51% owned by us. The following is a summary of our main subsidiaries as of June 30, 2014. For a list of all our consolidated subsidiaries, see note 2.5 to our unaudited consolidated financial statements.

Principal subsidiaries	Activity	Country of Incorporation	SQM Beneficial Ownership Interest (Direct/ Indirect)
SQM Nitrates S.A.	Extracts and sells caliche ore to subsidiaries and affiliates of SQM	Chile	100%
SQM Industrial S.A.	Produces and markets SQM’s products directly and through other subsidiaries and affiliates of SQM	Chile	100%
SQM Salar S.A.	Exploits the Salar de Atacama to produce and market SQM’s products directly and through other subsidiaries and affiliates of SQM	Chile	100%
SQM Potasios S.A.	Produces and markets SQM’s products directly and through other subsidiaries and affiliates of SQM	Chile	100%
Servicios Integrates de Transitos y Transferencias S.A. (SIT)	Owns and operates a rail transport system and also owns and operates the Tocopilla port facilities	Chile	100%
Soquimich Comercial S.A.	Markets SQM’s specialty plant nutrition products domestically and imports fertilizers for resale in Chile	Chile	61%
Ajay-SQM Chile S.A.	Produces and markets SQM’s iodine and its derivatives	Chile	51%
Sales and distribution subsidiaries in the United States, Belgium, Brazil, Ecuador, Peru, Argentina, Mexico, South Africa, Spain, China, Thailand and other locations.	Market SQM’s products throughout the world	Various	N/A

Concessions, extraction yields and reserves for the caliche ore mines and salar brines

Concessions for the caliche ore mines and salar brines

As of December 31, 2013, approximately 93% of our total mining concessions were held pursuant to exploitation concessions and 7% pursuant to exploration concessions. Of the exploitation concessions, approximately 88% already have been granted pursuant to applicable Chilean law, and approximately 12% are in the process of being granted. Of the exploration concessions, approximately 70% already have been granted pursuant to applicable Chilean law, and approximately 30% are in the process of being granted.

We made payments to the Chilean government for our exploration and exploitation concessions of US$9.7 million in 2013.

Additional mining operations leased in the Salar de Atacama region

As of December 31, 2013, we held exploration rights covering approximately 70,100 hectares, and we had applied for additional exploration rights covering approximately 55,800 hectares. Exploration rights are valid for a period of two years, after which we can (i) request an exploitation concession for the land, (ii) request an extension of the exploration rights for an additional two years (the extension only applies to a reduced surface area equal to 50% of the initial area), or (iii) cease exploration of the zone covered by the rights. The weighted average age of the assets of our mining facilities at the Salar de Atacama is approximately 6.8 years. Solar energy is the primary source of power used by our Salar de Atacama operation.

As of December 31, 2013, SQM Salar held exclusive exploitation rights to the mineral resources existing in 81,920 hectares in the Salar de Atacama in northern Chile pursuant to the Lease Agreement between Corfo and SQM Salar. These rights are owned by Corfo and leased to SQM Salar pursuant to the Lease Agreement. Corfo may not unilaterally amend the Lease Agreement, and the rights to exploit the resources cannot be transferred. The Lease Agreement establishes that SQM Salar is responsible for the maintenance of Corfo’s exploitation rights and for annual payments to the Chilean government, and it expires on December 31, 2030. Furthermore, the Lease Agreement permits the CCHEN to establish a total accumulated extraction limit set at 180,100 tons of lithium extraction in the aggregate for all periods. More than halfway through the term of the Lease Agreement, we have extracted approximately half of the total accumulated extraction limit of lithium. SQM Salar is required to make lease-royalty payments to Corfo according to specified percentages of the value of minerals extracted from the Salar de Atacama brines. Corfo has initiated arbitration proceedings in connection with the Lease Agreement. See “—Legal proceedings—Corfo arbitral claims.”

The following table shows our constituted exploitation and exploration concessions as of December 31, 2013:

	Exploitation concessions				Exploration concessions				Total
Mines	Total number		Hectares		Total number		Hectares		Total number		Hectares
Pedro de Valdivia		565		144,737		16		4,500		581		149,237
EI Toco		647		190,352		42		10,600		689		200,952
Pampa Blanca		469		137,662		21		5,900		490		143,562
Nueva Victoria		306		78,667		1		600		307		79,267
Subtotal Caliche Ore Mines		1,987		551,418		80		21,600		2,067		573,018
Salar de Atacama		1,025		444,808		112		70,100		1,137		514,908
Subtotal Mines		3,012		996,226		192		91,700		3,204		1,087,926
Subtotal other Areas		7,931		1,763,668		251		62,800		8,182		1,826,468
Total		10,943		2,759,894		443		154,500		11,386		2,914,394

Extraction yields

The following table shows certain operating data relating to each of our mines for 2013, 2012 and 2011:

(in thousands, unless otherwise stated)	2013		2012		2011

Pedro de Valdivia
Metric tons of ore mined		11,571		12,027		12,151
Average grade nitrate (% by weight)		7.5		7.3		7.2
Iodine (parts per million (ppm))		415		406		417
Metric tons of crystallized nitrate produced		445		466		454
Metric tons of iodine produced		3.2		3.2		3.1

Maria Elena⁽¹⁾
Metric tons of ore mined		5,870		6,787		6,787
Average grade nitrate (% by weight)		6.6		6.2		6.2
Iodine (ppm)		484		454		454

(in thousands, unless otherwise stated)	2013		2012		2011
Metric tons of crystallized nitrate produced		–		–		–
Metric tons of iodine produced		1.5		1.7		1.7

Coya Sur⁽²⁾
Metric tons of crystallized nitrate produced		441		491		395

Pampa Blanca⁽¹⁾
Metric tons of ore mined		–		–		–
Iodine (ppm)		–		–		–
Metric tons of iodine produced		–		–		–

Nueva Victoria⁽¹⁾
Metric tons of ore mined		23,515		23,937		18,418
Iodine (ppm)		462		465		457
Metric tons of iodine produced		6.1		6.0		5.2

Salar de Atacama ⁽³⁾
Metric tons of lithium carbonate produced		33		41		38
Metric tons of potassium chloride and potassium sulfate produced		1,908		1,977		1,448

(1)	Operations at the El Toco and Pampa Blanca mines were temporarily suspended in November 2013 and March 2010 respectively. Operations at the Iris Iodine Plant were temporarily suspended in October 2013.

(2)	Includes production at Coya Sur from treatment of nitrates solutions from María Elena and fines from Pedro de Valdivia, nitrates from pile treatment at Nueva Victoria and net production from NPT, or technical (grade) potassium nitrate, plants.

(3)	Lithium is extracted at the Salar de Atacama and processed at our facilities at the Salar del Carmen.

Reserves for the caliche ore deposits

Our in-house staff of geologists and mining engineers prepares our estimates of caliche ore reserves. The proven and probable reserve figures presented below are estimates, and no assurance can be given that the indicated levels of recovery of nitrates and iodine will be realized.

We estimate ore reserves based on engineering evaluations of assay values derived from sampling of drill-holes and other openings. Drill-holes have been made at different space intervals in order to recognize mining resources. Normally, we start with 400x400 meters and then we reduce spacing to 200x200 meters, 100x100 meters and 50x50 meters. The geological occurrence of caliche mineral is unique and different from other metallic and non-metallic minerals. Caliche ore is found in large horizontal layers at depths ranging from one to five meters and has an overburden between zero and two meters. This horizontal layering is a natural geological condition and allows the Company to estimate the continuity of the caliche bed based on surface geological reconnaissance and analysis of samples and trenches. Mining resources can be calculated using the information from the drill-hole sampling.

According to our experience in caliche ore, the grid pattern drill-holes with spacing equal to or less than 100 meters produce data on the caliche resources that is sufficiently defined to consider them measured resources and then, adjusting for technical, economic and legal aspects, as proven reserves. These reserves are obtained using the Kriging Method and the application of operating parameters to obtain economically profitable reserves. Similarly, the information obtained from detailed geologic work and samples taken from grid pattern drill-holes with spacing equal to or less than 200 meters can be used to determine indicated resources. By adjusting such indicated resources to account for technical, economic and legal factors, it is possible to calculate probable reserves. Probable reserves are calculated by evaluating polygons and have an uncertainty or margin of error greater than that of proven reserves. However, the degree of certainty of probable reserves is high enough to assume continuity between points of observation.

Probable reserves are the economically mineable part of an “Indicated Mineral Resource” and, in some circumstances, a “Measured Mineral Resource.” An indicated mineral resource is the part of a mineral resource for which tonnage, densities, shape, physical characteristics, grade and mineral content can be estimated with a reasonable level of confidence. The calculation is based on exploration, sampling and testing information gathered through appropriate techniques from locations such as outcrops, trenches, pits, workings, and drill holes. A measured mineral resource is the part of a mineral resource for which tonnage, densities, shape, physical characteristics, grade and mineral content can be estimated with a high level of confidence. The estimate is based on detailed and reliable exploration, sampling and testing information gathered through appropriate techniques from locations such as outcrops, trenches, pits, workings, and drill holes.

