SANTIAGO (Reuters) - Chile is preparing major new restrictions on the extraction of water from the lithium-rich Salar de Atacama salt flats, home to top lithium miners Albemarle and SQM SQM_pb.SN, the head of the country's water authority told Reuters on Thursday.

A view of a brine pools of a lithium mine on the Atacama salt flat in the Atacama desert, Chile August 16, 2018. REUTERS/Ivan Alvarado

Water authority chief Oscar Cristi said in an exclusive interview that regulators had stopped issuing new permits to extract water from the southernmost sector of the Salar’s watershed, known as C2, which is a key water supply for BHP’s Escondida copper mine, the world’s largest, and Antofagasta’s Zaldivar mine.

Cristi said the government had granted BHP and Antofagasta permits to pump six times more water from an aquifer at Atacama than it could sustain, prompting the ban. BHP has since proposed to cut water extraction from wells in C2 by more than half, but Cristi said regulators still believed that rate to be “insufficient.”

“We’re evaluating this case and others where over-exploitation is taking place, to try to work with them to reach a voluntary agreement, and if not ... to reduce their extraction,” Cristi said, adding that the government planned to issue new prohibitions in other areas in northern Chile shortly.

Cristi said the water authority was analyzing a recent amendment to the Chilean water code that would allow the regulator to unilaterally reduce extraction rates in areas where over-exploitation is taking place.

BHP declined to comment. Instead, the company referred Reuters to a 2017 sustainability study in which it said it plans to use only sea water from its two desalination plants on the Chilean coast to feed its mammoth Escondida copper mine by 2030, and that it had already begun returning water rights to the state.

Antofagasta did not respond to requests for comment.

NEW WATER RESERVE

Chile’s water chief said the agency was also preparing to create a drinking water reserve nearer the core of the Salar, adjacent to the operations of SQM and Albemarle.

“Once we’ve created the reserve, this water will no longer be available and that could give us the legal right to establish a restricted area,” Cristi said.

In a restricted area, only temporary, not permanent, rights to extract water are granted, and water regulators closely monitor use. Existing extraction permits would be unaffected, Cristi said.

Cristi said the area of the salt flat where the lithium miners operate was not currently over-drawn, but a spike in demand for new water rights in the lithium-rich but water-poor region, as well as over-extraction elsewhere in the watershed, had prompted the conservative measure.

Lithium helps to fuel modern life. Lithium-ion batteries power everything from electric cars and laptops to mobile phones, and global demand for lithium is expected to quadruple by 2025. Chile’s Salar is home to one of the world’s biggest deposits of the metal, sometimes referred to as “white gold.”

It was not immediately clear what impact, if any, the new restrictions will have on the two miners’ operations.

Albemarle declined to comment. SQM, which recently signed a contract with Chilean authorities that authorized it to nearly triple production capacity by 2021, said it already possessed all of the water rights it needed for current and future operations.

Jon Hykawy, a battery minerals analyst at Stormcrow Capital, said new restrictions could impact current supply and add uncertainty to future development.

“My projections on future lithium supply anticipates a big chunk of growth from SQM and Albermarle on Atacama, so if that’s in any way endangered that changes the supply picture dramatically,” he said

Both fresh- and saltwater are critical to the production of lithium in the Atacama and have become a sticking point as local indigenous groups, long-standing producers SQM and Albemarle, regional copper miners and newcomers to the region all vie for water in the world’s most arid desert.

Albemarle, the world’s top lithium producer, and competitor SQM together extract 37 percent of the world’s lithium from brine, or saltwater, that is pumped from beneath the parched surface of the Salar de Atacama.