---

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UNITED
  STATESSECURITIES
  AND EXCHANGE COMMISSIONWashington,
  D.C. 20549

FORM
  20-F

---

|     |                                                                                                                                                                               
|---- | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|**** | REGISTRATION
      STATEMENT PURSUANT TO SECTION 12(b) OR (g) OF THE SECURITIES EXCHANGE ACT
      OF 1934                                                                    
|     |                                                                                                                                                                               
|     | OR                                                                                                                                                                            
|     |                                                                                                                                                                               
|     | ANNUAL
      REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF
      1934 
      For the fiscal year ended December 31, 2002.                          
|     |                                                                                                                                                                               
|     | OR                                                                                                                                                                            
|     |                                                                                                                                                                               
|     | TRANSITION
      REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF
      1934
      For the transition period from ________________ to ________________

**Commission
  file number 33-65728 / 33-99188 / 333-10068**

SOCIEDAD
  QUIMICA Y MINERA DE CHILE S.A.(Exact
  name of registrant as specified in its charter)

CHEMICAL
  AND MINING COMPANY OF CHILE INC.(Translation
  of registrant's name into English)****

**CHILE**
  ****(Jurisdiction
  of incorporation or organization)

**El
  Trovador 4285 Piso 6, Santiago, Chile (562) 425-2000**(Address
  of principal executive offices)****

Securities
  registered or to be registered pursuant to Section 12(b) of the Act.

|Title
        of each class                                            | Name
        of each exchange on which registered
|---------------------------------------------------------------------- | -------------------------------------------------
|Series
        A & B shares, in the form of American Depositary shares | New
        York Stock Exchange                  

Securities
  registered or to be registered pursuant to Section 12(g) of the Act.
  NONE

Securities
  for which there is a reporting obligation pursuant to Section 15(d) of the Act.
  NONE

Indicate
  the number of outstanding shares of each of the issuer's classes of capital
  or common stock as of the close of the period covered by the annual report.



|Series
        A shares |  | 142,819,552
|----------------------- |  | -----------
|Series
        B shares |  | 120,376,972
|                        |  |            

---

Indicate
  by check mark whether the registrant (1) has filed all reports required to be
  filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the
  preceding 12 months (or for such shorter period that the registrant was required
  to file such reports), and (2) has been subject to such filing requirements
  for the past 90 days.



|YES |  | NO
|--- |  | --

Indicate
  by check mark which financial statement item the registrant has elected to follow.



|Item
        17 |  | Item
      18
|--------------- |  | -------------



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TABLE
  OF CONTENTS

|                    |                                                                               | PAGE  
|------------------- | ----------------------------------------------------------------------------- | ------
|                    |                                                                               |       
|**PART
      I**    |                                                                               |       
|                    |                                                                               |       
|**ITEM
      1.**   | **IDENTITY
      OF DIRECTORS, SENIOR MANAGEMENT AND ADVISERS**               | **3** 
|                    |                                                                               |       
|**ITEM
      2.**   | **OFFER
      STATISTICS AND EXPECTED TIMETABLE**                             | **3** 
|                    |                                                                               |       
|**ITEM
      3.**   | **KEY
      INFORMATION**                                                     | **3** 
|                    |                                                                               |       
|**ITEM
      4.**   | **INFORMATION
      ON THE COMPANY**                                          | **8** 
|                    |                                                                               |       
|**ITEM
      5.**   | **OPERATING
      AND FINANCIAL REVIEW AND PROSPECTS**                        | **40**
|                    |                                                                               |       
|**ITEM
      6.**   | **DIRECTORS,
      SENIOR MANAGEMENT AND EMPLOYEES**                          | **55**
|                    |                                                                               |       
|**ITEM
      7.**   | **MAJOR
      SHAREHOLDERS AND RELATED PARTY TRANSACTIONS**                   | **62**
|                    |                                                                               |       
|**ITEM
      8.**   | **FINANCIAL
      INFORMATION**                                               | **64**
|                    |                                                                               |       
|**ITEM
      9.**   | **THE
      OFFER AND THE LISTING**                                           | **66**
|                    |                                                                               |       
|**ITEM
      10.**  | **ADDITIONAL
      INFORMATION**                                              | **68**
|                    |                                                                               |       
|**ITEM
      11.**  | **QUANTITATIVE
      AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK**          | **77**
|                    |                                                                               |       
|**ITEM
      12.**  | **DESCRIPTION
      OF SECURITIES OTHER THAN EQUITY SECURITIES**              | **79**
|                    |                                                                               |       
|**PART
      II**   |                                                                               |       
|                    |                                                                               |       
|**ITEM
      13.**  | **DEFAULTS,
      DIVIDEND ARREARAGES AND DELINQUENCIES**                     | **80**
|                    |                                                                               |       
|**ITEM
      14.**  | **MODIFICATIONS
      TO THE RIGHTS OF SECURITY HOLDERS AND USE OF PROCEEDS** | **80**
|                    |                                                                               |       
|**ITEM
      15.**  | **CONTROLS
      AND PROCEDURES**                                             | **80**
|                    |                                                                               |       
|**ITEM
      16A.** | **AUDIT
      COMMITTEE FINANCIAL EXPERT**                                    | **80**
|                    |                                                                               |       
|**ITEM
      16B.** | **CODE
      OF ETHICS**                                                      | **80**
|                    |                                                                               |       
|**ITEM
      16C.** | **PRINCIPAL
      ACCOUNTANT FEES AND SERVICES**                              | **80**
|                    |                                                                               |       
|**PART
      III**  |                                                                               |       
|                    |                                                                               |       
|**ITEM
      17.**  | **FINANCIAL
      STATEMENTS**                                                | **81**
|                    |                                                                               |       
|**ITEM
      18.**  | **FINANCIAL
      STATEMENTS**                                                | **81**
|                    |                                                                               |       
|**ITEM
      19.**  | **EXHIBITS**                                                                  | **81**
|                    |                                                                               |       
|                    | **SIGNATURES**                                                                | **82**
|                    |                                                                               |       
|                    | **CEO
      CERTIFICATION**                                                   | **83**
|                    |                                                                               |       
|                    | **CFO
      CERTIFICATION**                                                   | **84**

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This form 20-F contains statements that are or may constitute forward-looking statements within the meaning of the private securities litigation reform act of 1995. These statements appear throughout this form 20-F and include statements regarding the intent, belief or current expectations of the Company and its management, including but not limited to any statements concerning: (i) the Company's capital investment program and development of new products, (ii) trends affecting the Company's financial condition or results of operations, (iii) the future impact of competition; (iv) any statements preceded by, followed by or that include the words "believes," "expects," "predicts," "anticipates," "intends," "estimates," "should," "may" or similar expressions; and (v) other statements contained in this form 20-F that are not historical facts. Such forward-looking statements are not guarantees of future performance an


d involve risks and uncertainties, and actual results may differ materially from those described in such forward-looking statements included in this form 20-F, including, without limitation, the information under "Item 4: Information on the Company" and "Item 5: Operating and Financial Review and Prospects" Presentation of Information.Percentages and certain amounts contained herein have been rounded for ease of presentation. Any discrepancies in any figure between totals and the sums of the amounts presented are due to rounding. Each kilometer equals approximately 0.6214 miles, each hectare equals approximately 2.4710 acres, each cubic meter equals approximately 35.3147 cubic feet and each metric ton equals 1,000 kilograms or approximately 2,205 pounds.


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Sociedad
    Química y Minera de Chile S.A. will provide without charge to each
    person to whom this Annual Report is delivered, on the written or oral request
    of any such person, a copy of any or all of the documents incorporated herein
    by reference (other than exhibits, unless such exhibits are specifically incorporated
    by reference in such documents). Written requests for such copies should be
    directed to Sociedad Química y Minera de Chile S.A., El Trovador 4285
    Piso 6, Santiago, Chile, Attention: Investor Relations Department. Telephone
    requests may be directed to (562) 425 2000 and facsimile requests may be directed
    to (562) 425 2493.


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PART
  I

|                                                                         | 
|------------------------------------------------------------------------ | 
|ITEM
      1.IDENTITY
      OF DIRECTORS, SENIOR MANAGEMENT AND ADVISERS
|Not
      applicable                                                    
|                                                                         | 
|ITEM
      2.OFFER
      STATISTICS AND EXPECTED TIMETABLE              
|Not
      applicable                                                    
|                                                                         | 
|ITEM
      3.KEY
      INFORMATION                                      

SELECTED
  FINANCIAL DATA

The following
  table presents selected consolidated financial information for Sociedad Quimica
  y Minera de Chile S.A. and one or more of its subsidiaries, as applicable, (the
  Company or SQM) for each of the periods indicated. This
  information should be read in conjunction with, and is qualified in its entirety
  by reference to, the Audited Consolidated Financial Statements of the Company
  for each year in the five-year period ended December 31, 2002. The Company's
  Consolidated Financial Statements are prepared in accordance with Chilean GAAP,
  which differs in certain material respects from U.S. GAAP. Note 28to
  the Audited Financial Statements for December 31, 2002 provides a description
  of the principal differences between Chilean GAAP and U.S. GAAP and a reconciliation
  to U.S. GAAP of net income and total shareholders equity as of and for
  the years ended December 31, 2002, 2001 and 2000.




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|                                           | Year
        ended December 31   | 
|------------------------------------------ | -------------------------------- | 
|                                           |                                  | 
|                                           | 1998                             | 
|                                           |                                  | 
|Income
      Statement Data:               | (In
        millions of US$) (1) | 
|Chilean
      GAAP                         |                                  | 
|Total
      Revenues                       | 505.7                            | 
|Operating
      Income                     | 74.4                             | 
|Non-operating
      results, net           | 1.9                              | 
|Net
      income                           | 67.2                             | 
|Net
      earnings per share (2)           | 0.28                             | 
|Net
      earnings per ADS (2)             | 2.75                             | 
|Dividend
      per share (3)(4)            | 0.127                            | 
|                                           |                                  | 
|Weighted
      average shares              |                                  | 
|Outstanding
      (000s) (2)               | 244,331                          | 
|                                           |                                  | 
|                                           |                                  | 
|U.S.
      GAAP (4)                        |                                  | 
|Total
      Revenues                       | 505.7                            | 
|Operating
      Income                     | 80.0                             | 
|Non-operating
      results, net           | 1.9                              | 
|Effect
      of change in accounting       | —                                | 
|principles                                 |                                  | 
|Net
      income                           | 67.1                             | 
|Basic
      and diluted earnings per share | 0.28                             | 
|Basic
      and diluted earnings per ADS   | 2.75                             | 
|                                           |                                  | 
|Weighted
      average shares              |                                  | 
|Outstanding
      (000s)                   | 244,331                          | 
|                                           |                                  | 
|                                           |                                  | 
|Balance
      Sheet Data:                  |                                  | 
|Chilean
      GAAP:                        |                                  | 
|Total
      assets                         | 1,409.5                          | 
|Long-term
      debt                       | 445.1                            | 
|Total
      shareholders' equity           | 780.5                            | 
|Capital
      Stock                        | 439.3                            | 
|                                           |                                  | 
|U.S.
      GAAP                            |                                  | 
|Total
      assets                         | 1,351.8                          | 
|Long-term
      debt                       | 446.8                            | 
|Total
      shareholders' equity           | 663.9                            | 
|Capital
      Stock                        | 441.2                            | 
|                                           |                                  | 



|                                                                                                                                                                                                      
|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|Note:
      The Company is not aware of any material differences between Chilean and
      U.S. GAAP that are not addressed in Note 28 to the Audited Financial Statements
      of December 31, 2002.
|                                                                                                                                                                                                      
|(1)                                                                                                                                                                                                   
|                                                                                                                                                                                                      
|(2)                                                                                                                                                                                                   
|                                                                                                                                                                                                      
|(3)                                                                                                                                                                                                   
|                                                                                                                                                                                                      
|(4)                                                                                                                                                                                                   

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EXCHANGE RATES

Prior to 1989, Chilean law authorized the purchase and sale of foreign exchange only in those cases explicitly authorized by the Central Bank of Chile, the "Central Bank". TheLey Orgánica Constitucional del Banco Central de Chile No. 18,840, the Central Bank Law, enacted in 1989, liberalized the rules that govern the ability to buy and sell foreign exchange. The Central Bank Law now provides that the Central Bank may determine that certain purchases and sales of foreign exchange specified by law must be carried out exclusively in the Formal Exchange Market. The Formal Exchange Market is formed by the banks and other entities authorized by the Central Bank. All payments and distributions with respect to the New ADSs described herein must be transacted exclusively in the Formal Exchange Market. For the purposes of the operation of the Formal Exchange Market, the Central Bank sets a reference exchange rate (dólar acuerdo), the "Reference Exchange Rate". The Reference Exchange Rate is determined daily by the Central Bank, taking into account internal and external inflation and is adjusted daily to reflect variation in parities between the Chilean peso and each of the U.S. dollar, the Japanese yen and the euro. The purpose of the Reference Exchange Rate is to establish the range of spot market exchange rates at which transactions may occur, while the Observed Exchange Rate is the average exchange rate at which transactions are actually carried out in the Formal Exchange Market on a particular day. Authorized transactions by banks are generally conducted within a certain


 band above or below the Reference Exchange Rate. In January 1992, the Central Bank reduced the Reference Exchange Rate by 5% and widened the band for transactions in the Formal Exchange Market from 5% to 10%. In November 1994, the Central Bank reduced the Reference Exchange Rate by approximately 10%. In November 1995, the Central Bank reduced the Reference Exchange Rate by approximately 2%. In January 1997, the Central Bank widened the band for transactions in the Formal Exchange Market to 12.5%. In June 1998, the Central Bank narrowed the band for transactions in the Formal Exchange Market to 3.5% in the case of purchases and 2% in the case of sales. In September 1998, the Central Bank widened the band for transactions in the Formal Exchange Market to 3.5% in the case of sales and introduced a formula on which the band increases daily by a fixed amount. In December 1998, the Central Bank widened the band for transactions in the Formal Exchange Market to 8% and maintained the formula for the expansion of th


e band introduced in September 1998.  In January 1999, the Central Bank replaced the German mark with the euro in its formula to determine the Reference Exchange Rate. In September 1999, the Central Bank decided to suspend its formal commitment to the band, but agreed to intervene in the market by buying or selling foreign exchange on the Formal Exchange Market only in exceptional cases. The Central Bank is authorized to carry out its transactions at the Reference Exchange Rate and at the spot market rate. It generally carries out its transactions at the spot market rate. However, when commercial banks request to buy dollars from the Central Bank or request to sell dollars to the Central Bank, the Central Bank is authorized to apply an increase in the rate with respect to the Reference Exchange Rate for its sales or a decrease in the rate with respect to the Reference Exchange Rate. Authorized transactions by banks are generally transacted at the spot market rate. Purchases and sales of foreign exchange that may be carried out outside the Formal Exchange Market can be carried out in the Informal Exchange Market, which is a recognized currency market in Chile.  The Informal Exchange Market and its predecessor, the "Unofficial Market," reflect the supply and demand for foreign currency. There are no limits imposed on the extent to which the rate of exchange in the Informal Exchange Market can fluctuate above or below the Observed Exchange Rate. Since 1992, the difference between the Formal Exchange Market and the Informal Exchange Market has narrowed, particularly as a result of measures taken to liberalize the Formal Exchange Market during 1996 and 1997. The following
    table sets forth, for the periods and dates indicated, certain information
    concerning the Observed Exchange Rate reported by the Central Bank. No representation
    is made that the Chilean peso or U.S. dollar amounts referred to in this prospectus
    could have been or could be converted into U.S. dollars or Chilean pesos,
    as the case may be, at the rates indicated or at any other rate. The Federal
    Reserve Bank of New York does not report a noon buying rate for Chilean pesos.


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On June
  5, 2003, the Observed Exchange Rate was Ch$713.16 = US$1.00.



Observed
  Exchange Rate (1)


|                      |                     |  |                |  |                      |  |                      | 
|--------------------- | ------------------- |  | -------------- |  | -------------------- |  | -------------------- | 
|Year/Month            | Low
      (1)       |  | High
      (1) |  | Average
      (2)(3) |  | Year/Month
      End | 
|                      | Ch$
        per US$ | 
|                      |                     | 
|1993                  | 382.12              |  | 431.04         |  | 406.50               |  | 428.47               | 
|1994                  | 397.87              |  | 433.69         |  | 418.86               |  | 402.92               | 
|1995                  | 368.75              |  | 418.98         |  | 397.83               |  | 406.91               | 
|1996                  | 402.25              |  | 424.97         |  | 413.84               |  | 424.87               | 
|1997                  | 411.85              |  | 439.81         |  | 420.64               |  | 439.18               | 
|1998                  | 439.18              |  | 475.41         |  | 462.20               |  | 472.41               | 
|1999                  | 468.69              |  | 550.93         |  | 512.85               |  | 530.07               | 
|2000                  | 501.04              |  | 580.37         |  | 542.08               |  | 573.65               | 
|2001                  | 557.13              |  | 716.62         |  | 634.76               |  | 654.79               | 
|2002                  | 641.75              |  | 756.56         |  | 692.32               |  | 718.61               | 
|December
        2002 | 692.94              |  | 718.61         |  | 702.71               |  | 718.61               | 
|January
        2003  | 709.22              |  | 738.87         |  | 723.28               |  | 736.15               | 
|February
        2003 | 733.10              |  | 755.26         |  | 745.92               |  | 750.28               | 
|March
        2003    | 725.79              |  | 758.21         |  | 742.93               |  | 731.56               | 
|April
        2003    | 704.42              |  | 729.78         |  | 716.96               |  | 704.42               | 
|May
        2003      | 694.22              |  | 714.10         |  | 704.06               |  | 714.10               | 

|   
|---
|(1)
|   
|(2)
|   
|(3)



CAPITALIZATION
  AND INDEBTEDNESS Not applicable



REASONS
  FOR THE OFFER AND USE OF PROCEEDSNot
  applicable

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RISK FACTORS

The Companys operations are subject to certain risk factors that may affect SQMs financial condition or results of operations. Some of these factors are mentioned below, but for a discussion of certain considerations not typically associated with investing in the securities of United States companies, the reader is referred to the discussion under Risk Factors of the Prospectus included in the Companys Registration Statement on Form F-3, as amended, filed with the Securities and Exchange Commission on March 1, 1999 (File No 333-10068), which is hereby incorporated by reference. Chilean legal and political framework.The prospects and results of operations of the Company 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 the Company has no control. Interest rates. As of December 31, 2002, the Company had 41% of its long term financial debt priced at a variable rate and 59% at a fixed rate. The variable rate debt consists of two syndicated loans for an aggregate amount of US$140 million priced at Libor plus a spread and is subject to the Libor fluctuations. As of December 31, 2002, to lessen the risks related to Libor rate variations, the Company had a variable-to-fixed interest rate swap to cover fluctuations of US$124.8 million. The maturity date of this swap was February 23, 2003, after which the Company did not renew it nor extend it. SQM maintains the majority of its short-term debt priced at Libor plus a spread, for which the Company does not maintain any derivative contract to protect itself from fluctuations in the rate. Exchange rates. Although the U.S. dollar is the primary currency in which SQM transacts its businesses, the Companys operations throughout the world expose it to exchange rate variations for non-U.S. dollar currencies. Therefore fluctuations in the exchange rate of such local currencies to the U.S. dollar may affect SQMs financial condition and results of operations. To lessen these effects, SQM maintains forward contracts to protect most of the net difference between its principal assets and liabilities, for currencies other than U.S. dollar, from fluctuations in exchange rates. These contracts are renewed monthly depending on the amounts in each currency that must be covered. Aside from this, SQM does not hedge potential future income and expenses in currencies other than the U.S. dollar with the exception of the Euro. The Company estimates ann


ual sales in Euro and secures the exchange difference with an option contract. Price Volatility. The Company sets prices for its products principally according to world prices, which in some cases have been subject to substantial volatility in recent years. World fertilizer and chemical prices vary depending upon supply and demand at any given time. Further, the supply of certain fertilizers or chemical products varies depending upon production levels at the few major producers (including the Company) and their respective business strategies. A substantial decline in the price of one or more of SQMs products could have a material adverse effect on SQMs financial condition or results of operation. World Economy. The Company exports its products to more than 100 countries and, as such, the results and prospects for the Companys operations in these countries can be expected to be dependent, in part, on the general level of political stability, economic activity and policies in those countries. Additional costs related to change in mining law. The Company conducts its mining operations pursuant to exploitation and exploration concessions granted accordingly to applicable Chilean laws. Since mining laws and regulations in Chile may be subject to change, SQM cannot assure that any change including the establishment of royalties on favor of Chile will not cause the Company to incur additional costs that might affect its financial condition or results of operations. Additional
    costs related to change in water law.
    Water rights used by the Company in its industrial operations are granted
    according to applicable Chilean laws. Since water laws and regulations in
    Chile may be subject to change, SQM cannot assure that any change will not
    cause the Company to incur additional costs that might affect its financial
    condition or results of operations. 7


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Additional
    costs related to Environmental issues. SQMs
    worldwide operations are subject to environmental regulations. Since laws
    and regulations in the different jurisdictions in which the Company operates
    may change, the Company cannot guarantee that future laws, or changes to existing
    ones, will not materially impact its financial condition or results of operations. Insurance may not cover all potential losses. SQMs facilities located 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 maintained by prudent and experienced persons engaged in a business or businesses similar to those of SQM. Nonetheless, the Company may be subject to certain catastrophic events, including fires, major equipment failures, natural disasters, accidents, terrorist acts, war, etc, that may not be fully included in the insurance policies, and that could affect the Companys financial condition or results of operations. Estimate of mining reserves. The mining reserve estimates included elsewhere in this document are prepared by the Company using geological methods. Estimation methods involve numerous uncertainties as to the quantity and quality of the reserves, and these could change, up or down. A downward change could affect future production and therefore impact the Companys financial condition or results of operations. Legal proceedings. The Companys strategy of being the world leader includes carrying out commercial and productive alliances, joint ventures and acquisitions to improve its global competitive position. As these operations increase in complexity and are carried out in different jurisdictions, the Company might be subject to legal proceedings that may have a significant impact in the Companys financial condition or results of operations.


ITEM
  4.   INFORMATION ON THE COMPANY

HISTORY AND DEVELOPMENT OF THE COMPANY

Historical Background

Sociedad Química y Minera de Chile S.A., headquartered at El Trovador 4285, Piso 6, Santiago, Chile, is an open stock corporation (sociedad anónima, S.A.) organized under the laws of the Republic of Chile. The Company was constituted by public deed issued on June 17, 1968 by the Public Notary 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 Business Registry of Santiago, on page 4.537 No. 1.992. Commercial exploitation of the caliche ore deposits in northern Chile began in the 1830s, when sodium nitrate was extracted from the ore for use in the manufacture of explosives and fertilizers. By the end of the nineteenth century, nitrate production had become the leading industry in Chile and the country was the world's leading supplier of nitrates. The accelerated commercial development of synthetic nitrates in the 1920s and the global economic depression in the 1930s caused a serious contraction of the Chilean nitrate business, which did not recover significantly until shortly before the Second World War. After the war, the widespread commercial production of synthetic nitrates resulted in a further contraction of the natural nitrate industry in Chile, which continued to operate at depressed levels into the 1960s. SQM was established in 1968 by Compañía Salitrera Anglo Lautaro S.A., "Anglo Lautaro", the largest privately owned Chilean company engaged in nitrate mining and Corporación de Fomento de la Producción, Corfo, the Chilean state-owned development corporation, as part of a plan to reorganize the Chilean nitrate industry. SQM acquired its then principal properties from Anglo Lautaro and Corfo. In 1971, Anglo Lautaro sold all of its shares of SQM to Corfo and SQM remained wholly owned by the Chilean government until 1983.


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In 1983, Corfo began the privatization of SQM with the sale of SQM's shares to the public and subsequent listing of such shares on the Bolsa de Comercio de Santiago Bolsa de Valores S.A., the Santiago Stock Exchange. In subsequent years, Corfo sold additional shares of SQM and, by 1988, all of SQM's shares were owned privately. In September 1993, SQM established its American Depositary Receipt (ADR) program and, in connection with an international offering and a capital increase of approximately US$170 million, its shares were listed on the New York Stock Exchange as ADRs. During the years 1994 to 1999, SQM participated in the biggest non-metallic mining project ever carried out in Chile, the development of the Salar de Atacama in the north of Chile. During this period, this project demanded an investment of approximately US$300 million, which was used in the construction of a 500 thousand ton capacity potassium chloride plant, a 22 thousand ton capacity lithium carbonate plant, a 250 thousand ton capacity potassium sulfate plant and a 16 thousand ton capacity boric acid plant. The potassium chloride, lithium carbonate, potassium sulfate and boric acid plants are currently under operations. The years 2000, 2001 and 2002 have been a period of consolidation of the investments carried out in the preceding 5 years. The Company has focused its efforts in reducing costs and on improving the efficiencies throughout its organization.


Capital expenditure program

The Company continually reviews opportunities for improving its production methods and developing new products and markets. The Company has focused on developing new products in response to identified customer demand and products that can be derived as part of its existing production. The Companys capital expenditures in the past five years were mainly related to the acquisition of new assets, construction of new facilities and renewal of plant and equipment. The biggest effort consisted in the development of the Salar de Atacama project, which, with an original investment of approximately US$300 million, enabled SQM to reduce its costs significantly by supplying its own needs of potassium chloride for the production of potassium nitrate, and to introduce new products such as potassium chloride, lithium carbonate, boric acid and potassium sulfate. Other projects included ongoing renewal of the Company


s mining equipment, revamping of the Companys iodine and nitrate production facilities, construction of new solar evaporation ponds, installation of new drilling equipment at the Companys mines, acquisition of new mining trucks, construction of potassium nitrate facilities at Coya Sur, increasing nitrate production capacity with the start up of the Pampa Blanca project, construction of a butyl lithium plant in the USA, increase in lithium carbonate production capacity, refurbishing of Nueva Victoria production facilities and construction of several soluble/NPK mixing plants. SQM's capital expenditures in the 1998-2002 period were the following:


|Expenditures
      (1)     | 1998  |  | 1999 |  | 2000 |  | 2001 |  | 2002 | 
|-------------------------- | ----- |  | ---- |  | ---- |  | ---- |  | ---- | 
|                           |       |  |      |  |      |  |      |  |      | 
|(in
      millions of US$) | 200.8 |  | 73.7 |  | 63.2 |  | 49.7 |  | 58.8 | 

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(1)   Includes
  investments in related companies. These amounts will not agree with the consolidated
  statements of cashflows, as the Company does not consolidate development stage
  companies.

The Company has developed a Capital Expenditure Program, calling for expenditures totaling approximately US$180 million in the 2003-2005 period in order to pursue new opportunities. The Capital Expenditure Program includes investments for the purpose of maintaining and refurbishing existing facilities, reducing production costs, increasing production capacity and efficiency at existing facilities and developing new products and new markets. In addition, the Company has identified market demand in each of its major business segments, both within its existing customer base and in new markets, and for additional products that can be extracted from the Companys natural resources.


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The Company
  believes that its investment plan for the years 2003  2005 will be entirely
  financed with internally generated cash flow. The Company continuously reviews its Capital Expenditure Program and revisions are made as appropriate. The Capital Expenditure Program is subject to change from time to time due to changes in market conditions affecting the Company's products, general economic conditions in Chile and elsewhere, interest and inflation rates, competitive conditions and other factors. The Company evaluates from time to time other opportunities to expand its business both within and outside of Chile and expects to continue to do so in the future. The Company may decide to acquire part or all of the equity of, or undertake joint ventures or other transactions with, other companies involved in the business of the Company or in other businesses.


BUSINESS OVERVIEW

The Company

Sociedad Química y Minera de Chile S.A. and subsidiaries, is the worlds largest integrated producer of specialty fertilizers, iodine, lithium carbonate and a producer of certain industrial chemicals, including industrial nitrates. The Company sells its products in over 100 countries through its worldwide distribution network and derives approximately 80% of its revenues from exports. SQMs products are derived from mineral deposits found in the Atacama Desert region of northern Chile, where the Company mines and processes caliche ore and brine deposits. The caliche ore contains the largest known nitrate and iodine deposits in the world and is the worlds only commercially exploited source of natural nitrates. The brine deposits of the Atacama Salar contain the highest known concentrations of lithium and potassium as well as significant concentrations of sulfate and boron. From its caliche ore deposits, SQM produces a wide range of nitrate-based products, used for specialty fertilizers and industrial applications, as well as iodine and iodine derivatives. At the Atacama Salar, SQM extracts the brines rich in potassium, lithium and boron and produces potassium chloride, potassium sulfate, lithium solutions, boric acid and bischofite. SQM produces lithium carbonate at a plant near the city of Antofagasta from the solutions brought from the Atacama Salar. The Company markets all these products through an established worldwide distribution network. SQMs products are divided into five main categories: specialty fertilizers, iodine, lithium, industrial chemicals and other products. Specialty fertilizers are fertilizers that have certain characteristics that enable farmers to improve yields and quality of certain crops. Iodine, lithium and their derivatives are used in human feed, pharmaceuticals, polymers, and in the production of ceramics, aluminum, batteries and other industrial applications. Industrial chemicals have a wide range of applications in certain chemical processes such as the manufacturing of glass, explosives and ceramics. Other products include potassium chloride and other commodity fertilizers that are bought from third parties, and sold mostly in Chile. In addition, through its own distribution network, SQM is the largest importer and distributor of fertilizers in Chile. During
    the year 2002, specialty fertilizers accounted for approximately 51% of the
    Company's revenues, iodine and iodine derivatives accounted for 15%, lithium
    carbonate and lithium derivatives accounted for 7%, industrial chemicals (industrial
    grade nitrates, sodium sulfate and boric acid) accounted for 13%, and other
    products (mainly imported fertilizers distributed in Chile and potash sold
    to third parties) accounted for 14% of revenues.


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Specialty
    Fertilizers:
    SQM produces five principal types of specialty fertilizers: sodium nitrate,
    potassium nitrate, sodium potassium nitrate, potassium sulfate and specialty
    blends. All of the Company's specialty fertilizers are used in either solid
    or liquid form mainly in high value crops such as tobacco, fruits, vegetables,
    cereals and cotton and are widely used in modern agricultural techniques such
    as hydroponics, greenhousing and fertigation. The Company's specialty fertilizers
    have certain advantages over commodity fertilizers like rapid and effective
    absorption (without requiring nitrification), superior water solubility, alkaline
    pH, which reduces soil acidity, and low chlorine content. These advantages,
    plus customized specialty blends to meet specific needs and the technical
    service given by SQM can be considered as a plant nutrients solutions adding
    value to the crops through higher yields and better quality production. Because
    the Companys products are natural or derived from natural nitrate compounds
    or natural potassium brines (in the case of potassium sulfate), they have
    certain advantages over synthetically produced fertilizers, such as the presence
    of certain beneficial trace elements and their organic nature, which makes
    them more attractive to customers who prefer products of natural origin. As
    a result, SQM's specialty fertilizers enable the Companys customers
    to achieve higher yields and better quality crops. Accordingly specialty fertilizers
    are sold at a premium price compared to commodity fertilizers.


Iodine: SQM is the worlds leading producer of iodine and iodine derivatives, which are used in a wide range of medical, pharmaceutical, agricultural and industrial applications, including x-ray contrast media, antiseptics, biocides and disinfectants, human and animal nutritional supplements, herbicides, organic compounds, catalysts, pigments, dye components and heat stabilizers. Lithium: SQM is the worlds leading producer of lithium carbonate, which is used in a variety of applications, including the manufacture of ceramics, glass, aluminum, chemicals, pharmaceuticals, batteries and lithium derivatives. Since 2000 SQM is also active in the production of lithium hydroxide, used primarily in the lubricating grease industry, and has recently started up its butyl lithium production, product aimed primarily at the synthetic rubber and pharmaceutical industries. Industrial Chemicals:The Company produces five principal types of industrial chemicals:  sodium nitrate, potassium nitrate, sodium sulfate, boric acid and potassium chloride. Sodium nitrate is used primarily in the production of glass, explosives, charcoal briquettes and metal treatment. However, other uses, such as adhesives and wastewater treatment also account for important sales volumes. Potassium nitrate, while also used in the manufacture of glass, is consumed primarily in more specialized areas such as glass for computer screens, TV monitors and picture tubes. In addition, potassium nitrate is an important raw material for the porcelain enamel coatings and ceramics industries. Sodium sulfate is used primarily as a raw material in the production of detergents and for bleaching paper. Boric Acid is used in the manufacture of ceramics, glass, enamels, f


iberglass and cellulose insulation and Potassium Chloride is used as an additive in oil drilling. Other Products:SQMs other products consist mainly of imported fertilizers distributed through its Chilean subsidiary Soquimich Comercial S.A. and potassium chloride. Soquimich Comercial S.A. markets imported fertilizers in Chile offering a complete fertilizing service to its customers. The following table sets forth the percentage breakdown of SQM's revenues in the 1998-2002 period according to the Company's product lines:


|                              | 1998 |   | 1999 |   | 2000 |   | 2001 |   | 2002 |  
|----------------------------- | ---- | - | ---- | - | ---- | - | ---- | - | ---- | -
|                              |      |   |      |   |      |   |      |   |      |  
|Specialty
      Fertilizers   | 43   | % | 43   | % | 46   | % | 49   | % | 51   | %
|Iodine
      and derivatives  | 24   | % | 20   | % | 17   | % | 16   | % | 15   | %
|Lithium
      and derivatives | 4    | % | 6    | % | 7    | % | 7    | % | 7    | %
|Industrial
      Chemicals    | 17   | % | 16   | % | 14   | % | 13   | % | 13   | %
|Other
      Products          | 12   | % | 15   | % | 16   | % | 15   | % | 14   | %
|                              |      |   |      |   |      |   |      |   |      |  
|                              | 100  | % | 100  | % | 100  | % | 100  | % | 100  | %

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The Company
    is not aware of any independent, authoritative source of information regarding
    sizes, growth rates or market shares for most of the Company's markets. Accordingly,
    the market size, market growth rate and market share estimates contained herein
    have been developed by the Company from internal and external sources and
    reflect the Company's best current estimates.


Business strategy

SQM's general business strategy is to: (i) participate in businesses where it is or will be a cost leader supported by strong fundamentals, (ii) differentiate itself from commodity producers by manufacturing, marketing and distributing specialty products that sell at high value, (iii) continually increase the efficiency of its production processes and reduce costs in order to increase the Companys productivity, (iv) maintain leadership in its principal business areas specialty fertilizers, iodine and lithium in terms of installed capacity, costs, production, pricing and development of new products and (v) vertically integrate towards more value added markets. The Company
  has identified market demand in each of its major business segments, both within
  its existing customer base and in new markets, for existing products and for
  additional products that can be extracted from the Companys natural resources.
  In order to take advantage of these opportunities, the Company has developed
  a specific strategy for each of its product lines, as set forth below:


| | • | Specialty
      Fertilizers Business:
| | - | -------------------------------------
| |   |                                      
| |   |                                      
| | • | Iodine
      Business:               
| |   |                                      
| |   |                                      
| | • | Lithium
      Business:              
| |   |                                      
| |   |                                      
| | • | Industrial
      Chemicals Business: 
| |   |                                      
| |   |                                      

From time to time the Company evaluates opportunities to expand its business, both within and outside Chile, and expects to continue to do so in the future. The Company may decide to acquire part or all of the equity of, or undertake joint ventures or other transactions with other companies involved in the businesses of the Company or in other businesses. There can be no assurance that the Company will decide to pursue any such transaction.


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Prior to 1998, SQM had been developing its own cement project capable of producing up to 1.5 million metric tons per year of cement in Chile. On September 9, 1998, SQM sold its cement-related assets to Empresas Melón S.A., which is now a subsidiary of Lafarge (formerly Blue Circle Industries PLC), for US$32 million and subscribed to 14% of the common stock of Empresas Melón S.A. for a total of US$57 million. The Companys capital expenditure program for the 2003-2005 period amounts to approximately US$180 million, which will be used to expand production capacity, replace existing equipment and facilities, automate processes, reduce costs and add new products to its specialty fertilizers, iodine and lithium businesses. The main thrust behind this plan is to consolidate the investments carried out during the years 1993 to 1998, strengthen the commercial network and prepare the Company to secure its growth into the next years by improving operating efficiency and permanently increasing output capacity to satisfy the growing demand for SQM's current and future products.


Production process

SQMs integrated production process can be classified according to its natural resources: 
    Caliche ore deposits: contain nitrates, iodine and sodium sulfate.  Atacama
    Salar brines: contain potassium, lithium, sulfates and boron.


Caliche Ore Deposits

The Company mines caliche ore from open pit deposits located in northern Chile. The caliche deposits are the largest known and only commercially exploited source of natural nitrates in the world. The geological origin of the caliche ore deposits in northern Chile is uncertain. Different geological formation theories have been suggested. The most agreed upon is that a volcanic formation of deposits was followed by water runoff, leaching and depositing in existing sediments. Caliche deposits are located in northern Chile, where the Company currently operates four mines: Pedro de Valdivia, María Elena, Pampa Blanca and Nueva Victoria. The Companys four mining areas cover in excess of 300,000 hectares. Caliche ore is found under a layer of barren overburden, in seams with variable thickness from twenty centimeters to five meters, with the overburden varying in thickness from half a meter to one and a half meters. Before proper mining begins a full exploration stage is accomplished, including full geological reconnaissance and dust recovery drill holes to determine the features of each deposit and its quality. Drill hole samples properly identified are essayed at the Companys chemical laboratories. With the exploration information on a closed grid pattern of drill holes the ore evaluation stage provides information for mine planning purpose. Mine planning is done on a long-term basis (10 years), medium term basis (3 years) and short-term basis (1 year). A mine production plan is a dynamic tool that details daily, weekly and monthly production plans. Following the production of drill holes, information is updated to offer the most accurate ore supply schedule to the processing plants. Bulldozers first rip and remove the overburden in the mining area, followed by production drilling and blasting to break the caliche seams. Front-end loaders load the ore on off-road trucks. Trucks deliver the ore to stockpiles next to rail loading stations (in the case of the Pedro de Valdivia mine). The stockpiled ore is later loaded on to railcars that take the mineral to the processing plant. In the case of María Elena mine, trucks will haul the ore and dump it directly to a primary crushing installation, after which a 14 kilometer long overland conveyor belt system delivers the ore to the processing plant.


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The ore in Pedro de Valdivia and María Elena plants is crushed and leached to produce concentrated solutions carrying the nitrate, iodine and sodium sulfate. In Pampa Blanca and Nueva Victoria the run of mine ore is loaded in heaps and leached to produce concentrated solutions.  The crushing of the ore delivers two products, a coarse fraction that is leached in the vat system and a fine fraction that is leached by agitation. These are followed by liquid solid separation, where solids precipitate as sediment and liquid concentrated in nitrate and iodine is sent to processing.


Caliche Ore-Derived Products

Caliche
  ore derived products are: sodium nitrate, potassium nitrate, sodium potassium
  nitrate, sodium sulfate and iodine.


Sodium Nitrate

Sodium nitrate for both agricultural and industrial applications is produced at the María Elena and Pedro de Valdivia facilities using the Guggenheim method, which was originally patented in 1921. This closed circuit method involves adding a heated leaching solution to the crushed caliche in the vats to selectively dissolve the valuable contents in a batch process. The concentrated solution is then cooled, causing the sodium nitrate to crystallize. Part of the unloaded solution is then recycled to the leaching vats. The other part of the solution is stripped of its iodine content at the proper treatment plants. The crystallized sodium nitrate is separated from the remaining solution by solid liquid centrifuging. Once most of the sodium nitrate is removed from the caliche ore, a final leaching stage with cold water produces a weak solution that is pumped to solar evaporation ponds at the Company's Coya Sur facilities, nearby Mar&iacut


e;a Elena, for concentration. While the process of extracting sodium nitrate from caliche ore is well established, variations in chemical content of the ore, temperature of the leaching solutions and other operational features require a high degree of know-how to manage the process effectively. The residues of the sodium nitrate crystallization process are vat leach tailings and weak solution. The ore tailings are unloaded from the leaching vats and deposited at sites near the production facilities. The weak solution is recycled for further leaching and for the extraction of iodine. Crystallized sodium nitrate is processed further at Pedro de Valdivia to produce prilled sodium nitrate, which is transported to the Company's port facilities in Tocopilla for bulk shipping to customers and distributors worldwide or for bagging and shipping to customers and distributors. The Company's current crystallized sodium nitrate production capacity at Pedro de Valdivia and María Elena is approximately 770,000 metric tons per year. A portion of the sodium nitrate produced at María Elena and Pedro de Valdivia is used in the production of a highly refined industrial grade sodium nitrate or in the production of potassium nitrate at Coya Sur and sodium potassium nitrate at María Elena.