Proven reserves are the economically mineable part of a measured mineral resource. The calculation of the reserves includes diluting materials and allowances for losses which may occur when the material is mined. Appropriate assessments, which may include feasibility studies, have been carried out and include consideration of and modification by realistically assumed mining, metallurgical, economic, marketing, legal, environmental, social and governmental factors. These assessments demonstrate at the time of reporting that extraction is reasonably justified.

The calculation of the reserves includes diluting of materials and allowances for losses which may occur when the material is mined. Appropriate assessments, which may include feasibility studies, have been carried out and include consideration of and modification by realistically assumed mining, metallurgical, economic, marketing, legal, environmental, social and governmental factors.

The estimates of proven reserves of caliche ore at each of our mines as of December 31, 2013 are set forth below. The Company holds 100% of the concession rights for each of these mines.

Mine⁽¹⁾	Proven Reserves⁽²⁾⁽³⁾ (millions of metric tons)		Nitrate Average Grade (percentage by weight)			Iodine Average Grade (parts per million)
Pedro de Valdivia		194.4		7.1	%		369
Maria Elena		134.1		7.2	%		416
Pampa Blanca		71.4		5.6	%		544
Nueva Victoria		336.7		5.7	%		442

In addition, the estimates of our probable reserves of caliche ore at each of our principal mines as of December 31, 2013, are as follows:

Mine⁽¹⁾	Probable Reserves⁽²⁾⁽⁴⁾ (millions of metric tons)		Nitrate Average Grade (percentage by weight)			Iodine Average Grade (parts per million)
Pedro de Valdivia⁽⁵⁾		118.7		6.9	%		444
Maria Elena		98.0		7.3	%		380
Pampa Blanca		447.8		5.8	%		538
Nueva Victoria		59.1		7.6	%		362

Notes on Reserves:

(1)

Information set forth in the tables above was validated in January 2014, by Mrs. Marta Aguilera, a geologist with over 20 years of experience in the field. She is currently employed by SQM as Manager of Exploration and Mining Development. Mrs. Aguilera is a Competent Person (Persona Competente), as the term is defined under Chilean Law No. 20,235.

(2)	The proven and probable reserves set forth in the tables above are shown before losses related to exploitation and mineral treatment. Proven and probable reserves are affected by mining exploitation methods, which result in differences between the estimated reserves that are available for exploitation in the mining plan and the recoverable material that is finally transferred to the leaching vats or heaps. The average mining exploitation factor for our different mines ranges between 80% and 90%, whereas the average global metallurgical recoveries of processes for nitrate and iodine contained in the recovered material vary between 55% and 65%. The cutoff grades referring to the proven and probable reserves are variable due to the fact that the various mines have different areas which in turn demonstrate variable cutoff grades, according to required objectives. The assigned values correspond to averages of the different sectors.

(3)	The proven reserves include the projection of indicated and measured resources and the measured mineral resources. The proven reserves may change as a result of the exploitation method, producing differences between the reserves calculated in the mining plan and the material placed in vats or heaps. The average exploitation factor for different mining operations is around 80%, allowing, with this factor, to project these reserves to a proven exploitable category.

(4)	Probable reserves can be expressed as proven reserves using a conversion factor. On average, this conversion factor is higher than 60%. This factor depends on geological conditions and caliche ore continuity, which vary from mine to mine. The difference between the probable reserve amounts and the converted probable reserve amounts is the result of the lower degree of certainty pertaining to probable reserves compared with proven reserves. To increase and ensure the quality of the probable reserve, an average geological factor greater than 60% is considered allowing projecting this reserve to a minable category.

The increase in probable reserves of Pedro de Valdivia, from 78.5 million metric tons to 118.7 million metric tons is the product of a recognition program in unexplored areas of Pedro de Valdivia, specifically in the Lynch sector.

The proven and probable reserves shown above are the result of exploration and evaluation of approximately 19.4% of the total caliche-related mining property of the Company. However, we have explored those areas in which we believe there is a higher potential of finding high-grade caliche ore minerals. The remaining 80.6% of this area has not been explored yet or has had limited reconnaissance to determine hypothetical resources. Reserves shown in these tables are calculated based on mining properties that are not involved in any legal disputes between SQM and other parties.

The subject of the dilution factors is as follows:

·	The proven reserves consist of: measured mineral resources and the projection of indicated resources to measured resources (a projection factor is applied here which, on the average, reaches 0.7). In turn, the measured mineral resources are indicated entirely without any correction factor.

·	The probable reserves are comprised of inferred resources; these become probable reserves without any correction factor or projection.

·	In the exploitable proven reserves category, we apply an average dilution factor of 0.8 - 0.9 to our proven reserves.

·	For probable reserves, the projection factor is reduced to an average of 0.6 - 0.7.

The dilution factor applied to the measured resources averages 10 - 12%, in order to project them to exploitable, in the case of iodine at Nueva Victoria, while for Pampa Blanca and Maria Elena, it averages 20%. For Pedro de Vadivia, the dilution factor averages 25% (Lynch 20%, Manchas Antiguas 30%). This factor increases in the measure that we change the resources category. For example, the factor to project Nueva Victoria indicated resources to measured resources considers a 10% dilution, while to project Lynch’s indicated resources to measured resources, the dilution increases to 30%

We maintain an ongoing program of exploration and resource evaluation on the land surrounding the mines at Nueva Victoria, Pedro de Valdivia, María Elena and Pampa Blanca and at other sites for which we have the appropriate concessions. In 2013, we continued a basic reconnaissance program on new mining properties including a geological mapping of the surface and spaced drill-hole campaign covering approximately 7,143 hectares. Additionally, we conducted general explorations based on a closer grid pattern of drill-holes over a total area of approximately 3,920 hectares and, in addition, carried out in-depth sampling of approximately 1,239 hectares (1,113 hectares at Pedro de Valdivia,126 hectares at Nueva Victoria). There is no exploration and development program in 2014.

Reserves for the Salar de Atacama brines

Our in-house staff of hydro-geologists and mining engineers prepares our estimates of potassium, sulfate, lithium and boron reserves at the Salar de Atacama. We have exploitation concessions of approximately 819.2 square kilometers where we have carried out geological exploration, brine sampling and geostatistical analysis. We estimate that our proven and probable reserves as of December 31, 2013 based on economic restrictions, geological exploration, brine sampling and geostatistical analysis up to a depth of 100 meters of our total exploitation concessions, and additionally, up to a depth of 500 meters over approximately 47% of the same total area, are as follows:

	Proven Reserves⁽²⁾ (millions of metric tons)		Probable Reserves⁽²⁾ (millions of metric tons)		Total (millions of metric tons)
Potassium (K+)⁽¹⁾⁽³⁾		51.4		18.6		71.4
Sulfate (SO4-2)^{(1) (4)}		31.0		10.3		41.3
Lithium (Li+)^{(1) (5)}		3.0		3.1		6.1
Boron (B3+) ^{(1) (6)}		0.9		0.3		1.2

Notes on Reserves:

(1)	Information set forth in the table above was validated in January 2014, by Mr. Orlando Rojas Vercelotti, a civil engineer currently employed by EMI-Ingenieros y Consultores S.A., an independent consulting firm, and a Competent Person (Persona Competente), as the term is defined under Chilean Law No. 20,235.
(2)	Metric tons of potassium, sulfate, lithium and boron considered in the proven and probable reserves are shown before losses from evaporation processes and metallurgical treatment. The recoveries of each ion depend on both brine composition, which changes over time, and the process applied to produce the desired commercial products.
(3)	Recoveries for potassium vary from 47% to 77%.
(4)	Recoveries for sulfate vary from 27% to 45%.
(5)	Recoveries for lithium vary from 28% to 40%.
(6)	Recoveries for boron vary from 28% to 32%.

A cutoff grade of 1% potassium is used in the calculation considering potassium chloride (standard grade) as the low margin scenario and using diluted brine with higher contaminants as raw material, yielding on the lower side of approximately 47% recovery. In this scenario cost for potassium chloride production is competitive considering actual and recent years historic market situation.

Cutoff for lithium extraction is set to 0.05% lithium. Cost of the process is competitive in the market though small increase from actual cost is considered to accommodate more evaporation area (to reach required lithium concentration) and the use of additives to maintain brine quality feeding the plant.

The proven and probable reserves are based on drilling, brine sampling and geo-statistic reservoir modeling in order to estimate brine volumes and their composition. To evaluate reserves, we conduct a geostatistical study using the Kriging Method in 2 and 3D. We calculate the volume of brine effectively drainable or exploitable in each evaluation unit. We consider chemical parameters to determine the process to be applied to the brines. Based on the chemical characteristics, the volume of brine and drainable porosity, we determine the number of metric tons for each of the chemical ions. Proven reserves are defined as those geographical blocks that comply with a Kriging method estimation error of up to 15%. In the case of probable reserves, the selected blocks must comply with an estimation error between 15% and 35%. Blocks with an error greater than 35% are not considered in the evaluation of reserves and remain as an indicated resource until further exploration is performed. This procedure is used to estimate potential restrictions on production yields and the economic feasibility of producing such commercial products, as potassium chloride, potassium sulfate, lithium carbonate and boric acid, is determined on the basis of the evaluation.

Ports and water rights

We operate port facilities at Tocopilla in northern Chile for shipment of products and delivery of certain raw materials pursuant to renewable concessions granted by Chilean regulatory authorities, provided that such facilities are used as authorized, and annual concession fees are paid by us. We also hold water rights for the supply of water from rivers and wells near our production facilities sufficient to meet our current operational requirements.

Transportation and storage facilities

We own and operate railway lines and equipment, as well as port and storage facilities, for the transport and handling of finished products and consumable materials.

Our main center for production and storage of raw materials is the hub composed of the facilities in Coya Sur - Pedro de Valdivia and the Salar de Atacama facilities. Other facilities include Nueva Victoria and the lithium carbonate and lithium hydroxide finishing plants. The Tocopilla port terminal (“Tocopilla Port Terminal”), which we own, is the main facility for storage and shipment of our products.

Nitrate raw materials are produced and first stored at our Pedro de Valdivia mine, and then transported by trucks to the plants described in the next paragraph, for further processing. Nitrate raw material is also produced at Nueva Victoria, from where it is transported by trucks to Coya Sur for further processing.

Nitrate finished products are produced at our facilities in Coya Sur and then transported by our rail system to Tocopilla Port Terminal, where they are stored and shipped, either bagged or in bulk. Potassium chloride is produced at our facilities in the Salar de Atacama and transported either to Tocopilla Port Terminal or Coya Sur by truck owned by a third-party dedicated contractor. Products transported to Coya Sur are used as a raw material for the production of potassium nitrate. Potassium sulfate and boric acid are both produced at our facilities in the Salar de Atacama and are then transported by trucks to the Tocopilla Port Terminal.

Lithium solutions, produced at our facilities in the Salar de Atacama, are transported to the lithium carbonate facility in the Salar del Carmen area, where finished lithium carbonate is produced. Part of the lithium carbonate is fed to the adjacent lithium hydroxide plant, where finished lithium hydroxide is produced. These two products are bagged and stored on the premises and are subsequently transported by truck to the Tocopilla Port Terminal or to the Antofagasta and Mejillones terminals for shipment on charter vessels or container vessels.

Iodine raw material, obtained in the same mines as the nitrates, is processed, bagged and stored exclusively in the facilities of Pedro de Valdivia and Nueva Victoria, and then shipped by truck to Antofagasta, Mejillones or Iquique for vessel container transport or by truck to Santiago, where iodine derivatives are produced.

The facilities at Tocopilla Port Terminal are located approximately 186 kilometers north of Antofagasta and approximately 124 kilometers west of Pedro de Valdivia, 84 kilometers west of María Elena and Coya Sur and 372 kilometers west of the Salar de Atacama. Our subsidiary, Servicios Integrales de Tránsitos y Transferencias S.A. (SIT) operates the facilities under maritime concessions granted pursuant to applicable Chilean laws. The port also complies with ISPS (International Ship and Port Facility Security Code) regulation. The Tocopilla Port Terminal facilities include a railcar dumper to transfer bulk product into the conveyor belt system used to store and ship bulk product.

Storage facilities consist of a six silo system, with a total production capacity of 55,000 metric tons, and an open storage area for approximately 250,000 metric tons. Additionally, to meet future storage needs, we will continue to make investments in accordance with the investment plan outlined by management. Products are also bagged at port facilities in Tocopilla, where the bagging capacity is approximately 300,000 metric tons per year.

For shipping bulk product, the conveyor belt system extends over the coast line to deliver product directly inside bulk carrier hatches. Using this system, the loading nominal capacity is 1,200 tons per hour. Bags are loaded to bulk vessels using barges that are loaded in the Tocopilla Port Terminal dock and unloaded by vessel cranes into the hatches. Both bulk and bagged trucks are loaded in Tocopilla Port Terminal for transferring product directly to customers or for container vessels shipping from other ports, mainly Antofagasta, Mejillones and Iquique.

Bulk carrier loading in the Tocopilla Port Terminal is mostly contracted to transfer product to our hubs around the world or for shipping to customers, which in some cases use their own contracted vessels for delivery. Trucking is provided by a mix of spot, contracted and customer- owned equipment.

Tocopilla processes related to the reception, handling, storage, and shipment of bulk/packaged nitrates produced in Coya Sur are certified by third party organization TÜV-Rheiland under the quality standard ISO 9001:2008.

Research and development, patents and licenses

One of the main objectives of our research and development team is to develop new processes and products in order to maximize the returns obtained from the resources that we exploit. Our research is performed by four different units whose research topics include chemical process design, phase chemistry, chemical analysis methodologies, and physical properties of finished products.

Our research and development policy emphasizes the following: (i) optimization of current processes in order to decrease costs and improve product quality through the implementation of new technology, and (ii) development of higher-margin products from current products through vertical integration or different product specifications.

Our research and development activities have been instrumental in improving our production processes and developing new value-added products. As a result of research and development activities, new methods of extraction, crystallization and finishing products have been developed. Technological advances in recent years have enabled us to improve process efficiency for the nitrate, potassium and lithium operations, to improve the physical quality of our prilled products and to reduce dust emissions and caking by applying specially designed additives to our products handled in bulk. Our research and development efforts have also resulted in new, value-added markets for our products. One example is the use of sodium nitrate and potassium nitrate as thermal storage in solar power plants.

We have patented several production processes for nitrate, iodine, and lithium products. These patents have been filed mainly in the United States, Chile, and in other countries when necessary.

For the years ended December 31, 2013, 2012 and 2011, we invested US$9.3 million, US$10.4 million and US$6.9 million, respectively, in research and development activities.

Employees

As of June 30, 2014, we had 4,680 permanent employees, 210 of whom were employed outside of Chile. The table below sets out the number of employees for the periods set forth below:

	As of December 31,						As of June 30,
	2013		2012		2011		2014
Employees in Chile		4,583		5,450		4,720		4,470
Employees outside of Chile		209		193		182		210
Total employees		4,792		5,643		4,902		4,680

As of June 30, 2014, 71% of our permanent employees in Chile were represented by 25 labor unions, which represent their members in collective negotiations with us. Compensation for unionized personnel is established in accordance with the relevant collective bargaining agreements. The terms of most such agreements currently in effect are three years, and expiration dates of such agreements vary from contract to contract. Under these agreements, employees receive a salary according to a scale that depends upon job function, seniority and productivity. Unionized employees also receive certain benefits provided by law and certain benefits provided under the applicable collective bargaining agreement, which vary depending upon the terms of the collective agreement, such as housing allowances and additional death and disability benefits.

In addition, we own all of the equity of Institución de Salud Previsional Norte Grande Limitada (“Isapre Norte Grande”), which is a health care organization that provides medical services primarily to our employees and Sociedad Prestadora de Servicios de Salud Cruz de Norte S.A. (“Prestadora”), which is a hospital in María Elena. We make contributions to Isapre Norte Grande and to Prestadora in accordance with Chilean laws and the provisions of our various collective bargaining agreements, but we are not otherwise responsible for its liabilities.

Non-unionized employees receive individually negotiated salaries, benefits provided for by law and certain additional benefits which we provide.

We provide housing and other facilities and services for employees and their families at the María Elena site.

We do not maintain any pension or retirement programs for our Chilean employees. Most workers in Chile are subject to a national pension law, adopted in 1980, which establishes a system of independent pension plans that are administered by the corresponding Administrator for Pension Funds (Sociedad Administradora de Fondos de Pensiones). We have no liability for the performance of any of these pension plans or any pension payments to be made to our employees. We, however, sponsor staff severance indemnities plans for our employees and employees of our Chilean subsidiaries whereby we commit to provide a lump sum payment to each employee at the end of his/her employment, whether due to death, termination, resignation or retirement.

Over 95% of our employees are employed in Chile, of which approximately 71% were represented by 25 labor unions as of June 30, 2014. As in previous years, during 2013 and 2014, we renegotiated collective labor contracts with individual unions one year before the expiration of such contracts. As of June 30, 2014, we had concluded advanced negotiations with thirteen labor unions, which represent 72% of our total unionized workers, signing new agreements with each for durations of three years. We are in the process of negotiating collective labor contracts with the 12 remaining unions. We are exposed to labor strikes that could impact our production levels. If a strike occurs and continues for a sustained period of time, we could be faced with increased costs and even disruption in our product flow that could have a material adverse effect on our business, financial condition and results of operations.

Legal proceedings

We are party to various lawsuits, arbitral, administrative or other proceeding arising in the ordinary course of business. We believe it is unlikely that any losses associated with such proceedings will significantly affect our result of operations, financial position, and cash flows; however, a final and non-appealable disposition in one or more of these proceedings that is adverse to the Company could have a material adverse effect on the Company and its result of operations and financial position. For more information related to these proceedings, see note 19.1 to our unaudited consolidated financial statements.