Potassium
  Nitrate

Potassium
  nitrate is produced at the Companys Coya Sur facility using production
  methods developed by SQM. The solutions from the leaching of the fine fraction
  of the ore, once the iodine and sodium sulfate is extracted, is pumped to the
  Coya Sur plant. These solutions loaded with nitrate are concentrated in solar
  evaporation ponds. Once an adequate level of concentration is reached, the solution
  is combined with potassium chloride to produce potassium nitrate and discard
  sodium chloride. The resulting rich potassium nitrate in solution is crystallized
  from using a cooling and centrifuging liquid solid process. The crystallized
  potassium nitrate is either processed further to produce prilled potassium nitrate
  or used for the production of sodium potassium nitrate. The weak solution of
  the process is re-used for further production of potassium nitrate. A portion
  of the potassium nitrate is used in the production of a high purity technical
  grade potassium nitrate. To control the proper nitrate content before the conversion
  to potassium nitrate, crystallized sodium nitrate can be added or rich nitrate
  salts can be leached and the resulting strong nitrate solution can be used for
  the same purpose.


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Concentrated
  nitrate salts are produced at Pampa Blanca by leaching caliche ore in leach
  pads from which the Company extracts rich iodine and nitrate solutions that
  are sent to iodine plants for iodine extraction. After iodine has been extracted,
  the solutions are sent to solar evaporation ponds where solutions are concentrated
  to total dryness, where rich nitrate salt is produced. These concentrated nitrate
  salts are sent to Coya Sur where they are leached and the resulting rich nitrate
  solution is used in the production of potassium nitrate. The Companys current potassium nitrate production capacity at Coya Sur is more than 650 thousand metric tons per year, including 260 thousand metric tons per year of technical grade potassium nitrate at Coya Sur. Crystallized or prilled potassium nitrate produced at Coya Sur and María Elena is transported to Tocopilla for bulk or bagged 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. SQM produces sodium potassium nitrate at the María Elena facilities using standard, non-patented production methods developed by the Company. 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. The installed prilling capacity of the Company is approximately 1,100,000 metric tons per year. With certain production restraints and following market conditions the Company can supply sodium nitrate, potassium nitrate or sodium potassium nitrate in prilled form.


Sodium Sulfate

SQM produces sodium sulfate at its Coya Sur facilities. Crystallized sodium sulfate decahydrate (Glauber salt) is extracted from the leaching solutions after the iodine production process at Pedro de Valdivia and María Elena. The salt is transported to Coya Sur, where it reacts with sodium chloride salt harvested from the solar evaporation ponds to produce anhydrous sodium sulfate. The sodium sulfate is shipped in bulk directly to customers and distributors, principally in Brazil and Chile. The remaining solution is recycled back to the solar evaporation pond system. The Company's current sodium sulfate production capacity is 75,000 metric tons per year.


Iodine and Iodine Derivatives

SQM produces iodine at its Pedro de Valdivia and Nueva Victoria production facilities, extracting it from the solutions from the leaching of crushed caliche ore at the Pedro de Valdivia, María Elena, Nueva Victoria and Pampa Blanca facilities. As in the case of nitrate and sulfate production, 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. The solutions from the leaching of caliche will carry iodine in iodate form. Part of the iodate in solution is reduced to iodide using sulfur dioxide, which is produced by burning sulfur. The resulting iodide is combined with the rest of untreated iodate solution to release elemental iodine. The solid iodine is then concentrated in flotation cells, refined through a smelting process and flaked or prilled. The Company has obtained patents in Chile and in the United States for its iodine prilling process.


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Flaked and prilled iodine is tested for quality control purposes, then packed in 20 or 50 kilogram drums, 350 kilogram or 700 kilogram maxibags and transported by truck to Antofagasta for export. The Company has qualified its iodine and iodine derivative production plants under the ISO-9002 program, providing third-party certification of the quality management system and international quality control standards that the Company has implemented. SQM's total iodine production in 2002 was approximately 4.9 thousand metric tons: approximately 2.1 thousand metric tons from Pedro de Valdivia, 1.5 thousand metric tons from María Elena, 1.2 thousand metric tons from Pampa Blanca and 0.1 thousand metric tons from Nueva Victoria. The Nueva Victoria facility is also used for tolling iodine delivered from Pampa Blanca and María Elena. The Company has the flexibility to adjust its production according to market conditions. The semi-mobile plants used at Pampa Blanca allow for the processing of solutions obtained from the leaching of ores with high concentration exploited from smaller ore bodies, resulting in lower production costs. The Company uses 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, and also produces inorganic and organic iodine derivative products together with Ajay North America L.L.C., Ajay, a U.S.-based Company which purchases iodine from the Company. SQM had in the past primarily marketed its iodine derivative products in South America, Africa and Asia, while Ajay and its affiliates had primarily sold their iodine derivative products in North America and Europe.


Atacama Salar Brine Deposits

The Atacama Salar, located approximately 250 kilometers east of Antofagasta, is a salt encrusted depression within the Atacama Desert, beneath which lies an underground deposit of brines contained in porous rock fed by an underground inflow of water from the Andean Mountains. The brines are estimated to cover a surface of approximately 2,900 square kilometers and contain commercially exploitable deposits of potassium, lithium, sulfates and boron. Concentrations vary at different locations throughout the salar. Brines are pumped from depths between 1.5 and 40 meters below surface, through a field of wells that are located in areas of the salar that contain relatively high concentrations of potassium, lithium, sulfate, boron and other minerals. The Company processes these brines to produce potassium chloride, lithium carbonate, potassium sulfate, boric acid and bischofite. The first stage in the Atacama Salar development project was to produce potassium chloride, an important raw material used in the manufacture of potassium nitrate, which has allowed the Company to reduce its potassium nitrate production costs. The second stage involved the production of lithium carbonate using a portion of the remaining solutions after the production of potassium chloride, a project that began its operations in late 1996 at a production facility near Antofagasta. The third stage, which has operated at the Atacama Salar since the second half of 1998, broadens the product portfolio of specialty fertilizers and industrial chemicals by introducing two new products, potassium sulfate a non chlorine potassium fertilizer and boric acid respectively.


Potassium Chloride

The Company began production of potassium chloride in late 1995. The Company uses potassium chloride in the production of potassium nitrate. The Company used to purchase its potassium chloride requirements from external sources. Production of its own supplies of potassium chloride provided the Company with substantial raw material cost savings.




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In order to produce potassium chloride, brines from the Atacama Salar are pumped to solar evaporation ponds. Evaporation of the brines results in a crystallization mixture of salts of potassium chloride and sodium chloride, which is harvested and transferred by truck to a processing facility where the potassium chloride is separated by a grinding, flotation, and filtering process. Potassium chloride is trucked approximately 300 kilometers to the Companys Coya Sur facilities, where it is used in the production of potassium nitrate. The Company sells potassium chloride produced at the Atacama Salar and in excess of its needs to third parties. During the year 2000, the Company successfully finished the construction of a plant to compact potassium chloride with a capacity of 100 thousand tons per year. It is currently operating at normal conditions and has increased the Companys potassium chloride production capacity up to 650 thous


and metric tons per year. 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 and the excess of Companys needs is reinjected into the Atacama Salar and, (ii) sodium chloride, which is identical to the surface material of the Atacama Salar and is deposited at sites near the production facility.


Lithium Carbonate

The Companys operation of lithium carbonate from the Atacama Salar brines began in October 1996 and has been in steady state production since January 1997. 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 lithium chloride concentrated solution is transported by truck to a new production facility located near Antofagasta, approximately 250 kilometers from the Atacama Salar. At the production facility, the solution is purified and treated with sodium carbonate to produce lithium carbonate, which is dried then, if necessary, compacted and finally packaged for shipment. The Companys lithium carbonate production capacity is approximately 28 thousand metric tons per year as of the end of 2002.


Potassium Sulfate and Boric Acid

Approximately
    12 kilometers northeast of the potassium chloride facilities, SQM produces
    potassium sulfate and boric acid from the salar brines. The plant lies on
    an area of the salar where higher sulfate and potassium concentrations are
    found in the brine. Brines are pumped to pre-concentration evaporation ponds
    where waste sodium chloride salts are removed by precipitation. After further
    evaporation, the salts are harvested and sent for treatment at the potassium
    sulfate plant. Potassium sulfate is produced using a flotation and concentration
    process, after which it is crystallized, dried and packaged for shipment.
    Boric acid is produced in crystallized form by acidulation of the residual
    concentrated brines, dried and packaged for shipment at the same facility.
    The Company experienced some problems in relation with the unexpected leaking
    of the pre-concentration ponds for the production of potassium sulfate, affecting
    production levels and significantly impacting the cost of production. The
    problems surrounding potassium sulfates costs and production are now
    mainly solved. 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 reinjected into the Atacama Salar or returned to the evaporation ponds. The principal by-products of the boric acid production process are remaining solutions that after treatment with sodium carbonate to neutralize acidity, are reinjected into the Atacama Salar.


Specialty Fertilizers

The Company is the largest commercial producer of natural specialty fertilizers. SQM produces the following specialty fertilizers products: sodium nitrate, potassium nitrate, potassium sulfate, sodium potassium nitrate and specialty blends (containing various combinations of nitrogen, phosphate and potassium and generally known as NPK blends). SQMs specialty fertilizers have particular characteristics, which increase productivity and enhance quality when are used on certain crops and soils. Additionally, these fertilizers are well suited for high-yield agricultural techniques such as hydroponics, fertigation and greenhousing. High value crop farmers are prompted to invest in specialty fertilizers due to their technical advantages over commodity fertilizers (such as urea and potassium chloride), which in turn translated into products and crops with higher yields and added quality. The Companys specialty fertilizers ha


ve significant advantages for certain applications over commodity ammonia-based nitrogen and potassium fertilizers, such as the mentioned urea and potassium chloride.




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In particular,
  the Companys specialty fertilizers:


| | • | are
      fully water soluble, allowing their use in hydroponics, fertigation and
      other advanced agricultural techniques;  
| | - | ---------------------------------------------------------------------------------------------------------------------------------
| | • | are
      absorbed more rapidly by plants because they do not require nitrification
      like ammonia based fertilizers;        
| | • | are
      free of chlorine content, reducing the risk of scorching roots;                                                        
| | • | do not
      release hydrogen after application, avoiding increased soil acidity;                                                
| | • | possess
      trace elements, which promote disease resistance in plants and have other
      beneficial effects;                
| | • | are
      more attractive to customers who prefer products of natural origin; and                                                
| | • | are
      more efficient than commodity fertilizers because they deliver more plant
      nutrients per unit of nutrient applied.

While the first four features can also be achieved in some degree with synthetic commodity fertilizers, only SQM's natural nitrate fertilizers offer the last three features and combine all seven. In the year 2002, the Company's revenues from specialty fertilizers were approximately US$281.4 million, representing approximately 51% of the Company's total revenues for that year.


Specialty Fertilizers: Market

The target market for SQMs specialty fertilizers are high value crops such as tobacco, fruits, vegetables and crops raised using modern agricultural techniques. Since 1987, the international market for specialty fertilizers has grown at a substantially 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 increasing use of greenhousing; (ii) the increase in the cost of land which has forced farmers to improve their yields; (iii) the scarcity of water; (iv) the increase of consumption of vegetables per capita and (iv) the increasing demand for higher quality crops. Scarcity of water in certain areas force farmers to develop new agricultural techniques that maximize the use of water such as fertigation, which is widely used. These applications require fertilization through water (fertilizer is first dissolved in water and then applied to the crop) and therefore fully water-soluble fertilizers are required. SQMs specialty fertilizers possess high degrees of solubility. Increasing land cost near urban centers also force farmers to maximize their yields per surface area. Specialty fertilizers, when applied to certain crops, help increase productivity for various reasons. In particular since SQM nitrate-based specialty fertilizers provide nitrogen in nitric form, as opposed to ammonium form as urea provides they are absorbed faster by the crop. Crops absorb nitrogen in nitric form, thus nitrogen in ammonium form has to be first converted to nitric form in the soil, a process that is not immediate and that releases hydrogen into the soil, increasing soil acidity, which in most cases is harmful to the soil and the crop. Nitric nitrogen application facilitates a more efficient application of nutrients to the plant, thereby increasing the crops yield and improving its quality.




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The Companys potassium-based specialty fertilizers are chlorine free, unlike potassium chloride, which is the most commonly used potassium-based commodity fertilizer. In certain crops, chlorine has negative effects, which translate into lower yield and quality. The principal agricultural applications of sodium nitrate, potassium nitrate, potassium sulfate and sodium potassium nitrate fertilizers are: vegetables, tobacco, fruits, horticulture, sugar beets, cotton and other applications.


Specialty Fertilizers: The Company's Products

SQM produces natural sodium nitrate in prilled form, which it sells under well-known brand names such as "Champion" and "Bulldog". Potassium nitrate, sodium potassium nitrate and specialty blends are higher-margin products derived from, or consisting of, sodium nitrate, all of which are produced in crystallized or prilled form. Specialty blends are produced using SQMs own specialty fertilizers and other components at blending plants operated by the Company or its affiliates and related companies in Chile, USA, Mexico, United Arab Emirates, Belgium and Holland. The following table sets forth the Company's sales volume of its specialty fertilizer products and the revenues during the 1998-2002 period:


|Sales
      Volume (in metric tons)            |  | 1998    |  | 1999    |  | 2000    |  | 2001    |  | 2002    | 
|---------------------------------------------- |  | ------- |  | ------- |  | ------- |  | ------- |  | ------- | 
|                                               |  |         |  |         |  |         |  |         |  |         | 
|Sodium
      nitrate                           |  | 105,419 |  | 98,598  |  | 71,200  |  | 63,100  |  | 59,500  | 
|Potassium
      nitrate and                    |  | 422,252 |  | 415,452 |  | 472,200 |  | 544,800 |  | 558,600 | 
|sodium
      potassium nitrate                 |  |         |  |         |  |         |  |         |  |         | 
|Potassium
      Sulfate                        |  | 49,903  |  | 79,892  |  | 151,600 |  | 156,600 |  | 161,000 | 
|Blended
      and other specialty fertilizers* |  | 188,808 |  | 176,614 |  | 200,200 |  | 241,800 |  | 276,600 | 
|                                               |  |         |  |         |  |         |  |         |  |         | 
|Revenues(in
      US$ millions)                |  | 219.6   |  | 210.4   |  | 229.9   |  | 259.1   |  | 281.4   | 

| 
|-
|*

Specialty
  Fertilizers: Marketing and Customers

In the year 2002, SQM sold its specialty fertilizers to more than 90 countries. During the same year, approximately 89% of the Company's specialty fertilizers production was exported: approximately 30% was sold to customers in Central and South America, 17% to customers in North America, 15% to customers in Europe and 27% to customers in other regions. No single customer accounted for more than 6% of the Company's specialty fertilizers product sales in 2002 and the Company's 10 largest customers accounted in the aggregate, during the same year, for less than 31% of such sales.


|Sales
      Breakdown           |  | 2000 |   | 2001 |   | 2002 |  
|------------------------------- |  | ---- | - | ---- | - | ---- | -
|                                |  |      |   |      |   |      |  
|Central
      and South America |  | 26   | % | 24   | % | 30   | %
|North
      America             |  | 20   | % | 18   | % | 17   | %
|Europe                          |  | 15   | % | 14   | % | 15   | %
|Others                          |  | 22   | % | 31   | % | 27   | %
|Chile                           |  | 17   | % | 13   | % | 11   | %
|                                |  |      |   |      |   |      |  

The Company sells its specialty fertilizer products outside Chile principally through its own worldwide network of representative offices and through its sales, technical support and distribution affiliates.




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During 2002,
  the Company implemented the commercial agreement signed with Norsk Hydro ASA
  on November 2001. This agreement allows SQM to utilize the distribution network
  of Norsk Hydro in countries in which its presence and commercial infrastructure
  are larger than SQMs. Similarly, in those markets where SQMs presence
  is larger, the specialty fertilizers of SQM and Norsk Hydro will be marketed
  through SQMs offices. The parties will, however, maintain an active control
  in the marketing of their own products. In the same way, during 2002 the Company has been implementing the Joint Venture Agreement (JVA) that was signed with Norsk Hydro ASA and Israel Chemicals Limited. Under the JVA, SQM, Norsk Hydro ASA, and Israel Chemicals Limited will jointly develop the liquid and soluble fertilizer blends market through their participation in a company called NU3 N.V. to which SQM and Israel Chemicals Limited contributed their blending plant in Belgium, and Norsk Hydro ASA contributed its blending facility in Holland. With the JVA, important synergies will be achieved, particularly in production costs, administration and marketing of soluble blends, strengthening the development of new products and improving costumer service. SQM maintains stocks of its specialty fertilizer products in North America, Central and South America and Europe to facilitate prompt deliveries to customers. In addition, the Company sells specialty fertilizer products directly to certain of its large customers. Sales are made pursuant to spot purchase orders and short-term contracts. In connection with its marketing efforts, SQM provides technical and agronomic assistance and support to its customers. By working closely with its customers, the Company is able to identify new higher value added products and markets. SQMs specialty fertilizer products are used on a wide variety of crops, particularly higher value-added crops that allow SQMs customers to increase yield and command a premium price. The Company's customers are located in the northern and southern hemispheres. Accordingly, there are no seasonal or cyclical factors that can substantially affect the sales of the Company's specialty fertilizer products.


Specialty Fertilizers: Fertilizer Sales in Chile

SQM markets
  specialty fertilizers in Chile through Soquimich Comercial S.A. (SQMC) which
  sells these products either alone or in blends with other imported products,
  principally urea, triple super phosphate (TSP) and diammonium phosphate (DAP).
  SQMC sells imported fertilizers to farmers in Chile principally for application
  in the production of sugar beets, cereals, tobacco, potatoes, grapes and other
  fruits. Most of the fertilizers that SQMC imports are purchased on a spot basis
  from different countries of the world. The Company believes that all contracts and agreements between SQMC and third party suppliers with respect to imported fertilizers contain standard and customary commercial terms and conditions. During the preceding nine years, SQMC has experienced no material difficulties in obtaining adequate supplies of such fertilizers at satisfactory prices, and the Company expects that it will be able to continue to do so in the future. The Company estimates that SQMC's aggregate sales of fertilizers in the year 2002 accounted for approximately 30% of total fertilizer sales in Chile in that period. No single customer accounted for more than 4% of SQMC's total revenues from sales of fertilizers in 2002 and the 10 largest customers accounted in the aggregate, during the same year, for less than 19% of such revenues. Revenues generated by SQMC accounted for 19% of the Companys consolidated revenues. Total revenues from sales by SQMC were approximately US$97 million, US$91 million and US$86 million in 2000, 2001 and 2002 respectively. On April 29, 2003, SQMC announced the acquisition of 100% of the shares of Norsk Hydro Chile S.A., a Chilean subsidiary of Norsk Hydro ASA in the approximate amount of US$ 3.2 million. Due to the similar nature of Norsk Hydro Chile S.A. commercial operations to those carried out by SQMC, this acquisition will allow the latter to improve its fertilizer distribution business in Chile. SQMC will continue with the distribution in Chile of the fertilizers produced by Norsk Hydro ASA and its affiliates, allowing the former to improve its fertilizer distribution business in Chile.


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Specialty Fertilizers: Competition

SQM is currently the world's largest producer of sodium nitrate for agricultural use. PCS Yumbes SCM, PCS, a subsidiary of Potash Corporation of Saskatchewan, Inc., a Canadian corporation, and SCM Yodo y Salitre, Cosayach, a Chilean nitrate and iodine company, both produce sodium nitrate as a raw material for potassium nitrate. PCS can produce sodium nitrate for agricultural use and has begun to sell such product on a small scale. Cosayach is currently producing small amounts of sodium nitrate for agricultural use. SQM's sodium nitrate products compete indirectly with substitute specialty and commodity-type fertilizer products, which may be used by some customers instead of sodium nitrate products 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. Norsk Hydro ASA, Norsk Hydro is the worlds largest producer of calcium nitrate, and the Company estimates that Norsk Hydro's sales of calcium nitrate in the year 2002 accounted for approximately 95% of total world sales of agricultural calcium nitrate, being the US and European countries the main markets. The Company estimates that Norsk Hydros sales of calcium nitrate for use in Chile, which was the Companys principal market for sodium nitrate in 2002, accounted for less than 1% of Norsk Hydros total sales of calcium nitrate in 2002. In the potassium nitrate market SQM has one significant competitor: Trans Resources International (TRI), with two operative branches, Cedar Chemicals in USA and Haifa Chemicals Ltd. in Israel. During the first quarter of 2002 the TRI potassium nitrate facility in the United States shut down its operations due to failure in meeting its financial obligations; SQM has no information whether or not this plant will reopen in the future, but the company estimates that Haifa Chemicals sales of potassium nitrate accounted for approximately 34% of total world sales during the year 2002. The principal means of competition in the sale of potassium nitrate are product quality, customer service, location, agronomic expertise and price. PCS has begun to produce and commercialize potassium nitrate. On November 2002 the Company signed a purchasing agreement with PCS, pursuant to which SQM will buy a total of 112,000 metric tons of potassium nitrate during the period beginning November 2002 and ending December 2003. Another newcomer is Cosayach, controlled by Inverraz S.A., which has also begun to produce potassium nitrate from caliche ore at a facility in northern Chile. The Company believes it has certain advantages over Cosayach and PCS due to, among other factors, its greater experience with the processing of caliche ore, its proven processes, the size and nature of its caliche ore reserves, its experience in the marketing of specialty fertilizers and its own production of potassium chloride in the north of Chile, which is an essential raw material in the production of potassium nitrate. In the potassium sulfate market, SQM has several competitors of which the most important are Kali und Salz GmbH, Tessenderlo Chimie and Great Salt Lake Minerals Corp., from Germany, Belgium and the United States respectively. SQM believes that those three producers account for a majority of the world production of potassium sulfate. SQM estimates that once it reaches full production of potassium sulfate, it will account for approximately 8% of total world sales. Through a partially owned facility, NU3, the Company also produces soluble and liquid fertilizers using the Companys potassium nitrate as a raw material. Through this activity, the Company has acquired production technology and marketing know-how, which it believes will be useful for selling its products to greenhouse growers and for use in certain high-technology processes such as fertigation and hydroponics.


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SQM is the largest Chilean producer of bulk specialty blends and with the start-up of potassium sulfate production has broadened its variety of specialty blends to reach a wider range of clients. In Chile, the Company's products compete principally with imported fertilizer blends that use calcium ammonium nitrate or potassium magnesium sulfate. The Company's specialty fertilizers 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. The Company's products compete on the basis of advantages that make them preferable for certain applications as described above.


Specialty Fertilizers: Business Strategy

SQMs business strategy with respect to its specialty fertilizer business is to continue to be a low cost world leader in the production, distribution and sale of specialty fertilizers. As part of this strategy, SQM plans to (i) continue to expand its sales of natural nitrate specialty fertilizers by continuing to exploit the advantages of its products over commodity nitrate and ammonia-based nitrogen and potassium chloride fertilizers; (ii) increase its sales of higher-margin natural nitrate fertilizers, particularly potassium nitrate; (iii) pursue investment opportunities in complementary businesses, such as the production of potassium sulfate, to increase production, reduce costs and add value to and improve the marketing of the Company's products, (iv) emphasize development of new specialty blends and customized products intended to meet specific customer needs in all of its principal markets and (v) foc


us more in the soluble fertilizer market in order to have a leadership position (vi) further develop its global distribution and marketing system directly and through strategic alliances with other producers and local distributors. In line with this strategy are the three most recent agreements entered into by SQM and previously explained elsewhere in this document: the commercial agreement with Norsk Hydro, the JVA, and the potassium nitrate agreement with PCS. The Company will continue to develop and market new products, such as soluble potassium sulfate, and other tailor-made specialty blends and water-soluble NPK specialty blends. SQMs Research and Development Center will continue to work with customers, international organizations, universities and research institutes to refine existing products and develop new ones. The Company will continue to implement programs to reduce costs and increase yields through refinement of production techniques.


Iodine and Lithium

SQM is the world's largest producer of iodine and the worlds largest producer of lithium carbonate. In the year 2002, the Company's revenues from iodine and lithium sales amounted to approximately US$ 121.4 million, representing approximately 22% of the Company's total revenues in that year. The Company estimates that it accounted for approximately 29% of world iodine sales by volume in the year 2002 and 41% of world lithium carbonate and equivalents (excluding lithium minerals) sales by volume.


Iodine and Lithium: Market

Iodine is used in a wide range of medical, agricultural and industrial applications. Most sales are to companies which use iodine as a raw material in the production of their products, including iodine derivatives, x-ray contrast media, biocides, iodophors (disinfectants), pharmaceuticals, chemicals, herbicides, organic compounds, catalysts, pigment and ink dyes.Lithium carbonate is used in a wide variety of applications including the production of ceramics and glass, aluminum, chemicals, pharmaceuticals, lubricants and batteries, being lithium a basic element for the development of new technologies.




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Iodine and Lithium: The Company's Products

SQM produces iodine in flaked and prilled form. Prilled iodine is easier to use than flaked iodine in certain advanced industrial processes. The Company has received patents for its prilling process in Chile and the United States. The Company also produces inorganic iodine derivative products, principally calcium iodate, potassium iodate, potassium iodide, and sodium iodide. SQM expanded its iodine business by beginning commercial production in the second half of 1996 of organic iodine derivatives. A new development in the use of agrochemicals can be expected as methyl bromide could be banned in the future. Iodine-based products like methyl iodide (CH3I) may have the potential to replace methyl bromide, since a resolution adopted by the Montreal Protocol imposed a ban on this product to stop its harmful effects on the ozone layer. Consistent with its business strategy, SQM is constantly working in the development of new applications for its iodine-based products, pursuing a continuing expansion of its businesses and maintaining its market leadership. SQM manufactures its iodine and iodine derivatives products in accordance with international quality standards and has qualified its iodine facilities and production processes under the ISO-9002 program, providing third party certification of the quality management system and international quality control standards that the Company has implemented. SQM produces lithium carbonate at the Salar del Carmen facilities, nearby Antofagasta, from solutions with high concentrations of lithium coming from the potassium chloride production at the Salar de Atacama. The state of the art technology used together with the high concentrations of the Salar de Atacama allow the Company to be one of the lowest cost producers worldwide. The main applications of lithium carbonate are in aluminum, glass, ceramics, lubricating greases, batteries, air conditioning and polymers among others. Consistent with its policy of vertical integration towards value added products and markets, SQM has constructed a butyl lithium plant in Houston, Texas, USA. The main applications for this product are in synthetic rubbers and pharmaceutics. The following table sets forth the Company's total sales and revenues from iodine and lithium products in the 1998-2002 period:


|Sales
      Volume(in
      metric tons) |  | 1998   |  | 1999   |  | 2000   |  | 2001   |  | 2002   | 
|---------------------------------------- |  | ------ |  | ------ |  | ------ |  | ------ |  | ------ | 
|                                         |  |        |  |        |  |        |  |        |  |        | 
|Iodine
      and iodine derivatives      |  | 6,045  |  | 5,820  |  | 5,700  |  | 5,600  |  | 6,400  | 
|Lithium
      Carbonate and derivatives  |  | 12,488 |  | 17,552 |  | 20,600 |  | 21,700 |  | 22,300 | 
|                                         |  |        |  |        |  |        |  |        |  |        | 
|Revenues(in
      US$ millions)          |  | 142.3  |  | 129.6  |  | 120.1  |  | 118.4  |  | 121.4  | 

Iodine
  and Lithium: Marketing and Customers

SQM sold
  its iodine products to around 150 customers in the year 2002. Virtually all
  of the Company's iodine production is exported: approximately 36% of the Company's
  iodine sales were to customers in Europe, 41% to customers in North America,
  13% to customers in Central and South America and 10% to customers in Asia,
  Oceania and other regions. No single customer accounted for more than 11% of
  the Company's iodine sales in the year 2002 and the Company's ten largest customers
  accounted in the aggregate for less than 46% of such sales.




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|Sales
      Breakdown           |  | 2000 |   | 2001 |   | 2002 |  
|------------------------------- |  | ---- | - | ---- | - | ---- | -
|                                |  |      |   |      |   |      |  
|Europe                          |  | 40   | % | 37   | % | 36   | %
|North
      America             |  | 40   | % | 45   | % | 41   | %
|Central
      and South America |  | 7    | % | 9    | % | 13   | %
|Others                          |  | 13   | % | 9    | % | 10   | %
|                                |  |      |   |      |   |      |  

The Company sold its iodine derivatives products to more than 100 customers in the year 2002. Approximately 5% of those sales were to customers in Chile and 95% were export sales. SQM sells its iodine through its own worldwide network of representative offices and through its sales, support and distribution affiliates. The Company maintains stocks of iodine at its facilities throughout the world to facilitate prompt deliveries to customers. Iodine sales are made pursuant to spot purchase orders and short, medium and long-term contracts. Long-term contracts generally specify annual minimum and maximum purchase commitments, provide for prices which vary according to formulas which take into account prevailing market prices and, in some cases, provide for termination by either party after specified notification periods. SQM sold its lithium products to around 180 customers in the year 2002. Virtually all of the Company's lithium products are sold overseas: approximately 40% of the Company's lithium sales were to customers in Europe, 37% to customers in North America, 21% to customers in Asia and Oceania and 2% to customers in other regions. No single customer accounted for more than 20% of the Company's lithium carbonate sales in the year 2002 and the Company's ten largest customers accounted in the aggregate for less than 60% of such sales.




|Sales
      Breakdown |  | 2000 |   | 2001 |   | 2002 |  
|--------------------- |  | ---- | - | ---- | - | ---- | -
|                      |  |      |   |      |   |      |  
|Europe                |  | 32   | % | 31   | % | 40   | %
|North
      America   |  | 43   | % | 43   | % | 37   | %
|Asia
      & Oceania  |  | 23   | % | 25   | % | 21   | %
|Others                |  | 2    | % | 1    | % | 2    | %
|                      |  |      |   |      |   |      |  

Iodine and Lithium: Competition

SQM and several producers in Chile and Japan are the worlds main producers of iodine. In Japan, iodine is extracted from brines, which are mainly obtained as part of the process of extracting natural gas. The Company estimates that eight Japanese iodine producers accounted for approximately 38% of world iodine sales in the year 2002 (excluding sales of production from the former Soviet Union and the People's Republic of China, for which reliable estimates are not available). The Company estimates that the largest Japanese producer, Ise Chemicals Ltd., Ise Chemicals, accounted for approximately 12% of such world iodine sales. The Company estimates that three iodine producers in the United States (one of which is owned by Ise Chemicals) accounted for approximately 7% of world iodine sales in the year 2002, while five Chilean companies, including SQM, accounted for approximately 53% of such sales (29% by SQM and 24% by other Chilean producers). The prices
    of SQM's iodine and iodine derivative products are determined by world iodine
    prices, which are subject to substantial volatility. World iodine prices vary
    depending upon the relationship between supply and demand at any given time.
    The supply of iodine varies principally depending upon the production of the
    few major iodine producers (including the Company) and their respective business
    strategies. World iodine prices declined sharply, from a high of US$18.40
    per kilogram for large purchases in early 1990, to less than US$8 per kilogram
    for large purchases as of June 1994. The decline in world iodine prices from
    1990 to 1994 was in part the result of the Company's and certain other producers' business strategies to take advantage of their relatively lower production costs and increase production at a rate greater than the increase in total demand so as to increase their market shares. From 1994 to 1999, iodine price recovered to levels close to US$18 per kilogram, beginning then a downward trend due to oversupply. During the year 2002, average price for iodine was around US$13 per kilogram. The price during the first quarter of 2003 was similar to the price of the fourth quarter of 2002.




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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 principal users of iodine and iodine derivative products. Prices for iodine and iodine derivative products in the future are expected to be influenced by similar supply and demand factors and the business strategies of major producers, some of whom either have or can acquire additional production capacity. The principal means of competition in the sale of iodine and iodine derivative products are price, quality, customer services and the price and availability of substitutes. The Company believes it has competitive advantages compared to other producers due to the size of its mining reserves, the installed capacity and relatively lower production costs as most part of its iodine is produced as part of a process that also produces other products (principally sodium nitrate and potassium nitrate for agricultural and industrial purposes), permitting some production costs to be shared by several product lines. The Company believes its iodine is competitive with that produced by other manufacturers in certain advanced industrial processes. The Company also believes that it has benefited competitively from the long-term relationship it has established with its larger customers and the technical support and post-sales service it provides. While ther


e are substitutes for iodine available for certain applications, such as coloring processes and for use as antiseptics and disinfectants, there are no cost-effective substitutes currently available for the principal nutritional, pharmaceutical, animal feed, and main chemical uses of iodine, which together account for most iodine sales. SQM's principal competitors in the lithium carbonate business are FMC Corporation and Chemetall GmbH, a subsidiary of Dynamit Nobel Aktiengesellschaft, which the Company estimates together produced approximately 45% of the lithium carbonate and equivalents (excluding lithium minerals) in the year 2002. The Company estimates that lithium carbonate and equivalent world production (excluding lithium minerals) was approximately 54,500 tons in 2002, while SQM's sales reached 22,300 metric tons.


Iodine an Lithium: Business Strategy

SQM's business strategy with respect to the iodine business is to: (i) maintain its position as the world's leading producer, (ii) continue to reduce its production costs through improved processes and higher labor productivity so as to compete more effectively and (iii) foster the development of new uses for iodine and its derivatives. SQM's business strategy with respect to its lithium business is to: (i) move towards vertical integration in the basic lithium derivatives business, (ii) maintain its leadership and consolidate its market share of lithium carbonate keeping pace with the steadily growing demand, and (iii) continue to reduce its production costs through improved processes and higher labor productivity so as to compete more effectively. The Company also plans to increase its marketing efforts, particularly in Asia, and to continue to strengthen its relationships with its larger customers through enhanced technical support. The Company's Research and Development Center will continue to work with customers, international organizations, universities and research institutes to develop additional uses for iodine, particularly for water treatment, disinfectants and agricultural products.


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Industrial
  Chemicals

In addition to producing sodium nitrate for agricultural applications, SQM produces three grades of sodium nitrate for industrial applications: industrial, refined and technical grade. The three grades differ principally in purity. The Company's industrial grades of potassium nitrate also differ from agricultural grade potassium nitrate in its degree of purity. SQM enjoys certain operational flexibility when producing industrial sodium nitrate because it is produced from the same process as its equivalent agricultural grade, needing only an additional step of purification. The Company can, with certain constraints, shift production from one grade to the other depending on market conditions. This flexibility allows SQM to maximize yields as well as to reduce commercial risk. In addition to producing industrial nitrates the Company produces sodium sulfate and boric acid. Sodium sulfate and boric acid are byproducts of the production of sodium


 nitrate, and potassium sulfate respectively. In the year 2002, the Company's revenues from industrial chemicals were approximately US$70.8 million, representing approximately 13% of the Company's total revenues for that year.


Industrial Chemicals: Market

Industrial sodium nitrate and potassium nitrate are used in a wide range of industrial applications, including the production of glass, ceramics, explosives and charcoal briquettes and various chemical processes and metal treatments. Sodium sulfate is principally used for bleaching in the cellulose industry, detergent and chemical industries. Boric acid, a byproduct of potassium sulfate, is mainly used in the glass, ceramics, fiberglass, enamels and chemical industries. SQM estimates that its sales of industrial sodium nitrate (excluding production in China and India, which is consumed internally), potassium nitrate and sodium sulfate in 2002 accounted for 80%, 40% and less than 2%, respectively, of world sales in that period.


Industrial Chemicals: The Company's Products

SQM produces technical potassium nitrate and three grades of industrial sodium nitrate in crystallized and prilled form. The Company markets its refined grade sodium nitrate under the brand name Niterox. The Company produces sodium sulfate in crystalline form. The following table sets forth the Company's sales volumes of industrial chemicals and total revenues in the 1998-2002 period:


|Sales
      Volume (in metric tons) |  | 1998    |  | 1999    |  | 2000    |  | 2001    |  | 2002    | 
|----------------------------------- |  | ------- |  | ------- |  | ------- |  | ------- |  | ------- | 
|                                    |  |         |  |         |  |         |  |         |  |         | 
|Industrial
      nitrates           |  | 240,598 |  | 234,090 |  | 191,277 |  | 186,999 |  | 187,300 | 
|Sodium
      sulfate                |  | 57,192  |  | 60,956  |  | 43,400  |  | 66,742  |  | 63,200  | 
|Boric
      Acid                    |  | 6,000   |  | 8,844   |  | 8,600   |  | 12,822  |  | 11,300  | 
|                                    |  |         |  |         |  |         |  |         |  |         | 
|Revenues
      (in US$ millions)    |  | 83.6    |  | 80.5    |  | 69.8    |  | 69.6    |  | 70.8    | 

Aggregate current sodium nitrate capacity is approximately 740,000 metric tons per year (agricultural and industrial grades). Within certain production constraints, the Company can use such production capacity to produce either agricultural or industrial sodium nitrate. The Company has plant capacity to produce approximately 260,000 metric tons per year of technical potassium nitrate, approximately 75,000 metric tons per year of sodium sulfate and 16,000 metric tons per year of boric acid.


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Industrial Chemicals: Marketing and Customers

SQM sold its industrial nitrate products in more than 60 countries in the year 2002. Approximately 31% of the Company's sales of industrial chemicals was to customers in North America, 17% to customers in Europe, 24% to customers in Central and South America and 28% to customers in Asia, Oceania and other regions. No single customer accounted for more than 6% of the Company's sales of industrial chemicals in 2002 and the Company's ten largest customers accounted in the aggregate for less than 30% of such sales.


|Sales
      Breakdown           |  | 2000 |   | 2001 |   | 2002 |  
|------------------------------- |  | ---- | - | ---- | - | ---- | -
|                                |  |      |   |      |   |      |  
|North
      America             |  | 38   | % | 37   | % | 31   | %
|Europe                          |  | 22   | % | 20   | % | 17   | %
|Central
      and South America |  | 20   | % | 27   | % | 24   | %
|Others                          |  | 20   | % | 16   | % | 28   | %

SQM sold approximately 40% of its 2002 sodium sulfate production to customers in Brazil. The Company's principal customer in Brazil is Procter & Gamble Inc., a US consumer products company. SQM supplies sodium sulfate to Procter & Gamble Inc. throughout Latin America for the production of detergents. SQM sells its industrial chemical products principally through its own worldwide network of representative offices and through its sales, support and distribution affiliates. The Company maintains inventories of its industrial sodium nitrate and technical potassium nitrate products at its facilities in Europe, North America and South America to achieve prompt deliveries to customers. Industrial sodium nitrate and technical potassium nitrate sales are made pursuant to spot purchase orders and sodium sulfate sales pursuant to renewable medium term contracts. SQM's Research and Development Center in Antofagasta and SQM's sales support and distribution affiliates provide technical support for the Company's customers and work with these customers to identify new applications for the Company's products.


Industrial Chemicals: Competition

SQM is the world's largest producer of industrial sodium nitrate. The Company estimates that it accounted for approximately 80% of world production of industrial sodium nitrate in 2002 (excluding China and India, for which reliable estimates are not available). The Company has  some  competitors mainly in Europe and Asia.  These producers together represent 19% of total production and produce sodium nitrate as a by-product of other production processes. In the refined grade sodium nitrate market, Bayerische Anilinen und Soda Fabrik AG (BASF), a German corporation, and several producers in Japan (the largest of which is Mitsubishi & Co. Ltd.) are highly competitive in the European and Asian markets. In addition to the competitors mentioned above, it is important to note that SQM's industrial sodium nitrate products 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. As in the case for agricultural potassium nitrate, SQM's principal competitor in the industrial potassium nitrate market  is Haifa Chemicals Limited, Haifa. SQM currently estimates its market share at 40% whereas Haifa accounts for 30%. This is an improvement from 2002 when the two companies represented 38% and 32%, respectively. The change was driven by the bankruptcy of Haifa's US sister company, Vicksburg. A third competitor in this market, PCS, maintains a minority market share of about 3% and Cosayach could become a competitor in this market by 2004.


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SQM has no significant competitors in Chile for sodium sulfate, which is its principal market for the product, although Aguas Blancas has announced their intention to produce sodium sulfate in the future. The principal means of competition in the market for industrial sodium technical and potassium nitrate are product quality, price and customer service. SQM remains a leader in these markets due to its ability to deliver on each on the aforementioned points. The Company believes that it is a low cost producer of industrial sodium nitrate and is able to produce high quality products.


Industrial Chemicals: Business Strategy

SQM's business strategy with respect to its industrial chemical business is to: (i) maintain its leadership position in sodium nitrate and potassium nitrate, (ii) develop new industrial markets for its current products. (iii) focus its sales of boric acid and sodium sulfate into niche markets.