Corfo arbitral claims

SQM Salar holds exclusive exploitation rights to the mineral resources existing in 81,920 hectares in the Salar de Atacama pursuant to the Lease Agreement entered into between SQM Salar and Corfo, in 1993. The exploitation mining concessions related to such rights are owned by Corfo and leased to SQM Salar in exchange for lease royalty payments to Corfo based on specified percentages of the value of the products resulting from the minerals extracted from the Salar de Atacama brines. For the six months ended June 30, 2014 and and the year ended December 31, 2013, revenue related to products originating from the Salar de Atacama represented 38% and 37%, respectively, of our consolidated revenues (corresponding to revenues from our potassium and lithium and its derivatives product lines for such periods). All of our products originating from the Salar de Atacama are derived from our extraction operations under the Lease Agreement with Corfo.

Corfo claims that, under the Lease Agreement, royalty payments related to lithium products should be calculated by reference to prices of lithium products sold by SQM Salar only to parties who are not related to SQM Salar. SQM Salar asserts that both parties agreed that lease royalty payments should be based on sales to both related and unrelated parties in order to reflect the market value of the products. In 1997, when SQM Salar began the exploitation of lithium products from the Salar de Atacama and presented Corfo with the first sales results, Corfo performed a study that concluded that it was appropriate for the calculation of lease royalty payments for lithium products to be based on sales prices of such lithium products to both related and unrelated parties, due to market conditions and to the fact that SQM Salar distributed virtually all of its lithium products through a distribution network consisting of parties related to SQM Salar, who then resold to end consumers. Following the study, officers of SQM Salar and Corfo signed a Certificate (Certificación) confirming this understanding. Since 1997, SQM Salar has provided detailed notices of its calculations and made quarterly payments relating to lithium products consistent with the understanding of the parties described above.

Corfo also claims that, under the Lease Agreement, royalty payments relating to all potassium chloride products, including those that contain a percentage of K2O below standard, should be calculated by reference to prices of products that have a content of 60% or more of K2O. SQM Salar asserts, and third party experts confirm, that the pricing should be proportionate to the percentage of K2O contained in the final product, consistent with its course of dealing with Corfo and to industry normal practices. Throughout the Lease Agreement, SQM Salar has provided notice of its calculations and made quarterly payments relating to potassium chloride products, without any objection by Corfo. The Lease Agreement provides that if Corfo has any objections to the calculation of lease royalty payments or to the formulas used to calculate such payments, it shall give notice of its objection and initiate an audit proceeding, neither of which actions was undertaken by Corfo.

With regard to Corfo’s claim that SQM Salar has not protected the mining rights of Corfo by marking on site the “HM”, or milestones of measurement, of some of Corfo’s exploitation mining concessions. SQM Salar asserts that such marking on site is a legal obligation of Corfo as the owner of the exploitation mining concessions and that marking on site was not an obligation assigned by Corfo to SQM Salar in the Lease Agreement. SQM Salar also asserts that the marking on site of some of the “HM” did not exist when Corfo and SQM Salar entered into the Lease Agreement and that, irrespective of all the above, SQM Salar has duly protected the exploitation mining concessions subject to the Lease Agreement and that all such concessions are currently outstanding.

SQM Salar asserts that even if the arbitrator concludes that there was a technical breach by SQM Salar of its obligations under the Lease Agreement, such breach cannot result in early termination of the Lease Agreement, as Corfo may terminate the Lease Agreement based solely on a material breach. While SQM Salar believes that it is likely it will prevail in the arbitration proceeding, an adverse ruling against SQM Salar, especially one permitting early termination of the Lease Agreement by Corfo, would have a material adverse effect on the Company, its business, results of operations and cash flow.

Bayport Facility indemnity claim

In 2004, we began operations of our lithium production facilities in Bayport, Texas (the “Bayport Facility”). In 2008, we sold the Bayport Facility to Rockwood Specialties pursuant to an asset purchase agreement entered into in 2008 by our subsidiary SQM Lithium Specialties Limited Partnership, LLP (“SQM Lithium”), as seller, us, as co-indemnitor, and Rockwood Specialties, as purchaser (the “2008 Asset Purchase Agreement”).

In September 2014, SQM Lithium received notice from Rockwood Specialties that it had received a request for information from the Texas Commission on Environmental Quality (“TCEQ”) related to waste disposal activities of the Bayport Facility at a former chemical recycling facility located in Houston, Texas (the “CES Site”), under the administration of CES Environmental Services, Inc. (“CES”). Rockwood Specialties also gave notice to SQM Lithium of what it asserted to be its indemnification obligation related to the CES Site pursuant to the 2008 Asset Purchase Agreement. We understand that the CES Site was operated by CES from 2004 to 2010 when CES filed for bankruptcy, and the CES Site was closed. In August 2014, the U.S. Environmental Protection Agency (the “EPA”) commenced a removal action at the CES Site. The TCEQ is currently gathering information to identify potentially responsible parties associated with the CES Site. We believe the TCEQ has sent requests for information to approximately 80 parties who may have sent waste to the CES Site, including Rockwood Specialties. The EPA and TCEQ process is at a very early stage, and we currently have limited information as to the condition of the CES Site or the parties involved. The CES Site has not been listed on the EPA’s National Priorities List or any analogous state list. Neither the Company nor SQM Lithium has received any requests for information from the EPA or TCEQ relating to the CES Site, and neither has been named as a potentially responsible party. In October 2014, SQM Lithium requested information from Rockwood Specialties and gave Rockwood Specialties notice that it may seek indemnification from Rockwood Specialties related to the CES Site pursuant to the 2008 Asset Purchase Agreement.

Index to financial statements

Unaudited Consolidated Financial Statements as of June 30, 2014 and 2013 and for the six months ended June 30, 2014 and 2013

Unaudited Consolidated Statements of Financial Position	F-1
Unaudited Consolidated Statements of Income	F-3
Unaudited Consolidated Statements of Comprehensive Income	F-5
Unaudited Consolidated Statements of Cash Flows	F-6
Unaudited Statement of Changes in Equity	F-8
Notes to Unaudited Consolidated Financial Statements	F-10

CH$	—	Chilean pesos
ThCh$	—	Thousands of Chilean pesos
US$	—	United States dollars
ThUS$	—	Thousands of United States dollars
UF	—	The UF is an inflation-indexed, Chilean peso-denominated monetary unit. The UF rate is set daily in advance, based on the change in the Consumer Price Index of the previous month.

CONSOLIDATED CLASSIFIED STATEMENTS OF FINANCIAL POSITION

ASSETS	Note	As of June 30, 2014 ThUS$		As of December 31, 2013 ThUS$
		Unaudited		Audited
Current assets
Cash and cash equivalents	7.1		545,374		476,622
Other current financial assets	10.1		451,150		460,173
Other current non-financial assets	25		36,319		44,230
Trade and other receivables, current	10.2		379,924		330,992
Trade receivables due from related parties, current	9.5		128,919		128,026
Current inventories	8		893,188		955,530
Current tax assets	28.1		25,377		59,476
Total current assets			2,460,251		2,455,049

Non-current assets
Other non-current financial assets	10.1		99		95
Other non-current non-financial assets	25		35,354		36,505
Trade receivables, non-current	10.2		1,555		1,282
Investments in associates	11.1		51,423		51,075
Investments in joint ventures	12.3		26,846		25,943
Intangible assets other than goodwill	13.1		104,240		104,363
Goodwill	13.1		38,388		38,388
Property, plant and equipment	14.1		1,969,289		2,054,377
Deferred tax assets	28.4		512		531
Total non-current assets			2,227,706		2,312,559
Total assets			4,687,957		4,767,608

The accompanying notes form an integral part of these consolidated financial statements.

F-1

CONSOLIDATED CLASSIFIED STATEMENTS OF FINANCIAL POSITION, (continued)

Liabilities and Equity	Note	As of June 30, 2014 ThUS$			As of December 31, 2013 ThUS$
		Unaudited			Audited
Liabilities
Current liabilities
Other current financial liabilities	10.4		216,325			401,426
Trade and other payables, current	10.5		156,855			150,960
Trade payables due to related parties, current	9.6		92			-
Other current provisions	18.1		23,883			17,953
Current tax liabilities	28.2		23,918			31,707
Provisions for employee benefits, current	15.1		15,904			25,236
Other current non-financial liabilities	18.3		145,568			95,353
Total current liabilities			582,545			722,635

Non-current liabilities
Other non-current financial liabilities	10.4		1,391,649			1,417,390
Other non-current provisions	18.1		8,759			8,633
Deferred tax liabilities	28.4		160,713			154,295
Provisions for employee benefits, non-current	15.1		32,246			32,414
Total non-current liabilities			1,593,367			1,612,732
Total liabilities			2,175,912			2,335,367

Equity	17
Share capital			477,386			477,386
Retained earnings			1,985,759			1,909,725
Other reserves			(6,721	)		(10,491	)
Equity attributable to owners of the Parent			2,456,424			2,376,620
Non-controlling interests			55,621			55,621
Total equity			2,512,045			2,432,241
Total liabilities and equity			4,687,957			4,767,608

The accompanying notes form an integral part of these consolidated financial statements.

F-2

CONSOLIDATED STATEMENTS OF INCOME BY FUNCTION

		January to June						April to June
	Note	2014			2013			2014			2013
		ThUS$			ThUS$			ThUS$			ThUS$
	Unaudited
Revenue	20		1,056,373			1,189,856			522,301			566,459
Cost of sales	27.2		(756,202	)		(763,153	)		(376,953	)		(378,613	)
Gross profit			300,171			426,703			145,348			187,846

Other income	27.3		5,271			8,961			3,512			4,676
Administrative expenses	27.4		(44,841	)		(50,678	)		(23,507	)		(27,377	)
Other expenses by function	27.5		(29,895	)		(24,604	)		(14,650	)		(11,357	)
Other gains (losses)	27.6		464			291			25			528
Profit (loss) from operating activities			231,170			360,673			110,728			154,316
Finance income			6,706			7,394			3,714			3,023
Finance costs	22		(30,857	)		(27,431	)		(15,132	)		(14,299	)
Share of profit of associates and joint ventures accounted for using the equity method			8,842			9,993			4,267			4,072
Foreign currency translation differences	23		(4,310	)		(8,842	)		(2,628	)		(4,079	)
Profit (loss) before taxes			211,551			341,787			100,949			143,033
Income tax expense, continuing operations	28.4		(57,706	)		(80,147	)		(28,841	)		(34,052	)

Profit (loss) from continuing operations			153,845			261,640			72,108			108,981

Profit for the year			153,845			261,640			72,108			108,981
Profit attributable to
Owners of the Parent			152,067			259,232			71,063			107,426
Non-controlling interests			1,778			2,408			1,045			1,555
Profit for the year			153,845			261,640			72,108			108,981

The accompanying notes form an integral part of these consolidated financial statements.

F-3

CONSOLIDATED STATEMENTS OF INCOME BY FUNCTION (continued)

		January to June				April to June
	Note	2014		2013		2014		2013
		US$		US$		US$		US$
	Unaudited
Earnings per share
Common shares
Basic earnings per share (US$ per share)	21		0,5778		0,9849		0,2700		0,4082

Basic earnings per share (US$ per share) from continuing operations			0,5778		0,9849		0,2700		0,4082

Diluted common shares
Diluted earnings per share (US$ per share)	21		0,5778		0,9849		0,2700		0,4082

Diluted earnings per share (US$ per share) from continuing operations			0,5778		0,9849		0,2700		0,4082

The accompanying notes form an integral part of these consolidated financial statements.

F-4

CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME

	January to June						April to June
	2014			2013			2014			2013
Statements of comprehensive income	ThUS$			ThUS$			ThUS$			ThUS$
	Unaudited

Profit for the year		153,845			261,640			72,108			108,981
Components of other comprehensive income before taxes and foreign currency translation differences
Gain (loss) from foreign currency translation differences, before taxes		(487	)		(2,653	)		(241	)		(1,974	)
Other comprehensive income before taxes and foreign currency translation differences		(487	)		(2,653	)		(241	)		(1,974	)
Cash flow hedges
(Gain) loss from cash flow hedges before taxes		5,210			12,983			(3,546	)		13,222
Other comprehensive income before taxes and cash flow hedges		5,210			12,983			(3,546	)		13,222
Other comprehensive income before taxes and actuarial gains (losses) from defined benefit plans		-			-			-			-
Other miscellaneous reserves		-			-			-			-
Other components of other comprehensive income before taxes		4,723			10,330			(3,787	)		11,248

Income taxes associated with components of other comprehensive income
Income taxes associated with cash flow hedges in other comprehensive income		(1,013	)		(2,390	)		695			(2,480	)
Income taxes associated with components of other comprehensive income		(1,013	)		(2,390	)		695			(2,480	)

Other comprehensive income		3,710			7,940			(3,092	)		8,768

Total comprehensive income		157,555			269,580			69,016			117,749

Comprehensive income attributable to
Owners of the Parent		155,837			267,225			67,973			116,262
Non-controlling interests		1,718			2,355			1,043			1,487
Total comprehensive income		157,555			269,580			69,016			117,749

The accompanying notes form an integral part of these consolidated financial statements.

F-5

CONSOLIDATED STATEMENTS OF CASH FLOWS

Statements of cash flows	Note	6/30/2014 ThUS$			6/30/2013 ThUS$
		Unaudited
Cash flows from (used in) operating activities

Types of receipts from operating activities

Cash receipts from sales of goods and rendering of services			1,038,327			1,215,462
Other cash receipts from operating activities			-			-

Types of payments

Cash payments to suppliers for the provision of goods and services			(592,600	)		(757,017	)
Cash payments to and on behalf of employees			(21,358	)		(23,521	)
Other payments related to operating activities			(6,642	)		(12,006	)
Dividends received			6,924			12,758
Interest paid			(34,269	)		(33,473	)
Interest received			6,706			7,394
Reimbursed (paid) income taxes			(22,565	)		(85,181	)
Other incomes (outflows) of cash			10,949			-

Net cash generated from (used in) operating activities			385,472			324,416

Cash flows from (used in) investing activities
Cash receipts from the loss of control of subsidiaries and other businesses			2,011			-
Proceeds from the sale of property, plant and equipment			167			625
Acquisition of property, plant and equipment			(56,536	)		(226,294	)
Proceeds from sales of intangible assets			1,502			-
Cash advances and loans granted to third parties			(865	)		290
Other incomes (outflows) of cash (*)			(16,660	)		(258,781	)

Net cash generated from (used in) investing activities			(70,381	)		(484,160	)

(*) Includes other cash receipts (payments), investments and redemptions of time deposits and other financial instruments, which do not qualify as cash and cash equivalents in accordance with IAS 7.7 as they record a maturity date from their date of origin greater than 90 days.

The accompanying notes form an integral part of these consolidated financial statements.

F-6

CONSOLIDATED STATEMENTS OF CASH FLOWS (continued)

	Note	06/30/2014 ThUS$			06/30/2013 ThUS$
		Unaudited
Cash flows from (used in) financing activities

Proceeds from issue of capital instruments			-			-
Proceeds from long-term borrowings			-			380,000
Proceeds from short-term borrowings			40,000			-
Total proceeds from borrowings			40,000			380,000
Repayment of borrowings			(241,757	)		(80,000	)
Dividends paid			(36,274	)		(76,784	)
Other cash receipts (payments)			-			(5,898	)

Net cash generated from (used in) financing activities			(238,031	)		(217,318	)

Net increase (decrease) in cash and cash equivalents before the effect of changes in the exchange rate			77,060			57,574

Effects of exchange rate fluctuations on cash held			(8,308	)		(4,740	)
Net (decrease) increase in cash and cash equivalents			68,752			(52,834	)

Cash and cash equivalents at beginning of period			476,622			324,353
Cash and cash equivalents at end of period			545,374			377,187

The accompanying notes form an integral part of these consolidated financial statements.

F-7

STATEMENTS OF CHANGES IN EQUITY

2014	Share capital		Foreign currency translation difference reserves			Cash flow hedge reserves			Actuarial gains (losses) from defined benefit plans			Other miscellaneous reserves			Other reserves			Retained earnings			Equity attributable to owners of the Parent			Non-controlling interests			Total
	ThUS$		ThUS$			ThUS$			ThUS$			ThUS$			ThUS$			ThUS$			ThUS$			ThUS$			ThUS$

Equity at beginning of the year		477,386		(3,817	)		(3,766	)		(1,231	)		(1,677	)		(10,491	)		1,909,725			2,376,620			55,621			2,432,241

Profit for the year		-		-			-			-			-			-			152,067			152,067			1,778			153,845

Other comprehensive income		-		(427	)		4,197			-			-			3,770			-			3,770			(60	)		3,710

Comprehensive income		-		(427	)		4,197			-			-			3,770			152,067			155,837			1,718			157,555

Dividends		-		-			-			-			-			-			(76,033	)		(76,033	)		(1,718	)		(77,751	)

Increase (decrease) in transfers and other changes		-		-			-			-			-			-			-			-			-			-

Increase (decrease) in equity		-		(427	)		4,197			-			-			3,770			76,034			79,804			-			79,804

Equity As of June 30, 2014 (Unaudited)		477,386		(4,244	)		431			(1,231	)		(1,677	)		(6.721	)		1.985.759			2.456.424			55.621			2.512.045

The accompanying notes form an integral part of these consolidated financial statements.

F-8

STATEMENTS OF CHANGES IN EQUITY

2013	Share capital		Foreign currency translation difference reserves			Cash flow hedge reserves			Actuarial gains (losses) from defined benefit plans			Other miscellaneous reserves			Other reserves			Retained earnings			Equity attributable to owners of the Parent			Non-controlling interests			Total
	ThUS$		ThUS$			ThUS$			ThUS$			ThUS$			ThUS$			ThUS$			ThUS$			ThUS$			ThUS$

Equity at beginning of the year		477,386		(330	)		(16,522	)		(2,243	)		(1,677	)		(20,772	)		1,676,169			2,132,783			54,663			2,187,446

Profit for the year		-		-			-			-			-			-			259,232			259,232			2,408			261,640

Other comprehensive income		-		(2,601	)		10,594			-			-			7,993			-			7,993			(53	)		7,940

Comprehensive income		-		(2,601	)		10,594			-			-			7,993			259,232			267,225			2,355			269,580

Dividends		-		-			-			-			-			-			(77,770	)		(77,770	)		(2,200	)		(79,970	)

Increase (decrease) in transfers and other changes		-		-			-			-			-			-			-			-			-			-

Increase (decrease) in equity		-		(2,601	)		10,594			-			-			7,993			181,462			189,455			155			189,610

Equity As of June 30, 2013 (Unaudited)		477,386		(2,931	)		(5,928	)		(2,243	)		(1,677	)		(12,779	)		1,857,631			2,322,238			54,818			2,377,056

The accompanying notes form an integral part of these consolidated financial statements.