Raw materials

The principal raw material required by SQM for the production of its nitrate, sulfate and iodine products is caliche ore, which is obtained from the corresponding surface mines. The principal raw material for the production of potassium chloride, lithium carbonate, potassium sulfate and boric acid is the brine extracted from the Atacama Salar. The Company requires water (for the leaching process and general purposes), potassium chloride (in the manufacture of potassium nitrate), sodium carbonate (soda ash, in lithium carbonate production and for neutralization of iodine solutions), anti-caking, sulfur (in iodine production), ammonium nitrate (in the preparation of the anfo that is used in explosives for mining operations), diesel (mining equipment), natural gas (in heat generation and fusion processes) and electricity acquired from electric utilities (to supply the power needs at Pedro de Valdivia, María Elena, Coya Sur, Pampa Blanca, Nueva Victoria, Atacama Salar and the lithium carbonate plant). The Company's raw material costs (excluding caliche ore and salar brines) represented approximately 12% of its cost of sales in the year 2002. Raw material costs were a significantly higher portion of the costs of sales of iodine (principally sulfur and sodium carbonate) and of l


ithium carbonate (principally sodium carbonate). SQM's main sources of water for its nitrate, sulfate and iodine facilities at Pedro de Valdivia, María Elena and Coya Sur are the Loa and San Salvador rivers, which run near the Company's production facilities. Water for the Company's Pampa Blanca, Nueva Victoria and Atacama Salar facilities is obtained from wells near the production facilities. The Company has permits from the Chilean Water Authority to explore for non-potable water and permits to use such water for an indefinite period of time (based on specified maximum volumes) without charge. In addition, the Company purchases potable water from local utility companies. The Company has never experienced any difficulties obtaining the necessary water to conduct its operations. During 1998, SQM subscribed a long-term electricity supply agreement with a major Chilean electricity producer. This agreement meant that since April 2000, the Company is connected to the Sistema Interconectado del Norte Grande, SING, which is the current electricity supplier for the Company and for most of northern Chile cities and industrial facilities. During 2001, the Company connected its facilities to natural gas pipelines for heat generation and fusion processes. The facilities at Pedro de Valdivia, María Elena and Coya Sur gradually switched over to natural gas on a dual system basis during the second half of 2001. During the second half of 2002, the lithium carbonate facility was also connected.


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The Company obtains ammonium nitrate, sulfur and soda ash from several large suppliers, principally in the United States and Canada, under long-term contracts or general agreements, some of which contain provisions for annual revisions of prices, quantities and deliveries. Prior to beginning production of potassium chloride at its Atacama Salar facility in late 1995, the Company obtained potassium chloride requirements principally from suppliers in Chile (under a long-term contract), and in Canada and Israel (under spot contracts). As a result of the commencement of production of potassium chloride at its Atacama Salar facility, the Company has decreased its purchases of potassium chloride. Currently SQM acquires potassium chloride from Sociedad Chilena del Litio Limitada, a local supplier, pursuant to a contract that expires in 2009. Natural gas and diesel fuel are obtained under contracts terminable upon specified notice by either party a


nd which generally provide for sales of fuel at international market prices. The Company believes that all of the contracts and agreements between the Company and third-party suppliers with respect to the Company's principal raw materials contain standard and customary commercial terms and conditions. During the past ten years, the Company has experienced no significant difficulties in obtaining adequate supplies of necessary raw materials at market prices, and does not expect to experience any such difficulties in the future.


Government regulations

The Company is 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, securities laws and anti-trust laws. These include regulations to ensure sanitary and safe conditions in manufacturing plants. The Company conducts its mining operations pursuant to exploration concessions and exploitation concessions granted pursuant to applicable Chilean law. Exploitation concessions, which account for the majority of the mining rights held by the Company, including all of the Company's concessions relating to land which is currently being mined, essentially grant a perpetual right to conduct mining operations in the areas covered by the concessions, provided that annual concession fees are paid. The Company also holds water rights obtained from the Chilean water regulatory authority for a supply of water from rivers or wells near the Company's production facilities sufficient to meet its current and anticipated operational requirements. The Company operates port facilities at Tocopilla for shipment of its products and delivery of certain raw materials pursuant to maritime concessions, under applicable Chilean laws, which are normally renewable o


n application, provided that such facilities are used as authorized and annual concession fees are paid. There are currently no material legal or administrative proceedings, except as noted below, pending against the Company with respect to any regulatory matter, and the Company believes that it is in compliance in all material respects with all applicable statutory and administrative regulations with respect to its business.


Environmental regulations

The Company's operations in Chile are subject to both national and local regulations related to the environment's protection. The fundamental environmental laws in Chile are the Health Code and Law No19,300 and their Rules and Regulations. The Company believes that, except as noted below, it is currently in compliance in all material respects with applicable environmental regulations in Chile.


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On August 10, 1993, the Ministry of Health published in the Official Gazette a determination pursuant to the Health Code stating that atmospheric particulate levels at the Company's production facilities in María Elena and Pedro de Valdivia exceeded quality standards for breathable air affecting the nearby towns. The high particulate matter levels are principally from dust produced during the processing of caliche ore, particularly the crushing of the ore before leaching. Subsequently, the town of Pedro de Valdivia was relocated into the town of María
  Elena, practically removing Pedro de Valdivia from the scope of the referred
  determination. A Plan to reduce the atmospheric particulate levels below permissible
  levels by July 2000, was approved with certain amendments by Decree N°164.
  Although the Company followed the plan and has reduced substantially the atmospheric
  particulate levels at its principal production facilities, as a result of the
  investments and processes implemented, the Company was not able to fully comply
  with the July 2000 timetable. Resolution N°384,
  published in the Official Gazette on May 16, 2000, initiated the revision and
  reformulation of the Plan and, to date, the Company and the National Environment
  Comission (CONAMA) are still working on such new Plan, which may be published
  during this year. There can be no assurance that the Company will not be subject
  in the interim to warnings, fines and possible temporary closures of its referred
  production facilities in María Elena. The
  Company is continuously studying the techniques, processes and systems used
  in the María Elena facilities concerning the processing of the caliche
  ore that could allow a further reduction of the particulate levels. Law
  No19,300 created the National Environment Comission, the Environment
  Commission, and requires that the Environment Commission drafts and publishes
  regulations to mandate that companies should conduct environmental impact studies
  of any future mining or production projects or other activities that are likely
  to have an environmental impact. Law No19,300 also created regional commissions
  to supervise any required environmental impact studies for all new projects,
  including those of the Company. The
  Companys mining and production processes do not produce harmful industrial
  wastes. The Company continuously monitors the impact of its operations on the
  environment and has, from time to time, made modifications to its facilities
  trying to eliminate any adverse impact. SQM anticipates that additional laws
  and regulations will be enacted over time with respect to environmental matters.
  While SQM believes that it will continue to be in compliance with all applicable
  environmental regulations of which it is now aware, there can be no assurance
  that future legislative or regulatory developments will not impose restrictions
  on SQM that would be material. SQM is both committed to complying with all applicable
  environmental regulations and implementing an Environmental Management System
  (EMS) to continuously improve its environmental performance.


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ORGANIZATIONAL STRUCTURE

Since
  1992, SQM has operated as a holding Company with its principal business lines
  conducted by its subsidiaries. All of SQM's principal operating subsidiaries
  are, essentially, wholly-owned, except for SQMC, which is 61% owned by SQM and
  whose shares are listed and traded on the Chilean Stock Exchanges, Ajay SQM
  Chile S.A., which is 51% owned by SQM, and Empresas Melón S.A., a company
  listed and traded on the Chilean Stock Exchanges in which SQM has a 14% stake.
  The following are SQMs main subsidiaries:


|SQMs
      main Subsidiaries                            |  | Activity                                                                                                                                           | Country
      of
      Incorporation | SQM
      BeneficialOwnershipInterest
|-------------------------------------------------------- |  | -------------------------------------------------------------------------------------------------------------------------------------------------- | ------------------------------------ | -------------------------------------
|                                                         |  |                                                                                                                                                    |                                      |                                      
|SQM
      Nitratos S.A.                                  |  | Produces
      and markets the Companys nitrate, iodine and sulfate products directly
      and through its principal subsidiaries and affiliates | Chile                                | 100                                  
|                                                         |  |                                                                                                                                                    |                                      |                                      
|Ajay
      SQM Chile S.A.                                |  | Produces
      and markets the Companys iodine and iodine derivatives                                                                             | Chile                                | 51                                   
|                                                         |  |                                                                                                                                                    |                                      |                                      
|SQM
      Salar S.A.                                     |  | Exploits
      the Atacama Salar brines to produce lithium carbonate, potassium chloride,
      potassium sulfate and boric acid                   | Chile                                | 100                                  
|                                                         |  |                                                                                                                                                    |                                      |                                      
|Foreign
      affiliates in Japan and in other locations |  | Market
      the Companys products throughout the world                                                                                           |                                      |                                      



|SQM
      Nitratos S.A main
      Subsidiaries                                                                                             |  | Activity                                                                                                                                                                                                                                                                                   | Country
      of
      Incorporation | SQM
      BeneficialOwnershipInterest
|------------------------------------------------------------------------------------------------------------------------------------------ |  | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------ | ------------------------------------ | -------------------------------------
|                                                                                                                                           |  |                                                                                                                                                                                                                                                                                            |                                      |                                      
|Soquimich
      Comercial S.A.                                                                                                             |  | Markets
      domestically the Companys specialty fertilizers and imports fertilizers
      for resale in Chile                                                                                                                                                                           | Chile                                | 61                                   
|                                                                                                                                           |  |                                                                                                                                                                                                                                                                                            |                                      |                                      
|Servicios
      Integrales de Tránsitos y
      Transferencias S.A.(SIT)                                                                   |  | Owns
      and operates a rail transport system that provides rail transport at the
      Companys mines and processing plants and between the Companys
      production facilities and its port facilities at Tocopilla; SIT also owns
      and operates the Tocopilla port facilities | Chile                                | 100                                  
|                                                                                                                                           |  |                                                                                                                                                                                                                                                                                            |                                      |                                      
|Energía
      y Servicios S.A.                                                                                                             |  | Ownsandoperates theCompanyselectricitygenerationanddistributionsystem,watercollectionanddistributionsystemandcommunication
      system at its facilities                                                                                                                                 | Chile                                | 100                                  
|                                                                                                                                           |  |                                                                                                                                                                                                                                                                                            |                                      |                                      
|Salesanddistributionaffiliates in theUnitedStates,Belgium,Brazil,Venezuela,Ecuador,
      Peru,Argentina,Mexico
      and other locations. |  | MarkettheCompanysproductsthroughouttheworld                                                                                                                                                                                                                                               |                                      |                                      

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PROPERTY, PLANTS AND EQUIPMENT

MINES

SQM
  holds rights to explore for, or exploit the, mineral resources in an area covering
  more than 1,444,500 hectares of land in northern Chile, excluding areas within
  the Atacama Salar discussed below, and has applied for rights covering in excess
  of 642,500 additional hectares. The Company conducts surface mining operations
  on less than 1% of the land area to which it holds rights, annually. As described
  below, the Company currently conducts surface mining operations at four sites.


Pedro de Valdivia.

The
  mine and facilities that the Company operates at Pedro de Valdivia, are located
  170 kilometers northeast of Antofagasta and are accessible by highway. These
  facilities have been in operation for approximately 60 years and were previously
  owned and operated by Anglo Lautaro. The area currently being mined is located
  approximately 30 kilometers west of the Pedro de Valdivia production facilities. The
  Companys mining facilities at Pedro de Valdivia have a Weighted Average
  Age of 9.4 years (Weighted Average Age equals the sum of the product
  of the age of each fixed asset at a given facility and its current gross book
  value as of December 31, 2002, divided by the total gross book value of the
  Companys fixed assets at such facility as of December 31, 2002). The power
  source utilized is mainly electricity, diesel and natural gas.


María Elena.

The
  mine and facilities that the Company operates at María Elena, are located
  220 kilometers northeast of Antofagasta and are accessible by highway. These
  facilities have been in operation for approximately 60 years and were previously
  owned and operated by Anglo Lautaro. The area currently being mined is located
  approximately 23 kilometers north of the María Elena production facilities. The
  power source utilized is mainly electricity, diesel and natural gas. The Weighted
  Average Age of the Companys mining facilities at María Elena is
  approximately 11.1 years.


Pampa Blanca

The
  Company currently conducts caliche ore operations at Pampa Blanca, which is
  located 100 kilometers northeast of Antofagasta and is accessible by highway.
  The Company had been producing from old waste ore deposits at Pampa Blanca since
  1987 and during 1997 began mining new caliche ore deposits. The ore in Pampa
  Blanca is transported by truck to leach pads and processed to produce iodine
  and nitrate salts. Various companies conducted mining operations at the site
  in the late 1920s. The
  Weighted Average Age of the ore recovery facilities at Pampa Blanca is approximately
  8.5 years. The power source utilized is mostly electricity, produced by diesel
  mobile generators.


Nueva Victoria

At
  the end of 2002 the Company restarted its caliche ore operations at Nueva Victoria.
  This site is located 180 kilometers north of María Elena and is accessible
  by highway. The ore in Nueva Victoria is transported by truck to leach pads
  and processed to produce iodine.


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The
  Weighted Average Age of the ore recovery facilities at Nueva Victoria is approximately
  6.3 years. The power source utilized is mostly electricity, obtained from the
  SING. The
  following table sets forth certain operating data as to each of the Companys
  mines:


|(Values
      in thousands unless otherwise stated) |  | 2000   |   | 2001   |   | 2002   |  
|--------------------------------------------------- |  | ------ | - | ------ | - | ------ | -
|                                                    |  |        |   |        |   |        |  
|                                                    |  |        |   |        |   |        |  
|Pedro
      de Valdivia                             |  |        |   |        |   |        |  
|                                                    |  |        |   |        |   |        |  
|Metric
      tons of ore mined                      |  | 11,657 |   | 11,838 |   | 11,926 |  
|Average
      grade Nitrate (% by weight)           |  | 7.4    | % | 7.4    | % | 7.3    | %
|Iodine
      (parts per million (ppm))              |  | 418    |   | 396    |   | 398    |  
|Metric
      tons of Crystallized Nitrate Produced  |  | 479.9  |   | 485.2  |   | 463.6  |  
|Metric
      tons of Iodine Produced                |  | 2.3    |   | 2.1    |   | 2.1    |  
|                                                    |  |        |   |        |   |        |  
|María
      Elena (1)                               |  |        |   |        |   |        |  
|                                                    |  |        |   |        |   |        |  
|Metric
      tons of ore mined                      |  | 5,709  |   | 5,907  |   | 5,744  |  
|Average
      grade Nitrate (% by weight)           |  | 8.2    | % | 8.4    | % | 8.5    | %
|Iodine
      (parts per million (ppm))              |  | 471    |   | 468    |   | 475    |  
|Metric
      tons of Crystallized Nitrate Produced  |  | 436.3  |   | 385.1  |   | 432.0  |  
|Metric
      tons of Iodine Produced                |  | 1.4    |   | 1.5    |   | 1.5    |  
|                                                    |  |        |   |        |   |        |  
|Pampa
      Blanca                                  |  |        |   |        |   |        |  
|                                                    |  |        |   |        |   |        |  
|Metric
      tons of ore recovered                  |  | 4,239  |   | 4,932  |   | 5,416  |  
|Iodine
      (parts per million (ppm))              |  | 470    |   | 472    |   | 461    |  
|Metric
      tons of iodine Produced                |  | 1.0    |   | 1.2    |   | 1.2    |  
|                                                    |  |        |   |        |   |        |  
|Nueva
      Victoria                                |  |        |   |        |   |        |  
|                                                    |  |        |   |        |   |        |  
|Metric
      tons of ore recovered                  |  |       |   |       |   | 608.3  |  
|Iodine
      (parts per million)                    |  |       |   |       |   | 566    |  
|Metric
      tons of Iodine produced                |  | 0.1    |   |       |   | 0.1    |  
|                                                    |  |        |   |        |   |        |  
|SQM
      Salar                                     |  |        |   |        |   |        |  
|                                                    |  |        |   |        |   |        |  
|Metric
      tons of Lithium Carbonate Produced     |  | 21.9   |   | 22.3   |   | 20.7   |  
|Metric
      tons of Potash Produced                |  | 549.0  |   | 652.1  |   | 678.7  |  
|Metric
      tons of Potassium Sulfate Produced     |  | 144.1  |   | 170.1  |   | 173.2  |  
|Metric
      tons of Boric Acid                     |  | 9.8    |   | 9.6    |   | 9.0    |  

---

|(1) | Includes
      production at Coya Sur from treatment of fines and nitrates from pile treatment
      at Pampa Blanca, María Elena and Pedro de Valdivia.
|--- | --------------------------------------------------------------------------------------------------------------------------------------------------------

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The
  Company prepares its own estimates of caliche ore reserves using an in-house
  staff of geologists and mining engineers. The Companys updated estimates
  of its proven reserves of caliche ore at each of its principal existing mines,
  as of December 2002, are the following:


|Mine                    |  | Proven                          |  | Nitrate                      |   | Iodine              | 
|----------------------- |  | ------------------------------- |  | ---------------------------- | - | ------------------- | 
|                        |  | Reserves                        |  | Average
      Grade          |   | Average
      Grade | 
|                        |  | (millions
      of metric tons) |  | (percentage
      by weight) |   | (ppm)               | 
|                        |  |                                 |  |                              |   |                     | 
|                        |  |                                 |  |                              |   |                     | 
|Pedro
      de Valdivia |  | 119.7                           |  | 7.1                          | % | 354                 | 
|María
      Elena       |  | 134.6                           |  | 7.3                          | % | 400                 | 
|Pampa
      Blanca      |  | 74.8                            |  | 6.2                          | % | 500                 | 
|Nueva
      Victoria    |  | 37.5                            |  | 3.6                          | % | 521                 | 
|Mapocho                 |  | 4.6                             |  | 6.2                          | % | 484                 | 
|Soronal                 |  | 139.2                           |  | 7.6                          | % | 403                 | 

The
  Companys updated estimates of its probable reserves of caliche ore at
  each of its principal mines as of December 2002, are the following:


|Mine                    |  | Probable                        |  | Nitrate                      |   | Iodine              | 
|----------------------- |  | ------------------------------- |  | ---------------------------- | - | ------------------- | 
|                        |  | Reserves                        |  | Average
      Grade          |   | Average
      Grade | 
|                        |  | (millions
      of metric tons) |  | (percentage
      by weight) |   | (ppm)               | 
|                        |  |                                 |  |                              |   |                     | 
|                        |  |                                 |  |                              |   |                     | 
|Pedro
      de Valdivia |  | 300.3                           |  | 6.9                          | % | 444                 | 
|María
      Elena       |  | 469.5                           |  | 7.2                          | % | 375                 | 
|Pampa
      Blanca      |  | 582.0                           |  | 6.5                          | % | 471                 | 
|Nueva
      Victoria    |  | 19.2                            |  | 4.8                          | % | 489                 | 
|Mapocho                 |  | 234.3                           |  | 6.9                          | % | 524                 | 
|Soronal                 |  | 93.6                            |  | 8.0                          | % | 364                 | 

The
  Company maintains a permanent program of exploration and resource evaluation
  on the land surrounding the mines at Pedro de Valdivia and María Elena
  and at other sites for which it has the appropriate concessions in order to
  add to its proven and probable reserves. In the year 2002, SQM continued a basic
  reconnaissance program on the new mining properties including a geological mapping
  of the surface and spaced drill holes campaign covering approximately 175,000
  hectares. Additionally, the Company conducted general explorations based on
  a closer grid pattern drill holes in a total area of approximately 1,505 hectares
  and, in addition, carried out in-depth sampling of approximately 1,638 hectares
  (1,170 hectares at Pedro de Valdivia, 286 hectares at María Elena and
  182 hectares at Pampa Blanca). The exploration and development program in 2003
  calls for a basic reconnaissance program over a total area of 100,000 hectares,
  general exploration over a total area of about 3,453 hectares and, in addition,
  in-depth sampling of approximately 4,770 hectares.


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Atacama Salar

The
  Company holds rights to exploit the mineral resources in an area covering approximately
  196,000 hectares of land in the Atacama Salar in northern Chile. The Company
  currently conducts extraction activities over approximately 3,900 hectares,
  and its solar evaporation ponds cover approximately 1,710 hectares. The
  Weighted Average Age of the Companys mining facilities at the Atacama
  Salar is approximately 4.8 years. The source of power utilized is principally
  electricity. The
  Company prepares its own estimates of potassium, sulfate, lithium and boron
  reserves at the Atacama Salar using an in-house staff of geologists and mining
  engineers. The Company has explored 52% of the land (to a depth of 40 meters)
  to which it holds exploitation rights in the Atacama Salar and estimates that
  its proven reserves in that area are as follows:


|          | Proven
      Reserves           |  | Probable
      Reserves         | 
|--------- | ------------------------------- |  | ------------------------------- | 
|          | (Millions
      of metric tons) |  | (Millions
      of metric tons) | 
|          |                                 |  |                                 | 
|Potassium | 36.8                            |  | 4.6                             | 
|Sulfate   | 37.2                            |  | 1.4                             | 
|Lithium   | 1.7                             |  | 1.5                             | 
|Boron     | 0.7                             |  | 0.4                             | 
|          |                                 |  |                                 | 

Mining,
  Ports and Water Rights.

Caliche
  ore.
  The Company holds its mineral rights pursuant to one of two types of exclusive
  concessions granted pursuant to applicable law in Chile: (1)
  a concession whereby the Company is legally entitled to use the land in order
  to exploit the mineral resources contained therein on a perpetual basis subject
  to annual payments to the Chilean government (an “Exploitation Concession” );
  or (2)
  a concession whereby the Company is legally entitled to use the land in order
  to explore for mineral resources for a period of two years, at the expiration
  of which the concession may be extended one time only for two additional years
  if the area covered by the concession is reduced by half (an “Exploration Concession”
  ). An
  Exploration Concession is generally obtained for purposes of evaluating the
  mineral resources in an area. Generally, after the holder of the Exploration
  Concession has determined that the area contains exploitable mineral resources,
  such holder will apply for an Exploitation Concession for the area. Such application
  will give the holder absolute priority with respect to such Exploitation Concession
  as against third parties. If the holder of the Exploration Concession determines
  that the area does not contain commercially exploitable mineral resources, the
  concession is usually allowed to lapse, although it is the Company’s policy
  to convert substantially all Exploration Concessions to Exploitation Concessions.
  An application also can be made for an Exploitation Concession without first
  having obtained an Exploration Concession for the area involved.


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Approximately
  87% of the Companys total mining concessions are held pursuant to Exploitation
  Concessions and 13% pursuant to Exploration Concessions, not including areas
  within the Atacama Salar. The land to which these concessions relate is located
  throughout northern Chile. The
  Company made payments to the Chilean government for its Exploration and Exploitation
  Concessions of approximately US$3.05 million in the year 2002. Atacama
  Salar.SQM Salar S.A. holds exclusive rights to exploit the mineral resources in an
  area covering approximately 196,000 hectares of land in the Atacama Salar in
  northern Chile. These rights include 147,000 hectares that are owned by Corfo
  and leased to SQM Salar S.A. pursuant to a lease agreement between Corfo and
  SQM Salar S.A., the Lease Agreement. Corfo may not unilaterally
  amend the Lease Agreement and the rights to exploit the resources cannot be
  transferred. The Lease Agreement provides that the Company is responsible for
  the maintenance of Corfo ́s exploitation rights and for annual payments
  to the Chilean government and expires on December 31, 2030. The Company is required
  to make lease-royalty payments to Corfo equal to specified percentages of the
  value of production of minerals extracted from the Atacama Salar brines. Such
  royalty payments in the year 2002 amounted to approximately US$ 3.36 million. In
  addition to the mining rights leased to SQM Salar S.A. described above, Corfo
  has exclusive mining rights covering a total area of approximately 58,000 additional
  hectares in the Salar de Atacama. Under the terms of the Atacama Salar Project
  Agreement between Corfo and SQM Potasio S.A., the Project Agreement,
  Corfo has agreed that it will not permit any other person to explore, exploit
  or mine any mineral resources in those 58,000 hectares of the Salar de Atacama.
  The Project Agreement expires on December 31, 2030. Water
  and Port Rights.The Company also holds water rights for a supply of water from rivers and wells
  near the Company’s production facilities sufficient to meet its current and
  anticipated operational requirements. The Company operates port facilities at
  Tocopilla for shipment of its 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.


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The
  map below shows the location of the Companys principal mining operations
  and the land covered by concessions owned by the Company.



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PRODUCTION FACILITIES

SQM’s
  principal production facilities are located near its mines and extraction facilities
  in northern Chile. The following table sets forth the principal production facilities:


|                                    |  |                                                               |  | Approximate | 
|----------------------------------- |  | ------------------------------------------------------------- |  | ----------- | 
|                                    |  |                                                               |  | Size1       | 
|Location                            |  | Type
      of Facility                                        |  | (Hectares)  | 
|                                    |  |                                                               |  |             | 
|Pedro
      de Valdivia             |  | Nitrate,
      sulfate and iodine production                  |  | 130         | 
|María
      Elena                   |  | Nitrate,
      sulfate and iodine production                  |  | 180         | 
|Coya
      Sur                      |  | Nitrate,
      sulfate and iodine production                  |  | 350         | 
|Pampa
      Blanca                  |  | Concentrated
      nitrate salts and iodine production        |  | 115         | 
|Nueva
      Victoria                |  | Iodine
      production                                       |  | 27          | 
|Atacama
      Salar2                |  | KCl,
      lithium chloride, potassium sulfate and boric acid |  | 3,200       | 
|Salar
      del Carmen, Antofagasta |  | Lithium
      carbonate production                            |  | 45          | 
|Salar
      del Carmen, Antofagasta |  | Boron
      production                                        |  | 5           | 
|Tocopilla                           |  | Port
      facilities                                         |  | 24          | 
|                                    |  |                                                               |  |             | 

|   
|---
|(1)
|   
|(2)

The
  Company owns, directly or indirectly, all of the above-listed facilities, free
  of any material liens, pledges or encumbrances, and believes that its facilities
  are suitable and adequate for the business conducted therein. As of December
  31, 2002, the gross book value of the property and associated plant and equipment
  at the Pedro de Valdivia, María Elena, Coya Sur, Pampa Blanca, Nueva
  Victoria, Atacama Salar, Salar del Carmen and Tocopilla was approximately US$148.0
  million, US$249.9 million, US$93.9 million, US$16.5 million, US$60.2 million,
  US$344.9 million, US$54.1 million and US$58.7 million, respectively. In
  addition to its production facilities, the Company operates a computer and information
  system that links its principal subsidiaries and operating facilities throughout
  Chile via a local area network. The computer and information system is used
  principally for accounting, monitoring of supplies and inventories, billing,
  quality control and research activities. The system’s mainframe computer equipment
  is located at the Company’s offices in the city of Santiago. The
  Weighted Average Age of the Company’s production facilities at Pedro de Valdivia,
  María Elena, Coya Sur, Nueva Victoria, Atacama Salar and Salar del Carmen
  is approximately 12.8 years, 10.8 years, 8.5 years, 6.7 years, 5.4 years and
  6.6 years, respectively. The Weighted Average Age of the Company’s semi-portable
  iodine facilities at Pampa Blanca is approximately 8.5 years. The Company’s
  railroad line between its production facilities and Tocopilla was originally
  constructed in 1890, but the rails, locomotives and rolling stock have been
  replaced and refurbished as needed. The Tocopilla port facilities were originally
  constructed in 1961 and have been refurbished and expanded since that time.
  The Weighted Average Age of the Tocopilla port facilities is approximately 10.4
  years. The Company considers the condition of its principal plants and equipment
  to be good.


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TRANSPORTATION AND STORAGE FACILITIES

SQM,
  through its subsidiary SIT, owns and operates railway lines and equipment as
  well as port and storage facilities, for the transport and storage of finished
  products and consumable materials. The
  Company transports its nitrate products in bulk from its production facilities
  in Pedro de Valdivia, María Elena and Coya Sur to its port facilities
  at Tocopilla using its own railway lines and equipment. The Company exports
  its products from Tocopilla by ship. In most cases, SQM arranges for ocean shipment
  by third parties, although in some cases customers provide their own shipping. SIT
  operates the port facilities located at Tocopilla, which is 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 Atacama Salar. SIT operates the facilities under maritime concessions
  granted pursuant to applicable Chilean laws. The SIT facilities at Tocopilla
  include a railway car dumper to transfer nitrate products in bulk from train
  wagons to a conveyor belt and silo system. The storage silos, six in all, have
  a capacity of 55,000 metric tons. Additional open storage area for approximately
  180,000 metric tons is also available. The port operates a conveyor belt system
  for ship loading in bulk, with a capacity of 1,200 tons per hour, and facilities
  for bagging nitrates and loading bagged products using a loading dock and barges.
  The port has facilities for receiving and transferring raw material shipments
  by rail to SQMs production facilities. The Company also owns fuel oil
  and diesel fuel storage facilities at Tocopilla where these products are held
  on a consignment basis, purchased from supplies as needed and shipped to processing
  plants. The Company provides a limited amount of port loading services to third
  parties (principally fishmeal producers) consistent with SQMs own use
  of its facilities. SQM
  ships its iodine production to Antofagasta by trucks operated by local authorized
  contractor companies. Iodine is exported directly to customers or to the Company’s
  international sales affiliates by ship. Iodine used by the Company in producing
  iodine derivative products is shipped by truck to the Company’s facilities in
  Santiago. Land, sea and air transportation is then arranged to ship iodine derivative
  products from Santiago to customers. SQM’s
  sodium sulfate products are delivered principally by truck from the Company’s
  facilities at Coya Sur directly to customers or through the regular maritime
  terminal for export purposes. The
  Company transports potassium chloride from its Atacama Salar facility to its
  Coya Sur production facility on a containerized dual transport system, trucks
  and railway system, using a dedicated contractor. Potassium chloride sold to
  third parties, as well as potassium sulfate and boric acid are also sent to
  Tocopilla for shipping or directly by truck. Lithium
  loaded solutions used for lithium carbonate production are transported by tanker
  trucks, from the Atacama Salar facility to the lithium carbonate production
  plant next to Antofagasta, using a contractor company. Finished lithium carbonate
  is bagged and transported to customers by land, sea and air.


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ITEM 5.   OPERATING AND FINANCIAL REVIEW AND PROSPECTS

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. The Company believes that its critical accounting policies in the preparation of its Chilean GAAP financial statements are limited to those described below. It should be noted that in many cases, Chilean GAAP specifically dictates the accounting treatment of a particular transaction, with no need for management's judgment in their application. Additionally, significant differences can exist between Chilean GAAP and U.S. GAAP, as explained in note 28 of the financial statements. There are also areas in which management's judgment in selecting available alternatives would not produce materially different results. For a summary of significant accounting policies and methods used in the preparation of the financial statements, see Note 2 to the consolidated financial statements.


Allowance for Doubtful Accounts

The Company maintains allowances for doubtful accounts for estimated losses resulting from the assessed inability of its customers to make required payments. If the financial condition of the Companys customers were to deteriorate unexpectedly, impacting their ability to make payments, additional allowances may be required. The Company routinely reviews the financial condition of its customers and makes assessments of collectibility.


Income and Deferred Taxes

The Company and each of its subsidiaries compute and pay tax on a separate basis, except for the US subsidiary. The Company estimates its actual current tax exposure together with assessing temporary differences resulting from differing treatment of items, such as depreciation, for tax and accounting purposes.  These differences result in deferred tax assets and liabilities, which are included within the consolidated balance sheet. The Company then assesses the likelihood that its deferred tax assets will be recovered from future taxable income and to the extent it believe that recovery is unlikely, it establishes a valuation allowance. Revisions to the estimated realizable value of deferred tax assets or estimated average reversal periods of contra assets or liabilities could cause the provision for income taxes to vary significantly from period to period.


Inventories

Inventories of finished products and work in process are valued at average production cost. Raw materials and products acquired from third parties are stated at average cost and materials-in-transit are valued at cost.  The Company regularly reviews inventory for impairment and records an obsolescence provision so that carrying values do not exceed net realizable values.


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OPERATING RESULTS

Introduction

The following discussion should be read in conjunction with the Company's Consolidated Financial Statements and the Notes thereto included elsewhere herein. Certain amounts (including percentage amounts) that appear herein have been rounded. The Company's Consolidated Financial Statements are prepared in accordance with Chilean GAAP, which differs in certain material respects from U.S. GAAP. Note 28 to the Audited Financial Statements as of December 31, 2002 provides a description of the material differences between Chilean GAAP and U.S. GAAP and a reconciliation to U.S. GAAP of net income for the years ended December 31, 2000, 2001 and 2002 and of total shareholders' equity at December 31, 2000, 2001 and 2002. The Company's Consolidated Financial Statements are prepared in U.S. dollars. The U.S. dollar is the primary currency in which the Company operates. The Company operates as an independent corporation and is not a controlled corporation, as such is defined under Chilean law. The following table sets forth for each of the periods indicated the revenues of the Company (in millions of U.S. dollars) and the percentage of the Company's total revenues accounted for by each of its product lines:


|                              |       |  | Year
        ended December 31, |  |       | 
|----------------------------- | ----- |  | ------------------------------- |  | ----- | 
|                              |       |  |                                 |  |       | 
|                              | 2002  |  | 2001                            |  | 2000  | 
|                              |       |  |                                 |  |       | 
|                              | US$   |  | %                               |  | US$   | 
|                              |       |  |                                 |  |       | 
|Specialty
      fertilizers   | 281.4 |  | 51                              |  | 259.1 | 
|Iodine
      and derivatives  | 84.1  |  | 15                              |  | 81.4  | 
|Lithium
      and derivatives | 37.3  |  | 7                               |  | 37.0  | 
|Industrial
      chemicals    | 70.8  |  | 13                              |  | 69.6  | 
|Others
      (1)              | 80.2  |  | 14                              |  | 79.3  | 
|                              |       |  |                                 |  |       | 
|Total                         | 553.8 |  |                                 |  | 526.4 | 
|                              |       |  |                                 |  |       | 



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The following table sets forth certain financial information of the Company (in millions of US dollars) for each of the periods indicated, as a percentage of revenues:


|                                          | Years
      ended December 31, |  
|----------------------------------------- | ------------------------------ | -
|                                          |                                |  
|                                          | 2002                           |  
|                                          |                                |  
|Total
      Revenues                      | 553.8                          |  
|Cost
      of sales                       | (424.8                         | )
|                                          |                                |  
|Gross
      margin                        | 129.0                          |  
|Selling
      and administrative expenses | (46.3                          | )
|                                          |                                |  
|Operating
      income                    | 82.7                           |  
|                                          |                                |  
|Non-operating
      income                | 14.2                           |  
|Non-operating
      expenses              | (44.0                          | )
|                                          |                                |  
|Income
      before income taxes          | 52.9                           |  
|                                          |                                |  
|Income
      tax                          | (10.8                          | )
|Minority
      interest                   | (2.3                           | )
|Amortization
      of negative goodwill   | 0.4                            |  
|Extraordinary
      items                 | 0.0                            |  
|                                          |                                |  
|Net
      income                          | 40.2                           |  
|                                          |                                |  

Results of Operations - 2002 compared to 2001

During 2002, SQM generated total sales for an amount of US$553.8 million, which is 5.2% higher than the US$526.4 million recorded for the year 2001. The main factors that explain the increase in revenues and the operational variations in the different business lines are the following:


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Specialty Fertilizers

Revenues for specialty fertilizers for the year 2002 reached US$ 281.4 million, US$22.3 million higher than the US$ 259.1 million of the previous year.


|                                                         |               |  | Year
      2002 |  | Year
      2001 |  | Change from 2002/2001 |  
|-------------------------------------------------------- | ------------- |  | --------------- |  | --------------- |  | --------------------- | -
|                                                         |               |  |                 |  |                 |  |                       |  
|Sodium
      nitrate                                     | Th.
      Ton |  | 59.5            |  | 63.1            |  | (3.6                  | )
|Potassium
      nitrate and sodium potassium nitrate     | Th.
      Ton |  | 558.6           |  | 544.8           |  | 13.8                  |  
|Blended
      and other specialty fertilizers*           | Th.
      Ton |  | 276.6           |  | 241.8           |  | 34.8                  |  
|                                                         |               |  |                 |  |                 |  |                       |  
|Total
      Nitrate Specialty Fertilizers and Others     | Th.
      Ton |  | 894.7           |  | 849.7           |  | 45.0                  |  
|Potassium
      sulfate                                  | Th.
      Ton |  | 161.0           |  | 156.6           |  | 4.4                   |  
|                                                         |               |  |                 |  |                 |  |                       |  
|Revenues
      Nitrate Specialty Fertilizers and Others* | MUS$          |  | 248.6           |  | 227.7           |  | 21.0                  |  
|Revenues
      Potassium Sulfate                         | MUS$          |  | 32.8            |  | 31.4            |  | 1.4                   |  
|                                                         |               |  |                 |  |                 |  |                       |  
|Revenues
      Specialty Fertilizers                     | MUS$          |  | 281.4           |  | 259.1           |  | 22.3                  |  
|                                                         |               |  |                 |  |                 |  |                       |  

---

Higher revenues
  obtained during the year are mainly explained by:


|• | Significant
      increase in sales volumes of potassium related products to the Latin American
      markets.                                                                                                                                                                                   
|- | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|• | Increase
      in potassium nitrate sales to the USA as a consequence of the TRI plant
      closure, and an increase in soluble potassium nitrate sales to Europe. These
      increases were partially offset by lower sales of potassium nitrate to China
      compared to the previous year.
|• | Higher
      sales of Norsk Hydros calcium nitrate and other specialty fertilizers,
      mainly related to the startup of distribution operations contemplated on
      the SQM - Norsk Hydro commercial agreement.                                                                            
|• | Slight
      increase in potassium sulfate and boron fertilizer sales.                                                                                                                                                                                                                           

During 2002, this business line experienced a significant reduction in production costs resulting from the various cost reduction initiatives implemented during 2001 and an increase in volume sales. The above was partially offset by a slight reduction on sales prices during the year compared to the prices observed for 2001. On November 12, 2002, SQM signed a contract with PCS pursuant to which SQM agreed to buy from PCS 8,000 metric tons per month of potassium nitrate for a period of 14 months. The main benefits of this operation are related to the logistics and commercial synergies that SQM will obtain due to the increase in sales volumes of potassium nitrate. Currently, SQM supplies PCS potassium chloride, a raw material in the production of potassium nitrate.


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Iodine and derivatives

Revenues for iodine and iodine derivatives for 2002 reached US$ 84.1 million, approximately 3.4% higher than the US$ 81.4 million obtained during the previous year.


|                                          | Year
      2002 |  | Year
      2001 |  | Change from 2002/2001 | 
|----------------------------------------- | --------------- |  | --------------- |  | --------------------- | 
|                                          |                 |  |                 |  |                       | 
|Iodine
      and derivativesTh.
      Ton | 6.4             |  | 5.6             |  | 0.8                   | 
|                                          |                 |  |                 |  |                       | 
|Revenues
      Iodine and derivativesMUS$ | 84.1            |  | 81.4            |  | 2.7                   | 

Average sales prices for the year 2002 fell by approximately US $1.4 per kilogram compared to the previous year. However, SQM was able to recover market share and benefit from the growth of the world market and lower production costs and the sales volume increase for the period partially offset the negative effect of lower sales prices.


Lithium and derivatives

Revenues for lithium and lithium derivatives for 2002 reached US$ 37.3 million, similar to the US$ 37.0 million obtained during the previous year.


|                                                     | Year
      2002 |  | Year
      2001 |  | Change from 2002/2001 | 
|---------------------------------------------------- | --------------- |  | --------------- |  | --------------------- | 
|                                                     |                 |  |                 |  |                       | 
|Lithium
      carbonate and derivativesTh.
      Ton | 22.3            |  | 21.7            |  | 0.6                   | 
|                                                     |                 |  |                 |  |                       | 
|Revenues
      Lithium and derivativesMUS$           | 37.3            |  | 37.0            |  | 0.3                   | 

The increase in revenues observed during the fourth quarter allowed the Company to recover the lower sales observed up to September 2002. Contributing to the increase in sales observed during the fourth quarter is the increase in lithium hydroxide sales, of which the Company acquired at the end of the third quarter an 18 million lbs stockpile in the US. Continuing with the last years trend, sales prices for the year 2002 were slightly higher than the sales prices of the previous year.


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Industrial Chemicals

Revenues for industrial chemicals for the year 2002 reached US$ 70.8 million, slightly higher than the US$ 69.6 million obtained during the previous year.




|                                    |               | **Year
      2002** |  | **Year
      2001** |  | **Change from 2002/2001** |  
|----------------------------------- | ------------- | ------------------- |  | ------------------- |  | ------------------------- | -
|                                    |               |                     |  |                     |  |                           |  
|Industrial
      nitrates           | Th.
      Ton | 187.3               |  | 187.0               |  | 0.3                       |  
|Sodium
      sulfate                | Th.
      Ton | 63.2                |  | 66.7                |  | (3.5                      | )
|Boric
      acid                    | Th.
      Ton | 11.3                |  | 13.9                |  | (2.6                      | )
|Revenues
      Industrial Chemicals | MUS$          | 70.8                |  | 69.6                |  | 1.2                       |  

Industrial
  chemicals were benefited by lower production costs.


Potassium Chloride (KCl)

Potassium
  chloride revenues for the year 2002 reached US$ 38.2 million, higher than the
  US$ 36.5 million obtained during the previous year.


|                                  |               |                     |  |                     |  |                           | 
|--------------------------------- | ------------- | ------------------- |  | ------------------- |  | ------------------------- | 
|                                  |               | **Year
      2002** |  | **Year
      2001** |  | **Change from 2002/2001** | 
|                                  |               |                     |  |                     |  |                           | 
|Potassium
      Chloride          | Th.
      Ton | 286.0               |  | 262.9               |  | 23.1                      | 
|Revenues
      Potassium Chloride | MUS$          | 38.2                |  | 36.5                |  | 1.7                       | 
|                                  |               |                     |  |                     |  |                           | 

Higher
  annual volumes are mainly explained by an increase in production in potassium
  chloride in 2002 compared to 2001.