F-9

Notes to the Consolidated Financial

Statements as of June 30, 2014

Sociedad Química y Minera de Chile S.A.

and Subsidiaries

F-10

Note 1 – Identification and Activities of the Company and Subsidiaries

1.1

Historical background

Sociedad Química y Minera de Chile S.A. "SQM" is an open stock corporation organized under the laws of the Republic of Chile, Tax Identification No.93.007.000-9.

The Company was incorporated through a public deed dated June 17, 1968 by the notary public of Santiago MR. Sergio Rodríguez Garcés. Its existence was approved by Decree No. 1,164 of June 22, 1968 of the Ministry of Finance, and it was registered on June 29, 1968 in the Registry of Commerce of Santiago, on page 4,537 No. 1,992. SQM's headquarters are located at El Trovador 4285, Fl. 6, Las Condes, Santiago, Chile. The Company's telephone number is +56 2 2425-2000.

The Company is registered with the Securities Registry of the Chilean Superintendence of Securities and Insurance (SVS) under No. 0184 dated March 18. 1983 and is subject to the inspection of the SVS.

1.2

Main domicile where the Company performs its production activities

The Company’s main domiciles are: Calle Dos Sur plot No. 5 - Antofagasta; Arturo Prat 1060 - Tocopilla; Administración Building w/n - Maria Elena; Administración Building w/n Pedro de Valdivia - María Elena, Anibal Pinto 3228 - Antofagasta, Kilometer 1378 Ruta 5 Norte Highway - Antofagasta, Coya Sur Plant w/n - Maria Elena, kilometer 1760 Ruta 5 Norte Highway - Pozo Almonte, Salar de Atacama (Atacama Saltpeter deposit) potassium chloride plant s/n - San Pedro de Atacama, potassium sulfate plant at Salar de Atacama s/n – San Pedro de Atacama, mining works at Salar de Ascotán Region II of Chile, Minsal Mining Camp s/n CL Plant CL, Potassium– San Pedro de Atacama.

1.3

Codes of main activities

The codes of the main activities as established by the Chilean Superintendence of Securities and Insurance are as follows:

1700 (Mining)

2200 (Chemical products)

1300 (Investment)

1.4

Description of the nature of operations and main activities

Our products are mainly derived from mineral deposits found in northern Chile. We mine and process caliche ore and brine deposits. The caliche ore in northern Chile contains the only known nitrate and iodine deposits in the world and is the world’s largest commercially exploited source of natural nitrates. The brine deposits of the Salar de Atacama, a salt-encrusted depression within the Atacama Desert in northern Chile, contain high concentrations of lithium and potassium as well as significant concentrations of sulfate and boron.

F-11

Note 1 – Identification and Activities of the Company and Subsidiaries (continued)

1.4

Description of the nature of operations and main activities, continued

From our caliche ore deposits located in the north of Chile, we produce a wide range of nitrate-based products used for specialty plant nutrients and industrial applications, as well as iodine and iodine derivatives. At the Salar de Atacama, we extract brines rich in potassium, lithium, sulfate and boron in order to produce potassium chloride, potassium sulfate, lithium solutions, boric acid and bischofite (magnesium chloride). We produce lithium carbonate and lithium hydroxide at our plant near the city of Antofagasta, Chile, from the solutions brought from the Salar de Atacama. We market all of these products through an established worldwide distribution network.

We sell our products in over 100 countries worldwide through our global distribution network and generate our revenue mainly from abroad.

Our products are divided into six categories: specialty plant nutrition, iodine and its derivatives, lithium and its derivatives, industrial chemicals, potassium and other products and services, described as follows:

Specialty plant nutrition: SQM produces and sells four types of specialty plant nutrition in this line of business: potassium nitrate, sodium nitrate, sodium potassium nitrate, and specialty mixes. This business is characterized by being closely related to its customers for which it has specialized staff who provide expert advisory in best practices for fertilization according to each type of crop, soil and climate. Within this type of business, potassium derivative products and specially potassium nitrate have had a leading role given the contribution they make to develop crops insuring an improvement in post-crop life in addition to improving quality, flavor and fruit color. The potassium nitrate, which is sold in multiple formats and as a part of other specialty mixtures, is complemented by sodium nitrate, potassium sodium nitrate, and more than 200 fertilizing mixtures.

Iodine: The Company is a major producer of iodine at worldwide level. Iodine is widely used in the pharmaceutical industry, technology and nutrition. Additionally, iodine is used as X ray contrast media and polarizing film for LCD displays.

Lithium: the Company’s lithium is mainly used for manufacturing rechargeable batteries for cell phones, cameras and notebooks. Through the manufacturing of lithium-based products, SQM provides significant materials to face great challenges such as the efficient use of energy and raw materials. Lithium is not only used for rechargeable batteries and in new technologies for vehicles propelled by electricity, but is also used in industrial applications to lower melting temperature and to help saving costs and energy.

F-12

Note 1 – Identification and Activities of the Company and Subsidiaries (continued)

1.4

Description of the nature of operations and main activities, continued

Industrial Chemicals: Industrial chemicals are products used as supplies for a number of production processes. SQM participates in this line of business during more than 30 years producing sodium nitrate, potassium nitrate, boric acid and potassium chloride. Industrial nitrates have increased their importance over the last few years due to their use as storage means for thermal energy at solar energy plants, which are widely used in countries as Spain and the United States in their search for decreasing CO₂emissions

Potassium: The potassium is a primary essential macro-nutrient, and even though does not form part of the plant’s structure, has a significant role for the developing of its basic functions, validating the quality of a crop, increasing post-crop life, improving the crop flavor, its amount in vitamins and its physical appearance. Within this business line, SQM has also potassium chlorate and potassium sulfate, both extracted from the salt layer located under the Salar de Atacama (the Atacama Saltpeter Deposit.)

Other products and services: This business line includes revenue from commodities, services, interests, royalties and dividends.

1.5

Other background:

Staff

As of June 30, 2014 and December 31, 2013, staff was detailed as follows:

	6/30/2014	12/31/2013

Permanent staff	4,680	4,792

F-13

Note 1 – Identification and Activities of the Company and subsidiaries (continued)

1.5

Other background, continued

Main shareholders

The table below establishes certain information about the beneficial property of Series A and Series B shares of SQM as of June 30, 2014 and December 31, 2013. In respect to each shareholder which has interest of more than 5% of outstanding Series A or B shares. The information below is taken from our records and reports controlled in the Central Securities Depository and reported to the Superintendence of Securities and Insurance (SVS) and the Chilean Stock Exchange, whose main shareholders are as follows:

Shareholder as of June 30, 2014	No. of Series A with ownership		% of Series A shares			No. of Series B with ownership		% of Series B shares			% of total shares
The Bank of New York Mellon, ADRs		-		-			60,510,787		50.27	%		22.99	%
Sociedad de Inversiones Pampa Calichera S.A.(*)		44,784,205		31.36	%		7,007,688		5.82	%		19.68	%
Inversiones El Boldo Limitada		29,330,326		20.54	%		17,963,546		14.92	%		17.97	%
Inversiones RAC Chile Limitada		19,200,242		13.44	%		2,202,773		1.83	%		8.13	%
Potasios de Chile S.A.(*)		18,179,147		12.73	%		-		-			6.91	%
BTG Pactual Chile S.A. C de B		15,526,000		10.87	%		-		-			5.90	%
Inversiones Global Mining (Chile) Limitada (*)		8,798,539		6.16	%		-		-			3.34	%
Banco Itau on behalf of foreign investors		20,950		0.01	%		5,675,784		4.72	%		2.16	%
Banco de Chile on behalf of non-resident third parties		-		-			5,544,663		4.61	%		2.11	%
Inversiones La Esperanza Limitada		3,693,977		2.59	%		-		-			1.40	%

(*) Total Pampa Group 29.93%

Shareholder as of December 31, 2013	No. of Series A with ownership		% of Series A shares			No. of Series B with ownership		% of Series B shares			% of total shares
The Bank of New York Mellon, ADRs		-		-			56,302,367		46.77	%		21.39	%
Sociedad de Inversiones Pampa Calichera S.A.(*)		44,758,830		31.34	%		6,971,799		5.79	%		19.65	%
Inversiones El Boldo Limitada		29,225,196		20.46	%		18,028,676		14.98	%		17.95	%
Inversiones RAC Chile Limitada		19,200,242		13.44	%		2,202,773		1.83	%		8.13	%
Potasios de Chile S.A.(*)		18,179,147		12.73	%		-		-			6.91	%
BTG Pactual Chile S.A. C de B		15,593,709		10.92	%		797,393		0.66			6.23	%
Inversiones Global Mining (Chile) Limitada (*)		8,798,539		6.16	%		-		-			3.34	%
Banco Itau on behalf of investors		20,950		0.01	%		5,428,234		4.51	%		2.07	%
Banco de Chile on behalf of non-resident third parties		-		-			5,234,823		4.35	%		1.99	%
Inversiones La Esperanza Limitada		3,693,977		2.59	%		-		-			1.40	%

(*) Total Pampa Group 29.90%

On June 30, 2014 the total number of shareholders had risen to 1,288.