Cost of Sales

Cost
    of sales during 2002 were US$424.8 million, which represented a 3.8% increase
    compared to the US$409.1 million recorded during 2001, which compares to the
    5.2% sales increase. Cost of sales consists primarily of production related
    expenses, depreciation, raw material costs, logistics expenses and the cost
    of imported fertilizers and blends used both for resale and in the production
    of other products. As a percentage of revenues, cost of sales were 76.7% in
    the year 2002, lower than the 77.7% observed in 2001.


The
    lower costs realized during 2002 reflect the reorganization of the Company
    and different changes implemented during the year 2001. Additionally, the
    improvements in the production processes and the devaluation of the Chilean
    peso against the U.S. dollar have further reduced production costs.


Gross Profit

As
  a result of the factors described above, gross profit increased 9.9% to US$129.0
  million in 2002 from US$117.4 million in 2001.




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Selling and Administrative Expenses



Selling
  and administrative expenses increased approximately 6.2% to US$46.3 million
  in 2002 from US$43.6 million in 2001. As a percentage of revenues, selling and
  administrative expenses represented 8.4% in 2002, similar to the 8.3% in 2001.




Although there is an increase in the total SG&A compared to the year 2001, there are certain items that where not included in
  the 2001 SG&A that should be considered when comparing the figures of 2002
  and 2001:




| | • | The
      addition of two commercial affiliates, SQM Italy and SQM Mexico, in 2002
      increased the Company's consolidated SG&A by approximately US$2.3 million.
| | - | -------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |   |                                                                                                                                                                    

Operating Income

As
  a result of the factors described above, operating income increased 12.2% to
  US$82.7 million in 2002 from US$73.7 million in 2001.


Non-Operating Results (net)



The
  principal components of the Company's non-operating results were as follows:




|                                         | Year
      ended December 31, |  
|---------------------------------------- | ----------------------------- | -
|                                         |                               |  
|(in
      millions of US$)               | 2002                          |  
|                                         |                               |  
|Net
      financial income (expense) (1) | (25.5                         | )
|Exchange
      gain (loss)               | (3.5                          | )
|Others                                   | (0.7                          | )
|                                         |                               |  
|Total
      Non-Operating                | (29.8                         | )
|                                         |                               |  

|    |                                                                                                                                                                                                         
|--- | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|    |                                                                                                                                                                                                         
|(1) | Net
      of capitalized interests. During the years 2002, 2001 and 2000, the company
      capitalized interests in the amount of US$1.9 million, US$2.4 million and
      US$4.4 million respectively.



During 2002, the Company had non-operating expenses amounting to US$29.8 million compared to US$29.2 million in 2001. The main variations
  in the non-operating income were the following:




| | • | During
      the first quarter of 2001 a non-operating profit of US$4 million was reflected
      due to the sale of certain non-essential mining rights.                                                                                                                                                                                                                                                                                                                                
| | - | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | • | Net
      financial expenses decreased from US$(29.5) million in 2001 to US$(25.5)
      million in 2002. SQMs consolidation strategy based on a moderate capital
      expenditure program and focused on increasing the cash flow, has allowed
      the Company to reduce its net financial debt by approximately US$ 63 million
      in the last twelve months. The latter, along with lower interest rates,
      has translated in a significant reduction in financial expenses.
| | • | The
      income derived from the 14.05% stake in the cement Chilean company Empresas
      Melón S.A., increased from US$1.3 million in 2001 to US$3.0 million
      in 2002                                                                                                                                                                                                                                                                                                            
| |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                          

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Income Taxes

Income taxes reached US$10.8 million in 2002 resulting in an effective consolidated tax rate of 21.1%, as compared to income taxes of US$7.5 million in 2001 for an effective consolidated tax rate of 20.0%. In accordance with Chilean law, SQM and each of its subsidiaries computes and pays taxes on an individual basis and not on a consolidated basis. The Company had tax loss carry-forwards of US$97.5 million at December 31, 2002, which have no expiration dates and are expected to be fully utilized in the future. Income taxes applied to companies in Chile were 16 % during 2002. Income taxes will be raised during 2003 and 2004 to tax rates of 16.5 % and 17 % respectively. For
  a more detailed analysis of income taxes and deferred taxes see note 14 to the
  Financial Statements


Net Income

As
  a result of the factors described above, net income increased 33.6% to US$40.2
  million in 2002 from US$30.1 million in 2001.


Results of Operations - 2001 compared to 2000

During
  2001, SQM generated total sales amounting to US$526.4 million, which is 4.9%
  higher than the US$501.8 million recorded for the year 2000. The
  main factors that explain the revenues increase and the operational variations
  in the different business lines are the following:


Specialty Fertilizers

Revenues
  for specialty fertilizers for the year 2001 reached US$259.1 million, 12.7%
  higher than the US$229.9 million obtained during the previous year.


|                                                         |               | Year
      2001 |  | Year
      2000 | 
|-------------------------------------------------------- | ------------- | --------------- |  | --------------- | 
|                                                         |               |                 |  |                 | 
|Sodium
      nitrate                                     | Th.
      Ton | 63.1            |  | 71.2            | 
|Potassium
      nitrate and sodium potassium nitrate     | Th.
      Ton | 544.8           |  | 472.2           | 
|Blended
      and other specialty fertilizers*           | Th.
      Ton | 241.8           |  | 200.2           | 
|                                                         |               |                 |  |                 | 
|Total
      Nitrate Specialty Fertilizers and Others     | Th.
      Ton | 849.7           |  | 743.5           | 
|Potassium
      sulfate                                  | Th.
      Ton | 156.6           |  | 151.6           | 
|                                                         |               |                 |  |                 | 
|Revenues
      Nitrate Specialty Fertilizers and Others* | MUS$          | 227.7           |  | 200.3           | 
|Revenues
      Potassium Sulfate                         | MUS$          | 31.4            |  | 29.6            | 
|                                                         |               |                 |  |                 | 
|Revenues
      Specialty Fertilizers                     | MUS$          | 259.1           |  | 229.9           | 
|                                                         |               |                 |  |                 | 

---

(*)    Includes
  Blended Fertilizers and Other Specialty Fertilizers.

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Nitrate specialty fertilizers and Others

Nitrate
  specialty fertilizer revenues for the year 2001 were 13.7% higher than those
  recorded during the same period of the previous year. This was mainly due to
  a significant increase in potassium nitrate sales to China and to an increase
  in sales to Europe. Average sales prices for the year 2001 were lower than those of the previous year, mainly due to the Euro devaluation against the U.S. dollar, which affected U.S. dollar-indexed prices in Europe, and the highly competitive environment in the potassium nitrate business, which is the Companys main specialty fertilizer. Notwithstanding
    the lower average sales prices observed during the year 2001, the increase
    in sales volumes and the reduction in production costs allowed the Company
    to increase the operational contribution of specialty fertilizers compared
    to the previous year.


Potassium sulfate

During 2001 productive process yields increased, leading to a significant reduction in production costs. This translated into an increase in potassium sulfates operational contribution to the Company.


Iodine and Lithium

Revenues for iodine and lithium for the year 2001 reached US$118.4 million, similar to the US$120.1 million obtained during the previous year.


|                                  |               | Year
      2001 |  | Year
      2000 | 
|--------------------------------- | ------------- | --------------- |  | --------------- | 
|                                  |               |                 |  |                 | 
|Iodine
      and derivatives      | Th.
      Ton | 5.6             |  | 5.7             | 
|Lithium
      and derivatives     | Th.
      Ton | 21.7            |  | 20.6            | 
|Revenues
      Iodine and Lithium | MUS$          | 118.4           |  | 120.1           | 

Iodine and Derivatives

The lower revenues of iodine and derivatives for the year 2001 were the result of lower average prices, which were approximately US$1.4 per kilogram lower than those recorded during the previous year. The iodine market was affected by an important increase in installed production capacity, which put a downward pressure on international prices. However, iodine is an essential and irreplaceable element used in a wide range of traditional applications whose consumption grows at rates similar to those of the world economy. As with specialty fertilizers, cost reduction initiatives resulted in a reduction of production costs during the year 2001. Lower average prices, only partially offset by lower costs, translated into reduction in the operating contribution of the iodine business as compared to last year.


Lithium Carbonate

Lithium carbonate sales volumes during 2001 were 5.3% higher than those observed during the previous year. Continuing with the previous years price recovery trend, lithium carbonate sales prices were approximately 6% higher than the prices observed during 2000.


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The better yields obtained in production processes together with better quality of the brines coming from the Atacama Salar, led to lower production costs during the year 2001 than originally projected. Better prices and higher sales volumes resulted in an increase in sales margins compared to the year 2000.


Industrial Chemicals

Revenues for industrial chemicals for the year 2001 reached US$69.6 million, similar to the US$69.8 million obtained during the previous year.


|                                    |               | Year
      2001 |  | Year
      2000 | 
|----------------------------------- | ------------- | --------------- |  | --------------- | 
|                                    |               |                 |  |                 | 
|Industrial
      nitrates           | Th.
      Ton | 187.0           |  | 196.3           | 
|Sodium
      sulfate                | Th.
      Ton | 66.7            |  | 43.8            | 
|Boric
      Acid                    | Th.
      Ton | 13.9            |  | 8.7             | 
|Revenues
      Industrial Chemicals | MUS$          | 69.6            |  | 69.8            | 

Lower sales of industrial nitrates during the year 2001, particularly in US and European markets, were mainly due to an intense competitive environment and a slight decrease in world demand. Average sales prices for industrial nitrates were thus slightly reduced. As with nitrate specialty fertilizers sales, industrial nitrates benefited from lower production costs as a direct consequence of the cost reduction initiatives implemented during the year 2001. Joint production of industrial and agricultural nitrates allows a natural diversification and continuous production redistribution in response to different markets conditions. This creates synergies in the business by allowing the products to complement SQMs fertilizer nitrates. Sodium sulfate sales for the year 2001 increased compared to the previous year mainly due to higher sales in Latin America. Finally, boric acid, a byproduct of potassium sulfate, experienced higher production levels and lower costs, due to improvements in the production process, which caused sales in 2001 to increase by 60%, due mainly to increased sales to the USA and Canada.


Potassium Chloride (KCl)

|                                  |               | Year
      2001 |  | Year
      2000 | 
|--------------------------------- | ------------- | --------------- |  | --------------- | 
|                                  |               |                 |  |                 | 
|Potassium
      Chloride          | Th.
      Ton | 262.9           |  | 279.4           | 
|Revenues
      Potassium Chloride | MUS$          | 36.5            |  | 38.4            | 

Potassium chloride sales for 2001 were 4.9% lower than those recorded during the previous year. Even though potassium chloride production during the year 2001 was higher than that of the year 2000, its use as a raw material in the additional production of potassium nitrate has reduced the availability of this product  for direct sales. Potassium chloride production costs during 2001 were lower than previous years. Lower costs, together with stable prices, have increased the operational contribution of this business line.


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Cost of Sales

Cost of sales during 2001 were US$409.1 million, which represented a 5.2% increase as compared to US$388.8 million recorded during 2000, compared to an increase in sales of 4.9%. Cost of sales consists primarily of production related expenses, depreciation, raw material costs, logistics expenses and the cost of imported fertilizers and blends used both for resale and in the production of other products. As a percentage of revenues, cost of sales were 77.7% in the year 2001, similar to the 77.5% observed in 2000. During March 2001 SQM implemented an organizational restructuring aimed to reduce its production and administrative costs. This translated into relevant cost reductions, mainly in operations and support areas, and was part of several cost reduction initiatives that the Company has been undertaking for the past years as result of its consolidation strategy. The lower costs achieved through the different changes implemented were partially reflected during the year 2001 and were fully reflected during the year 2002. Additionally, the improvements in the production processes and the devaluation of the Chilean peso against the U.S. dollar further reduced production costs.


Gross Profit

As a result of the factors described above, gross profit increased 3.9% to US$117.4 million in 2001 from US$113.0 million in 2000.


Selling and Administrative Expenses

Selling and administrative expenses decreased approximately 4.8% to US$43.6 million in 2001 from US$45.8 million in 2000. As a percentage of revenues, selling and administrative expenses decreased to 8.3% in 2001 from 9.1% in 2000. The decrease in selling and administrative expenses is mainly due to the efforts in restructuring of the organization as explained in Cost of Sales above.


Operating
  Income

As a result of the factors described above, operating income increased 9.6% to US$73.7 million in 2001 from US$67.3 million in 2000.


Non-Operating Results (net)

The principal components of the Company's non-operating results were as follows:


|                                         | Year
      ended December 31, |  
|---------------------------------------- | ----------------------------- | -
|                                         |                               |  
|                                         | 2001                          |  
|                                         |                               |  
|                                         | (in
      millions of US$)    |  
|Net
      financial income (expense) (1) | (29.5                         | )
|Exchange
      gain (loss)               | (3.1                          | )
|Others                                   | 3.4                           |  
|                                         |                               |  
|Total
      Non-Operating                | (29.2                         | )
|                                         |                               |  



---

(1)     Net
  of capitalized interests. During the years 2001 and 2000, the company capitalized
  interests in the amount of US$2.4 million and US$4.4 million respectively.

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The Company had a non-operating loss of US$29.2 million in 2001, as compared to a non-operating loss of US$32.8 million during 2000. The increase in non-operating results is primarily attributable to the following:


| |  | Capitalized
      interests reduction, from US$4.4 million in 2000 to US$2.4 million in 2001,
      due to the start up of several projects during the last year;
| | - | -----------------------------------------------------------------------------------------------------------------------------------------------------------------
| |  | An exchange
      difference of US$(3.1) million during 2001, compared to an exchange difference
      of US$(1.9) million in 2000;                              
| | • | During
      the first quarter of 2001, a gain was recorded due to the sale of certain
      non-essential mining properties.                                    

Income
  Taxes

Income taxes were US$7.5 million in 2001 resulting in an effective consolidated tax rate of 20.0%, as compared to income taxes of US$4.9 million in 2000 for an effective consolidated tax rate of 15.2%. In accordance with Chilean law, SQM and each of its subsidiaries compute and pay taxes on an individual basis and not on a consolidated basis. The Company had tax loss carry-forwards of US$139.3 million at December 31, 2001, which have no expiration dates and are expected to be fully utilized in the future. Income taxes applied to companies in Chile were 15 % during 2001.


Net
  Income

As a result of the factors described above, net income increased 11.1% to US$30.1 million in 2001 from US$27.1 million in 2000.


FOREIGN
  EXCHANGE RATES - INFLATION

As noted above, the U.S. dollar is the primary currency in which SQM operates. Nevertheless, as an international company operating in Chile and several other countries, the Company transacts a portion of its business and has assets and liabilities in Chilean Pesos and other non-dollar currencies. During 2002 the Company incurred net foreign exchange losses caused, in part, by the fact that the rate at which the Chilean Peso devalued against the U.S. dollar was higher than the rate of inflation in Chile. During this period, the Consumer Price Index increased by 2.8% while the Chilean Peso devalued against the U.S. dollar by 9.7%. Thus, the values of assets denominated in Chilean Pesos and UF, which were not hedged, decreased in value in U.S. dollars. The Company has a portion of its expenses in Chilean Pesos and UF, which are partially offset by revenues denominated in Chilean pesos and UF. If the devaluation of the peso is higher than inflatio


n, the process of translating these amounts to U.S. dollars will result in lower values in U.S. dollars, thereby generating exchange differences: 1) gains related to Chilean peso and UF denominated expenses, and 2) losses associated to Chilean peso and UF denominated revenues in the Chilean GAAP Consolidated Financial Statements. If inflation is higher than the rate of devaluation the opposite would occur. The net impact of price level adjustments to non-monetary assets and liabilities and equity for those subsidiaries which maintain their accounting records in Chilean Pesos is also presented in the Chilean GAAP financial statements as part of the net foreign exchange gains and losses and is affected by the level of inflation in Chile. Although other income statement accounts are not affected by monetary correction adjustments, operating expenses, which are denominated in UF or are linked to inflation in some manner will increase in U.S. dollar denominated Chilean financial statements if inflation exceeds de


valuation. Management
    monitors and attempts to maintain its non-dollar assets and liabilities position
    in balance and utilizes foreign exchange contracts and other hedging instruments
    to try to minimize its exposure to the risks of changes in foreign
    exchange rates. There is no assurance that the Company will be able to maintain
    prices of products sold in Chile at a constant U.S. dollar level if devaluation
    exceeds inflation.


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The following is a summary of the aggregate net monetary assets and liabilities that are subject to foreign exchange gain or loss by currency at December 31, 2002 and 2001:


|                       | 2002         |  | 2001   | 
|---------------------- | ------------ |  | ------ | 
|                       |              |  |        | 
|                       | Th
      US$ |  | Th US$ | 
|Chilean
      Pesos    | 70,878       |  | 77,596 | 
|Brazilian
      Real   | 2,028        |  | 3,114  | 
|Euro                   | 42,063       |  | 43,305 | 
|Japanese
      Yen     | 1,475        |  | 2,194  | 
|Mexican
      Pesos    | 13,896       |  | 11,542 | 
|Other
      currencies | 1,120        |  | 911    | 

The prospects
    and results of operations of the Company could be adversely 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 the Company has no control.


U.S. GAAP RECONCILIATION

The principal
    differences between Chilean GAAP and U.S. GAAP as they relate to the Company
    are (i) the elimination of the effects of a reappraisal of fixed assets undertaken
    in 1988, (ii) the effect of monetary correction and the treatment of foreign
    currency translation gains and losses, (iii) the accounting for derivative
    contracts, (iv) the treatment of the investment in Empresas Melón S.A.,
    (v) the treatment of companies in development stage, and (vi) the elimination
    of complementary accounts in deferred taxes. For further details of these
    differences between Chilean GAAP and U.S. GAAP, see Note 28 to the Audited
    Financial Statements included herein. Net income
    under U.S. GAAP for 2000, 2001 and 2002 was US$24.6 million, US$24.4 million
    and US$46.9 million, respectively, as compared to that reported under Chilean
    GAAP of US$27.1 million, US$30.1 million and US$40.2 million, respectively. Total
    shareholders' equity under U.S. GAAP at December 31, 2000, 2001 and 2002 was
    US$712.3 million, US$721.4 million and US$747.3 million, respectively, compared
    to that reported under Chilean GAAP of US$824.1 million US$831.7 million and
    US$849.7 million, respectively.


LIQUIDITY
  AND CAPITAL RESOURCES

The Company
    operates a capital-intensive business that requires significant investments
    in revenue-producing assets. The Companys growth strategy has included
    the purchase of production facilities and equipment and has also entailed
    the improvement and expansion of existing facilities. Funds for capital expenditures
    and working capital requirements have been obtained from net cash provided
    by operating activities, corporate borrowing under credit facilities, issuance
    of debt securities and increases in capital.


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SQMs
  working capital  working capital is calculated as the sum of accounts
  receivable, accounts receivable from related companies and inventories 
  increased over the past year to US$385.3 million as of December 31, 2002 from
  US$372.9 million as of December 31, 2001. The main reason for this was the increase
  in inventories related to the acquisition of the lithium hydroxide stock in
  the United States and some products related to the commercial agreement with
  Norsk Hydro. Despite a decrease in current assets by 10.3%, the current ratio
  increased from 4.33:1 as of December 31, 2001 to 4.95:1 as of December 31, 2002
  due to a 21.5% decrease in current liabilities, consistent with the net financial
  debt reduction.


As of December 31, 2002, the Company had total debt (short-term borrowings, current portion of long-term bank debt, long term bank debt and sundry creditors) of US$350.2 million, as compared to total debt of US$483.9 million as of December 31, 2001. Of the total debt of US$350.2 million at December 31, 2002, US$23.4 million was short-term debt plus the current portion of long-term bank debt. Of the total debt of US$483.9 million at December 31, 2001, US$68.0 million was short-term debt plus the current portion of long-term bank debt. All of the Companys long-term bank debt (including the current portion) as of December 31, 2002 was denominated in U.S. dollars. The following table sets forth the maturities of the Companys long-term bank debt:


|Years |  | Amount                 |  
|----- |  | ---------------------- | -
|      |  | (millions
      of US$ | )
|      |  |                        |  
|2003  |  | 16.0                   |  
|2004  |  | 32.0                   |  
|2005  |  | 62.0                   |  
|2006  |  | 230.0                  |  

The Company paid the US$120 million syndicated loan entered into in February 1998, with US$60 million cash in August 2002 and renegotiated the other US$60 million at an interest rate of LIBOR + 1.00% (2.40% at December 31, 2002). In November 2000, the Company entered into a new syndicated credit facility with the purpose of prepaying debt maturing in 2001. The Company borrowed US$80 million, which is due with 5 semi-annual equal partial installments beginning in November 2003 with final payment in November 2005, and which bears interest at a rate of LIBOR + 1.125% (2.582% at December 31, 2002). Under the terms of these facilities, the Company must comply with certain financial ratios. In particular, the Company must maintain a ratio of debt to total capitalization (measured as interest indebtedness to interest indebtedness plus shareholders equity) of less than 0.45:1 and a maximum level of short term-debt interest indebtedness (for this


 purpose only short-term interest indebtedness of SQM and certain subsidiaries is considered) to current assets of 0.30:1. As of December 31, 2002, the Company was in compliance with these ratios. The Company also paid the US$12 million local bank loan in the first half of 2002. In addition, the Company borrowed US$200 million in September 1996, which is due in 2006 and bears interest at a fixed rate of 7.7%. The Company believes that the terms and conditions of its debt agreements and bonds are standard and customary and that it is in compliance in all material respects with such terms and conditions. As of December 31, 2002, the Company had US$65.2 million of cash and cash equivalents, including marketable securities (See Note 2e to the Audited Financial Statements as of December 31, 2002). In addition, as of December 31, 2002, the Company had unused credit lines aggregating approximately US$202.5 million. Shareholders' equity remained at practically the same levels going from US$831.7 million in 2001 to US$849.7 million in 2002. SQMs ratio of total liabilities to equity (including minority interest) decreased from 0.70:1 to 0.56:1 due to the reduction of the consolidated debt of the Company. The Company's capital expenditures in 2002 amounted to US$58.8 million, of which US$41.9 million corresponded to additions to property, plant and equipment, including capitalized interest.


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The Company believes that cash flow generated by internal operations, cash balances and available credit lines, will enable the Company to meet its working capital, capital expenditure and debt services requirements for 2003, 2004 and 2005.


RESEARCH AND DEVELOPMENT, PATENTS AND LICENCES

One of the main objectives of SQMs Research and Development team consists of developing new processes and products in order to maximize the returns obtained from the resources that the Company exploits. The areas of research cover topics such as chemical process design, phase chemistry, chemical analysis methodologies and physical properties of finished products. This unit, which depends on the GIDMA (Research, Development and Environmental Department), provides technical advice to production, quality and commercial areas. SQM's research and development activities are conducted principally at its Antofagasta Research and Development Center. The Center has a total staff of 24 people, including 4 Ph.D.s and 8 professionals in the fields of engineering and chemistry conducting research on various projects. The Company's 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, (ii) development of higher-margin products from current products through vertical integration or different product specifications, (iii) development of new uses for current products, (iv) development of new products and (v) improvement of technical customer service. For the
    years ended December 31, 2000, 2001 and 2002 SQM spent approximately US$3.0
    million, US$2.2 million and US$ 2.0 million respectively, on research and
    development activities. SQMs research and development activities have been instrumental in improving SQMs production processes and developing new products. As a result of research and development activities new methods of extraction and finishing have been developed, including methods for heap leaching nitrates and a method to produce mono-granular blends of fertilizers that permit the incorporation of different nutrients (including micro-nutrients) into one grain. In recent years, the company has also been focusing on the development of processes for lithium compounds coming out of the brines from the Salar de Atacama. SQM has patented several production processes for nitrate, iodine, and lithium products. These patents have been filed mainly in the USA and Chile, and other countries when necessary.


TREND INFORMATION

In the last few years the price of iodine decreased from a price of US$18 to US$13 per kilogram. However, the prices observed during the first quarter of 2003 have not continued with this trend and have remained in levels similar to those of the last quarter of 2002. The demand for iodine is to some extent correlated with world economic activity, and supply of iodine is dependant on the production capacity of the worlds major producers being SQM one of them. Under the assumption that the other major producers will not increase their production capacities, future prices might be expected to remain at similar levels during 2003. After the Company entered the lithium carbonate market at the end of 1996 moment in which prices sharply declined, price has been steadily increasing to levels of US$1,900 to US$2,000 per metric ton. As demand and supply are presently at a relatively stable equilibrium, prices might remain at current levels for the remainder of the year. Potassium
    nitrate and sodium potassium nitrate sales volumes increased by approximately
    3% from 2001 to 2002 and should be expected to increase during 2003, considering
    the commercial agreements the Company has with Norsk Hydro and PCS. Following the Companys strategy to continue to
    expand its sales of natural nitrate specialty fertilizers, sales of potassium
    chloride should be expected to decrease for it is used as a raw material in
    the production of potassium nitrate-based specialty fertilizers.


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Specialty fertilizers sales for 2003 in Chile are expected to increase as Norsk Hydro Chile S.A. was acquired by the Companys affiliate SQMC on April 2003. Sodium nitrate production for 2003 is expected to decrease subsequent to the past ten years trend. This trend is related to the use of sodium nitrate as raw material for some specialty fertilizers such as potassium nitrate and other specialty fertilizer blends, whose sales are expected to increase in the years to come. Blended and tailor made fertilizer sales are estimated to increase, as more customers are interested in this high value products to achieve higher yields and better quality crops. For further information please refer to the discussions throughout Items 4 and 5 hereto.


ITEM
  6.   DIRECTORS, SENIOR MANAGEMENT AND EMPLOYEES

DIRECTORS AND SENIOR MANAGEMENT

SQM is managed by its executive officers under the direction of its Board, which in accordance with its By-laws, must consist of eight directors who are elected at the annual ordinary shareholders' meeting. The Board consists of seven members elected by shareholders of the Series A shares, and one member elected by shareholders of the Series B shares. The entire Board of Directors is regularly elected every three years at SQMs ordinary shareholders meeting. Cumulative voting is allowed for the election of directors. The current Board of Directors was elected on April 30, 2003. The Board of Directors may appoint replacements to fill any vacancies that occur during periods between elections. If a vacancy occurs, the entire Board must be elected or re-elected at the next regularly scheduled meeting of shareholders. SQM's Chief Executive Officer is appointed by the Board of Directors and holds office at the discretion of the Board. The Chief


 Executive Officer appoints SQMs executive officers. There are regularly scheduled meetings of the Board of Directors once a month; extraordinary meetings are called by the Chairman, when requested by the director elected by holders of the Series B shares, when requested by any other director with the assent of the Chairman or when requested by an absolute majority of all directors. The Board has a Directors Committee and its regulations are discussed below. SQM's directors
  and executive officers as of May 30, 2003 are as follows:


| | Directors
      Name    | Position                                                                                                                                                                                         | Current
      position held since
| | ----------------------- | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------ | ---------------------------------
| |                         |                                                                                                                                                                                                  |                                  
| | Julio
      Ponce L.(1) | Chairman
      of the Board and Director                                                                                                                                                         | September
      1987             
| |                         | Mr.
      Ponce is a Forestry Engineer from the Universidad de Chile. He joined the
      Company in 1981. He is also Chairman of the Board of the following corporations:                      
| |                         | Sociedad
      de Inversiones Pampa Calichera S.A., Sociedad de Inversiones Oro Blanco
      S.A., Norte Grande S.A. and Soquimich Comercial S.A. He is the brother of
      Luis Eugenio Ponce.

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| | Wayne
      R. Brownlee        | Vice
      Chairman of the Board and Director                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                              | May
      2002     
| | ------------------------------ | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------- | -------------------
| |                                | Mr.
        Brownlee is Senior Vice-President, Treasurer and Chief Financial Officer
        of Potash Corporation of Saskatchewan, Inc. Mr. Brownlee earned degrees
        in Science and Business Administration from the University of Saskatchewan.
        He is on the Board of the Saskatoon Airport Authority as well as PhilomBios,
        an agriculturalbiotechnology
        company. He became director at SQM on December 2001.                                                                                                                           
| |                                |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                           
| | Hernán
      Büchi B.          | Director                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                   | April
      1993   
| |                                | Mr.
        Büchi is a Civil Engineer from the Universidad de Chile. He served
        as ViceChairman
        of SQMs Board from January 2000 to April 2002. He is currently aBoard
        member in Quiñenco S.A., Luchetti S.A., FICAP S.A., P y S S.A.,
        AltoPalermo
        S.A. and Falabella S.A., among others.                                                                                                                                                                                                                                          
| |                                |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                           
| | José
      María Eyzaguirre B. | Director                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                   | December
      2001
| |                                | Mr.
        Eyzaguirre is a lawyer, partner of the Chilean law firm Claro y Cia. He
        obtained his law degree from the Universidad de Chile and was admitted
        to the Chilean Bar in 1985. In 1987 he obtained a Master's Degree from
        New York University School of Law and was admitted to the New York Bar
        in 1988. He is alsoa
        member of the Board of directors of Gasoducto del Pacífico S.A.,
        a transandeangas
        pipeline, and a professor of law at Universidad Adolfo Ibáñez
        School of Law.              
| |                                |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                           
| | Daniel
      Yarur E.          | Director                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                   | April
      2003   
| |                                | Mr.
        Yarur is an Information Engineer from the Universidad de Chile and holds
        an MSc in Finance at the London School of Economics and an AMP at Harvard
        Business School. He is a member of the Board of Banco de Credito e Inversiones,
        Aes Gener S.A. and Invertec Pesquera Mar de Chiloe S.A., among others.
        Mr Yarur was Chairman of the Chilean Securities and Exchange Commission
        from 1994 to 2000. He is also Professor at the Faculty of Economic and
        Administrative Sciences,Universidad
        de Chile.
| |                                |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                           
| | Avi
      Milstein             | Director                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                   | May
      1996     
| |                                | Mr.
        Milstein is a Mechanical Engineer from the Israeli Technical Institute
        at Haifa, Israel. In the past, he was Chief Executive Officer of Indian
        Ocean Fertilizers in South Africa, CEO of Negev Star, from the ICL Group
        in Israel, and CEO of Edom from the ICL Group in Israel. Currently, Mr.
        Milstein is Chief Executive Officer ofInversiones
        RAC Chile Limitada and a member of the board of Rotem do Brasil at Sao
        Paulo in Brazil.                                                                     
| |                                |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                           
| | José
      Antonio Silva B.    | Director                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                   | December
      2001
| |                                | Mr.
        Silva is a lawyer from the Pontificia Universidad Católica de Chile
        and holds a master degree in law at Harvard Law School. Currently, he
        is partner of the Chilean law firm Carey y Cia. Ltda. Also, he is member
        of the Board of directors ofComercial
        e Impresora Publiguías S.A., Editorial Lord Cochrane S.A., InversionesPortfolio
        S.A and Alianza Inmobiliaria S.A.                                                                                                                                            

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| | Kendrick
      T. Wallace                                                                                                                                                                                                                                                                                                                                                                                                                                           | Director                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                     | December
      2001              
| | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------- | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------- | ---------------------------------
| |                                                                                                                                                                                                                                                                                                                                                                                                                                                                     | Mr.
        Wallace is a lawyer who graduated from the Harvard Law School. He is now
        Vice President and General Counsel of Norsk Hydro Americas, Inc. in Tampa,
        Florida. Formerly he was a partner in the law firm of Bryan Cave LLP in
        Kansas City, Missouri. Mr. Wallace is on the Board of Directors of Adubos
        Trevo S.A. in Brazil and of a number of subsidiaries of Norsk Hydro ASA
        in North and South America. He is also on the Board of Directors of Norte
        Grande S.A., Sociedad deInversiones
        Oro Blanco S.A. and Sociedad de Inversiones Pampa Calichera.
| |                                                                                                                                                                                                                                                                                                                                                                                                                                                                     |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                             
| | Executive
      Officers
      Name                                                                                                                                                                                                                                                                                                                                                                                                                                 | Position                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                     | Current
      position held since
| |                                                                                                                                                                                                                                                                                                                                                                                                                                                                    
| | Patricio
      Contesse G.(1)                                                                                                                                                                                                                                                                                                                                                                                                                                       | Chief
      Executive Officer                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                | March
      1990                 
| | Mr.
        Contesse is a Forestry Engineer from the Universidad de Chile. He joined
        the Company in 1981 as CEO, a position he held until 1982 and, again,
        in 1988. In the past, he was CEO of Celco Limitada, Schwager S.A. and
        Compañía de Aceros del Pacífico S.A. He has also
        served as Operations Senior Executive Vice President of Codelco Chile,
        President of Codelco USA and Executive President of Codelco Chile.
| |                                                                                                                                                                                                                                                                                                                                                                                                                                                                     |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                             
| | Patricio
      de Solminihac T.(1)                                                                                                                                                                                                                                                                                                                                                                                                                                  | Chief
      Operating Officer and
	  Executive
      Vice President                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                          | January
      2000               
| |                                                                                                                                                                                                                                                                                                                                                                                                                                                                     | Mr.
        de Solminihac is a Chemical Engineer from the Pontificia Universidad Católica
        de Chile and holds a Master in Business Administration from the University
        of Chicago. He joined the Company in 1988 as Business Development Vice
        President. In 1989 he became General Manager and later on he became Vice
        Chairman of the Board of SQM, a position he held from 1989 through January
        2000. Mr. de Solminihac was Country Manager for Raychem Corporation and
        currently he is a member of the Board of Empresas Melón S.A. and
        Vecta S.A.                 
| |                                                                                                                                                                                                                                                                                                                                                                                                                                                                     |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                             
| | Matías
      Astaburuaga S.(1)                                                                                                                                                                                                                                                                                                                                                                                                                                      | General
      Counsel                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                        | February
      1989              
| |                                                                                                                                                                                                                                                                                                                                                                                                                                                                     | Mr.
        Astaburuaga is a lawyer from the Pontificia Universidad Católica
        de Chile. Hejoined
        the Company in 1989. Before that, he was Regional Counsel of The CocaCola
        Export Corporation, Andean Region and Regional Counsel of American LifeInsurance
        Company, Latin America Region. Mr. Astaburuaga is currently a memberof
        the Board of Sociedad Nacional de Minería.                                                                                                                                                                                                        
| |                                                                                                                                                                                                                                                                                                                                                                                                                                                                     |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                             
| | Ricardo
      Ramos R.(1)                                                                                                                                                                                                                                                                                                                                                                                                                                           | Chief
        Financial Officer and
		Business
      Development Senior Vice President                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                       | November
      1994              
| |                                                                                                                                                                                                                                                                                                                                                                                                                                                                     | Mr.
        Ramos is an Industrial Engineer from the Pontificia Universidad Católica
        de Chile. He joined SQM in 1989 as an advisor in the Finance area. In
        1991 he moved to the Sales department, where he was in charge of the coordination
        between operations and sales. In 1993 he returned to the Finance department
        and became deputy CFO. Mr. Ramos is also a member of the Board of Soquimich
        Comercial.                                                                                                                                                                     

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| | Jaime
      San Martín L.(1)   | Technical
      Senior Vice President                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                 | March
      2001   
| | ------------------------------ | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------- | -------------------
| |                                | Mr.
        San Martín is a Transportation Engineer from the Pontificia Universidad
        Católica de Chile. He joined the Company in 1995 as Project Manager.
        He became Metallic Mining Development Manager in 1997 and Development
        Manager in 1998. From 1999 through March 2001 he was Business Development
        and Mining Property Vice President.                                                                                                                                                         
| |                                |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                      
| | Luis
      Eugenio Ponce L.(1) | Corporate
      Commercial Senior Vice President                                                                                                                                                                                                                                                                                                                                                                                                                                                                                      | March
      1999   
| |                                | Mr.
        Ponce is a Mechanical Engineer from the Universidad Católica de
        Valparaíso. He joined the Company in 1981 as a Sales Manager. He
        became Commercial Manager in 1982, Commercial and Operations Manager in
        1988 and ChiefExecutive
        Officer of SQM Nitratos S.A. in 1991. In the past he was member of the Board
        of IANSA and currently he is a member of the board of Cerámicas
        FlorenciaS.A.
        He is the brother of Julio Ponce.                                    
| |                                |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                      
| | Carlos
      Nakousi S.(1)     | Operations
      Senior Vice President                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                | May
      2003     
| |                                | Mr.
      Nakousi is an Industrial Engineer from the Pontificia Universidad Católica
      deChile. He joined the Company in 1989 as Head of Process Development. Hebecame
      Deputy Development Manager in 1993, Development Manager of SQMSalar S.A.
      in 1995, and Senior Vice President Salar Operations of SQM in 1999.                                                                                                                                                                                                  
| |                                |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                      
| | Maurice
      Le-Fort R.(1)    | Project
      Engineering Senior Vice President                                                                                                                                                                                                                                                                                                                                                                                                                                                                                       | May
      2003     
| |                                | Mr.
        Le Fort is a Structural Civil Engineer from the Pontificia Universidad
        Católica de Chile. He joined the Company in 1994 as Salar Project
        Manager. He became Cementos de Chile S.A. Project Manager in 1997, Nitrate
        Operations Manager in1998,
        and Senior Vice President Nitrate and Iodine Operations in 1999.                                                                                                                                                                          
| |                                |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                      
| | Camila
      Merino C.(1)      | Human
      Resources and Administration                                                                                                                                                                                                                                                                                                                                                                                                                                                                                              | March
      2001   
| |                                | Senior
      Vice President                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                          
| |                                | Mrs.
        Merino is an Industrial Engineer from the Pontificia Universidad Católica
        de Chile and holds a Master in Business Administration degree from the
        Sloan School of Management at MIT. She joined the Company in 1991 and
        after a two-year period at MIT she re-joined the Company in 1998 as Nitrates
        and Iodine Operations Manager. In the same year she became Finance and
        AdministrationManager
        of SQM Nitratos S.A. and later on, in 1999, Corporate Services Manager.
| |                                |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                      
| | Jorge
      Araya C.(1)        | Corporate
      Internal Auditor                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                      | November
      2002
| |                                | Mr.
        Araya is a Public Accountant from the Universidad Católica del
        Norte. He joined the Company in 1974 as Deputy Finance Manager North Division.
        In 1976, Mr. Araya became Finance Manager North Division, then Deputy
        Chief Financial Officer in 1984 and later on Deputy Administration Senior
        Vice President, a position he held from 1991 up to 2002.                                                                                                                                   
| |                                |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                      

|   
|---
|(1)

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COMPENSATION

Directors are paid a monthly fee (UF300 to the Chairman and UF50 to each of the remaining 7 Directors), which is independent of the number of Board sessions held per month. In addition, the Directors receive additional compensation (in Chilean Pesos) each year based on a profit-sharing program approved by the shareholders in an amount equal to 0.65% of the net income (after amortization of negative goodwill) for the Chairman of the Board and of 0.65% of the net income (after amortization of negative goodwill) for the remaining 7 Directors. This last percentage will be divided in 7 equal parts, one for each Director. Profit-sharing payments are paid in the year following the fiscal year in respect of which they are earned. During 2002, the total compensation paid to each director of SQM under the foregoing was as follows:


|                               | Chilean
        Pesos | 
|------------------------------ | --------------------- | 
|                               |                       | 
|                               | (million)             | 
|Julio
      Ponce L.           | 292.4                 | 
|Hernán
      Buchi B.          | 25.0                  | 
|Avi
      Milstein             | 17.4                  | 
|Kendrick
      T. Wallace      | 6.9                   | 
|Wayne
      R. Brownlee        | 43.8                  | 
|Julio
      Cardenal N. (1)    | 3.4                   | 
|José
      Antonio Silva B.    | 10.9                  | 
|José
      María Eyzaguirre B. | 6.9                   | 
|Roberto
      Izquierdo M. (2) | 7.5                   | 
|                               |                       | 
|Total                          | 414.2                 | 
|                               |                       | 

|   
|---
|(1)
|(2)

For the
    year ended December 31, 2002, the aggregate compensation paid to the Companys
    68 main executives based in Chile was approximately Ch$4,817.4 million. The
    Company does not disclose to its shareholders or otherwise make available
    public information as to the compensation of its individual executive officers. The Company does not maintain any pension or retirement programs for the members of the Board or its Officers in Chile.