F-14

Note 2 - Basis of presentation for the consolidated financial statements

2.1

Accounting period

These consolidated financial statements cover the following periods:

Consolidated Statements of Financial Position for the periods ended June 30, 2014 and December 31, 2013.

Consolidated Statements of Changes in Equity for the periods ended June 30, 2014 and 2013.

Consolidated Statements of Comprehensive Income for the periods between January and June 30, 2014 and 2013.

Statements of Direct-Method Cash Flows for the periods ended June 30, 2014 and 2013.

F-15

Note 2 - Basis of presentation for the consolidated financial statements (continued)

2.2

Financial statements

The consolidated interim financial statements of Sociedad Química y Minera de Chile S.A. and Subsidiaries, have been prepared in accordance with International Financial Reporting Standards (hereinafter “IFRS”) and represent the full, explicit and unreserved application of the aforementioned international standards issued by the International Accounting Oversight Board (IASB).

These annual consolidated financial statements reflect fairly the Company’s equity and financial position and the results of its operations, changes in the statement of recognized revenue and expenses and cash flows, which have occurred during the periods then ended.

IFRS establish certain alternatives for their application. Those applied by the Company and its subsidiaries are included in detail in this Note.

The accounting policies used in the preparation of these consolidated annual and interim accounts comply with each IFRS in force at their date of presentation. Certain reclassifications have been made for comparative purposes.

2.3

Basis of measurement

The interim consolidated financial statements have been prepared on the historical cost basis except for the following material items:

inventories are recorded at the lower of cost and net realizable value;

other current and non-current asset and financial liabilities at amortized cost;

financial derivatives at fair value; and

staff severance indemnities and pension commitments at actuarial value.

F-16

Note 2 - Basis of presentation for the consolidated financial statements (continued)

2.4

Accounting pronouncements

New accounting pronouncements.

The following, standards, interpretations and amendments are mandatory for the first time for the annual periods beginning on January 1, 2014 and July 1,2014:

Standards and Interpretations		Mandatory for periods beginning on

IFRIC 21 “Levies” Issued in May 2013. It defines a levy as the outflow of resources that incorporates economic benefits that is imposed by the Government to entities in accordance with current applicable legislation. It indicates the accounting treatment for a liability to pay a levy if such liability is within the scope of IAS 37. It addresses when to recognize a liability for levies imposed by a public authority to operate in a specific market. It proposes that the liability be recognized when an event triggering the liability occurs and payment cannot be avoided. The event triggering the liability may occur at a given date or progressively throughout time.		01/01/2014
Amendments and improvements		Mandatory for periods beginning on

IAS 32 “Financial Instruments: Presentation” It clarifies the requirements for the offsetting of financial assets and financial liabilities in the Statement of financial position.		01/01/2014

IAS 27 “Separate Financial Statements”; IFRS 10 “Consolidated Financial Statements” and IFRS 12 “Disclosure of Interests in Other Entities” The amendments include a definition of investment entity and provide an exemption for the consolidation of subsidiaries for entities meeting the definition for an “investment entity”. The amendment also introduces new disclosure requirements relative to investment entities in IFRS 12 and IAS 27		01/01/2014
IAS 36 “Impairment of Assets”- It amends the disclosure of the recoverable amount of non-financial assets aligning them to the requirements of IFRS 13		01/01/2014
IAS 39 “Financial Instruments: Recognition and Measurement” It establishes certain conditions that must be met for the novation of derivatives to allow the continuation of hedge accounting; this in order to avoid novations that are the result of laws and regulations affecting the financial statements.		01/01/2014

IAS 19 “Employee Benefits”- This amendment applies to employee or third party contributions in defined benefit plans. Amendments are intended to simplify the accounting for contributions that are independent of the number of years of service of employees; e.g., contributions by employees that are calculated in accordance with a fixed percentage of the employee’s salary.		01/01/2014

F-17

Note 2 - Basis of presentation for the consolidated financial statements (continued)

2.4

Accounting pronouncements, (continued)

	Mandatory for periods beginning on
Improvements to Information Financial Reporting Standards (2012) Issued in December 2013 IFRS 2 “Share-based Payment” – clarifies the definition of “vesting conditions” and “market conditions” and defines separately “performance conditions” and “service conditions.” Such an amendment should be applied prospectively on share-based payment transactions whose grant date is July 1, 2014 or after. Early adoption is permitted	07/01/2014

Amendments and improvements

IFRS 3, "Business Combinations" - The standard is amended to clarify that the obligation to pay a contingent consideration that meets the definition of a financial instrument is classified as a financial liability or equity, on the basis of the definitions in IAS 32, "Financial Instruments: Presentation." The standard was additionally amended to clarify that all non-equity contingent consideration, both financial and non-financial, is measured at its fair value at each reporting date at fair value through profit or loss. Consequently, there are also changes to IFRS 9, IAS 37 and IAS 39. The amendment is applicable prospectively for business combinations the acquisition date of which is July 1, 2014 or after. Early adoption is permitted provided that amendments of IFRS 9 and IAS 37 also issued as part of the 2012 improvement plan are applied	07/01/2014

IFRS 8 “Operating Segments” – The standard is amended to include the requirement to disclose the judgments made by management in the aggregation of operating segments. The standard was additionally modified to require a reconciliation of assets of the segments to assets of an entity, when assets are reported by segment. Early adoption is permitted IFRS 13 "Fair Value Measurement” – The IASB has amended the basis for conclusions of IFRS 13 to clarify that it did not intend to eliminate the ability to measure short-term receivables and payables at nominal amounts if the effect of adjusting is not significant. IAS 16, "Property, Plant and Equipment" and IAS 38 "Intangible Assets" – Both standards are amended to clarify the treatment of the gross carrying amount and accumulated depreciation when an entity uses the revaluation model. Early adoption is permitted.

IAS 24 "Related Party Disclosures" – The standard is amended to include, as related party, an entity that provides key management personnel services to the reporting entity of the Parent of the reporting entity (“the managing entity”). Early adoption is permitted

F-18

Note 2 - Basis of presentation for the consolidated financial statements (continued)

2.4

Accounting pronouncements, (continued)

Improvements to Information Financial Reporting Standards (2013)

Issued in December 2013.

IFRS 1 “First-time Adoption of International Financial Reporting Standards” – Clarifies that when a new version of a standard is not yet mandatory but is available for early adoption, a first-time adopter of IFRS may opt to apply the older version of the standard, provided that the same standard is applied to all periods presented.

07/01/2014

IFRS 3 “Business Combinations” – The standard is modified to clarify that IFRS 3 is not applicable to the accounting recognition of the formation of a new joint arrangement under IFRS 11. This amendment also clarifies that only the scope exemption is applied to the financial statements of the joint arrangement.

IFRS 13 “Fair Value Measurement” – Clarifies that the portfolio exception in IFRS 13, that allows an entity to measure the fair value of a group of financial assets and financial liabilities as at their net amount, all contracts including non-financial contracts) within the scope of IAS 39 or IFRS 9. An entity must apply the amendments prospectively from the start of the first annual period in which IFRS 13 is applied.

The adoption of the standards, amendments and interpretations described above have no significant impact on the Company’s consolidated financial statements.