BOARD PRACTICES

The date of expiration of the term of the current Board of Directors is April 2006. The contracts of the executive officers of the Company are indefinite. The members of the Board are remunerated in accordance with the information provided above. There exist no contracts between the Company or its subsidiaries and the members of the Board providing for benefits upon termination of their term. The Company
    has a Directors Committee of 3 Directors: Wayne R. Brownlee, Avi Milstein
    and José Antonio Silva B. This Committee operates in accordance with
    article 50 bis of law 18.046, which provides that the committee shall:


| | a) | Examine
      and issue their opinion regarding the external auditors report and
      financial statements prior to its final presentation for approval at the
      General Shareholders Meeting
| | -- | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

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| | b) | Propose
      to the Board of Directors the external auditors and the rating agencies
      that will be presented to the General Shareholders Meeting
| | -- | ------------------------------------------------------------------------------------------------------------------------------------------------------
| | c) | Examine
      and elaborate a report concerning the operations covered by articles 44
      and 89 of the law 18.046                                  
| | d) | Examine
      the remuneration and compensation plans of the senior management                                                                        

Article
  50 bis states that the Committee consists of three directors, of which the majority
  must be independent from the controller, and their functions are to be remunerated.
  On April 30, 2003, the General Shareholders Meeting agreed to pay a remuneration
  of UF50 per director per month, independently of the number of meetings of the
  Committee for the period between May 2003 and April 2004, both included. This
  remuneration is independent from their compensation as Directors of the Board.
  On that same meeting, an operational budget for the Committee of UF1,800 was
  approved. The activities carried out by the Committee, as well as the expenses incurred by it, are to be disclosed at the General Shareholders Meeting


EMPLOYEES

As of December 31, 2002, SQM had 3,024 permanent employees, of whom 158 were employed outside of Chile. At the same date, the Company also had 77 temporary employees, apprentices and trainees. The average tenure of full time employees with the Company and its subsidiaries is approximately 9.6 years. Of the Company's permanent employees in Chile, 73% are represented by 27 labor unions, which represent their members in collective bargaining negotiations with the Company. 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 for by law and certain benefits, which vary depending upon the terms of the collective bargaining agreement, such as housing allowances and additional death and disability benefits. In addition, the Company owns all of the equity of Institución de Salud Previsional Norte Grande Limitada, Isapre Norte Grande, a health maintenance organization that provides medical services primarily to the Companys employees. The Company makes specified contributions to Isapre Norte Grande in accordance with Chilean laws and the provisions of the Companys various collective bargaining agreements but is not otherwise responsible for its liabilities. Non-unionized employees receive individually negotiated salaries, benefits provided for by law and certain additional benefits provided by the Company. The Company provides housing and other facilities and services for employees and their families at the María Elena site. SQM does not maintain any pension or retirement programs for its 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 Sociedad Administradora de Fondos de Pensiones, AFP. The Company has no liability for the performance of any of these pension plans or any pension payments to be made to its employees. The Company
    has experienced no strikes or significant work stoppages in the last ten years
    and considers its relationship with its employees to be good.




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During March 2001, SQM implemented an organizational restructuring aimed at reducing its production and administration costs. The same has translated into relevant cost reductions mainly in support areas and was part of several cost reduction initiatives that the Company has been undertaking for the past two years as part of its consolidation strategy. The above was partly done by diminishing supervision levels and redistributing job functions, which had as a side effect, in a one time measure, the severance of approximately 350 employees, or roughly 10% of the Companys workforce. The lower costs achieved through the different changes implemented were fully reflected during the year 2002. During 2001 a US$4.9 million, net of tax, non-recurring restructuring charge was reflected as a direct consequence of the various costs and expenses related to the organizational restructuring project. Recent legislation
    to reform Chilean Labor Law has amended several articles of Employment Law
    N° 19.759. The following amendments are the most relevant to the Company:


| | i)   | Article
      22 was amended to reduce the hours in a work week from 48 to 45 hours per
      week, effective as of January 1, 2005. This amendment will affect certain
      work shifts, which the Company is modifying in order to comply with the
      new requirement.                                                                                     
| | ---- | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | ii)  | Article
      32 was modified with regard to overtime agreements. Accordingly, overtime
      is now permitted only in cases of temporary necessity or situations lasting
      not longer than 3 months. Such overtime agreements are renewable at the
      agreement of both parties. This new article became effective on December
      1, 2001.            
| | iii) | Article
      38 now requires that a resting period (Sundays and legal holidays) shall
      be observed at least 2 Sundays each calendar month, effective as of December,
      2001. This amendment affects the Companys 6x1 shifts (6 days of work,
      3-2-1 days off), and the Company has arranged its work shifts to comply
      with the new article.

Other relevant articles affect the termination of contracts and severance payments of employees, Hygiene and Safety regulations, employee training and fines for infractions of the Employment Law. The Company has made and will make the necessary modifications in order to fully comply with the Law. The Company
    expects that the modifications resulting from the compliance to Law N°19.759
    will not materially affect its results and operations.


SHARE OWNERSHIP

The Company has been informed that as of May 31, 2003, Mr. Julio Ponce L. and related parties exercised control over 100% of the shares of Inversiones SQ Holding S.A., which, in turn, is the beneficial owner of 51% of the shares of SQNH S.A. Additionally, Norsk Hydro is the beneficial owner of 49% of the shares of SQNH S.A. As of May 31, 2003, SQNH S.A. exercised control over 88.7% of the shares of Norte Grande S.A., which, in turn, exercised control over 77.8% of the shares of Sociedad de Inversiones Oro Blanco S.A., which, in turn, exercised control over 66.7% of the shares of Sociedad de Inversiones Pampa Calichera S.A. The latter is, in turn, the beneficial owner of 20.4% of the shares of Sociedad Química y Minera de Chile S.A. (17.7% directly and 2.7% through its affiliate, Global Mining Investments (Chile) S.A.). The Company has also been informed that Potash Corporation of Saskatchewan, Inc., a Canadian corporation, is the beneficial owner of 20.4% of the shares of Sociedad Química y Minera de Chile S.A. No other Director or executive officer owns more than 1% of each share class of the Companys stock and individual ownership has not been publicly disclosed. The aggregate figures are disclosed above.




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ITEM
  7.   MAJOR SHAREHOLDERS AND RELATED PARTY TRANSACTIONS

MAJOR SHAREHOLDERS

The following table sets forth certain information concerning beneficial ownership of the Series A shares and Series B shares of the Company as of May 31, 2003 with respect to each shareholder known to the Company to beneficially own more than 5% of the outstanding Series A shares or Series B shares and with respect to all Directors and executives officers of the Company as a group. The following information is derived from SQM's records and reports filed by certain of the persons named below with the Superintendencia de Valores y Seguros (the Superintendency of Securities and Insurance or "SVS) and the Chilean Stock Exchange.


|Shareholder                                               |  | Number
        of
      Series
        A
      Shares
        Beneficially
      Owned |  | %
      Series
        A
      Shares |   | Number
        of
      Series
        B
      Shares
        Beneficially
      Owned |  | %
      Series
        B
      Shares |   | %
        Total
      Shares |  
|--------------------------------------------------------- |  | -------------------------------------------------------------------------------------- |  | ------------------------------------- | - | -------------------------------------------------------------------------------------- |  | ------------------------------------- | - | ---------------------------- | -
|                                                          |  |                                                                                        |  |                                       |   |                                                                                        |  |                                       |   |                              |  
|Inversiones
      El Boldo Limitada (1)                   |  | 53,562,519                                                                             |  | 37.50                                 | % | 0                                                                                      |  | 0.00                                  | % | 20.35                        | %
|                                                          |  |                                                                                        |  |                                       |   |                                                                                        |  |                                       |   |                              |  
|Sociedad
      de Inversiones Pampa Calichera S.A. (2)(3) |  | 46,434,256                                                                             |  | 32.51                                 | % | 500,000                                                                                |  | 0.42                                  | % | 17.83                        | %
|                                                          |  |                                                                                        |  |                                       |   |                                                                                        |  |                                       |   |                              |  
|Sociedad
      de Inversiones Oro Blanco S.A. (2)         |  | 46,434,256                                                                             |  | 32.51                                 | % | 500,000                                                                                |  | 0.42                                  | % | 17.83                        | %
|                                                          |  |                                                                                        |  |                                       |   |                                                                                        |  |                                       |   |                              |  
|Norte
      Grande S.A. (2)                               |  | 46,434,256                                                                             |  | 32.51                                 | % | 500,000                                                                                |  | 0.42                                  | % | 17.83                        | %
|                                                          |  |                                                                                        |  |                                       |   |                                                                                        |  |                                       |   |                              |  
|The
      Bank of New York                                |  | 1,230,330                                                                              |  | 0.86                                  | % | 26,928,200                                                                             |  | 22.37                                 | % | 10.70                        | %
|                                                          |  |                                                                                        |  |                                       |   |                                                                                        |  |                                       |   |                              |  
|Inversiones
      RAC Chile Ltd.                          |  | 19,200,242                                                                             |  | 13.44                                 | % | 2,699,773                                                                              |  | 2.24                                  | % | 8.32                         | %
|                                                          |  |                                                                                        |  |                                       |   |                                                                                        |  |                                       |   |                              |  
|A.F.P.
      Habitat S.A. para Fondo de Pensiones (4)     |  | 3,774,006                                                                              |  | 2.64                                  | % | 8,426,384                                                                              |  | 7.00                                  | % | 4.64                         | %
|                                                          |  |                                                                                        |  |                                       |   |                                                                                        |  |                                       |   |                              |  
|A.F.P.
      Provida S.A. para Fondo de Pensiones (4)     |  | 2,323,197                                                                              |  | 1.63                                  | % | 9,507,994                                                                              |  | 7.90                                  | % | 4.50                         | %
|                                                          |  |                                                                                        |  |                                       |   |                                                                                        |  |                                       |   |                              |  
|A.F.P.
      Cuprum S.A. para Fondo de Pensiones (4)      |  | 0                                                                                      |  | 0.00                                  | % | 7,845,388                                                                              |  | 6.52                                  | % | 2.98                         | %
|                                                          |  |                                                                                        |  |                                       |   |                                                                                        |  |                                       |   |                              |  
|A.F.P.
      Santa Maria S.A. para Fondo de Pensiones (4) |  | 0                                                                                      |  | 0.00                                  | % | 7,712,458                                                                              |  | 6.41                                  | % | 2.93                         | %
|                                                          |  |                                                                                        |  |                                       |   |                                                                                        |  |                                       |   |                              |  
|A.F.P.
      Summa Bansander S.A. Fondo de Pensiones (4)  |  | 46,975                                                                                 |  | 0.03                                  | % | 7,364,315                                                                              |  | 6.12                                  | % | 2.82                         | %
|                                                          |  |                                                                                        |  |                                       |   |                                                                                        |  |                                       |   |                              |  
|Global
      Mining Investments (Chile) S.A.(3)           |  | 7,123,076                                                                              |  | 4.99                                  | % | 0                                                                                      |  | 0.00                                  | % | 2.71                         | %
|                                                          |  |                                                                                        |  |                                       |   |                                                                                        |  |                                       |   |                              |  
|Directors
      and Executive Officers as a group         |  | 85,136                                                                                 |  | 0.06                                  | % | 735,123                                                                                |  | 0.61                                  | % | 0.31                         | %
|                                                          |  |                                                                                        |  |                                       |   |                                                                                        |  |                                       |   |                              |  

|   
|---
|(1)
|(2)
|(3)
|(4)



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On October 24, 2001, the Inversiones el Boldo Ltda. acquired 48,129,128 Series A shares, approximately a 33.7% of the series. These shares were sold mainly by Chilean institutional investors, among them AFPs (pension funds). In transactions occurring in April and May 2002, Inversiones el Boldo Ltda. purchased additional Series A shares in open market transactions on the Santiago Stock Exchange, reaching its current holding. Potash Corporation of Saskatchewan Inc. owns 100% of Inversiones el Boldo Ltda., therefore being the beneficial owner of 53,562,519 series A shares, which represent 37.5% of the Series A shares or approximately 20.35% of the total shares of SQM. Pampa Calichera is an open stock corporation whose shares are traded on the Santiago Stock Exchange. Originally, the shareholders of Pampa Calichera were employees of the Company, and it was formed to hold the capital stock of SQM contributed by such employees or later acquired in the open market. Approximately 71 employees of the Company are shareholders of Pampa Calichera, either directly or indirectly. Oro Blanco is an open stock corporation whose shares are traded on the Santiago Stock Exchange and whose principal investment is Pampa Calicheras capital stock. Norte Grande is an open stock corporation whose shares are traded on the Santiago Stock Exchange and whose principal investment is Oro Blancos capital stock. Mr. Julio Ponce L., Chairman of the Board of Directors of the Company, together with Norsk Hydro, have the power to direct the administration of Norte Grande and, as such, they exercise control and influence over the 54,057,332 Series A shares owned by Pampa Calichera and Global Mining Investments (Chile) S.A. This is explained in Share Ownership above. Inversiones RAC Chile Limitada, RAC Chile is a wholly owned subsidiary of Israel Chemicals Ltd., Israel Chemicals. Series A and Series B shares have the same economic rights (i.e. both Series are entitled to share equally in any dividends declared on the outstanding stock) and voting rights at any shareholders meeting whether ordinary or extraordinary. One share equals one vote, with the sole exception of the election of the Board of Directors, in which the Series A shareholders elect seven members and the Series B shareholders elect one member. Additionally, Series B shares cannot exceed 50% of the Companys issued and outstanding stock, shareholders of at least 5% of this Series may call an ordinary or extraordinary Shareholders Meeting and the Director elected by this Series may request an extraordinary Board Meeting without the authorization of the Chairman of the Board. Maximum individual voting power per series is 37.5 %. In addition, the Director elected by the Series B shares cannot vote in the election of the Chairman of the Board  after a ti


e vote has occurred in the prior voting process. There are currently 142,819,552 Series A shares and 120,376,972 Series B shares outstanding.


RELATED PARTY TRANSACTIONS

The Company's material transactions during the last three fiscal years with its directors, officers, security holders and certain other related persons are as follows: Article 89 of the Chilean Companies Act requires that the Company's transactions with related parties be on a market basis or on terms similar to those customarily prevailing in the market. Directors and executive officers of companies that violate Article 89 are liable for losses resulting from such violations. In addition, Article 44 of the Chilean Companies Act provides that any transaction in which a director has a personal interest or is acting on behalf of a third party may be approved only when the Board of Directors has been informed of that Director's interest and the terms of that transaction are similar to those prevailing in the market. Resolutions approving such transactions must be reported to the Company's shareholders at the next shareholders' meeting. Violation of Article 44 may result in administrative or criminal sanctions and civil liability to the Company, shareholders or interested third parties that suffer losses as a re


sult of such violations. The Company believes that it has complied with the requirements of Article 89 and Article 44 in all transactions with related parties.




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The Company further believes that it could obtain from third parties all raw materials now being provided by related parties. The provision of such raw materials by new suppliers could initially entail additional expenses. For additional information concerning the Company's transactions with affiliates and other related parties, see Note 6 of the Audited Financial Statements as of December 31, 2002.


INTERESTS
  OF EXPERTS AND COUNSEL Not applicable



ITEM
  8.   FINANCIAL INFORMATION

CONSOLIDATED
  STATEMENTS See item 18
  Financial Statements

EXPORT SALES

The Company derives most of its revenues from sales outside of Chile. The following is the composition of the consolidated sales for the periods ending on December 31:


|Th.
      US$            |  | 2002    |  | 2001    |  | 2000    | 
|------------------------ |  | ------- |  | ------- |  | ------- | 
|                         |  |         |  |         |  |         | 
|Foreign
      sales      |  | 440,257 |  | 417,737 |  | 383,604 | 
|Total
      sales        |  | 553,809 |  | 526,439 |  | 501,792 | 
|                         |  |         |  |         |  |         | 
|%
      of foreign sales |  | 79.5    |  | 79.4    |  | 76.4    | 

LEGAL PROCEEDINGS

The Company is party to certain legal proceedings arising in the normal course of its business, none of which individually or in the aggregate is material, other than the arbitration claims filed by SQM Salar S.A. against certain insurers and by the French companies Companie du Guano de Poisson Angibaud S.A. and Generale de Nutrition Vegetale SAS against the Companys affiliates Soquimich European Holdings B.V. and SQM France S.A. for approximately Eur$30 million in alleged indemnifications caused by the termination of certain commercial agreements.


DIVIDEND POLICY

As required
    by Chilean law and regulations, SQM's dividend policy is decided upon from
    time to time by its Board of Directors and is announced at the Annual Ordinary
    Shareholders' Meeting, which is generally held in April of each year. Shareholder
    approval of the dividend policy is not required. However, each year the Board
    must submit to the annual ordinary shareholders' meeting for approval the
    declaration of the final dividend or dividends in respect of the preceding
    year, consistent with the then-established dividend policy. Dividends are
    not price-level adjusted between the end of the preceding year and the date
    of the declaration of the final dividend. As required by the Chilean Companies
    Act, unless otherwise decided by unanimous vote of the holders of issued shares,
    SQM must distribute
    a cash dividend in an amount equal to at least 30% of its consolidated net
    income for that year (determined on a Chilean GAAP basis), unless and except
    to the extent it has a deficit in retained earnings.




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Since 1990, the Board of Directors has followed a policy of paying a single dividend equal to approximately 50% of SQM's consolidated net income for the year (determined on a Chilean GAAP basis), and dividends for each year have been paid not later than May of the following year. Consistent with this policy, at the Annual Ordinary Shareholders' Meeting held on April 30, 2003, the shareholders approved a single dividend with respect of the business year 2002 of US$0.07558 per share, equal to 50% of the net income, before amortization of goodwill for that year, which was paid on May 12, 2003. The Board of Directors also reaffirmed for 2003 a dividend policy that authorizes distribution of cash dividends in an amount equal to 50% of SQM's net income before amortization of goodwill for the year. The Board of Directors currently expects to recommend that such dividend be paid in a single distribution in May 2004. SQM generally declares dividends in U.S. dollars (but may declare dividends in Chilean Pesos), and pays such dividends in Chilean Pesos. If a dividend is declared in U.S. dollars, the exchange rate to be used to convert the dividend into Chilean Pesos is decided by the shareholders at the meeting that approves the dividend, which has usually been the Observed Exchange Rate on the date the dividend is declared. Although the Board of Directors has no current plan to recommend a change in the dividend policy, the amount and timing for payment of dividends is subject to revision from time to time, depending upon the Company's then-current level of sales, costs, cash flow and capital requirements, as well as market conditions. Accordingly, there can be no assurance as to the amount or timing of declaration or payment of dividends in the future. Any change in dividend policy would ordinarily be effective for dividends declared in the year following adoption of the change, and a notice as to any such change of policy must be filed with Chilean regulatory authorities and would be publicly available information. Dividends
    are paid to shareholders of record on the fifth business day preceding the
    date set for payment of the dividend. The applicable record dates for the
    payment of dividends to holders of ADRs will be determined by the Depositary.


Dividends

Each Series A Share and Series B Share is entitled to share equally in any dividends declared on the outstanding capital stock of SQM. The following table sets forth the U.S. dollar equivalent of dividends per share and per ADS paid in each of the years indicated, based on the Observed Exchange Rate for the date on which the dividend was declared.


|     |  | Per
      Share |  | Per
      ADS | 
|---- |  | --------------- |  | ------------- | 
|Year |  | US$             |  | US$           | 
|     |  |                 |  |               | 
|1999 |  | 0.127           |  | 1.27          | 
|2000 |  | 0.091           |  | 0.91          | 
|2001 |  | 0.051           |  | 0.51          | 
|2002 |  | 0.056           |  | 0.56          | 
|2003 |  | 0.076           |  | 0.76          | 

Dividends payable to holders of ADRs will be paid net of conversion expenses of the Depositary and will be subject to Chilean withholding tax, currently imposed at the rate of 35% (subject to credits in certain cases). As a general
    requirement, a shareholder who is not a resident of Chile must register as
    a foreign investor under one of the foreign investment regimes contemplated
    by Chilean law to have dividends, sale proceeds or other amounts with
    respect to its shares remitted outside Chile through the Formal Exchange Market.
    Under the Foreign Investment Contract, the Depositary, on behalf of ADR holders,
    will be granted access to the Formal Exchange Market to convert cash dividends
    from Chilean Pesos to U.S. dollars and to pay such U.S. dollars to ADR holders
    outside Chile net of taxes, and no separate registration of ADR holders is
    required.


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ITEM
  9.   THE OFFER AND THE LISTING

OFFER AND LISTING DETAILS

PRICE
  HISTORY

The table below sets forth, for the periods indicated, the reported high and low closing prices for SQM's shares on the Santiago Stock Exchange and the high and low closing prices of the ADSs as reported by the NYSE, as the two main Exchanges on which the Company's shares are traded.


a) Last 5 years

|     | Santiago
      Stock Exchange |  | NYSE               | 
|---- | ----------------------------- |  | ------------------ | 
|     | Per
      Share (2)           |  | per
      ADS      | 
|     |                               |  |                    | 
|     | Series
      A                |  | Series
      B (1) | 
|     |                               |  |                    | 
|     | High                          |  | Low                | 
|     | Ch$                           |  | Ch$                | 
|     |                               |  |                    | 
|1998 | 1,710                         |  | 1,000              | 
|1999 | 1,930                         |  | 1,300              | 
|2000 | 1,790                         |  | 1,180              | 
|2001 | 1,940                         |  | 1,310              | 
|2002 | 3,000                         |  | 1,620              | 
|     |                               |  |                    | 

b)
      Last 10 quarters

|                                      | Santiago
      Stock Exchange |  | NYSE               | 
|------------------------------------- | ----------------------------- |  | ------------------ | 
|                                      | Per
      Share (2)           |  | per
      ADS      | 
|                                      |                               |  |                    | 
|                                      | Series
      A                |  | Series
      B (1) | 
|                                      |                               |  |                    | 
|                                      | High                          |  | Low                | 
|                                      | Ch$                           |  | Ch$                | 
|                                      |                               |  |                    | 
|2001                                  |                               |  |                    | 
|First
      quarter                   | 1,500                         |  | 1,310              | 
|Second
      quarter                  | 1,650                         |  | 1,350              | 
|Third
      quarter                   | 1,800                         |  | 1,500              | 
|Fourth
      quarter                  | 1,940                         |  | 1,600              | 
|                                      |                               |  |                    | 
|2002                                  |                               |  |                    | 
|First
      quarter                   | 2,260                         |  | 1,906              | 
|Second
      quarter                  | 3,000                         |  | 1,701              | 
|Third
      quarter                   | 2,050                         |  | 1,780              | 
|Fourth
      quarter                  | 1,780                         |  | 1,620              | 
|                                      |                               |  |                    | 
|2003                                  |                               |  |                    | 
|First
      quarter                   | 1,760                         |  | 1,630              | 
|Second
      quarter (through May 15) | 2,200                         |  | 1,750              | 

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c)
  Last 6 months

|                                | Santiago
      Stock Exchange |  | NYSE               | 
|------------------------------- | ----------------------------- |  | ------------------ | 
|                                | Per
      Share (2)           |  | per
      ADS      | 
|                                |                               |  |                    | 
|                                | Series
      A                |  | Series
      B (1) | 
|                                |                               |  |                    | 
|                                | High                          |  | Low                | 
|                                | Ch$                           |  | Ch$                | 
|                                |                               |  |                    | 
|December
      2002             | 1,770                         |  | 1,620              | 
|January
      2003              | 1,760                         |  | 1,700              | 
|February
      2003             | 1,690                         |  | 1,630              | 
|March
      2003                | 1,750                         |  | 1,660              | 
|April
      2003                | 1,850                         |  | 1,750              | 
|May
      2003 (up to the 15th) | 2,200                         |  | 1,900              | 

|   
|---
|   
|(1)
|(2)
|(3)

As of May 30, 2003, there were 123,033 Series A and 2,692,820 Series B ADSs (equivalent to 1,230,330 Series A shares and 26,928,200 Series B shares respectively) outstanding held by 5 holders of record for Series A ADSs and 12 holders of record for the Series B ADSs. Such ADSs represented approximately at such date 10.70% of the total number of issued and outstanding shares of SQM.


PLAN
  OF DISTRIBUTION Not Applicable

MARKETS

The Series
    A shares and the Series B shares are currently traded on the Santiago Stock
    Exchange, the Bolsa Electrónica de Chile Bolsa de Valores S.A., the
    Electronic Stock Exchange, and the Bolsa de Corredores Bolsa de
    Valores S.A., the Valparaíso Stock Exchange. Also both
    series are traded on the New York Stock Exchange, NYSE, the series
    B since September 21, 1993 and the series A since April 9, 1999 in the form
    of ADSs, each representing 10 Series B and 10 Series A shares respectively.
    The Bank of New York, the Depositary is the Depositary of both
    Series.


SELLING
  SHAREHOLDERS Not Applicable

DILLUTION Not Applicable

EXPENSES
  OF THE ISSUE Not Applicable

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ITEM
  10.   ADDITIONAL INFORMATION

SHARE
  CAPITAL Not Applicable

MEMORANDUM AND ARTICLES OF ASSOCIATION

Corporate
  purposes

Sociedad
  Química y Minera de Chile S.A., headquartered at El Trovador 4285, Piso
  6, Santiago, Chile, is an open stock corporation (sociedad anónima, S.A.)
  organized under the laws of the Republic of Chile. The Company was constituted
  by public deed issued on 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 Business Registry of Santiago, on page 4.537 No. 1.992.


SQMs
  specific purposes, which appear on article 4 of its Corporate By-laws, are to:(a)perform all kinds of chemical or mining activities and businesses and, among
  others, those related to researching, prospecting, extracting, producing, working,
  processing, purchasing, disposing of, and commercializing properties, as applicable,
  of all metallic and non-metallic and fossil mining substances and elements of
  any type or nature, to be obtained from them or from one or more concessions
  or mining deposits, and in their natural or converted state, or transformed
  into different raw materials or manufactured or partially manufactured products,
  and of all rights and properties thereon;(b)manufacture, produce, work, purchase, transfer ownership, import, export, distribute,
  transport, and commercialize in any way, all kinds of fertilizers, components,
  raw materials, chemical, mining, agricultural, and industrial products, and
  their by-products;(c)generate, produce, distribute, purchase, transfer ownership, and commercialize,
  in any way, all kinds of electrical, thermal, or other type of power, and hydric
  resources or water rights in general;(d)request, manifest, claim, constitute, explore, work, lease, transfer ownership,
  and purchase, in any way, all kinds of mining concessions;(e)purchase, transfer ownership, and administer, in any way, any kind of telecommunications,
  railroads, ships, ports, and any means of transport, and represent and manage
  shipping companies, common carriers by water, airlines, and carries in general;(f)manufacture, produce, commercialize, maintain, repair, assemble, construct,
  disassemble, purchase and transfer ownership, and in any way, any kind of electromechanical
  structure, and substructure in general, components, parts, spares, or parts
  of equipment, and machines, and execute, develop, advice, and commercialize,
  any kind of electromechanical or smelting activities;(g)purchase,
  transfer ownership, lease, and commercialize any kind of agroindustrial and
  farm forestry activities, in any way;(h)purchase, transfer ownership, lease, and commercialize, in any way, any kind
  of urban or rural real estates;(i)render any kind of health services and manage hospitals, private clinics, or
  similar facilities;(j)construct, maintain, purchase, transfer ownership, and manage, in any way, any
  kind of roads, tunnels, bridges, water supply systems, and other required infrastructure
  works, without any limitation, regardless of whether they may be public or private,
  among others, to participate in bids and enter into any kind of contracts, and
  to be the legal owner of the applicable concessions; and(k)purchase, transfer ownership, and commercialize, in any way, any kind of intangible
  properties such as stocks, bonds, debentures, financial assets, commercial papers,
  shares or rights in corporations, and any kind of bearer securities or instruments,
  and to administer such investments, acting always within the Investment and
  Financing Policies approved by the applicable General Shareholders Meeting.
  The Company may comply with the foregoing acting by itself or through or with
  other different legal entities or natural persons, within the country or abroad,
  with properties of its own or owned by third parties, and additionally, in the
  ways and territories, and with the aforementioned properties and purposes, it
  may also construct and operate industrial or agricultural facilities or installations;
  constitute, administer, purchase, transfer ownership, dissolve, liquidate, transform,
  modify, or form part of partnerships, institutions, foundations, corporations,
  or associations of any kind or nature; perform all actions, enter into all contracts,
  and incur in all obligations convenient or necessary for the foregoing;
  perform any business or activity related to its properties, assets, or patrimony,
  or with that of its affiliates, associated companies, or related companies,
  and render financial, commercial, technical, legal, auditing, administrative,
  advisory, and other pertinent services.

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Directors

The Corporate
  By-laws, in its articles 16 and 16 bis, basically establishes that the transactions
  in which a Director has a material interest must comply with the provisions
  set forth in articles 44 and 136 of Law 18.046 and the applicable regulations
  of such law. Notwithstanding the above, the said operations must be approved
  by two thirds of the Board of Directors.




The Board of Directors duties are remunerated, as stated in article 17 of the Corporate By-laws, and the amount of that compensation is fixed yearly by the General Ordinary Shareholders Meeting. Therefore, Directors can neither determine nor modify their compensation.




Directors cannot authorize Company loans on their behalf.




As stated in article 10 of the Corporate By-laws, Directors can be reelected indefinitely, existing thus no age limit for their retirement.




As stated in article 9 of the Corporate By-laws, the possession of shares is not a necessary condition to become a Director of the Company.


Shares

Dividends
  are annually distributed to the Series A and Series B shareholders of record
  on the fifth business day prior to the date for payment of the dividends. Corporate
  By-laws do not specify a time limit after which dividend entitlement elapses
  but Chilean regulations establish that after 5 years, unclaimed dividends are
  to be donated to the fire department.




Article
    5 of the Corporate By-laws establishes that Series B shares may in no case
    exceed fifty percent of the Company's issued, outstanding and paid shares
    and have a restricted right to vote as they can only elect one Director of
    the Company, regardless of its capital stock's share and the preferences
    of -i- calling to an Ordinary or Extraordinary Shareholders Meeting when
    the shareholders of at least 5% of Series B issued shares request so and
    -ii- call an Extraordinary Board of Directors Meeting without the Chairman's
    authorization when it is requested by the Director elected by the shareholders
    of the Series B shares. Series A shares have the option to exclude the Director
    elected by Series B shareholders from the voting process in which the Chairman
    of the Board is to be elected, if there is a tie in the first voting process.
    However, articles 31 and 31 bis establish that with the exception of the
    limitations described above, in General Shareholders Meetings, each shareholder
    will have a right to one vote for each share he owns or represents and that
    no shareholder will have the right to vote for himself or on behalf of other
    shareholders of the same Series A or Series B representing more than thirty
    seven point five percent of the outstanding shares with right to vote of
    each Series.




Each
    Series A Share and Series B Share is entitled to share equally in any dividends
    declared on the outstanding shares of SQM.




Article
    5 bis of the Corporate By-laws establishes that no person, including the state
    treasury, may directly or by means of third related persons, state-owned
    companies, decentralized, autonomous, municipal, or other institutions, concentrate
    more than thirty two percent of the Companys shares with right to vote.




The only way to change the rights of the holders of the Companys shares is by modifying the By-laws, operation that can only be carried out by an Extraordinary Shareholders Meeting, as it is established in article 28 of the Corporate By-laws.


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Shareholders
  meetings

Article
  29 of the Corporate By-laws states that the call to a Shareholders Meetings,
  either Ordinary or Extraordinary, will be by means of a highlighted public notice
  that will be published at least three times, and on different days, in the newspaper
  of the legal address determined by the Shareholders Meeting, and in the way
  and under the conditions indicated by the Regulations. Additionally, a notice
  will be sent by mail to each shareholder at least fifteen days prior to the
  date of the Meeting, which note shall include a reference of the matters to
  be addressed thereat. However, those meetings with the full attendance of the
  shares with right to vote may be legally held, even if the foregoing formal
  notice requirements are not met. Any Shareholders Meeting shall be informed
  to the SVS, with at least fifteen days in advance.


Foreign shareholders

There
  exists no restriction to the Companys share concentration, or to the exercise
  of the related right to vote, by local or foreign shareholders with the sole
  exception of the issues discussed under Shares above.


Change in Control

The Corporate By-laws of the Company provide that no shareholder may concentrate more than thirty two percent of the Companys shares, unless the by-laws are modified at an extraordinary shareholders meeting. Moreover, on December 12, 2000, the government published the Ley de Oferta Pública de Acciones (Public Share Offering law) or OPA law that seeks to protect the interests of minority shareholders of open stock corporations in operations involving a change in control, by requiring that the potential new controller purchase the shares owned by the remaining shareholders either in total or pro rata. The law addresses those operations in which the controlling party would receive a premium price over its shares with a material difference against the price that will be received by the minority shareholders.


There are three conditions that would make it mandatory
  to operate under the OPA law:


| | 1) | When
      an investor wants to take control of a companys stock                                                                                                                                                                                               
| | -- | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | 2) | When
      a controlling shareholder holds two-thirds of the companys stock.
      If such shareholder buys one more share, it will be mandatory to offer to
      acquire the rest of the outstanding stock within 30 days of surpassing that
      threshold.
| | 3) | When
      an investor wants to take control of a corporation, which, in turn, controls
      an open stock corporation that represents 75% or more of the consolidated
      assets of the former corporation.                                                 

Parties
  interested in taking control of a company must (i) notify the company of such
  intention in writing, and notify its controllers, the companies controlled by
  it, the SVS and the markets where its stocks are traded and (ii) publish a highlighted
  public notice in two newspapers of national circulation at least 10 business
  days prior to the date of materialization of the OPA.



Disclosure of share ownership

The
  Corporate By-laws do not provide for a minimum threshold at which share ownership
  must be disclosed.



MATERIAL CONTRACTS

As mentioned elsewhere in this document, the Company connected its productive facilities in the north of Chile to the SING power grid with the purpose of reducing its power generation related costs. As a result, the Company entered into two long term supply contracts with two electric power companies: Electroandina S.A. and Norgener S.A. Additionally, the Company replaced the fuel oil used in heat generation and in fusion processes by connecting its facilities to international natural gas pipelines, for which there is also a long term supply contract. The Company believes that the terms and conditions of these contracts are standard for the industry.



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|Contract
      Description                      |  | Due
      Date
      Days in Advance Termination
      Notice
      Anticipated Termination               |  | Company                 
|----------------------------------------------- |  | --------------------------------------------------------------------------------------------------------- |  | ------------------------
|                                                |  |                                                                                                           |  |                         
|50 &
      60 HZ
      Electrical Energy Supply |  | February
      12, 2009
      180 Termination subject to payment of
      Non Amortized Investments       |  | ELECTROANDINA
      S.A.
|                                                |  |                                                                                                           |  |                         
|Electrical
      Supply                         |  | July
      31, 2017
      180
      Fine for unreceived Income                                            |  | NORGENER
      S.A.     
|                                                |  |                                                                                                           |  |                         
|50 HZ
      Electrical Energy Supply            |  | January
      31, 2013 
      360
      Termination subject to payment of
      Non Amortized Investments |  | NORGENER
      S.A.     
|                                                |  |                                                                                                           |  |                         
|Natural
      Gas supply                        |  | May
      21, 2011
      180
      Termination subject to payment of
      Non Amortized Investments      |  | DISTRINOR
      S.A.    



EXCHANGE CONTROLS

The
  Central Bank of Chile is responsible for, among other things, monetary policies
  and exchange controls in Chile. Appropriate registration of a foreign investment
  in Chile permits the investor access to the Formal Exchange Market. Foreign
  investments can be registered with the Foreign Investment Committee under Decree
  Law No600 of 1974 or can be registered with the Central Bank of Chile under
  the Central Bank Act, Law No18840 of October 1989. The Central Bank Act
  is an organic constitutional law requiring a “special majority”
  vote of the Chilean Congress to be modified.



The Companys 1993, 1995 and 1998 capital increases were carried out under and subject to the then current legal regulations, whose summary is hereafter included:



A Convención Capítulo XXVI del
  Título I del Compendio de Normas de Cambios Internacionales or
  Compendium of Foreign Exchange Regulations of the Central Bank of Chile, Foreign
  Investment Contract was entered into and among the Central Bank of Chile,
  the Company and the Depositary, pursuant to Article 47 of the Central Bank Act
  and to Chapter XXVI of the Compendium of Foreign Exchange Regulations of the
  Central Bank of Chile, Chapter XXVI, which addresses the issuance
  of ADSs by a Chilean company. Absent the Foreign Investment Contract, under
  applicable Chilean exchange controls, investors would not be granted access
  to the Formal Exchange Market for
  the purposes of converting from Chilean Pesos to U.S. dollars and repatriating
  from Chile amounts received in respect to deposited Series A or B shares or
  Series A or B shares withdrawn from deposit on surrender of ADRs (including
  amounts received as cash dividends and proceeds from the sale in Chile of the
  underlying Series A and Series B shares and any rights arising therefrom). The
  following is a summary of the material provisions contained in the Foreign Investment
  Contract. This summary does not purport to be complete and is qualified in its
  entirety by reference to Chapter XXVI and the Foreign Investment Contract.



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Under Chapter XXVI and the Foreign Investment Contract, the Central Bank of Chile has agreed to grant to the Depositary, on behalf of ADR holders, and to any investor not residing or domiciled in Chile who withdraws Series B shares upon delivery of ADRs (such Series A and Series B shares being referred to herein as “Withdrawn shares access to the Formal Exchange Market to convert Chilean Pesos to U.S. dollars (and remit such U.S. dollars outside of Chile) in respect of Series A and Series B shares represented by ADSs or Withdrawn shares, including amounts received as (a) cash dividends, (b) proceeds from the sale in Chile of Withdrawn shares, or from shares distributed because of the liquidation, merger or consolidation of the Company, subject to receipt by the Central Bank of Chile of a certificate from the holder of such shares ( or from an institution authorized by the Central Bank of Chile) that such


 holder's residence and domicile are outside Chile and a certificate from a Chilean stock exchange (or from a brokerage or securities firm established in Chile) that such shares were sold on a Chilean Exchange, (c) proceeds from the sale in Chile of preemptive rights to subscribe for additional Series A and Series B shares, (d) proceeds from the liquidation, merger or consolidation of the Company and (e) other distributions, including without limitation those resulting from any recapitalization, as a result of holding Series A and Series B shares represented by ADSs or Withdrawn shares. Transferees of Withdrawn Shares will not be entitled to any of the foregoing rights under Chapter XXVI unless the Withdrawn Shares are redeposited with the Depositary. Investors receiving Withdrawn Shares in exchange for ADRs will have the right to redeposit such shares in exchange for ADRs, provided that the conditions to redeposit described hereunder are satisfied.



Chapter XXVI provided that access to the Formal Exchange Market in connection with dividend payments will be conditioned upon certification by the Company to the Central Bank of Chile that a dividend payment has been made and any applicable tax has been withheld. Chapter XXVI also provides that access to the Formal Exchange Market in connection with the sale of Withdrawn Shares or distributions thereon will be conditioned upon receipt by the Central Bank of Chile of certification by the Depositary that such shares have been withdrawn in exchange for ADRs and receipt of a waiver of the benefit of the Foreign Investment Contract with respect thereto until such Withdrawn Shares are redeposited.



Chapter XXVI and the Foreign Investment Contract provided that a person who brings certain types of foreign currency into Chile, including U.S. dollars, to purchase Series A shares and/or Series B shares with the benefit of the Foreign Investment Contract must convert it into Chilean Pesos on the same date and has 5 banking business days within which to invest in Series A shares and/or Series B shares in order to receive the benefits of the Foreign Investment Contract. If such person decides within such period not to acquire Series A shares and/or Series B shares, he can access the Formal Exchange Market to reacquire U.S. dollars, provided that the applicable request is presented to the Central Bank within 7 banking business days of the initial conversion into pesos. Series A shares and/or Series B shares acquired as described above may be deposited for ADSs and receive the benefits of the Foreign Investment Contrac


t, subject to receipt by the Central Bank of Chile of a certificate from the Depositary that such deposit has been effected and that the related ADRs have been issued and receipt by the Custodian of a declaration from the person making such deposit waiving the benefits of the Foreign Investment Contract with respect to the deposited Series A shares and/or Series B shares.



Access to the Formal Exchange Market under any of the circumstances described above is not automatic. Pursuant to Chapter XXVI, such access required approval of the Central Bank of Chile based on a request therefor presented through a banking institution established in Chile. The Foreign Investment Contract will provide that if the Central Bank of Chile has not acted on such request within seven banking days, the request will be deemed approved.



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Under current Chilean law, foreign investments abiding by the Foreign Investment Contract cannot be changed unilaterally by the Central Bank of Chile. No assurance can be given, however, that additional Chilean restrictions applicable to the holders of ADRs, the disposition of underlying Series A shares and/or Series B shares or the repatriation of the proceeds from such disposition could not be imposed in the future, nor can there be any assessment of the duration or impact of such restrictions if imposed.



As of April 19, 2001, Chapter XXVI of Title I of the Compendio de Normas de Cambios Internacionales of the Central Bank of Chile was eliminated and new investments in ADRs by non-residents of Chile, are now governed by Chapter XIV of the Compendio de Normas de Cambios Internacionales of the Central Bank of Chile. According to the new regulations, such investments must be carried out through Chiles Formal Exchange Market and reported to the Central Bank of Chile. Foreign investments may still be registered with the Foreign Investment Committee under Decree-Law 600 of 1974, as amended, and obtain the benefits of the contract executed under Decree-Law 600.



The Central Bank is also responsible for controlling incurrence of loan obligations to be paid from Chile and by a Chilean borrower to banks and certain other financial institutions outside Chile. The following is a summary of the relevant portions of Chapter XIV regarding the incurrence of loan obligations and does not purport to be complete and is qualified in its entirety by reference to the provisions of Chapter XIV.



The Central Bank must be informed of any incurrence of loan obligations to be paid from Chile and by a Chilean borrower to banks and certain other financial institutions outside of Chile.



As of December 31, 2002, SQM had three long-term loans outstanding obtained in the international markets, of which two were obtained by SQM (US$60 million and US$200 million) and the other, US$80 million, by SQMs affiliate RS Agro-Chemical Trading Corporation A.V.V.



The Central bank authorized the two long-term loans obtained by SQM. Accordingly, all purchases of U.S. dollars in connection with payments on these loans will occur in the Formal Exchange Market. There can be no assurance, however, that restrictions applicable to payments in respect of the loans could not be imposed in the future, nor can there be any assessment of the duration or impact of such restrictions if imposed.



TAXATION

Chilean
  Tax Considerations

The
  following describes the material Chilean income tax consequences of an investment
  in the ADRs by an individual who is not domiciled or resident in Chile or any
  legal entity that is not organized under the laws of Chile and does not have
  a permanent establishment located in Chile (a“foreign holder. This
  discussion is based upon Chilean income tax laws presently in force, including
  Ruling No. 324 (1990) of the Chilean Internal Revenue Service and other applicable
  regulations and rulings. The discussion is not intended as tax advice to any
  particular investor, which can be rendered only in light of that investor's
  particular tax situation.



Under Chilean law, provisions contained in statutes such as tax rates applicable to foreign investors, the computation of taxable income for Chilean purposes and the manner in which Chilean taxes are imposed and collected may only be amended by another statute. In addition, the Chilean tax authorities issue rulings and regulations of either general or specific application and interpret the provisions of Chilean tax law. Chilean tax may not be assessed retroactively against taxpayers who act in good faith relying on such rulings, regulations and interpretations, but Chilean tax authorities may change said rulings, regulations and interpretations prospectively. There is no income tax treaty in force between Chile and the United States.



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Cash
  Dividends and Other Distributions

Cash dividends paid by the Company with respect to the shares, including shares represented by ADSs held by a U.S. holder will be subject to a 35% Chilean withholding tax, which is withheld and paid by the Company, the “Withholding Tax. If the Company has paid corporate income tax, the “First Category Tax, on the income from which the dividend is paid, a credit for the First Category Tax effectively reduces the rate of Withholding Tax. When a credit is available, the Withholding Tax is computed by applying the 35% rate to the pre-tax amount needed to fund the dividend and then subtracting from the tentative withholding tax so determined the amount of First Category Tax actually paid on the pre-tax income. For purposes of determining the rate at which the First Category Tax was paid, dividends are treated as paid from the Company's oldest retained earnings. The effective Withholding Tax rate,


after giving effect to the credit for First Category Tax, generally is:



(Withholding
  Tax rate) - (First Category Tax effective rate)1 - (First Category Tax effective rate)

The effective rate of Withholding Tax to be imposed on dividends paid by the Company will vary depending upon the amount of the First Category Tax paid by the Company on the earnings to which the dividends are attributed. From 1992 through 1997, the Company paid First Category Tax at an effective rate below the 15% statutory rate. The effective rate of the Withholding Tax on dividends paid from income attributable to those years therefore will be higher. During the years 1999 and 2000 the Company distributed dividends from income qualified under Chilean law as non-taxable, which is why the Company did not withhold any taxes. The dividends distributed by the Company corresponding to the business year 2002 were dividends considered taxable, and the total tax retention rate was approximately 33%.


Dividend distributions made in property (such as distribution of cash equivalents) would be subject to the same Chilean tax rules as cash dividends. Stock dividends are not subject to Chilean taxation.


Capital Gains

Foreign holders of ADS are generally not subject to Chilean taxation of capital gains with respect to gains from the sale or exchange of ADSs evidenced by American depositary receipts. The deposit and withdrawal of the shares in exchange for ADSs will not be subject to any Chilean taxes.


The tax basis of the shares received in exchange for ADSs (repatriation) will be the acquisition value of the shares. The shares exchanged for ADSs are valued at the highest price at which they trade on the Chilean Stock Exchange on the date of the exchange or on either of the two business days preceding the exchange. Consequently, the conversion of ADSs into the shares and the immediate sale of such shares at a price equal to or less than the highest price for Series A shares or Series B shares on the Chilean Stock Exchange on such dates will not generate a gain subject to Chilean taxation.


Gain recognized on a sale or exchange of shares (as distinguished from sales or exchanges of ADSs representing such shares) will be subject to both the First Category Tax and the Withholding Tax if either (i) the foreign holder has held the shares for less than one year since exchanging the ADSs for the shares or (ii) the foreign holder acquired and disposed of the shares in the ordinary course of its business or as a regular trader of shares. The amount of the First Category Tax may be credited against the amount of the Withholding Tax. In all other cases, gain on the disposition of the shares will be subject only to a capital gains tax, which is assessed at the same rate as the First Category Tax.


The exercise of preemptive rights relating to shares will not be subject to Chilean taxation. Any gain on the sale or assignment of preemptive rights relating to shares will be subject to both the First Category Tax and the Withholding Tax (the former being creditable against the latter).


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Other Chilean Taxes.

No
  Chilean inheritance, gift or succession taxes apply to the transfer or disposition
  of the ADSs by a foreign holder, but such taxes generally will apply to the
  transfer at death or by gift of the shares by a foreign holder. No Chilean stamp,
  issue, registration or similar taxes or duties apply to foreign holders of ADSs
  or shares.


Withholding Tax Certificates

Upon
  request, the Company will provide to foreign holders appropriate documentation
  evidencing the payment of Chilean withholding taxes.


United
  States Tax Considerations

The
  following discussion summarizes the material U.S. federal income tax consequences
  to beneficial owners arising from the acquisition, ownership and disposition
  of the Series A shares and the Series B shares (together the shares
  and the ADSs. The discussion which follows is based on the United States Internal
  Revenue Code of 1986, as amended, the “Code, the Treasury regulations
  promulgated thereunder, and judicial and administrative interpretations thereof,
  all as in effect on the date hereof, and is subject to any changes in these
  or other laws occurring after such date. In addition, the summary is based in
  part on representations of the depositary and assumes that each obligation provided
  for in or otherwise contemplated by the Deposit Agreement or any other related
  document will be performed in accordance with its terms.


For
  purposes of this summary, the term “U.S. Holder” means a beneficial owner of
  shares or ADSs that is, for U.S. federal income tax purposes, (a) an individual
  who is a United States citizen or resident, (b) a corporation or partnership
  (other than a partnership that is not treated as a U.S. person under any applicable
  Treasury regulations and certain partnerships that have one or more partners
  who are not U.S. persons) created or organized under the laws of the United
  States or any political subdivision thereof, or (c) an estate or trust that
  is subject to United States federal income tax on a net basis with respect to
  its worldwide income. The term “Non-U.S. Holder” means a beneficial owner of
  shares or ADSs that is, for U.S. federal income tax purposes, a (a) nonresident
  alien individual, (b) foreign corporation, or (c) nonresident alien fiduciary
  of a foreign estate or trust.


The
  discussion that follows is not intended as tax advice to any particular investor
  and is limited to investors who will hold the shares or ADSs as “capital assets” within the meaning of Section 1221 of the Code and whose functional currency
  is the United States dollar. The summary does not address the tax treatment
  of U.S. Holders and Non-U.S. Holders that may be subject to special U.S. federal
  income tax rules, such as insurance companies, tax-exempt organizations, banks,
  U.S. Holders who are subject to the alternative minimum tax, or U.S. Holders
  and Non-U.S. Holders who are broker-dealers in securities, who hold the shares
  or ADSs as a hedge against currency risks, as a position in a “straddle” for
  tax purposes, or as part of a conversion or other integrated transaction, or
  who own (directly, indirectly or by attribution) 10% or more of the total combined
  voting power of all classes of the Company’s capital stock entitled to vote
  or 10% or more of the value of the outstanding capital stock of the Company.


The
  discussion below does not address the effect of any United States state, local,
  estate or gift tax law or foreign tax law on a U.S. Holder or Non-U.S. Holder
  of the shares or ADSs. U.S. HOLDERS AND NON-U.S. HOLDERS OF SHARES OR ADSs SHOULD
  CONSULT THEIR OWN TAX ADVISORS TO DETERMINE THE CONSEQUENCES UNDER ANY SUCH
  LAW OF INVESTING IN THE SHARES OR ADSs.


For
  purposes of applying U.S. federal income tax law, any beneficial owner of an
  ADS will be treated as the owner of the underlying shares represented thereby.


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Cash Dividends and Other Distributions

The
  gross amount of a distribution with respect to shares or ADSs (other than distributions
  in redemption or liquidation) will be treated as a taxable dividend to the extent
  of the Companys current and accumulated earnings and profits, computed
  in accordance with U.S. federal income tax principles. A dividend distribution
  will be so included in gross income when received by (or otherwise made available
  to) (i) the U.S. Holder in the case of the shares or (ii) the depositary in
  the case of the ADSs, and in either case will be characterized as ordinary income
  for U.S. federal income tax purposes. Distributions in excess of the Companys
  current and accumulated earnings and profits will be applied against and will
  reduce the U.S. Holders tax basis in the shares or ADSs and, to the extent
  distributions exceed such tax basis, the excess will be treated as gain from
  a sale or exchange of such shares or ADSs. U.S. Holders that are corporations
  will not be allowed a deduction for dividends received in respect of distributions
  on the shares or the ADSs. For example, if the gross amount of a distribution
  with respect to the shares or ADSs exceeds the Company’s current and accumulated
  earnings and profits by U.S.$10.00, such excess will generally not be subject
  to a U.S. tax to the extent the U.S. Holder’s tax basis in the shares or ADSs
  equals or exceeds U.S.$10.00.


If
  a dividend distribution is paid in pesos, the amount includable in income will
  generally be the U.S. dollar value, on the date of receipt by the U.S. Holder
  in the case of the shares or by the depositary in the case of the ADSs,
  of the peso amount distributed, regardless of whether the payment is actually
  converted into U.S. dollars. Any gain or loss resulting from currency exchange
  rate fluctuations during the period from the date the dividend is includable
  in the income of the U.S. Holder to the date the pesos are converted into U.S.
  dollars will be treated as ordinary income or loss.


A
  dividend distribution will be treated as foreign source income and will generally
  be classified as “passive income” or “financial services income” for U.S. foreign
  tax credit purposes. If Chilean withholding taxes are imposed on a dividend,
  U.S. Holders will be treated as having actually received the amount of such
  taxes (net of any credit for the First Category Tax) and as having paid such
  amount to the Chilean taxing authorities. As a result, the amount of dividend
  income included in gross income by a U.S. Holder will be greater than the amount
  of cash actually received by the U.S. Holder with respect to such dividend income.
  A U.S. Holder may be able, subject to certain generally applicable limitations,
  to claim a foreign tax credit or a deduction for Chilean withholding taxes (net
  of any credit for the First Category Tax) imposed on dividend payments. The
  rules relating to the determination of the U.S. foreign tax credit are complex,
  and the calculation of U.S. foreign tax credits and, in the case of a U.S. Holder
  that elects to deduct foreign taxes, the availability of deductions, involve
  the application of rules that depend on a U.S. Holder’s particular circumstances.
  U.S. Holders should, therefore, consult their own tax advisors regarding the
  application of the U.S. foreign tax credit rules to dividend income on the shares
  or ADSs.


Non-U.S.
  Holders generally will not be subject to U.S. tax on a distribution with respect
  to shares or ADSs unless such Non-U.S. Holder has certain connections to the
  United States.


Capital Gains

A U.S.
    Holder will generally recognize gain or loss on the sale, redemption or other
    disposition of the shares or ADSs in an amount equal to the difference between
    the amount realized on the sale or exchange and the U.S. Holders adjusted
    basis in such shares or ADSs. Thus, if the U.S. Holder sells the shares for
    U.S.$40.00 and such U.S. Holder’s tax basis in such shares is U.S.$30.00,
    such U.S. Holder will generally recognize a gain of U.S.$10.00 for U.S. federal
    income tax purposes. Gain or loss upon the sale of the shares or ADSs will
    be capital gain or loss if the shares or ADSs are capital assets in the hands
    of the U.S. Holder. Capital gains on the sale of capital assets held for one
    year or less are subject to U.S. federal income tax at ordinary income tax
    rates. Net capital gains derived with respect to capital assets held for more
    than one year are eligible for reduced rates of taxation. Gain or loss realized
    by a U.S. Holder on the sale or exchange of shares or ADSs will be U.S.-source
    income. In addition, certain limitations
    exist on the deductibility of capital losses by both corporate and individual
    taxpayers. Any tax imposed by Chile directly on the gain from such a sale
    would generally be eligible for the U.S. foreign tax credit; however, because
    the gain would generally be U.S.-source, a U.S. Holder might not be able to
    use the credit otherwise available. U.S. Holders should consult their own
    tax advisors regarding the foreign tax credit implications of the sale, redemption
    or other disposition of a Share or ADS.


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A
  Non-U.S. Holder of ADSs or shares will not be subject to United States income
  or withholding tax on gain from the sale or other disposition of ADSs or shares
  unless, in general (i) such gain is effectively connected with the conduct of
  a trade or business within the United States or (ii) the Non-U.S. Holder is
  an individual who is present in the United States for at least 183 days during
  the taxable year of the disposition and certain other conditions are met.


Information Reporting and Backup Withholding

Payments
  of dividends on the shares or ADSs and the proceeds of sale or other disposition
  of the shares or ADSs within the United States by certain non-corporate holders
  may be subject to U.S. information reporting and backup withholding. A U.S.
  Holder generally will be subject to U.S. information reporting and backup withholding
  at a rate of 30% unless the recipient of such payment supplies an accurate taxpayer
  identification number, as well as certain other information, or otherwise establishes
  an exemption, in the manner prescribed by law. U.S. information reporting and
  backup withholding of U.S. federal income tax at a rate of 30% may also apply
  to Non-U.S. Holders that are not “exempt recipients” and that fail to provide
  certain information as may be required by United States law and applicable regulations.
  Any amount withheld under U.S. backup withholding is not an additional tax and
  is generally allowable as a credit against the U.S. Holder’s federal income
  tax liability upon furnishing the required information to the IRS.


HOLDERS
  ARE URGED TO CONSULT THEIR OWN TAX ADVISORS REGARDING THE APPLICATION OF THE
  U.S. INFORMATION REPORTING AND BACKUP WITHHOLDING RULES TO THEIR PARTICULAR
  CIRCUMSTANCES


Not
  applicable


Not
  applicable


DOCUMENTS ON DISPLAY

Please
  refer to Organizational structure under item 4.


ITEM
  11.   QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

As
  explained elsewhere in the document, the Company transacts its businesses in
  more than 100 countries, thereby rendering its market risk dependent upon the
  fluctuations of foreign currencies and local and international interest rates.
  These fluctuations may generate losses in the value of financial instruments
  taken in the normal course of business.


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SQMs
  management, from time to time and depending upon then current market conditions,
  reviews and reestablishes its financial policies to protect its operations.
  Management is authorized by the Companys Board of Directors to engage
  in certain derivative contracts such as forwards and swaps to specifically hedge
  the fluctuations in currencies other than the U.S. dollar and in interest rates.


Derivative
  instruments used by the Company are transaction-specific so that a specific
  debt instrument or contract determines the amount, maturity and other terms
  of the hedge. The Company does not use derivative instruments for speculative
  purposes.


Interest
  rates.
  As of December 31, 2002, the Company had 41.2% of its long-term financial debt,
  including the short-term portion of long-term debt, priced at Libor plus a spread
  and 58.2% priced at a fixed rate. The debt priced at Libor, namely two syndicated
  loans, amounts to US$140 million as of December 31 2002, is subject to the fluctuations
  in Libor.


At
  December 31, 2002, the Company had one interest rate swap outstanding with a
  notional amount of US$124.8 million that swapped a variable interest rate based
  on Libor for a 5.9% fixed rate and that expired on February 23, 2003, with a
  fair value equal to a loss of US$2.7 million as of December 31, 2002. As of
  the date of filing of this annual report, the Company has not entered into any
  other interest rate swap.


|                                    |  | Expected
      Maturity Date       |  |        |  |        | 
|----------------------------------- |  | ---------------------------------- |  | ------ |  | ------ | 
|                                    |  |                                    |  |        |  |        | 
|On
      Balance Sheet Financial    |  |                                    |  |        |  |        | 
|Instruments                         |  | 2003                               |  | 2004   |  | 2005   | 
|                                    |  |                                    |  |        |  |        | 
|LONG-TERM
      DEBT                |  | (in
      thousands of US dollars) |  |        |  |        | 
|                                    |  |                                    |  |        |  |        | 
|Variable
      rate:                |  |                                    |  |        |  |        | 
|US$-denominated                     |  | 20                                 |  | —      |  | 30,000 | 
|Interest
      rate: Libor + 1.00%  |  |                                    |  |        |  |        | 
|                                    |  |                                    |  |        |  |        | 
|US$-denominated                     |  | 16,207                             |  | 32,000 |  | 32,000 | 
|Interest
      rate: Libor + 1.125% |  |                                    |  |        |  |        | 
|                                    |  |                                    |  |        |  |        | 
|Fixed
      rate:                   |  |                                    |  |        |  |        | 
|US$-denominated                     |  | 4,577                              |  | —      |  | —      | 
|Interest
      rate: 7.70%          |  |                                    |  |        |  |        | 
|                                    |  |                                    |  |        |  |        | 
|Total:                              |  | 20,804                             |  | 32,000 |  | 62,000 | 

SQM
  maintains the majority of its short-term debt priced at Libor plus a spread
  for which the Company does not have any kind of derivative contract.


Exchange
  rates.
  Although the U.S. dollar is the primary currency in which SQM transacts its
  businesses, its operations throughout the world expose the Company to exchange
  rate variations for non-U.S. dollar currencies. Therefore, fluctuations in the
  exchange rate of such local currencies may affect SQMs financial condition
  and results of operations. To lessen these effects, SQM maintains forward contracts
  to protect the net difference between its principal assets and liabilities for
  currencies other than the U.S. dollar, from fluctuations in exchange rates.
  These contracts are renewed monthly depending on the amount to cover in each
  currency. Aside from this, SQM does not hedge potential future income and expenses
  in currencies other than the U.S. dollar with the exception of the Euro. The
  Company estimates annual sales in Euro and secures the exchange difference with
  an option contract.


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As
  of December 31, 2002 the Company had the following net monetary assets and liabilities
  that are subject to foreign exchange gain or loss fluctuation:


|                       |  | 2002         |  | 2001         | 
|---------------------- |  | ------------ |  | ------------ | 
|                       |  | Th
      US$ |  | Th
      US$ | 
|                       |  |              |  |              | 
|Chilean
      Pesos    |  | 70,878       |  | 77,596       | 
|Brazilian
      Real   |  | 2,028        |  | 3,114        | 
|Euro                   |  | 42,063       |  | 43,305       | 
|Japanese
      Yen     |  | 1,475        |  | 2,194        | 
|Mexican
      Pesos    |  | 13,896       |  | 11,542       | 
|Other
      currencies |  | 1,120        |  | 911          | 

As
  of December 31, 2002, the Company had open forward exchange contracts to buy
  U.S. dollars and sell foreign currency for approximately US$54.2 million in
  euros and US$3.3 million in Mexican Pesos. In addition, the Company had open
  forward exchange contracts to sell U.S. dollars and buy Chilean Pesos for approximately
  US$9.0 million. These contracts are all short-term and a summary of them is
  presented in note 18 to the consolidated financial statements.


Not
  applicable


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PART II

Not applicable


Not
  applicable


Within 90 days of the filing date of this Annual Report and under the supervision and
  with the participation of the Companys management, including the Companys
  Chief Executive Officer and Chief Financial Officer, the Company has evaluated
  the effectiveness of the design and operation of its disclosure controls and
  procedures. Based upon that evaluation, the Chief Executive Officer and Chief
  Financial Officer have concluded that the Company's disclosure controls and
  procedures are effective in providing reasonable assurance that material information
  is made known to management and that financial and non-financial information
  is properly recorded, processed, summarized and reported. The procedures associated
  to the Companys internal controls are designed to provide reasonable assurance
  that the Companys transactions are properly authorized, assets are safeguarded
  against unauthorized or improper use, and transactions are properly recorded
  and reported. However, through the same design and evaluation period of the
  disclosure controls and procedures, the Companys management, including
  the Companys Chief Executive Officer and Chief Financial Officer, recognized
  that there are inherent limitations to the effectiveness of any internal control
  system regardless of how well designed and operated. In such a way they can
  provide only reasonable assurance of achieving the desired control objectives
  and no evaluation can provide absolute assurance that all control issues or
  instances of fraud, if any, within the Company have been detected.


There were no considerable changes in the Company's internal controls or in other factors that could significantly affect these controls subsequent to the date of their evaluation or any corrective actions with regard to significant deficiencies or material weaknesses.


This
  caption is applicable to the Annual Report related to the business year 2003
  and is not yet in effect.


This
  caption is applicable to the Annual Report related to the business year 2003
  and is not yet in effect.


This
  caption is applicable to the Annual Report related to the business year 2003
  and is not yet in effect.


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PART
  III

Not
  applicable


Reference
  is made to Item 19(a) for a list of all financial statements filed as part of
  this Form 20-F


|ITEM
      19.   EXHIBITS                                                  |     | 
|-------------------------------------------------------------------------- | --- | 
|(a)     Index
      to Financial Statements*                               |     | 
|                                                                           |     | 
|Report
      of Independent Accountants                                    | F-2 | 
|                                                                           |     | 
|Audited
      Financial Statements                                         | F-3 | 
|                                                                           |     | 
|Consolidated
      Balance Sheets at December 31, 2002 and 2001            | F-3 | 
|                                                                           |     | 
|Consolidated
      Statements of Income for each of the three years in the |     | 
|period
      ended December 31, 2002, 2001 and 2000                        | F-5 | 
|                                                                           |     | 
|Consolidated
      Statements of Cash Flows for each of the three years in |     | 
|the
      period ended December 31, 2002, 2001 and 2000                    | F-6 | 
|                                                                           |     | 
|Notes
      to the Consolidated Financial Statements                       | F-7 | 
|                                                                           |     | 
|Supplementary
      Schedules*                                             |     | 

*     All
  other schedules have been omitted because they are not applicable or the required
  information is shown in the financial statements or notes thereto.

(b)     Exhibits

|Exhibit
        No. | Exhibit                                                            
|------------------- | -------------------------------------------------------------------
|1                   | By-laws
      of the Company, as amended and currently in effect.  
|8                   | Significant
      subsidiaries of the Company                      
|12                  | Certification pursuant to Section 906 of Sarbanes-Oxley Act of 2002



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SIGNATURES

The
  registrant hereby certifies that it meets all of the requirements for filing
  on Form 20-F and that it has dulycaused
  and authorized the undersigned to sign this annual report on its behalf

SOCIEDAD
  QUIMICA Y MINERA DE CHILE S.A.

(CHEMICAL
  AND MINING COMPANY OF CHILE INC.)







Conf: /s/
  Ricardo Ramos


Ricardo
  Ramos
  Chief Financial Officer
  Business Development Senior Vice President

Date:
  June 24, 2003

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CEO
  CERTIFICATION

|I,
      Patricio Contesse, certify that:                                                                                                                                                                                                                                                                                                                      
|---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|                                                                                                                                                                                                                                                                                                                                                               
|1.
         I
      have reviewed this annual report on Form 20-F of Sociedad Química
      y Minera de Chile S.A.;                                                                                                                                                                                                                                            
|                                                                                                                                                                                                                                                                                                                                                               
|2.
      Based
      on my knowledge, this annual report does not contain any untrue statement
      of a material fact or omit to state
      a material fact necessary to make the statements made, in light of the circumstances
      under which such statements were made, not misleading with respect to the
      period covered by this annual report;

|                                                                                                                                                                                                                                                                                                                                                                                                                       |  |    |                                                                                                                                                                                                                                                                                                                       
|---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------- |  | -- | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|3.Based
      on my knowledge, the financial statements, and other financial information
      included in this annual report, fairly present in all material respects
      the financial condition, results of operations and cash flows of the registrant
      as of, and for, the periods presented in this annual report;                                                                                       
|                                                                                                                                                                                                                                                                                                                                                                                                                       |  |    |                                                                                                                                                                                                                                                                                                                       
|4.The
      registrant's other certifying officers and I are responsible for establishing
      and maintaining disclosure controls and procedures (as defined in Exchange
      Act Rules 13a-14 and 15d-14) for the registrant and have:                                                                                                                                                                            
|                                                                                                                                                                                                                                                                                                                                                                                                                       |  |    |                                                                                                                                                                                                                                                                                                                       
|                                                                                                                                                                                                                                                                                                                                                                                                                       |  | a) | designed
      such disclosure controls and procedures to ensure that material information
      relating to the registrant, including its consolidated subsidiaries, is
      made known to us by others within those entities, particularly during the
      period in which this annual report is being prepared;  
|                                                                                                                                                                                                                                                                                                                                                                                                                       |  | b) | evaluated
      the effectiveness of the registrant's disclosure controls and procedures
      as of a date within 90 days prior to the filing date of this annual report
      (the "Evaluation Date"); and                                                                                                          
|                                                                                                                                                                                                                                                                                                                                                                                                                       |  | c) | presented
      in this annual report our conclusions about the effectiveness of the disclosure
      controls and procedures based on our evaluation as of the Evaluation Date;                                                                                                                                      
|                                                                                                                                                                                                                                                                                                                                                                                                                       |  |    |                                                                                                                                                                                                                                                                                                                       
|5.     
      The registrant's other certifying officers and I have disclosed, based on
      our most recent evaluation, to the registrant's auditors and the audit committee
      of registrant's board of directors (or persons performing the equivalent
      function):                                                                                                                                        
|                                                                                                                                                                                                                                                                                                                                                                                                                       |  |    |                                                                                                                                                                                                                                                                                                                       
|                                                                                                                                                                                                                                                                                                                                                                                                                       |  | a) | all
      significant deficiencies in the design or operation of internal controls
      which could adversely affect the registrant's ability to record, process,
      summarize and report financial data and have identified for the registrant's
      auditors any material weaknesses in internal controls; and
|                                                                                                                                                                                                                                                                                                                                                                                                                       |  | b) | any
      fraud, whether or not material, that involves management or other employees
      who have a significant role in the registrant's internal controls; and                                                                                                                                                    
|                                                                                                                                                                                                                                                                                                                                                                                                                       |  |    |                                                                                                                                                                                                                                                                                                                       
|6.The
      registrant's other certifying officers and I have indicated in this annual
      report whether or not there were significant changes in internal controls
      or in other factors that could significantly affect internal controls subsequent
      to the date of our most recent evaluation, including any corrective actions
      with regard to significant deficiencies and material weaknesses.



Date:
  June 24, 2003

Conf:/s/
  Patricio Contesse

Patricio
  Contesse
  Chief Executive Officer

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CFO
  CERTIFICATION

I, Ricardo
  Ramos, certify that:

|1.I
      have reviewed this annual report on Form 20-F of Sociedad Química
      y Minera de Chile S.A.;                                                                                                                                                                                                                                                                                                             
|----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|                                                                                                                                                                                                                                                                                                                                                                                                                      
|2.Based
      on my knowledge, this annual report does not contain any untrue statement
      of a material fact or omit to state
      a material fact necessary to make the statements made, in light of the circumstances
      under which such statements were made, not misleading with respect to the
      period covered by this annual report;                                                              
|                                                                                                                                                                                                                                                                                                                                                                                                                      
|3.Based
      on my knowledge, the financial statements, and other financial information
      included in this annual report, fairly present in all material respects
      the financial condition, results of operations and cash flows of the registrant
      as of, and for, the periods presented in this annual report;                                                                                       
|                                                                                                                                                                                                                                                                                                                                                                                                                      
|4.The
      registrant's other certifying officers and I are responsible for establishing
      and maintaining disclosure controls and procedures (as defined in Exchange
      Act Rules 13a-14 and 15d-14) for the registrant and have:                                                                                                                                                                            
|                                                                                                                                                                                                                                                                                                                                                                                                                      
|                                                                                                                                                                                                                                                                                                                                                                                                                      
|                                                                                                                                                                                                                                                                                                                                                                                                                      
|                                                                                                                                                                                                                                                                                                                                                                                                                      
|                                                                                                                                                                                                                                                                                                                                                                                                                      
|5.The
      registrant's other certifying officers and I have disclosed, based on our
      most recent evaluation, to the registrant's auditors and the audit committee
      of registrant's board of directors (or persons performing the equivalent
      function):                                                                                                                                              
|                                                                                                                                                                                                                                                                                                                                                                                                                      
|                                                                                                                                                                                                                                                                                                                                                                                                                      
|                                                                                                                                                                                                                                                                                                                                                                                                                      
|                                                                                                                                                                                                                                                                                                                                                                                                                      
|6.The
      registrant's other certifying officers and I have indicated in this annual
      report whether or not there were significant changes in internal controls
      or in other factors that could significantly affect internal controls subsequent
      to the date of our most recent evaluation, including any corrective actions
      with regard to significant deficiencies and material weaknesses.



Date:
  June 24, 2003

Conf:/s/
  Ricardo Ramos

Ricardo
  Ramos
  Chief Financial Officer Business
  Development Senior Vice President

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Consolidated
  Financial Statements

SOCIEDAD
  QUIMICA Y MINERA DE CHILE S.A. AND SUBSIDIARIESAs of December 31,
  2002 and 2001and for the years
  ended December 31, 2002, 2001 and 2000

|                                                    |     | 
|--------------------------------------------------- | --- | 
|                                                    |     | 
|Contents                                           
|                                                    |     | 
|                                                    |     | 
|Report
      of Independent Auditors                | F-2 | 
|                                                    |     | 
|Consolidated
      Financial Statements             |     | 
|                                                    |     | 
|Consolidated
      Balance Sheets                   | F-3 | 
|Consolidated
      Statements of Income             | F-5 | 
|Consolidated
      Statements of Cash Flows         | F-6 | 
|Notes
      to the Consolidated Financial Statement | F-7 | 

|      |   |                                                                                                                                                                                                     
|----- | - | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|      |   |                                                                                                                                                                                                     
|      |   |                                                                                                                                                                                                     
|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
|ThUF  | - | Thousands
      of UF                                                                                                                                                                               

F-1

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Report
  of Independent Auditors

To the Board
  of Directors and Shareholders
  Sociedad Química y Minera de Chile S.A.

We have
    audited the accompanying consolidated balance sheets of Sociedad Química
    y Minera de Chile S.A. and subsidiaries as of December 31, 2002 and 2001,
    and the related consolidated statements of income and cash flows for each
    of the three years in the period ended December 31, 2002, all expressed in
    thousands of United States dollars. These financial statements are the responsibility
    of the Companys management. Our responsibility is to express an opinion
    on these financial statements based on our audits. We conducted
    our audits in accordance with auditing standards generally accepted in the
    United States of America. Those standards require that we plan and perform
    the audit to obtain reasonable assurance about whether the financial statements
    are free of material misstatement. An audit includes examining, on a test
    basis, evidence supporting the amounts and disclosures in the financial statements.
    An audit also includes assessing the accounting principles used and significant
    estimates made by management, as well as evaluating the overall financial
    statement presentation. We believe that our audits provide a reasonable basis
    for our opinion. In our
    opinion, the financial statements referred to above present fairly, in all
    material respects, the consolidated financial position of Sociedad Química
    y Minera de Chile S.A. and subsidiaries as of December 31, 2002 and 2001,
    the consolidated results of their operations and their cash flows for the
    three years then ended in conformity with accounting principles generally
    accepted in Chile. Accounting
    principles generally accepted in Chile vary in certain significant respects
    from generally accepted accounting principles in the United States of America.
    Application of generally accepted accounting principles in the United States
    of America would have affected consolidated shareholders equity as at
    December 31, 2002 and 2001, and the consolidated results of operations for
    each of the three years in the period ended December 31, 2002, to the extent
    summarized in note 28 to the consolidated financial statements.


|Arturo
      Selle S. | ERNST
        & YOUNG LTDA.
|--------------------- | ---------------------------

Santiago,
  Chile, February 20, 2003 (except
  for note 28, for which the date is April 25, 2003)

F-2

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SOCIEDAD
  QUIMICA Y MINERA DE CHILE S.A. AND SUBSIDIARIESConsolidated
  Balance Sheets



|                                                           |      |  | As
      of December 31, |  
|---------------------------------------------------------- | ---- |  | ------------------------ | -
|                                                           |      |  |                          |  
|                                                           | Note |  | 2002                     |  
|                                                           |      |  |                          |  
|                                                           |      |  | ThUS$                    |  
|ASSETS                                                     |      |  |                          |  
|                                                           |      |  |                          |  
|Current
      assets                                       |      |  |                          |  
|Cash
      and cash equivalents                            | 2    |  | 65,204                   |  
|Marketable
      securities                                | 4    |  | —                        |  
|Accounts
      receivable, net                             | 5    |  | 107,353                  |  
|Other
      accounts receivable, net                       | 5    |  | 13,612                   |  
|Accounts
      receivable from related companies           | 6    |  | 31,556                   |  
|Inventories                                                | 7    |  | 232,802                  |  
|Recoverable
      taxes                                    |      |  | 16,628                   |  
|Prepaid
      expenses                                     |      |  | 2,978                    |  
|Deferred
      income taxes                                | 14   |  | —                        |  
|Other
      current assets                                 |      |  | 16,422                   |  
|                                                           |      |  |                          |  
|Total
      current assets                                 |      |  | 486,555                  |  
|                                                           |      |  |                          |  
|                                                           |      |  |                          |  
|Property,
      plant and equipment, net                   | 8    |  | 679,058                  |  
|                                                           |      |  |                          |  
|                                                           |      |  |                          |  
|Other
      Assets                                         |      |  |                          |  
|Investments
      in related companies                     | 9    |  | 79,819                   |  
|Goodwill                                                   | 10   |  | 11,582                   |  
|Negative
      goodwill                                    | 10   |  | (853                     | )
|Intangible
      assets, net                               |      |  | 4,960                    |  
|Long-term
      accounts receivable                        |      |  | 8,917                    |  
|Long-term
      accounts receivable from related companies | 6    |  | 424                      |  
|Other
      non-current assets                             | 11   |  | 51,832                   |  
|                                                           |      |  |                          |  
|Total
      assets                                         |      |  | 1,322,294                |  
|                                                           |      |  |                          |  





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

F-3

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SOCIEDAD
  QUIMICA Y MINERA DE CHILE S.A. AND SUBSIDIARIESConsolidated
  Balance Sheets



|                                                      |      |  | As
      of December 31, | 
|----------------------------------------------------- | ---- |  | ------------------------ | 
|                                                      |      |  |                          | 
|                                                      | Note |  | 2002                     | 
|                                                      |      |  |                          | 
|                                                      |      |  | ThUS$                    | 
|LIABILITIES
      AND SHAREHOLDERS' EQUITY            |      |  |                          | 
|                                                      |      |  |                          | 
|Current
      liabilities                             |      |  |                          | 
|Short-term
      bank debt                            | 12   |  | 2,559                    | 
|Current
      portion of long-term debt               | 12   |  | 20,804                   | 
|Dividends
      payable                               |      |  | 282                      | 
|Accounts
      payable                                |      |  | 48,076                   | 
|Other
      accounts payable                          |      |  | 1,305                    | 
|Notes
      and accounts payable to related companies | 6    |  | 5,962                    | 
|Accrued
      liabilities                             | 13   |  | 12,376                   | 
|Payroll
      withholdings                            |      |  | 4,054                    | 
|Income
      taxes                                    |      |  | 699                      | 
|Deferred
      income taxes                           | 14   |  | 158                      | 
|Other
      current liabilities                       |      |  | 2,077                    | 
|                                                      |      |  |                          | 
|Total
      current liabilities                       |      |  | 98,352                   | 
|                                                      |      |  |                          | 
|                                                      |      |  |                          | 
|Long-term
      liabilities                           |      |  |                          | 
|Long-term
      bank debt                             | 12   |  | 324,000                  | 
|Other
      accounts payable                          |      |  | 2,858                    | 
|Deferred
      income taxes                           | 14   |  | 15,230                   | 
|Staff
      severance indemnities                     | 15   |  | 9,143                    | 
|Other
      long-term liabilities                     |      |  | —                        | 
|                                                      |      |  |                          | 
|Total
      long-term liabilities                     |      |  | 351,231                  | 
|                                                      |      |  |                          | 
|                                                      |      |  |                          | 
|Minority
      interest                               | 16   |  | 23,049                   | 
|                                                      |      |  |                          | 
|Commitments
      and contingencies                   | 23   |  |                          | 
|Shareholders'
      equity                            |      |  |                          | 
|Paid-in
      capital                                 | 17   |  | 477,386                  | 
|Other
      reserves                                  | 17   |  | 125,111                  | 
|Retained
      earnings                               | 17   |  | 247,165                  | 
|                                                      |      |  |                          | 
|Total
      shareholders' equity                      |      |  | 849,662                  | 
|                                                      |      |  |                          | 
|Total
      liabilities and shareholders' equity      |      |  | 1,322,294                | 
|                                                      |      |  |                          | 

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

F-4

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SOCIEDAD
  QUIMICA Y MINERA DE CHILE S.A. AND SUBSIDIARIESConsolidated
  Statements of Income



|                                                                  |      |  | For
      the years ended |  
|----------------------------------------------------------------- | ---- |  | ------------------------- | -
|                                                                  |      |  | December
      31,        |  
|                                                                  |      |  |                           |  
|                                                                  | Note |  | 2002                      |  
|                                                                  |      |  |                           |  
|                                                                  |      |  | ThUS$                     |  
|Operating
      results                                           |      |  |                           |  
|                                                                  |      |  |                           |  
|Sales                                                             |      |  | 553,809                   |  
|Cost
      of sales                                               |      |  | (424,783                  | )
|                                                                  |      |  |                           |  
|Gross
      margin                                                |      |  | 129,026                   |  
|Selling
      and administrative expenses                         |      |  | (46,343                   | )
|                                                                  |      |  |                           |  
|Operating
      income                                            |      |  | 82,683                    |  
|                                                                  |      |  |                           |  
|                                                                  |      |  |                           |  
|Non-operating
      results                                       |      |  |                           |  
|Non-operating
      income                                        | 19   |  | 14,246                    |  
|Non-operating
      expenses                                      | 19   |  | (44,016                   | )
|                                                                  |      |  |                           |  
|Non-operating
      loss                                          |      |  | (29,770                   | )
|Income
      before income taxes                                  |      |  | 52,913                    |  
|Income
      tax expense                                          | 14   |  | (10,764                   | )
|                                                                  |      |  |                           |  
|Income
      before minority interest                             |      |  | 42,149                    |  
|Minority
      interest                                           | 16   |  | (2,361                    | )
|                                                                  |      |  |                           |  
|Net
      income before extraordinary items and negative Goodwill |      |  | 39,788                    |  
|Amortization
      of negative goodwill                           | 10   |  | 414                       |  
|Extraordinary
      items                                         | 22   |  | —                         |  
|                                                                  |      |  |                           |  
|Net
      income for the year                                     |      |  | 40,202                    |  
|                                                                  |      |  |                           |  





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

F-5

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SOCIEDAD
  QUIMICA Y MINERA DE CHILE S.A. AND SUBSIDIARIES Statements
  of Cash Flow

|                                                              | Year
        Ended December 31 |      
|------------------------------------------------------------- | ------------------------------ | -----
|                                                             
|2002                                                          |                                | 2001 
|                                                              |                                |      
|ThUS$                                                         | ThUS$                          | ThUS$
|                                                              |                                |      
|Cash
      flows from operating activities                    |                                |      
|Net
      income for the year                                 | 40,202                         |      
|                                                              |                                |      
|Charges
      (credits) to income not representing cash flows |                                |      
|Depreciation
      expense                                    | 61,479                         |      
|Amortization
      of intangible assets                       | 203                            |      
|Write-offs
      and accruals                                 | 17,511                         |      
|Gain
      on investments in related companies                | (3,479                         | )    
|Loss
      on investments in related companies                | 496                            |      
|Amortization
      of goodwill                                | 1,219                          |      
|Amortization
      of negative goodwill                       | (414                           | )    
|Loss
      on sales of assets                                 | 110                            |      
|Gain
      on sale of investments                             | —                              |      
|Other
      credits to income not representing cash flows     | (5,689                         | )    
|Other
      charges to income not representing cash flows     | 27,246                         |      
|Net
      changes in operating assets and liabilities:        |                                |      
|(Increase)
      decrease in trade accounts receivable        | 3,076                          |      
|(Increase)
      decrease in inventories                      | (25,052                        | )    
|Decrease
      in other assets                                | 1,230                          |      
|Increase
      (decrease) in accounts payable                 | 11,882                         |      
|Increase
      (decrease) in interest payable                 | (2,619                         | )    
|Increase
      (decrease) in net income taxes payable         | (947                           | )    
|Increase
      (decrease) in other accounts payable           | 190                            |      
|Increase
      (decrease) in VAT and taxes payable            | (3,483                         | )    
|Minority
      interest                                       | 2,361                          |      
|                                                              |                                |      
|Net
      cash provided from operating activities             | 125,522                        |      
|                                                              |                                |      
|                                                              |                                |      
|Cash
      flows from financing activities                    |                                |      
|Share
      issuance                                          | —                              |      
|Proceeds
      from bank financing                            | —                              |      
|Payment
      of dividends                                    | (16,433                        | )    
|Repayment
      of bank financing                             | (129,021                       | )    
|Repayment
      of bonds payable                              | —                              |      
|                                                              |                                |      
|Net
      cash provided from (used in) financing activities   | (145,454                       | )    
|                                                              |                                |      
|                                                              |                                |      
|Cash
      flows from investing activities                    |                                |      
|Sales
      of property, plant and equipment                  | 734                            |      
|Sales
      of permanent investments                          | —                              |      
|Sales
      of investments                                    | 13,810                         |      
|Other
      income                                            | 4,352                          |      
|Additions
      to property, plant and equipment              | (39,971                        | )    
|Capitalized
      interest                                    | (1,930                         | )    
|Purchase
      of permanent investments                       | (11,720                        | )    
|Purchase
      of investments                                 | (376                           | )    
|Other
      disbursements                                     | (1,000                         | )    
|                                                              |                                |      
|Net
      cash used in investing activities                   | (36,101                        | )    
|                                                              |                                |      
|                                                              |                                |      
|Effect
      of inflation on cash and cash equivalents        | (299                           | )    
|Net
      change in cash and cash equivalents                 | (56,332                        | )    
|Beginning
      balance of cash and cash equivalents          | 121,536                        |      
|                                                              |                                |      
|Ending
      balance of cash and cash equivalents             | 65,204                         |      
|                                                              |                                |      
|                                                              |                                |      
|Supplemental
      cash flow information:                     |                                |      
|Interest
      paid                                           | 32,842                         |      
|Income
      taxes paid                                       | 707                            |      

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



F-6

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SOCIEDAD
  QUIMICA Y MINERA DE CHILE S.A. AND SUBSIDIARIESNotes
  to the Consolidated Financial Statements

Note
  1  Company Background

Sociedad
    Química y Minera de Chile S.A. and subsidiaries (the Company)
    was registered with the Chilean Superintendency of Securities and Insurance
    (SVS) on March 18, 1983. The Company
    is an integrated producer and distributor of specialty fertilizers, iodine,
    lithium and other industrial chemicals. The Company extracts natural resources
    and develops them into salable products, which it then distributes to more
    than 100 countries.