F-19

Note 2 - Basis of presentation for the consolidated financial statements (continued)

2.4

Accounting pronouncements, (continued)

The new standards,, interpretations and amendments issued not effective for 2014, which the company has not adopted early are as follows:

Standards and interpretations	Mandatory for periods beginning on

IFRS 9 “Financial Instruments”- This standard amends the classification and measurement of financial assets. It establishes two measurement categories: amortized cost and fair value. All equity securities shall be measured at fair value. Subsequently, this standard was amended to include the treatment and classification of financial liabilities. The main change is that, for cases where the fair value option for financial liabilities is selected, the portion of the change in fair value attributable to changes in the entity’s own credit risk shall be recognized in other comprehensive income unless this generates an accounting mismatch. Early adoption is permitted.	01/01/2018

IFRS 15 “Revenue from Contracts with Customers”- This standard establishes the principles that an entity shall apply to report useful information to users of financial statements about the nature, amount, timing, and uncertainty of revenue and cash flows arising from a contract with a customer. For such purposes, the basic principle is that an entity will recognize revenue representing the transfer of goods or services to customers in an amount that reflects the consideration that the entity expect to receive in exchange for such goods or services. The application of this standard will replace IAS 11 Construction Contracts and IAS 18 Revenue, as well as IFRIC 13 Customer Loyalty Programmes, IFRIC 15 Agreements for the Construction of Real Estate, IFRIC 18 Transfers of Assets from Customers and SIC 31 Revenue-Barter Transactions Involving Advertising Services. Early application is permitted	01/01/2017

F-20

Note 2 - Basis of presentation for the consolidated financial statements (continued)

2.4

Accounting pronouncements, (continued)

Amendments and improvements

Mandatory for
periods beginning
on

IFRS 9 “Financial Instruments” – The amendments include as main element a substantial review of hedge accounting to allow entities to better reflect their risk management activities in the financial statements. Likewise and although not related to hedge accounting, this amendment allows entities to early adopt the requirement of recognizing in other comprehensive income changes in the fair value attributable to changes in the entity’s credit risk (for financial liabilities that are designated under the fair value option). Such an amendment may be applied without having to adopt the remainder of IFRS 9.		01/01/2018

Amendment to IFRS 11: Joint Arrangements – This amendment includes guidance relates to the method for accounting for an acquisition of an interest in a joint operation in which the activity constitutes a business, specifying the proper treatment for such acquisitions.		01/01/2016

IAS 16 “Property, Plant and Equipment” and IAS 38 “Intangible Assets” – The amendments clarify that a depreciation method that is based on revenue that is generated by an activity that includes the use of an asset is not appropriate because revenue generated by such an activity in general reflects other factors other than the use of the economic benefits embedded in the asset. , Likewise, the amendments clarify that a revenue-based amortization method is inappropriate to measure the use of the economic benefits embedded in the intangible asset.		01/01/2016

IAS 16 “Property, Plant and Equipment” and IAS 41 “Agriculture” – These amendments modify the financial information for “bearer plants”, such as vineyards, rubberwood tree and oil palm. The amendments define the concept of “bearer plant” and establish that they should be accounted for in the same way as property, plant and equipment because their operation is similar to that of manufacturing. Consequently, the amendments include them within the scope of IAS 16, instead of IAS 41. The produce growing on bearer plants will remain within the scope of IAAS 41. Early adoption is permitted.		01/01/2016

The Company's management estimates that the adoption of standards, amendments and interpretations described above are under evaluation and it is expected that they will not have a significant impact on the Consolidated Financial Statements of the Company.

F-21

Note 2 - Basis of presentation for the consolidated financial statements (continued)

2.5 Basis of consolidation

(a) Subsidiaries

Relate to all the entities on which Sociedad Química y Minera de Chile S.A. has control when it is exposed to, or has rights to, variable returns from its involvement with the entity and has the ability to affect those variable returns through its power over the entity. Subsidiaries apply the same accounting policies of their Parent.

To account for the acquisition, the Company uses the acquisition method. Under this method the acquisition cost is the fair value of assets delivered, equity securities issued and liabilities incurred or assumed at the date of exchange, plus costs directly attributable to the acquisition. Identifiable assets acquired and liabilities and contingencies assumed in a business combination are measured initially at fair value at the acquisition date. For each business combination, the Company will measure non-controlling interest of the acquire either at fair value or as proportional share of net identifiable assets of the acquiree.

F-22

Note 2 - Basis of presentation for the consolidated financial statements (continued)

2.5

Basis of consolidation, continued

Companies included in consolidation:

				Ownership interest
TAX ID No.	Foreign subsidiaries	Country of origin	Functional currency	06/30/2014						12/31/2013
				Direct		Indirect		Total		Total
Foreign	Nitratos Naturais Do Chile Ltda.	Brazil	US$		0.0000		100.0000		100.0000		100.0000
Foreign	Nitrate Corporation Of Chile Ltd.	United Kingdom	US$		0.0000		100.0000		100.0000		100.0000
Foreign	SQM North America Corp.	USA	US$		40.0000		60.0000		100.0000		100.0000
Foreign	SQM Europe N.V.	Belgium	US$		0.5800		99.4200		100.0000		100.0000
Foreign	Soquimich S.R.L. Argentina	Argentina	US$		0.0000		100.0000		100.0000		100.0000
Foreign	Soquimich European Holding B.V.	Netherlands	US$		0.0000		100.0000		100.0000		100.0000
Foreign	SQM Corporation N.V.	Dutch Antilles	US$		0.0002		99.9998		100.0000		100.0000
Foreign	SQI Corporation N.V.	Dutch Antilles	US$		0.0159		99.9841		100.0000		100.0000
Foreign	SQM Comercial De México S.A. de C.V.	Mexico	US$		0.0013		99.9987		100.0000		100.0000
Foreign	North American Trading Company	USA	US$		0.0000		100.0000		100.0000		100.0000
Foreign	Administración Y Servicios Santiago S.A. de C.V.	Mexico	US$		0.0000		100.0000		100.0000		100.0000
Foreign	SQM Peru S.A.	Peru	US$		0.9800		99.0200		100.0000		100.0000
Foreign	SQM Ecuador S.A.	Ecuador	US$		0.0040		99.9960		100.0000		100.0000
Foreign	SQM Nitratos Mexico S.A. de C.V.	Mexico	US$		0.0000		100.0000		100.0000		100.0000
Foreign	SQMC Holding Corporation L.L.P.	USA.	US$		0.1000		99.9000		100.0000		100.0000
Foreign	SQM Investment Corporation N.V.	Dutch Antilles	US$		1.0000		99.0000		100.0000		100.0000
Foreign	SQM Brasil Limitada	Brazil	US$		1.0900		98.9100		98.3000		100.0000
Foreign	SQM France S.A.	France	US$		0.0000		100.0000		100.0000		100.0000
Foreign	SQM Japan Co. Ltd.	Japan	US$		1.0000		99.0000		100.0000		100.0000
Foreign	Royal Seed Trading Corporation A.V.V.	Aruba	US$		1.6700		98.3300		100.0000		100.0000
Foreign	SQM Oceania Pty Limited	Australia	US$		0.0000		100.0000		100.0000		100.0000
Foreign	Rs Agro-Chemical Trading Corporation A.V.V.	Aruba	US$		98.3333		1.6667		100.0000		100.0000
Foreign	SQM Indonesia S.A.	Indonesia	US$		0.0000		80.0000		80.0000		80.0000
Foreign	SQM Virginia L.L.C.	USA	US$		0.0000		100.0000		100.0000		100.0000
Foreign	SQM Italia SRL	Italy	US$		0.0000		100.0000		100.0000		100.0000
Foreign	Comercial Caimán Internacional S.A.	Panama	US$		0.0000		100.0000		100.0000		100.0000
Foreign	SQM Africa Pty.	South Africa	US$		0.0000		100.0000		100.0000		100.0000
Foreign	SQM Lithium Specialties LLC	USA	US$		0.0000		100.0000		100.0000		100.0000
Foreign	SQM Iberian S.A.	Spain	US$		0.0000		100.0000		100.0000		100.0000
Foreign	SQM Agro India Pvt.Ltd.	India	US$		0.0000		100.0000		100.0000		100.0000
Foreign	SQM Beijing Commercial Co. Ltd.	China	US$		0.0000		100.0000		100.0000		100.0000
Foreign	SQM Thailand Limited (b)	Thailand	US$		0.0000		99.996		99.996		99.996

F-23

Note 2 - Basis of presentation for the consolidated financial statements (continued)

2.5

Basis of consolidation, continued

Companies included in consolidation:

				Ownership interest
TAX ID No.	Domestic subsidiaries	Country of origin	Functional currency	06/30/2014						12/31/2013
				Direct		Indirect		Total		Total
96.801.610-5	Comercial Hydro S.A.	Chile	US$		0.0000		60.6383		60.6383		60.6383
96.651.060-9	SQM Potasio S.A.	Chile	US$		99.9999		0.0000		99.9999		99.9999
96.592.190-7	SQM Nitratos S.A.	Chile	US$		99.9999		0.0001		100.0000		100.0000
96.592.180-K	Ajay SQM Chile S.A.	Chile	US$		51.0000		0.0000		51.0000		51.0000
86.630.200-6	SQMC Internacional Ltda.	Chile	Ch$		0.0000		60.6381		60.6381		60.6381
79.947.100-0	SQM Industrial S.A.	Chile	US$		99.0470		0.9530		100.0000		100.0000
79.906.120-1	Isapre Norte Grande Ltda.	Chile	Ch$		1.0000		99.0000		100.0000		100.0000
79.876.080-7	Almacenes y Depósitos Ltda.	Chile	Ch$		1.0000		99.0000		100.0000		100.0000
79.770.780-5	Servicios Integrales de Tránsitos y Transferencias S.A.	Chile	US$		0.0003		99.9997		100.0000		100.0000
79.768.170-9	Soquimich Comercial S.A.	Chile	US$		0.0000		60.6383		60.6383		60.6383
79.626.800-K	SQM Salar S.A.	Chile	US$		18.1800		81.8200		100.0000		100.0000
78.053.910-0	Proinsa Ltda.	Chile	Ch$		0.0000		60.5800		60.5800		60.5800
76.534.490-5	Sociedad Prestadora de Servicios de Salud Cruz del Norte S.A.	Chile	Ch$		0.0000		100.0000		100.0000		100.0000