Note
  2  Summary of Significant Accounting Policies

|a) | Basis
      for the preparation of the consolidated financial statements                                                                                                                                                                                                                                                                                                                          
|-- | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|   |                                                                                                                                                                                                                                                                                                                                                                                                   
|   | The
      accompanying consolidated financial statements have been prepared in U.S.
      dollars in accordance with accounting principles generally accepted in Chile
      (Chilean GAAP) and the regulations of the SVS.                                                                                                                                                                     
|   |                                                                                                                                                                                                                                                                                                                                                                                                   
|   | The
      consolidated financial statements include the accounts of Sociedad Química
      y Minera de Chile S.A. (the Parent Company) and subsidiaries
      (companies in which the Parent Company holds a controlling participation,
      generally equal to direct or indirect ownership of more than 50%). The Parent
      Company and its subsidiaries are referred to as the Company.
|   |                                                                                                                                                                                                                                                                                                                                                                                                   
|   | In accordance
      with regulations set forth by the SVS in its Circular No. 368 and Technical
      Bulletins Nos. 42 and 64 of the Chilean Association of Accountants, the
      consolidated financial statements include the following subsidiaries:                                                                                                                                         



F-7

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Note
  2  Summary of Significant Accounting Policies, continued

|a) | Basis
      for the preparation of the consolidated financial statements, continued
|-- | -----------------------------------------------------------------------------------



|                                                      | Direct
        or indirect ownership | 
|----------------------------------------------------- | ------------------------------------ | 
|                                                      |                                      | 
|                                                      | 2002                                 | 
|                                                      |                                      | 
|                                                      | **%**                                | 
|Foreign
      subsidiaries:                           |                                      | 
|Nitrate
      Corp. of Chile Limited (United Kingdom) | 100.00                               | 
|Soquimich
      SRL  Argentina                       | 100.00                               | 
|Nitratos
      Naturais do Chile Ltda. (Brazil)       | 100.00                               | 
|SQM
      Europe NV (Belgium)                         | 100.00                               | 
|SQM
      North America Corp. (USA)                   | 100.00                               | 
|North
      American Trading Company (USA)            | 100.00                               | 
|SQM
      Peru S.A.                                   | 100.00                               | 
|SQM
      Corporation NV (Holland)                    | 100.00                               | 
|S.Q.I.
      Corporation NV (Holland)                 | 100.00                               | 
|Soquimich
      European Holding (Holland)            | 100.00                               | 
|PTM
      - SQM Ibérica S.A. (Spain)                  | 100.00                               | 
|SQMC
      Holding Corporation LLP (USA)              | 100.00                               | 
|SQM
      Ecuador S.A.                                | 100.00                               | 
|Cape
      Fear Bulk LLC (USA)                        | 51.00                                | 
|SQM
      Colombia Ltda.                              | 100.00                               | 
|SQM
      Investment Corporation NV (Holland)         | 100.00                               | 
|PSH
      Limited (Cayman Islands)                    | 100.00                               | 
|SQM
      Brasil Ltda.                                | 100.00                               | 
|Royal
      Seed Trading Corporation AVV (Aruba)      | 100.00                               | 
|SQM
      Japan K.K.                                  | 100.00                               | 
|SQM
      Oceanía PTY Limited (Australia)             | 100.00                               | 
|SQM
      France S.A.                                 | 100.00                               | 
|Fertilizantes
      Naturales S.A. (Spain)            | 50.00                                | 
|Rs Agro-Chemical
      Trading AVV (Aruba)            | 100.00                               | 
|SQM
      Comercial de México S.A. de C.V.            | 100.00                               | 
|SQM
      Indonesia                                   | 80.00                                | 
|SQM
      Virginia LLC (USA.)                         | 100.00                               | 
|Agricolima
      S.A. De C.V. (Mexico)                | 100.00                               | 
|SQM
      Venezuela S.A.                              | 100.00                               | 
|SQM
      Italia SRL (Italy)                          | 95.00                                | 
|Comercial
      Caiman Internacional S.A. (Panama)    | 100.00                               | 



F-8

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Note
  2  Summary of Significant Accounting Policies, continued

|a) | Basis
      for the preparation of the consolidated financial statements, continued
|-- | -----------------------------------------------------------------------------------



|                                                              | Direct
        or indirect ownership | 
|------------------------------------------------------------- | ------------------------------------ | 
|                                                              |                                      | 
|                                                              | 2002                                 | 
|                                                              |                                      | 
|                                                              | %                                    | 
|Domestic
      subsidiaries:                                  |                                      | 
|Servicios
      Integrales de Tránsitos y Transferencias S.A. | 100.00                               | 
|Cía.
      Industrial y Minera S.A.                           | —                                    | 
|Soquimich
      Comercial S.A.                                | 60.64                                | 
|Sociedad
      Minera de Chile S.A.                           | —                                    | 
|Energía
      y Servicios S.A.                                | 100.00                               | 
|Isapre
      Norte Grande Ltda.                               | 100.00                               | 
|Almacenes
      y Depósitos Ltda.                             | 100.00                               | 
|SQM
      Químicos S.A.                                       | —                                    | 
|Ajay
      SQM Chile S.A.                                     | 51.00                                | 
|SQM
      Nitratos S.A.                                       | 99.99                                | 
|Proinsa
      Ltda.                                           | 60.58                                | 
|SQM
      Potasio S.A.                                        | 100.00                               | 
|SQMC
      International Limitada                             | 60.64                                | 
|SQM
      Salar S.A.                                          | 100.00                               | 
|SCM
      SQM Boratos                                         | —                                    | 

All significant
    inter-company balances, transactions and unrealized gains and losses arising
    from transactions between these companies have been eliminated in consolidation. As the
    Company exerts control over the subsidiary Fertilizantes Naturales S.A. it
    has been included in the consolidation for the years ended December 31, 2002
    and 2001. At December
    31, 2002 and 2001, the subsidiaries Lithium Specialties LLP and SCM Antucoya
    were in development stage and therefore were not included in the consolidation.




F-9

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Note
  2  Summary of Significant Accounting Policies, continued

|b) | Period
|-- | ------

These
    consolidated financial statements have been prepared as of December 31, 2002
    and 2001 and for each of the three years in the period ended December 31,
    2002.


|c) | Reporting
      currency and monetary correction                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                          
|-- | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                           
|   | The
      financial statements of the Company are prepared in U.S. dollars. As the
      Companys principal transactions are carried out in U.S. dollars, the
      U.S. dollar is considered the currency of the primary economic environment
      in which the Company operates.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                      
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                           
|   | The
      Parent Company and those subsidiaries that maintain their accounting records
      in U.S. dollars are not required, or permitted, to restate the historical
      dollar amounts for the effects of inflation.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                 
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                           
|   | The
      financial statements of domestic subsidiaries, which maintain their accounting
      records in Chilean pesos, have been restated to reflect the effects of variations
      in the purchasing power of Chilean pesos during the period. For this purpose,
      and in accordance with Chilean regulations, non-monetary assets and liabilities,
      equity and income statement accounts have been restated in terms of year-end
      constant pesos based on the change in the Consumer Price Index, which was
      3.0%, 3.1% and 4.7% in 2002, 2001 and 2000, respectively. The resulting
      net charge or credit to income arises as a result of the gain or loss in
      purchasing power from the holding of Chilean peso denominated monetary assets
      and liabilities exposed to the effects of inflation.



|   |                       
|-- | ----------------------
|d) | Foreign
      currency
|   |                       
|   | i)                    
|   |                       
|   |                       



F-10

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Note
  2 - Summary of Significant Accounting Policies, continued

| | ii) | Translation
      of non-U.S. dollar financial statements                                                                                                                                                                                                     
| | --- | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |     |                                                                                                                                                                                                                                                               
| |     | In accordance with Chilean GAAP, the financial statements of foreign and
      domestic subsidiaries that do not maintain their accounting records in U.S.
      dollars are translated from the respective local currencies to U.S. dollars
      as follows:
| |     |                                                                                                                                                                                                                                                               
| |     | a)                                                                                                                                                                                                                                                            
| |     |                                                                                                                                                                                                                                                               
| |     |                                                                                                                                                                                                                                                               
| |     |                                                                                                                                                                                                                                                               
| |     |                                                                                                                                                                                                                                                               
| |     |                                                                                                                                                                                                                                                               
| |     |                                                                                                                                                                                                                                                               
| |     |                                                                                                                                                                                                                                                               
| |     |                                                                                                                                                                                                                                                               
| |     |                                                                                                                                                                                                                                                               
| |     | b)                                                                                                                                                                                                                                                            
| |     |                                                                                                                                                                                                                                                               
| |     |                                                                                                                                                                                                                                                               
| |     |                                                                                                                                                                                                                                                               
| |     |                                                                                                                                                                                                                                                               
| |     |                                                                                                                                                                                                                                                               
| |     |                                                                                                                                                                                                                                                               
| |     |                                                                                                                                                                                                                                                               

F-11

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Note
  2 - Summary of Significant Accounting Policies, continued

|d) | Foreign
      currency, continued
|-- | ---------------------------------
|   |                                  
|   | ii)                              
|   |                                  
|   |                                  
|   |                                  
|   |                                  
|   |                                  
|   |                                  
|   |                                  

|                        |  | 2002     |  | 2001     |  | 2000     | 
|----------------------- |  | -------- |  | -------- |  | -------- | 
|                        |  |          |  |          |  |          | 
|                        |  | US$      |  | US$      |  | US$ US$  | 
|                        |  |          |  |          |  |          | 
|Brazilian
      real    |  | 3.54     |  | 2.32     |  | 1.95     | 
|New
      Peruvian sol  |  | 3.51     |  | 3.45     |  | 3.53     | 
|Colombian
      peso    |  | 2,864.75 |  | 2,336.45 |  | 2,232.14 | 
|Argentine
      peso    |  | 3.37     |  | 1.7      |  | 1        | 
|Japanese
      yen      |  | 119.9    |  | 131.94   |  | 114,60   | 
|Euro                    |  | 0.95     |  | 1.13     |  | 1.06     | 
|Mexican
      peso      |  | 10.44    |  | 9.17     |  | 9.62     | 
|Indonesian
      ruppe  |  | 8,940    |  | 10,400   |  | —        | 
|Australian
      dollar |  | 1.79     |  | 1.96     |  | 1.80     | 
|Pound
      sterling    |  | 0.62     |  | 0.69     |  | —        | 

F-12

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Note
  2 - Summary of Significant Accounting Policies, continued

| |  | e) | Cash
      and cash equivalents                                                                                                                                                                                                                                  
| |  | -- | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |  |    |                                                                                                                                                                                                                                                                  
| |  |    | The
      Company considers all highly liquid investments with a remaining maturity
      of less than 90 days as of the closing date of the financial statements
      to be cash equivalents. As of December 31 cash and cash equivalents are
      as follows:
| |  |    |                                                                                                                                                                                                                                                                  

|                            | At
        December 31, | 
|--------------------------- | ----------------------- | 
|                            |                         | 
|                            | 2002                    | 
|                            |                         | 
|                            | ThCh$                   | 
|Cash                        | 10,937                  | 
|Time
      deposits         | 8,628                   | 
|Money
      market funds    | 43,940                  | 
|Repurchase
      agreements | 1,699                   | 
|                            |                         | 
|Total                       | 65,204                  | 
|                            |                         | 

| |  |    |                                                                                                                                                                                                                                                                                                        
| |  | -- | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |  | f) | Time Deposits                                                                                                                                                                                                                                                                                          
| |  |    |                                                                                                                                                                                                                                                                                                        
| |  |    | Time
      deposits are recorded at cost plus accrued interest.                                                                                                                                                                                                                                        
| |  |    |                                                                                                                                                                                                                                                                                                        
| |  | g) | Marketable securities                                                                                                                                                                                                                                                                                  
| |  |    |                                                                                                                                                                                                                                                                                                        
| |  |    | Marketable
        securities are recorded at the lower of cost plus accrued interest or
        market
      value.                                                                                                                                                                                   
| |  |    |                                                                                                                                                                                                                                                                                                        
| |  | h) | Allowance
    for doubtful accounts                                                                                                                                                                                                                                                                    
| |  |    |                                                                                                                                                                                                                                                                                                        
| |  |    | The
        Company records an allowance for doubtful accounts based on estimated
    probable losses.                                                                                                                                                                                                 
| |  |    |                                                                                                                                                                                                                                                                                                        
| |  | i) | Inventories and materials                                                                                                                                                                                                                                                                              
| |  |    |                                                                                                                                                                                                                                                                                                        
| |  |    | Inventories
      of finished products and work in process are valued at average production
      cost. Raw materials and products acquired from third parties are stated
      at average cost and materials-in-transit are valued at cost. All such values
      do not exceed net realizable values.
| |  |    |                                                                                                                                                                                                                                                                                                        
| |  |    | Inventories
      of non-critical spare parts and supplies are classified as other current
      assets, except for those items which the Company estimates to have a turnover
      period of one year or more, which are classified as other non-current assets.                                     
| |  |    |                                                                                                                                                                                                                                                                                                        
| |  | j) | Income and deferred taxes                                                                                                                                                                                                                                                                              
| |  |    |                                                                                                                                                                                                                                                                                                        
| |  |    | Prior
      to 2000, deferred income taxes were recorded based only on those non-recurring
      timing differences between the recognition of income and expense items for
      financial statement and tax purposes.                                                                                



F-13

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  Note
    2  Summary of Significant Accounting Policies, continued
  j)
      Income
        and deferred taxes, continuedUnder
        Chilean law, the Parent Company and its subsidiaries are required to file
        separate tax declarations.Beginning
        January 1, 2000, the Company records deferred income taxes in accordance
        with Technical Bulletin Nos. 60, 69 and 71 of the Chilean Association
        of Accountants, and with Circular No. 1466 issued on January 27, 2000
        by the SVS, recognizing the deferred tax effects of all temporary differences
        between the financial and tax values of assets and liabilities, using
        the liability method.The
        effect of the temporary differences existing at December 31, 1999 were
        recorded in complementary asset and liability accounts, and will be recognized
        in the statement of operations in the period in which they reverse.k)
      Property,
        plant and equipmentProperty,
        plant, equipment and property rights are recorded at cost, except for
        certain assets that were restated according to a 1988 technical appraisal.
        Depreciation expense has been calculated using the straight-line method
        based upon the estimated useful lives of the assets and is charged directly
        to expense.Fixed
        assets acquired through financing lease agreements are accounted for at
        the present value of the minimum lease payments plus the purchase option
        based on the interest rate included in each contract. The Company does
        not legally own these assets and therefore cannot freely dispose of them.In
        conformity with Bulletin No. 31 of the Chilean Association of Accountants,
        the Company capitalizes interest cost associated with the financing of
        new assets during the construction period of such assets.Maintenance
        costs of plant and equipment are charged to expenses as incurred.The
        Company obtains property rights and mining concessions from the Chilean
        state. Other than minor filing fees, the property rights are usually obtained
        without initial cost, and once obtained, are retained perpetually by the
        Company as long as the annual fees are paid. Such fees, which are paid
        annually in March, are recorded as prepaid assets to be amortized over
        the following twelve months. Values attributable to these original mining
        concessions received are being amortized on a straight-line basis over
        50 years.F-14
  
  Back to Contents
  Note
    2  Summary of Significant Accounting Policies, continued
  l)
      Investments
        in related companiesInvestments
        in related companies over which the Company has significant influence,
        are included in other assets and are recorded using the equity method
        of accounting. Accordingly, the Companys proportional share in the
        net income or loss of each investee is recognized in the non-operating
        income and expense classification in the consolidated statements of income
        on an accrual basis, after eliminating any unrealized profits from transactions
        with the related companies.The
        translation adjustment to U.S. dollars of investments in domestic subsidiaries,
        which maintain their accounting records and are controlled in Chilean
        pesos is recognized in the other reserves component of shareholders
        equity. Direct and indirect investments in foreign subsidiaries or affiliates
        are controlled in U.S. dollars.m)
      Goodwill
        and negative goodwillGoodwill
        is calculated as the excess of the purchase price of companies acquired
        over their net book value, whereas negative goodwill occurs when the net
        book value exceeds the purchase price of companies acquired. Goodwill
        and negative goodwill resulting from equity method investments are maintained
        in the same currency in which the investment was made and are amortized
        based on the estimated period of investment return, generally 20 and 10
        years for goodwill and negative goodwill, respectively.n)
      Intangible
          assetsIntangible
        assets are stated at cost plus acquisition expenses and are amortized
        over a period of up to a maximum of 40 years, in accordance with Technical
        Bulletin No. 55 of the Chilean Association of Accountants.o)
      Mining
        development costMining
        development costs are recorded in other non-current assets and are amortized
        on the unit of production basis.p)
      Accrued
        employee severanceThe
        Company calculates the liability for staff severance indemnities based
        on the present value of the accrued benefits for the actual years of service
        worked assuming an average employee tenure of 24 years and a real annual
        discount rate of 9%.
  F-15




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Note
  2  Summary of Significant Accounting Policies, continued

|q) | Vacations                                                                                                                                                                                                                                                                                                                                                                 
|-- | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|   |                                                                                                                                                                                                                                                                                                                                                                           
|   | The
      cost of employee vacations is recognized in the financial statements on
      an accrual basis.                                                                                                                                                                                                                                                                 
|   |                                                                                                                                                                                                                                                                                                                                                                           
|r) | Dividends                                                                                                                                                                                                                                                                                                                                                                 
|   |                                                                                                                                                                                                                                                                                                                                                                           
|   | Dividends
      are generally declared in U.S. dollars but are paid in Chilean pesos.                                                                                                                                                                                                                                                                                     
|   |                                                                                                                                                                                                                                                                                                                                                                           
|s) | Derivative
      Contracts                                                                                                                                                                                                                                                                                                                                                
|   |                                                                                                                                                                                                                                                                                                                                                                           
|   | The
      Company maintains derivative contracts to hedge against movements in foreign
      currencies, which are recorded in conformity with Technical Bulletin No.
      57. Such contracts are recorded at fair value with net losses recognized
      on the accrual basis and gains recognized when realized.                                                       
|   |                                                                                                                                                                                                                                                                                                                                                                           
|t) | Reclassifications                                                                                                                                                                                                                                                                                                                                                         
|   |                                                                                                                                                                                                                                                                                                                                                                           
|   | Certain
      reclassifications have been made in the 2000 and 2001 numbers to conform
      to the current year presentation.                                                                                                                                                                                                                                            
|   |                                                                                                                                                                                                                                                                                                                                                                           
|u) | Revenue
      recognition                                                                                                                                                                                                                                                                                                                                                 
|   |                                                                                                                                                                                                                                                                                                                                                                           
|   | Revenue
      is recognized on the date goods are delivered.                                                                                                                                                                                                                                                                                                              
|   |                                                                                                                                                                                                                                                                                                                                                                           
|v) | Computer
      software                                                                                                                                                                                                                                                                                                                                                   
|   |                                                                                                                                                                                                                                                                                                                                                                           
|   | In accordance
      with Circular No. 981 dated December 28, 1990 of the SVS computer systems
      acquired by the Company are recorded at cost.                                                                                                                                                                                                                         
|   |                                                                                                                                                                                                                                                                                                                                                                           
|x) | Research
      and development expenses                                                                                                                                                                                                                                                                                                                                   
|   |                                                                                                                                                                                                                                                                                                                                                                           
|   | Research
      and development costs are charged to the income statement in the period
      in which they are incurred. Fixed assets which are acquired for their use
      in research and development activities and are determined to provide additional
      benefits to the Company are recorded under the related item within property,
      plant and equipment.

Note
  3  Changes in Accounting Principles

There
  were no changes in the accounting principles used by the Company during 2002
  and 2001.

F-16

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Note 4  Marketable Securities

At
  December 31, 2001 the Company held fixed income instruments issued by the Central
  Bank of Chile, which are detailed as follows:

|                            |  | Date
      of |  | Maturity  |  | Book   |  | Interest |  | Market | 
|--------------------------- |  | ------------- |  | --------- |  | ------ |  | -------- |  | ------ | 
|Instrument                  |  | acquisition   |  | date      |  | value  |  | Rate     |  | value  | 
|                            |  |               |  |           |  |        |  |          |  |        | 
|                            |  |               |  |           |  | ThUS$  |  | %        |  | ThUS$  | 
|Central
      Bank of Chile |  | 10-4-2001     |  | 10-1-2005 |  | 2,026  |  | 5.25     |  | 2,074  | 
|Central
      Bank of Chile |  | 10-4-2001     |  | 10-1-2005 |  | 1,013  |  | 5.25     |  | 1,037  | 
|Central
      Bank of Chile |  | 10-5-2001     |  | 10-1-2005 |  | 2,026  |  | 5.30     |  | 2,070  | 
|Central
      Bank of Chile |  | 10-5-2001     |  | 10-1-2005 |  | 506    |  | 5.25     |  | 518    | 
|Central
      Bank of Chile |  | 10-5-2001     |  | 10-1-2005 |  | 1,316  |  | 5.25     |  | 1,348  | 
|Central
      Bank of Chile |  | 10-5-2001     |  | 10-1-2005 |  | 1,013  |  | 5.25     |  | 1,037  | 
|Central
      Bank of Chile |  | 10-5-2001     |  | 10-1-2005 |  | 1,013  |  | 5.25     |  | 1,037  | 
|Central
      Bank of Chile |  | 10-1-2001     |  | 08-1-2004 |  | 5,062  |  | 4.95     |  | 5,233  | 
|Others
      notes          |  | 12-31-2001    |  | 04-1-2002 |  | 175    |  | 9.00     |  | 175    | 
|                            |  |               |  |           |  |        |  |          |  |        | 
|                            |  |               |  |           |  | 14,150 |  |          |  | 14,529 | 
|                            |  |               |  |           |  |        |  |          |  |        | 

F-17

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Note
  5  Short-term and long-term Accounts Receivable

a)     Short
  term accounts receivable and other short term accounts receivable as of December
  31 are detailed as follows:

|                                      |                     |  |                  |  | Between
      90 days |  |        |  |          |   |          |   |         | 
|------------------------------------- | ------------------- |  | ---------------- |  | --------------------- |  | ------ |  | -------- | - | -------- | - | ------- | 
|                                      | Up
      to 90 days |  | and
      1 year |  | 2002                  |  | 2001   |  | Total    |  
|                                      |                     |  |                  |  |                       |  |        |  |          |  
|                                      | 2002                |  | 2001             |  | 2002                  |  | 2001   |  | Subtotal |   | Subtotal |   | 2002    | 
|                                      |                     |  |                  |  |                       |  |        |  |          |   |          |   |         | 
|                                      | ThUS$               |  | ThUS$            |  | ThUS$                 |  | ThUS$  |  | ThUS$    |   | ThUS$    |   | ThUS$   | 
|Trade
      accounts receivable       | 82,998              |  | 90,122           |  | 8,831                 |  | 10,435 |  | 91,829   |   | 100,557  |   | 87,256  | 
|Allowance
      for doubtful accounts |                     |  |                  |  |                       |  |        |  | (4,573   | ) | (4,473   | ) |         | 
|Notes
      receivable                | 20,152              |  | 23,424           |  | 2,816                 |  | 2,444  |  | 22,968   |   | 25,868   |   | 20,097  | 
|Allowance
      for doubtful accounts |                     |  |                  |  |                       |  |        |  | (2,871   | ) | (2,766   | ) |         | 
|                                      |                     |  |                  |  |                       |  |        |  |          |   |          |   |         | 
|Accounts
      receivable, net        |                     |  |                  |  |                       |  |        |  |          |   |          |   | 107,353 | 
|                                      |                     |  |                  |  |                       |  |        |  |          |   |          |   |         | 
|                                      |                     |  |                  |  |                       |  |        |  |          |   |          |   |         | 
|                                      |                     |  |                  |  |                       |  |        |  |          |   |          |   |         | 



|                                      |        |  |       |  |       |  |       |  | 2002     |   | 2001     |   | Total  | 
|------------------------------------- | ------ |  | ----- |  | ----- |  | ----- |  | -------- | - | -------- | - | ------ | 
|                                      |        |  |       |  |       |  |       |  |          |   |          |   |        | 
|                                      | 2002   |  | 2001  |  | 2002  |  | 2001  |  | Subtotal |   | Subtotal |   | 2002   | 
|                                      |        |  |       |  |       |  |       |  |          |   |          |   |        | 
|                                      | ThUS$  |  | ThUS$ |  | ThUS$ |  | ThUS$ |  | ThUS$    |   | ThUS$    |   | ThUS$  | 
|Other
      accounts receivable       | 11,993 |  | 7,429 |  | 2,743 |  | 2,467 |  | 14,736   |   | 9,896    |   | 13,612 | 
|Allowance
      for doubtful accounts |        |  |       |  |       |  |       |  | (1,124   | ) | (874     | ) |        | 
|                                      |        |  |       |  |       |  |       |  |          |   |          |   |        | 
|Other
      accounts receivable, net  |        |  |       |  |       |  |       |  |          |   |          |   | 13,612 | 
|                                      |        |  |       |  |       |  |       |  |          |   |          |   |        | 

Changes
  in the allowance for doubtful accounts for the years ended December 31 are as
  follows:

|                                | 2002  |   | 2001   |   | 2000  |  
|------------------------------- | ----- | - | ------ | - | ----- | -
|                                |       |   |        |   |       |  
|                                | ThUS$ |   | ThUS$  |   | ThUS$ |  
|Beginning
      balance         | 8,113 |   | 9,533  |   | 7,220 |  
|Charged
      to expenses       | 2,361 |   | 1,990  |   | 2,321 |  
|Deductions                      | (660  | ) | (2,775 | ) | (1    | )
|Exchange
      rate differences | (883  | ) | (862   | ) | (7    | )
|Reclassifications               | (363  | ) | 227    |   | —     |  
|                                |       |   |        |   |       |  
|Ending
      balance            | 8,568 |   | 8,113  |   | 9,533 |  
|                                |       |   |        |   |       |  

F-18

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Note
  5  Short-term and Long-term Accounts Receivable, continued

b)     Consolidated
  short term and long-term receivables by geographic location are detailed as
  follows:

|                                                   | Chile  |   | Europe,
      Africa and the
      Middle East |   | Asia
      andOceania |   | USA,
         Mexico and
      Canada |   | Latin
      America and
      the Caribbean |   | Total |  
|-------------------------------------------------- | ------ | - | ---------------------------------------------- | - | --------------------- | - | ------------------------------------- | - | ------------------------------------------- | - | ----- | -
|                                                   |        |   |                                                |   |                       |   |                                       |   |                                             |   |       |  
|                                                   | 2002   |   | 2001                                           |   | 2002                  |   | 2001                                  |   | 2002                                        |   | 2001  |  
|                                                   |        |   |                                                |   |                       |   |                                       |   |                                             |   |       |  
|                                                   | ThUS$  |   | ThUS$                                          |   | ThUS$                 |   | ThUS$                                 |   | ThUS$                                       |   | ThUS$ |  
|Net short-term trade accounts receivable           |        |   |                                                |   |                       |   |                                       |   |                                             |   |       |  
|Balance                                            | 23,367 |   | 24,399                                         |   | 20,265                |   | 23,461                                |   | 1,754                                       |   | 4,398 |  
|% of total                                         | 26.78  | % | 25.39                                          | % | 23.22                 | % | 24.42                                 | % | 2.01                                        | % | 4.58  | %
|                                                   |        |   |                                                |   |                       |   |                                       |   |                                             |   |       |  
|Net short-term notes receivable                    |        |   |                                                |   |                       |   |                                       |   |                                             |   |       |  
|Balance                                            | 17,210 |   | 20,397                                         |   | 1,027                 |   | 349                                   |   | 127                                         |   | 411   |  
|% of total                                         | 85.63  | % | 88.29                                          | % | 5.11                  | % | 1.51                                  | % | 0.63                                        | % | 1.78  | %
|                                                   |        |   |                                                |   |                       |   |                                       |   |                                             |   |       |  
|Net short-term other accounts receivable           |        |   |                                                |   |                       |   |                                       |   |                                             |   |       |  
|Balance                                            | 7,098  |   | 6,927                                          |   | 3,879                 |   | 470                                   |   | 57                                          |   | —     |  
|% of total                                         | 52.15  | % | 76.78                                          | % | 28.50                 | % | 5.21                                  | % | 0.42                                        | % | —     |  
|                                                   |        |   |                                                |   |                       |   |                                       |   |                                             |   |       |  
|Subtotal short-term accounts receivable, net       |        |   |                                                |   |                       |   |                                       |   |                                             |   |       |  
|Balance                                            | 47,675 |   | 51,723                                         |   | 25,171                |   | 24,280                                |   | 1,938                                       |   | 4,809 |  
|% of total                                         | 39.41  | % | 40.34                                          | % | 20.81                 | % | 18.94                                 | % | 1.60                                        | % | 3.75  | %
|                                                   |        |   |                                                |   |                       |   |                                       |   |                                             |   |       |  
|Long-term accounts receivable, net                 |        |   |                                                |   |                       |   |                                       |   |                                             |   |       |  
|Balance                                            | 7,763  |   | 12,146                                         |   | 62                    |   | 3                                     |   | —                                           |   | —     |  
|% of total                                         | 87.06  | % | 91.99                                          | % | 0.70                  | % | 0.02                                  | % | —                                           |   | —     |  
|                                                   |        |   |                                                |   |                       |   |                                       |   |                                             |   |       |  
|Total short and long-term accounts receivable, net |        |   |                                                |   |                       |   |                                       |   |                                             |   |       |  
|Balance                                            | 55,438 |   | 63,869                                         |   | 25,233                |   | 24,283                                |   | 1,938                                       |   | 4,809 |  
|% of total                                         | 42.68  | % | 45.17                                          | % | 19.43                 | % | 17.17                                 | % | 1.49                                        | % | 3.40  | %
|                                                   |        |   |                                                |   |                       |   |                                       |   |                                             |   |       |  

F-19

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Note
  6  Balances and Transactions with Related Parties

Accounts
  receivable from and payable to related companies are stated in US dollars and
  accrue no interest.

Transactions
  are made under terms and conditions which are similar to those offered to unrelated
  third parties.

a)   Amounts
  included in balances with related parties as of December 31, 2002 and 2001 are
  as follows:

|                                         
|-----------------------------------------
|Accounts
      receivable                
|                                         
|                                         
|                                         
|                                         
|Ajay
      Europe S.A.R.L.               
|SQM
      Italy S.R.L.                   
|Nutrisi
      Holding N.V.               
|Generale
      de Nutrition Vegetale S.A.
|Fertilizantes
      Olmeca S.A.          
|Mineag
      SQM Africa Limited          
|Abu
      Dhabi Fertilizer Ind. WLL      
|NU3
      N.V.                           
|Doktor
      Tarsa  SQM Turkey          
|Comercial
      Caimán Internacional S.A.
|SQM
      Venezuela S.A.                 
|SQM
      Lithium Specialties Limited    
|Empresas
      Melón S.A.                
|Sales
      de Magnesio S.A.             
|Ajay
      North America LLC             
|Norsh
      Hydro ASA                    
|Hydro
      Agri Int.-France             
|Hydro
      Asia Trade                   
|Hydro
      Agri France S.A.             
|Hydro
      Poland SP                    
|Hydro
      Agri Benelux B.V             
|Hydro
      Agri Hellas S.A.             
|Hydro
      Agri Australia Ltd.          
|Hydro
      Agri UK Ltd..                
|Hydro
      Agri GMBH & CO KG            
|Hydro
      Agri AB                      
|Hydro
      Agri Colombia                
|PCS
      Yumbes                         
|Hydro
      Agri Venezuela               
|NU3
      B.V.                           
|Agricolima                               
|Hydro
      Agri Argentina               
|Adubo
      Trevo S.A.                   
|Hydro
      Agri México S.A. de C.V.     
|SQM
      China                          
|                                         
|Total                                    
|                                         

F-20

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Note
  6  Balances and Transactions with Related Parties, continued

|a) | Amounts
      included in balances with related parties as of December 31, 2002 and 2001,
      continued:
|-- | ----------------------------------------------------------------------------------------------------------

|Accounts
      payable                       | Short-term | 
|-------------------------------------------- | ---------- | 
|                                             |            | 
|                                             | 2002       | 
|                                             |            | 
|                                             | ThUS$      | 
|Ajay
      Europe S.A.R.L.                   | 600        | 
|Adm.
      y Servicios Santiago S.A. de C.V. | —          | 
|Mineag
      SQM Africa Limited              | 750        | 
|Abu
      Dhabi Fertilizer Ind. WLL          | 90         | 
|NU3
      N.V.                               | 1,891      | 
|SCM
      Antucoya                           | 100        | 
|Ajay
      North America LLC                 | 51         | 
|Rotem
      Amfert Negev Limited             | 93         | 
|Hydro
      Agri Porsgrunn                   | 69         | 
|Hydro
      Fertilizante Ltda.               | 894        | 
|Hydro
      Agrícola internacional           | 206        | 
|Hydro
      Agri North America               | 69         | 
|Hydro
      Agri México de S.A de C.V.       | 120        | 
|Hydro
      Agri Int  France                | 612        | 
|Hydro
      Agri France                      | 7          | 
|Hydro
      Agri Colombia                    | 16         | 
|NU3
      B.V.                               | 394        | 
|                                             |            | 
|Total                                        | 5,962      | 
|                                             |            | 

| | There
      were no outstanding long-term accounts payable with related parties as of
      December 31, 2002 and 2001
| | ----------------------------------------------------------------------------------------------------------------------

F-21

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Note 6  Balances and Transactions with Related Parties, continued

|b) | During
      2002, 2001 and 2000, principal transactions with related parties were as
      follows:
|-- | ----------------------------------------------------------------------------------------------------

|                                        |  |                                    |  |                             |  | Amount
      of
      Transaction |  | Impact
      on income
      (charge) credit | 
|--------------------------------------- |  | ---------------------------------- |  | --------------------------- |  | --------------------------------- |  | -------------------------------------------- | 
|Company                                 |  | Relationship                       |  | Type
      of transaction   | 
|                                        |  |                                    |  |                             |  |                                   |  |                                              | 
|                                        |  |                                    |  |                             |  | 2002                              |  | 2001                                         | 
|                                        |  |                                    |  |                             |  |                                   |  |                                              | 
|                                        |  |                                    |  |                             |  | ThUS$                             |  | ThUS$                                        | 
|SQM
      Venezuela S.A                 |  | Indirect                           |  | Sales
      of products     |  | —                                 |  | 1,582                                        | 
|SQM
      Italy SRL                     |  | Indirect                           |  | Sales
      of products     |  | —                                 |  | 5,724                                        | 
|                                        |  | Indirect                           |  | Purchase
      of products  |  | —                                 |  | —                                            | 
|Fertilizantes
      Olmeca S.A. de C.V. |  | Indirect                           |  | Sales
      of products     |  | —                                 |  | 2,804                                        | 
|Comercial
      Caimán Internacional    |  | Indirect                           |  | Sales
      of products     |  | —                                 |  | 18                                           | 
|NU3
      N.V. (Belgica)                |  | Indirect                           |  | Sales
      of products     |  | 1,930                             |  | 12,995                                       | 
|NU3
      N.V.                          |  | Indirect                           |  | Purchase
      of products  |  | —                                 |  | 2                                            | 
|Doktor
      Tarsa                      |  | Indirect                           |  | Sales
      of products     |  | 1,557                             |  | 40                                           | 
|Mineag
      SQM Africa Ltd.            |  | Indirect                           |  | Sales
      of products     |  | 16,229                            |  | 10,612                                       | 
|Abu
      Dhabi Fertilizer WLL          |  | Indirect                           |  | Sales
      of products     |  | 1,878                             |  | 1,611                                        | 
|Nutrichem
      Benelux                 |  | Indirect                           |  | Sales
      of products     |  | —                                 |  | 29                                           | 
|Nutrisi
      Holding N.V.              |  | Indirect                           |  | Sales
      of products     |  | 2,590                             |  | 233                                          | 
|Generale
      de Nutrition Vegetable   |  | Indirect                           |  | Sales
      of products     |  | —                                 |  | 747                                          | 
|Ajay
      Europe S.A.R.L.              |  | Indirect                           |  | Sales
      of products     |  | 7,473                             |  | 7,994                                        | 
|Sales
      de Magnesio Ltda.           |  | Indirect                           |  | Sales
      of products     |  | 113                               |  | 98                                           | 
|SQM
      Lithium Specialties           |  | Development
      stage subsidiary |  | Sales
      of products     |  | —                                 |  | 93                                           | 
|SQM
      Mexico S.A. De C.V.           |  | Indirect                           |  | Sales
      of products     |  | —                                 |  | —                                            | 
|Potassium
      S.A.                    |  | Development
      stage subsidiary |  | Current
      account       |  | —                                 |  | —                                            | 
|El
      Trovador                       |  | Development
      stage subsidiary |  | Interest                    |  | —                                 |  | —                                            | 
|                                        |  | Development
      stage subsidiary |  | Rental                      |  | —                                 |  | —                                            | 
|NU3
      B.V.                          |  | Indirect                           |  | Sales
      of products     |  | 3,691                             |  | —                                            | 
|Adubo
      Trevo S.A.                  |  | Shareholder                        |  | Sales
      of products     |  | 869                               |  | —                                            | 
|PCS
      Yumbes SCM                    |  | Indirect                           |  | Sales
      of products     |  | 17,579                            |  | —                                            | 
|                                        |  |                                    |  | Purchases
      of products |  | 2,084                             |  | —                                            | 

F-22

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Note 6  Balances and Transactions with Related Parties, continued

|Company                                |  | Relationship |  | Type
      of transaction |  | Amount
      of
      Transaction |  | Impact
      on income
      (charge) credit |      
|-------------------------------------- |  | ------------ |  | ------------------------- |  | --------------------------------- |  | -------------------------------------------- | -----
|                                       |  |              |  |                           |  |                                   |  |                                              |      
|                                       |  |              |  |                           |  | 2002                              |  | 2001                                         | 2002 
|                                       |  |              |  |                           |  |                                   |  |                                              |      
|                                       |  |              |  |                           |  | ThUS$                             |  | ThUS$                                        | ThUS$
|Hydro
      Agri (U.K) Ltd.            |  | Shareholder  |  | Sales
      of products   |  | 932                               |  | —                                            |      
|Hydro
      Asia trade Pte Ltd.        |  | Shareholder  |  | Sales
      of products   |  | 5,055                             |  | —                                            |      
|Hydro
      Agri France S.A.           |  | Shareholder  |  | Sales
      of products   |  | 3,924                             |  | —                                            |      
|Hydro
      Agri Internacional         |  | Shareholder  |  | Sales
      of products   |  | 1,646                             |  | —                                            |      
|Hydro
      Agri Hellas S.A.           |  | Shareholder  |  | Sales
      of products   |  | 528                               |  | —                                            |      
|Hydro
      Agri Benelux B.V.          |  | Shareholder  |  | Sales
      of products   |  | 4,276                             |  | —                                            |      
|Hydro
      Agri AB Sweden             |  | Shareholder  |  | Sales
      of products   |  | 119                               |  | —                                            |      
|Hydro
      Agri Czech Republic SRO    |  | Shareholder  |  | Sales
      of products   |  | 23                                |  | —                                            |      
|Hydro
      Agri Rotterdam B.V.        |  | Shareholder  |  | Sales
      of products   |  | 534                               |  | —                                            |      
|Hydro
      Planta Nutrition, Cis Reg. |  | Shareholder  |  | Sales
      of products   |  | 647                               |  | —                                            |      
|Hydro
      Agri Nutri Oslo            |  | Shareholder  |  | Sales
      of products   |  | 126                               |  | —                                            |      
|Hydro
      Agri Australia Ltd.        |  | Shareholder  |  | Sales
      of products   |  | 1,212                             |  | —                                            |      
|Hydro
      Agri España S.A.           |  | Shareholder  |  | Sales
      of products   |  | 3,120                             |  | —                                            |      
|Hydro
      Agri Norge                 |  | Shareholder  |  | Sales
      of products   |  | 30                                |  | —                                            |      
|Hydro
      Fertilizantes Ltda         |  | Shareholder  |  | Sales
      of products   |  | 626                               |  | —                                            |      
|Hydro
      Agri International         |  | Shareholder  |  | Sales
      of products   |  | 1,941                             |  | —                                            |      
|Hydro
      Agri international, France |  | Shareholder  |  | Sales
      of products   |  | 3,363                             |  | —                                            |      
|Hydro
      Agri Argentina             |  | Shareholder  |  | Sales
      of products   |  | 1,313                             |  | —                                            |      
|Hydro
      Agri Colombia Ltda         |  | Shareholder  |  | Sales
      of products   |  | 257                               |  | —                                            |      
|Hydro
      Agri Venezuela             |  | Shareholder  |  | Sales
      of products   |  | 798                               |  | —                                            |      
|Hydro
      Agri Business Support      |  | Shareholder  |  | Services                  |  | 1,554                             |  | —                                            |      
|Hydro
      Agri GmbH & CO KG          |  | Shareholder  |  | Sales
      of products   |  | 359                               |  | —                                            |      

Note
  7  Inventories

Inventories
  are summarized as follows:

|                        | 2002    |  | 2001    | 
|----------------------- | ------- |  | ------- | 
|                        |         |  |         | 
|                        | ThUS$   |  | ThUS$   | 
|Finished
      products | 121,133 |  | 117,004 | 
|Work
      in process   | 99,873  |  | 80,509  | 
|Supplies                | 11,796  |  | 10,881  | 
|                        |         |  |         | 
|Total                   | 232,802 |  | 208,394 | 
|                        |         |  |         | 

F-23

---



Back to Contents

Note
  8  Property, Plant and Equipment

Property,
  plant and equipment are summarized as follows:

|                                     | 2002    |  | 2001    | 
|------------------------------------ | ------- |  | ------- | 
|                                     |         |  |         | 
|                                     | ThUS$   |  | ThUS$   | 
|Land                                 |         |  |         | 
|Land                                 | 13,453  |  | 13,453  | 
|Mining
      Concessions             | 29,840  |  | 28,745  | 
|                                     |         |  |         | 
|                                     | 43,293  |  | 42,198  | 
|                                     |         |  |         | 
|Buildings
      and infrastructure   |         |  |         | 
|Buildings                            | 156,244 |  | 152,007 | 
|Installations                        | 281,086 |  | 283,470 | 
|Construction-in-progress             | 36,485  |  | 23,726  | 
|Other                                | 891     |  | 1,857   | 
|                                     |         |  |         | 
|                                     | 474,706 |  | 461,060 | 
|                                     |         |  |         | 
|Machinery
      and Equipment        |         |  |         | 
|Machinery                            | 388,920 |  | 379,226 | 
|Equipment                            | 113,492 |  | 109,804 | 
|Other                                | 10,499  |  | 10,556  | 
|                                     |         |  |         | 
|                                     | 512,911 |  | 499,586 | 
|                                     |         |  |         | 
|Other
      fixed assets             |         |  |         | 
|Tools                                | 8,156   |  | 7,680   | 
|Furniture
      and office equipment | 18,218  |  | 18,446  | 
|SQM
      Salar S.A. Project         | 1,951   |  | 6,963   | 
|SQM
      Nitratos S.A. Project      | 8,369   |  | 10,172  | 
|SQM
      S.A. Project               | 6,253   |  | 1,302   | 
|Other                                | 486     |  | 176     | 
|                                     |         |  |         | 
|                                     | 43,433  |  | 44,739  | 
|                                     |         |  |         | 

F-24

---



Back to Contents

Note
  8  Property, Plant and Equipment, continued

|                                                                | 2002      |   | 2001      |  
|--------------------------------------------------------------- | --------- | - | --------- | -
|                                                                |           |   |           |  
|                                                                | ThUS$     |   | ThUS$     |  
|Amounts
      relating to technical revaluation of fixed assets |           |   |           |  
|Land                                                            | 8,651     |   | 8,651     |  
|Buildings
      and infrastructure                              | 40,627    |   | 40,627    |  
|Machinery
      and equipment                                   | 12,127    |   | 12,127    |  
|Other
      assets                                              | 53        |   | 53        |  
|                                                                |           |   |           |  
|                                                                | 61,458    |   | 61,458    |  
|                                                                |           |   |           |  
|Total
      property, plant and equipment                       | 1,135,801 |   | 1,109,041 |  
|                                                                |           |   |           |  
|                                                                |           |   |           |  
|Less:
      Accumulated depreciation                            |           |   |           |  
|Buildings
      and infrastructure                              | (169,386  | ) | (137,280  | )
|Machinery
      and equipment                                   | (240,426  | ) | (209,860  | )
|Other
      fixed assets                                        | (15,585   | ) | (23,447   | )
|Technical
      appraisal                                       | (31,346   | ) | (29,587   | )
|                                                                |           |   |           |  
|Total
      accumulated depreciation                            | (456,743  | ) | (400,174  | )
|                                                                |           |   |           |  
|                                                                |           |   |           |  
|Net
      property, plant and equipment                         | 679,058   |   | 708,867   |  
|                                                                |           |   |           |  

Depreciation expense for the twelve-months ended December 31, 2002, 2001 and 2000 includes ThUS$1,759, ThUS$ 1,759 and ThUS$ 2,040, respectively, arising from the depreciation of the increase of property, plant and equipment due to the technical appraisal.

|                                                   | 2002   |  | 2001   | 
|-------------------------------------------------- | ------ |  | ------ | 
|Depreciation
      for the year ended December 31: |        |  |        | 
|                                                   | ThUS$  |  | ThUS$  | 
|Buildings
      and infrastructure                 | 25,365 |  | 25,798 | 
|Machinery
      and equipment                      | 33,072 |  | 33,990 | 
|Other
      fixed assets                           | 1,283  |  | 1,610  | 
|Technical
      revaluation                        | 1,759  |  | 1,759  | 
|                                                   |        |  |        | 
|Total
      depreciation                           | 61,479 |  | 63,157 | 
|                                                   |        |  |        | 

F-25

---

Back to Contents


  Note
    8  Property, Plant and Equipment, continued
The Company has capitalized assets obtained through leasing, which are included in other fixed assets, which are detailed as follows:
2002
    
      2001ThUS$
    
      ThUS$Administrative
      office buildings
    1,988
    
    1,988Accumulated
      depreciation
    (363
    )
    (332
    )Total
      assets in leasing
    1,625
    
    1,656F-26

Back to Contents


    Note
      9  Investments in and Receivables from Related Parties
a)
    Information
      on foreign investments:There
      are no plans for the foreign investments to pay dividends, as it is the
      Companys policy to reinvest those earnings.The
      Company has not designated its foreign investments as net investment hedges.b)
    Transactions
      Executed in 2002On
      March 21, 2002, SQM North America Corporation acquired 50% of the affiliate
      SQM Venezuela S.A.. SQM S.A. now has ownership of 100% of SQM Venezuela
      S.A..On
      April 5, 2002, the subsidiary Royal Seed Trading Corporation A.V.V. formed
      a joint venture with Rui Xin Packaging Materials Sanhe Co. Ltd. contributing
      ThUS$ 121.On May
      1, 2002, the subsidiary Soquimich European Holdings B.V. acquired a 50%
      ownership of the affiliate Nutrichem N.V., which subsequently changed its
      name to Nutrisi Holding N.V.On May
      7, 2002, SQM Nitratos S.A. participated in the capital increase by SQM Brasil
      Ltda.. SQM Nitratos S.A. increased its ownership to 88.54% as SQM Químicos
      S.A. did not participate in the increase and therefore reduced its ownership
      to 11.46%.During
      May 2002, PSH Limited contributed additional capital of ThUS$ 250 to Ajay
      Europe S.A.R.L, an equity method investee, in order to maintain their 50%
      ownership interest.During
      May 2002, Soquimich European Holding increased its ownership in its affiliate
      FNC Italy S.R.L. to 95%. Because of this transaction, FNC Italy S.R.L. became
      an indirect subsidiary of SQM S.A. Subsequently, FNC Italy S.R.L. changed
      its name to SQM Italia S.R.L.On May
      28, 2002, the subsidiary Inversiones y Asesorías SQM Limitada changed
      its name to Almacenes y Depósitos Ltda.On June
      12, 2002, Soquimich European Holding acquired 50% of Impronta S.R.L.On August
      31, 2002, SQM S.A acquired shares in Cía. Industrial y Minera S.A.
      (Cimin S.A) for ThUS$ 5,016 from SQM Nitratos S.A, which caused
      SQM S.A. to become the sole shareholder in Cimin S.A. and consequently under
      Chilean Corporations Law Cimin S.A. was dissolved.On September
      11, 2002, SQM Investment Corporation N.V., acquired a 100% ownership of
      the subsidiary Comercial Caiman Internacional S.A. for US$ 1,000. This operation
      generated goodwill of ThUS$ 228.F-27
Back to Contents


      Note
        9  Investments in and Receivables from Related Companies, continued
b)
          Transactions
            Executed in 2002, continuedOn September
      27, 2002, SQM Nitratos S.A made a contribution of capital of ThUS$ 12,040
      to SQM North America Corporation, and as a result increased its ownership
      to 39.95%. As neither SQM S.A. nor Soquimich European Holding participated
      in the capital increase their ownership reduced from 81.75% to 49.09% and
      from 18.25% to 10.96% respectively. As all of these companies are consolidated
      there is no effect at the consolidated entity level.On September
            30, 2002, SQM SA acquired shares in SCM SQM Boratos amounting to ThUS$
            887, which were previously owned by SQM Nitratos S.A.. Because of
            this transaction, SQM S.A. became the sole shareholder in SCM SQM
            Boratos and consequently under Chilean Corporations Law Boratos was
            dissolved.On October
            31, 2002, PSH Limited transferred shares that it held in Ajay Europe
            to SQM Corporation N.V.On
      November 30, 2002, the subsidiary SQM Nitratos S.A. acquired shares in Sociedad
      Minera de Chile S.A. (Somich) which were previously owned by
      SQM S.A.. Because of this transaction SQM Nitratos S.A. became the sole
      shareholder in Somich and consequently under Chilean Corporations Law Somich
      was dissolved.On
      December 18, 2002, SQM Potasio S.A. acquired the shares in SQM Japan KK,
      which were previously owned by SQM Químicos S.A., for ThUS$ 280.
      This transaction did not generate goodwill.On
      December 18, 2002, SQM Potasio S.A. acquired shares in SQMC Holding Corporation
      LLP which were previously owned by SQM Químicos S.A.,. The amount
      paid was ThUS$ 2,297. This transaction did not generate goodwill.On
      December 18, 2002, SQM Potasio S.A. acquired shares in SQI Corporation N.V.,
      which were previously owned by SQM Químicos S.A., for ThUS$ 97. This
      transaction did not generate goodwill.On
      December 23, 2002, SQM S.A. and Inversiones Pascuala S.A., a non-related
      party, acquired shares in SQM Nitratos S.A., which were previously owned
      by SQM Químicos S.A.On
      December 23, 2002 the shareholders of both SQM Potasio S.A. and SQM Salar
      S.A. voted to de-list their respective companies with the SVS.F-28
Back to Contents


        Note
          9  Investments in and Receivables from Related Parties, continued
b)
            Transactions
              Executed in 2002, continuedOn
      December 31, 2002, SQM S.A. acquired shares in SQM Químicos which
      were previously owned by Inversiones Pascuala S.A., a non-related party.
      Because of this transaction SQM S.A. became the only shareholder in SQM
      Químicos S.A. and consequently SQM Químicos S.A. was dissolved.c)
    Transactions
      executed in 2001On
      January 22, 2001, Sales de Magnesio Ltda. was formed though equal contributions
      by SQM Salar S.A. and by Sociedad Chilena del Litio S.A. (non-related party).At
      the Extraordinary Shareholders Meeting of Productos Técnicos
      del Mediterráneo S.A. held on February 14, 2001, the shareholders
      agreed to change the companys name to PTM  SQM Ibérica
      S.A.At
      the Extraordinary Shareholders Meeting of Industrias Químicas
      de Yodo S.A. held on September 26, 2001, the shareholders agreed to change
      the companys name to Ajay  SQM Chile S.A.On
      December 19, 2001, SQM Nitratos acquired 10.35% of the ownership of Potassium
      S.A., and increased its ownership percentage to 100%. Subsequently, Potassium
      S.A. was merged into SQM Nitratos.On
      December 27, 2001, SQM S.A. made a capital contribution amounting to ThUS$
      18,000 to SQM North
      America Corporation, and as a result increased its ownership to 81.75%.
      Soquimich European Holding did not participate in the related capital increase.On
      December 31, 2001, Energía y Servicios S.A. acquired all the shares
      of Minera Mapocho S.A., and was consequently merged into Energía
      y Servicios S.A.On
      December 31, 2001, SQM Potasio S.A. and SQM S.A. acquired all the shares
      of the affiliate SQM México S.A. de C. V., which subsequently merged
      with the subsidiary SQM Comercial de México S.A. de C.V.On
      December 31, 2001, Energía y Servicios S.A. acquired all the shares
      of Inversiones Augusta S.A., and was merged into Energía y Servicios
      S.A.F-29
Back to Contents
          Note
            9  Investments in and Receivables from Related Companies, continued


d)
    Detail
      of investments in related companies
          Tax
                Registration
                Number
              
              Company
              
              Country
                of origin
              
              Controlling
                currency
              
              Number
                of shares
              
              Ownership
                interest
              
              Equity
                of companies
              
              Book
                value of investment
              
              Net
                income (loss)
              
              Equity
                participation in net income (loss)2002
              
              2001
              
              2002
              
              2001
              
              2002
              
              2001
              
              2002
              
              2001
              
              2000
              
              2002
              
              2001
              
              2000%
              
              %
              
              ThUS$
              
              ThUS$
              
              ThUS$
              
              ThUS$
              
              ThUS$
              
              ThUS$
              
              ThUS$
              
              ThUS$
              
              ThUS$
              
              ThUS$93390000-2
              
              Empresas
                Melón S.A.
              
              Chile
              
              —
              
              653,748,837
              
              14.05
              
              14.05
              
              260,890
              
              265,022
              
              36,655
              
              37,236
              
              21,485
              
              9,195
              
              8,419
              
              3,019
              
              1,292
              
              1,1830-E
              
              SQM
                Lithium Specialties LLP*
              
              USA
              
              US$
              
              —
              
              100.00
              
              100.00
              
              25,911
              
              17,609
              
              25,911
              
              17,609
              
              (1,438
              )
              —
              
              —
              
              —
              
              —
              
              —0-E
              
              Ajay
                North America
              
              USA
              
              US$
              
              —
              
              49.00
              
              49.00
              
              13,332
              
              14,441
              
              6,533
              
              7,076
              
              (198
              )
              589
              
              500
              
              (97
              )
              289
              
              24577093830-9
              
              SCM
                Antucoya*
              
              Chile
              
              —
              
              490
              
              100.00
              
              100.00
              
              6,650
              
              6,650
              
              6,650
              
              6,650
              
              —
              
              —
              
              —
              
              —
              
              —
              
              —0-E
              
              Abu
                Dhabi Fertilizer
                Industries WLL
              
              UAE
              
              US$
              
              1,961
              
              37.00
              
              37.00
              
              3,136
              
              3,675
              
              1,160
              
              1,360
              
              135
              
              (433
              )
              —
              
              50
              
              (160
              )
              —0-E
              
              Fertilizantes
                Olmeca y SQM S.A. de C.V.
              
              Mexico
              
              Mex.$
              
              3,300
              
              50.00
              
              50.00
              
              2,087
              
              1,988
              
              1,044
              
              994
              
              100
              
              (460
              )
              —
              
              50
              
              (230
              )
              —0-E
              
              Nutrisi
                Holding N.V.
              
              Belgium
              
              US$
              
              —
              
              50.00
              
              50.00
              
              1,221
              
              1,338
              
              611
              
              578
              
              (652
              )
              4
              
              (250
              )
              (326
              )
              2
              
              (1250-E
              
              Mineag
                SQM Africa Limited
              
              South
                Africa
              
              US$
              
              —
              
              50.00
              
              50.00
              
              835
              
              652
              
              418
              
              326
              
              416
              
              313
              
              —
              
              208
              
              156
              
              —0-E
              
              Doktor
                Tarsa
              
              Turkey
              
              US$
              
              —
              
              50.00
              
              50.00
              
              494
              
              472
              
              247
              
              236
              
              212
              
              —
              
              —
              
              106
              
              —
              
              —0-E
              
              SQM
                Italy S.R.L.
              
              Italy
              
              US$
              
              —
              
              95.00
              
              25.00
              
              —
              
              476
              
              —
              
              119
              
              —
              
              208
              
              —
              
              —
              
              52
              
              —0-E
              
              SQM
                Venezuela S.A.
              
              Venezuela
              
              US$
              
              59,550
              
              50.00
              
              50.00
              
              —
              
              160
              
              —
              
              59
              
              —
              
              99
              
              —
              
              —
              
              49
              
              —0-E
              
              Ajay
                Europe S.A.R.L.
              
              France
              
              US$
              
              36,700
              
              50.00
              
              50.00
              
              650
              
              135
              
              325
              
              68
              
              (100
              )
              (249
              )
              (182
              )
              (50
              )
              (124
              )
              (9177557430-5
              
              Sales
                de Magnesio Ltda.
              
              Chile
              
              —
              
              —
              
              50.00
              
              50.00
              
              196
              
              96
              
              98
              
              48
              
              92
              
              (71
              )
              —
              
              46
              
              (35
              )
              —Asoc.
                Garantizadora Pensiones
              
              Chile
              
              —
              
              —
              
              3.31
              
              3.31
              
              709
              
              778
              
              23
              
              26
              
              —
              
              —
              
              —
              
              —
              
              —
              
              —0-E
              
              Rui
                Xin Packaging Materials Sanhe Co. Ltd.
              
              China
              
              US$
              
              —
              
              25.00
              
              —
              
              480
              
              —
              
              120
              
              —
              
              —
              
              —
              
              —
              
              —
              
              —
              
              —0-E
              
              Impronta
                SRL
              
              Italia
              
              Euros
              
              —
              
              50.00
              
              —
              
              48
              
              —
              
              24
              
              —
              
              —
              
              —
              
              —
              
              —
              
              —
              
              —Total
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              79,819
              
              72,385*
              In development
                stageF-30

          Back
            to Contents
          Note 10 
            Goodwill and Negative Goodwill
          Goodwill and negative
    goodwill and the related amortization is summarized as follows:
a)
    GoodwillDecember
      31,2002
    
    2001
    
    2000Tax Registration Number
    Company
    Amount amortized
    during the periodThUS$
    
    Goodwill
    Balance, netThUS$
    
    Amount amortized
    during the periodThUS$
    
    Goodwill
    Balance, netThUS$
    
    Amount amortized
    during the periodThUS$
    
    Goodwill
    Balance, netThUS$0-E
    PTM  SQM Ibérica
      S.A.
    20
    
    80
    
    20
    
    100
    
    20
    
    1200-E
    Doktor Tarsa
    63
    
    145
    
    22
    
    393
    
    16
    
    41479768170-9
    Soquimich Comercial
      S.A.
    150
    
    422
    
    150
    
    573
    
    150
    
    72378208790-8
    SCM SQM Boratos
    65
    
    0
    
    16
    
    65
    
    16
    
    8093390000-2
    Empresas Melón
      S.A.
    505
    
    7,505
    
    543
    
    8,778
    
    636
    
    10,58679626800-K
    SQM Salar S.A.
    43
    
    126
    
    43
    
    169
    
    43
    
    2120-E
    SQM México S.A.
      de C.V.
    56
    
    1,058
    
    —
    
    1,114
    
    —
    
    —96864750-4
    SQM Potassium
    145
    
    2,024
    
    —
    
    2,168
    
    —
    
    —0-E
    SQM Venezuela S.A.
    166
    
    0
    
    —
    
    —
    
    —
    
    —0-E
    Comercial Caiman Internacional
      S.A.
    6
    
    222
    
    —
    
    —
    
    —
    
    —Total
    
    1,219
    
    11,582
    
    794
    
    13,360
    
    881
    
    12,135b)
    Negative GoodwillDecember
      31,2002
    
    2001
    
    2000Tax RegistrationNumber
    Company
    Amount amortized
    during the periodThUS$
    
    Negativegoodwill
    Balance, netThUS$
    
    Amount amortized
    during the periodThUS$
    
    Negativegoodwill
      Balance, net
    ThUS$
    
    Amount amortized
    during the periodThUS$
    
    Negative
    goodwillBalance, netThUS$79626800-K
    SQM Salar S.A.
    211
    
    175
    
    211
    
    386
    
    211
    
    59696575300-1
    Minera Mapocho S.A.
    203
    
    678
    
    203
    
    881
    
    203
    
    1,084Total
    
    414
    
    853
    
    414
    
    1,267
    
    414
    
    1,680F-31

Back to Contents
          Note
            11  Other Non-current Assets
  Other
  non-current assets are summarized as follows:

          2002
              
              2001ThUS$
              
              ThUS$Engine
                and equipment spare-parts, net
              25,250
              
              32,387Nitrate
                deposit development costs
              3,865
              
              5,252Mineral
                development costs
              14,418
              
              11,138Pension
                plan
              1,223
              
              2,691Construction
                of Salar-Baquedano road
              1,890
              
              2,010Deferred
                loan issuance costs
              3,962
              
              5,208Other
                assets
              1,224
              
              1,002Total
              51,832
              
              59,688Note
            12  Bank Debt

a)
    Short-term
      bank debt is detailed as follows:Bank
                or financial institution
              2002
              
              2001ThUS$
              
              ThUS$Banco
                Santiago
              —
              
              15,291Banco
                A. Edwards
              —
              
              4,206Banco
                Estado
              —
              
              13,212Banco
                Santander
              —
              
              10,132Banco
                Crédito e Inversiones
              —
              
              4,522Citibank
              —
              
              10,454Other
                banks
              2,559
              
              3,380Total
              2,559
              
              61,197Annual
                average interest rate
              4.25
              %
              4.81
              %F-32
Back to Contents

          Note
            12  Bank Debt, continued

b)
    Long-term
      bank debt2002
    
    2001ThUS$
    
    ThUS$Union
                Bank of Switzerland (1)
    204,577
    
    204,577ING
                Bank (2)
    60,020
    
    121,782Bank
                of America (3)
    80,207
    
    80,239Corpbanca
              —
    
    12,233Total
    344,804
    
    418,831Less:
      Current portion
    (20,804
    )
    (6,831
    )Long-term
                portion
    324,000
    
    412,000(1)
    U.S.
      dollar-denominated loan without guarantee, interest rate of 7.7% per annum,
      paid semi-annually. The principal is due on September 15, 2006.(2)
    U.S.
      dollar-denominated loan without guarantee, interest rate of 2.4% per annum,
      paid semi-annually. The principal is due to be paid in two equal installments
      in December 2005 and December 2006.(3)
    U.S.
      dollar-denominated loan without guarantee, interest rate of 2.582% per annum,
      paid semi-annually. The principal is divided into five equal semi-annual
      partial installments, beginning in November 2003 with the final installment
      payable in November 2005.The maturity of long-term debt is as follows:
2002
    
    2001ThUS$
    
    ThUS$Years
      to maturityCurrent
      portion
    20,804
    
    6,8311 to
      2 years
    32,000
    
    148,0002 to
      3 years
    62,000
    
    32,0004 to
      5 years
    230,000
    
    232,000Total
    344,804
    
    418,831F-33

Back to Contents

          Note
            13  Accrued Liabilities
As of
      December 31, 2002 and 2001, accrued liabilities consisted of:
2002
    
    2001ThUS$
    
    ThUS$Provision
      for royalties
    898
    
    774Quarterly
      bonus
    462
    
    157Suppliers
    335
    
    913Commissions
      on consignment goods
    418
    
    432Taxes
      and monthly income tax installment payments
    499
    
    1,419Vacation
      accrual
    5,088
    
    5,220Accrued
      employee benefits
    586
    
    154Warehouse
      expenses
    147
    
    148Other
      accruals
    2,389
    
    1,305Marketing
      expenses
    1,554
    
              —Total
      current liabilities
    12,376
    
    10,522Note
      14  Income Taxes and Deferred Income Taxes

a)
    As of December 31, 2002, 2001 and 2000, the Company has the following consolidated balances for retained tax earnings, income not subject to taxes, tax loss carry-forwards and credit for shareholders:2002
    
    2001
    
    2000ThUS$
    
    ThUS$
    
    ThUS$Accumulated
      tax basis retained earningswith
      tax credit
    18,712
    
    15,586
    
    18,901Accumulated
      tax basis retained earningswith
      no credit
    10
    
    4,227
    
              —Income
      not subject to taxes
              —
    
    2,776
    
    18,351Tax
      loss carry-forwards (1)
    97,497
    
    139,252
    
    120,361Credit
      for shareholders
    3,424
    
    2,751
    
    3,000(1)
    Income
      tax losses in Chile can be carried forward indefinitely.F-34

Back to Contents


          Note
            14  Income Taxes and Deferred Income Taxes, continued
b)
    The
      deferred income taxes as of December 31, 2002 and 2001 represented a net
      liability of ThUS$ 15,388 and ThUS$ 7,373, respectively, and is detailed
      as follows:2002
    Deferred
      tax asset
    
    Deferred
      tax liabilityShort-term
    
    Long-term
    
    Short-term
    
    Long-termThUS$
    
    ThUS$
    
    ThUS$
    
    ThUS$Temporary
      differencesAllowance
      for doubtful accounts
    968
    
    602
    
              —
    
              —Vacation
      accrual
    767
    
              —
    
              —
    
              —Unrealized
      gain on sale of products
    5,310
    
              —
    
              —
    
              —Provision
      for obsolescence
              —
    
    1,651
    
              —
    
              —Production
      expenses
              —
    
              —
    
    12,794
    
              —Accelerated
      depreciation
              —
    
              —
    
              —
    
    58,833Exploration
      expenses
              —
    
              —
    
              —
    
    4,122Capitalized
      interest
              —
    
              —
    
              —
    
    6,451Staff
      severance indemnities
              —
    
              —
    
              —
    
    1,651Accrued
      expenses
              —
    
              —
    
              —
    
    425Capitalized
      expenses
              —
    
              —
    
              —
    
    828Tax
      loss carry-forwards
              —
    
    19,138
    
              —
    
              —Losses
      from derivative transactions
    319
    
              —
    
              —
    
              —Other
    626
    
    788
    
    75
    
    247Total
      gross deferred taxes
    7,990
    
    22,179
    
    12,869
    
    72,557Total
      complementary accounts
    (2
    )
    (781
    )
    (4,723
    )
    (36,704
    )Valuation
      allowance
              —
    
    (775
    )
              —
    
              —Total
      deferred taxes
    7,988
    
    20,623
    
    8,146
    
    35,853F-35

Back to Contents


          Note
            14  Income Taxes and Deferred Income Taxes, continued

2001
    Deferred
      tax asset
    
    Deferred
      tax liabilityShort-term
    
    Long-term
    
    Short-term
    
    Long-termThUS$
    
    ThUS$
    
    ThUS$
    
    ThUS$Temporary
      differencesAllowance
      for doubtful accounts
    259
    
    1,021
    
    —
    
    —Vacation
      accrual
    830
    
    —
    
    —
    
    —Unrealized
      gain on sale of products
    5,344
    
    —
    
    60
    
    —Other
      unrealized gains
    331
    
    591
    
    —
    
    —Provision
      for obsolescence
    —
    
    631
    
    —
    
    —Production
      expenses
    233
    
    —
    
    9,269
    
    —Accelerated
      depreciation
    —
    
    —
    
    —
    
    56,309Exploration
      expenses
    —
    
    —
    
    —
    
    4,623Capitalized
      interest
    —
    
    —
    
    1
    
    6,643Staff
      severance indemnities
    —
    
    —
    
    —
    
    2,609Accrued
      expenses
    —
    
    —
    
    400
    
    —Capitalized
      expenses
    —
    
    —
    
    —
    
    1,106Tax
      loss carry - forwards
    —
    
    25,612
    
    —
    
    —Other
    132
    
    —
    
    72
    
    252Total
      gross deferred taxes
    7,129
    
    27,855
    
    9,802
    
    71,542Total
      complementary accounts
    (136
    )
    (7,209
    )
    (4,230
    )
    (42,102
    )Total
      deferred taxes
    6,993
    
    20,646
    
    5,572
    
    29,440F-36

Back to Contents
Note
  14  Income Taxes and Deferred Income Taxes, continued
c)    Income
      tax expense is summarized as follows:



2002
    
    2001
    
    2000ThUS$
    
    ThUS$
    
    ThUS$Provision
      for current income tax
    (2,911
    )
    (2,370
    )
    (2,448
    )Effect
      of deferred tax assets and liabilities
    (9,344
    )
    (7,115
    )
    (6,582
    )Effect
      of amortization of complementary accounts
    1,405
    
    2,463
    
    (551
    )Effect
      on deferred tax assets and liabilities due to changesin
      valuation provision
    (775
    )
    —
    
    —Other
      tax charges and credits
    861
    
    (516
    )
    4,720Total
      income tax expense
    (10,764
    )
    (7,538
    )
    (4,861
    )Note
  15  Staff Severance Indemnities
Staff
  severance indemnities are summarized as follows:
          2002
              
              2001ThUS$
              
              ThUS$Opening
                balance
              8,326
              
              6,563Increases
                in obligation
              4,046
              
              6,624Payments
              (1,672
              )
              (4,089
              )Exchange
                difference
              (1,557
              )
              (772
              )Balance
                as of December 31
              9,143
              
              8,326F-37

Back to Contents
Note
  16  Minority Interest
Minority
  interest is summarized as follows:



Equity
    
    Net
      Income/(Loss)2002
    
    2001
    
    2002
    
    2001
    
    2000ThUS$
    
    ThUS$
    
    ThUS$
    
    ThUS$
    
    ThUS$Soquimich
      Comercial S.A.
    19,520
    
    20,142
    
    (1,867
    )
    (1,804
    )
    (2,378
    )Ajay
      SQM Chile S.A.
    3,185
    
    3,054
    
    (362
    )
    (376
    )
    (334
    )Cape
      Fear Bulk LLC
    104
    
    43
    
    (100
    )
    (50
    )
    (107
    )SQM
      Indonesia
    —
    
    8
    
    9
    
    —
    
    —Fenasa
    220
    
    183
    
    (45
    )
    (37
    )
    (111
    )SQM
      México S.A.
    —
    
    —
    
    —
    
    (116
    )
    —SQM
      Italia S.R.L
    20
    
    —
    
    4
    
    —
    
    —Total
    23,049
    
    23,430
    
    (2,361
    )
    (2,383
    )
    (2,930
    )F-38


Back to Contents
          Note
            17  Shareholders’ Equity
a)    Changes
  to Shareholders’ Equity Consisted of:

****
    ****
    ****
    ****
    ****
    ****
    ****
    **Accumulated**
    ****
    ****
    ****
    ****
    ****
    ********
    ****
    ****
    **deficit
      from**
    ****
    ****
    ********
    ****
    ****
    **subsidiary
      in**
    ****
    ****
    ******Number**
    **Paid-in**
    **Other**
    **development**
    **Retained**
    **Net**
    ******of
      shares**
    **capital**
    **Reserves**
    **stage**
    **earnings**
    **income**
    **Total******
    **ThUS$**
    **ThUS$**
    **ThUS4**
    **ThUS$**
    **ThUS$**
    **ThUS$**Balance
      December 31, 1999
    263,196,524
    
    477,386
    
    143,402
    
    (1,816
    )
    157,363
    
    48,075
    
    824,410Transfer
      1999 net income to retained earnings
    —
    
    —
    
    —
    
    —
    
    48,075
    
    (48,075
    )
    —Declared
      dividends 2000
    —
    
    —
    
    —
    
    —
    
    (23,831
    )
    —
    
    (23,831
    )Accumulated
      deficit from subsidiary in development stage (1)
    —
    
    —
    
    —
    
    (16
    )
    —
    
    —
    
    (16
    )Other reserves
      (2)
    —
    
    —
    
    (3,574
    )
    —
    
    —
    
    —
    
    (3,574
    )Net income
      for the year
    —
    
    —
    
    —
    
    —
    
    —
    
    27,104
    
    27,104Balance
      December 31, 2000
    263,196,524
    
    477,386
    
    139,828
    
    (1,832
    )
    181,607
    
    27,104
    
    824,093Transfer
      December 31,2000 net income to retained earnings
    —
    
    —
    
    —
    
    —
    
    27,104
    
    (27,104
    )
    —Declared
      dividends 2001
    —
    
    —
    
    —
    
    —
    
    (13,345
    )
    —
    
    (13,345
    )Accumulated
      deficit from subsidiary in development stage (1)
    —
    
    —
    
    —
    
    (391
    )
    —
    
    —
    
    (391
    )Other reserves
      (2)
    —
    
    —
    
    (8,762
    )
    —
    
    —
    
    —
    
    (8,762
    )Net income
      for the year
    —
    
    —
    
    —
    
    —
    
    —
    
    30,102
    
    30,102Balance
      December 31, 2001
    263,196,524
    
    477,386
    
    131,066
    
    (2,223
    )
    195,366
    
    30,102
    
    831,697Transfer
      December 31, 2001 net income to retained earnings
    —
    
    —
    
    —
    
    —
    
    30,102
    
    (30,102
    )
    —Declared
      dividends 2002
    —
    
    —
    
    —
    
    —
    
    (14,844
    )
    —
    
    (14,844
    )Accumulated
      deficit from subsidiary in development stage (1)
    —
    
    —
    
    —
    
    (1,438
    )
    —
    
    —
    
    (1,438
    )Other reserves
      (2)
    —
    
    —
    
    (5,955
    )
    —
    
    —
    
    —
    
    (5,955
    )Net income
      for the year
    —
    
    —
    
    —
    
    —
    
    —
    
    40,202
    
    40,202Balance
      December 31, 2002
    263,196,524
    
    477,386
    
    125,111
    
    (3,661
    )
    210,624
    
    40,202
    
    849,662(1)

    The
      accumulated deficit is entirely attributable to SQM Lithium Specialties
      Limited as it is the only development stage subsidiary in operation.(2)
              Other
                reserves includes translation adjustments, and in 2002 also includes
                the effect of the recognition of an additional liability for the
                Companys under-funded pension plan as of December
                31, 2002.F-39

Back to Contents


Note 17 - Shareholders Equity, continued
b)   The
  composition of other comprehensive income as of December 31, 2002 is as follows:

For
      the year endedDecember 31,2002
    
    As
      ofDecember 31,2002ThUS$
    
    ThUS$Technical
      appraisal
    
    
    —
    
    151,345Changes
      to other comprehensive income from equitymethod
      investments:Soquimich
      Comercial S.A. (1)
    
    
    (1,792
    )
    (8,916
    )Isapre
      Note Grande Ltda. (1)
    
    
    (19
    )
    (98
    )Inversiones
      Augusta S.A. (1)
    
    
    —
    
    (761
    )SQM
      Ecuador S.A. (1)
    
    
    —
    
    (270
    )Almacenes
      y Depósitos Ltda. (1)
    
    
    (21
    )
    (91
    )Asociación
      Garantizadora de Pensiones (1)
    
    
    (3
    )
    (17
    )Empresas
      Melón S.A. (1)
    
    
    (2,973
    )
    (15,635
    )Sales
      de Magnesio Ltda. (1)
    
    
    —
    
    (17
    )SQM
      North America Corp. (2)
    
    
    (1,147
    )
    (1,147
    )Other
      Companies (1)
    
    
    —
    
    718Total
      other comprehensive income
    
    
    (5,955
    )
    125,111(1)
    Corresponds
      to translation adjustment and monetary correction.(2)
    Corresponds
      to the effect of the recognition of an additional liability for the Companys
      under-funded pension as of December 31, 2002.c)
    Capital
      consists of 263,196,524 fully authorized, subscribed and paid shares with
      no par value, divided into 142,819,552 Series A shares and 120,376,972 Series
      B shares.The
      preferential voting rights of each series are as follows:Series
      A:
    
    If
      the election of the president of the Company results in a tied vote, the
      Company's directors may vote once again, without the vote of the director
      elected by the Series B shareholders.Series
      B:
    1)
    A
      general or extraordinary shareholders' meeting may be called at the request
      of shareholders representing 5% of the Company's Series B shares.2)
    An
      extraordinary meeting of the Board of Directors may be called with or without
      the agreement of the Company's president, at the request of a director elected
      by Series B shareholders.F-40

Back to Contents


Note 18  Derivatives Instruments
Derivative
  instruments are recorded at their fair value at year-end. Changes in fair value
  are recognized in income with the liability recorded in other current liabilities.
  Losses from options relate to fees paid by the Company to enter into such contracts.
  As of December 31, 2002 and 2001, the Companys derivative instruments
  are detailed as follows:2002Type
    ofderivative
    
    Notional
      or covered amount
    
    Expiration
    
    Description
    of the contract type
    
    Position purchase/sale
    
    Liability amount
    
    Income (loss)
    recordedUS dollar
      Forward
    
    1,000
    
    1st
      quarter of 2003
    
    Exchange
      rate
    
    P
    
    17
    
    (17
    )US dollar
      Forward
    
    1,000
    
    1st
      quarter of 2003
    
    Exchange
      rate
    
    P
    
    18
    
    (18
    )US dollar
      Forward
    
    2,000
    
    1st
      quarter of 2003
    
    Exchange
      rate
    
    P
    
    16
    
    16US dollar
      Forward
    
    2,000
    
    1st
      quarter of 2003
    
    Exchange
      rate
    
    P
    
    21
    
    21US dollar
      Forward
    
    3,000
    
    2nd
      quarter of 2003
    
    Exchange
      rate
    
    P
    
    54
    
    (54
    )Swap
    
    2,681
    
    1st
      quarter of 2003
    
    Interest
      rate
    
    P
    
    1,884
    
    (4,764
    )US dollar
      Put Option
    
    14,400
    
    1st
      quarter of 2003
    
    Exchange
      rate
    
    P
    
    —
    
    (19
    )US dollar
      Put Option
    
    9,600
    
    1st
      quarter of 2003
    
    Exchange
      rate
    
    P
    
    —
    
    (165
    )US dollar
      Put Option
    
    2,400
    
    1st
      quarter of 2003
    
    Exchange
      rate
    
    P
    
    —
    
    (6
    )US dollar
      Put Option
    
    3,800
    
    1st
      quarter of 2003
    
    Exchange
      rate
    
    P
    
    —
    
    (30
    )US dollar
      Put Option
    
    4,700
    
    1st
      quarter of 2003
    
    Exchange
      rate
    
    P
    
    —
    
    (56
    )US dollar
      Put Option
    
    3,700
    
    2nd
      quarter of 2003
    
    Exchange
      rate
    
    P
    
    —
    
    (57
    )US dollar
      Put Option
    
    4,800
    
    2nd
      quarter of 2003
    
    Exchange
      rate
    
    P
    
    —
    
    (90
    )US dollar
      Put Option
    
    3,800
    
    2nd
      quarter of 2003
    
    Exchange
      rate
    
    P
    
    —
    
    (83
    )US dollar
      Put Option
    
    4,000
    
    3rd
      quarter of 2003
    
    Exchange
      rate
    
    P
    
    —
    
    (98
    )US dollar
      Put Option
    
    2,300
    
    3rd
      quarter of 2003
    
    Exchange
      rate
    
    P
    
    —
    
    (61
    )US dollar
      Put Option
    
    720
    
    3rd
      quarter of 2003
    
    Exchange
      rate
    
    P
    
    —
    
    (22
    )65,901
    
    
    
    
    
    
    
    2,010
    
    (5,503
    )2001
      Type of
    derivative
    
    Notional
          or covered amount
    
    Expiration
    
    Description
          of the contract type
    
    Position
          purchase/sale
    
    Liability
          amount
    
    Income
          (loss) recordedUS dollar
      Forward
    
    1,500
    
    1st
      quarter of 2002
    
    Exchange
      rate
    
    P
    
    82
    
    (82
    )US dollar
      Forward
    
    1,000
    
    1st
      quarter of 2002
    
    Exchange
      rate
    
    P
    
    53
    
    (53
    )US dollar
      Forward
    
    1,500
    
    2nd
      quarter of 2002
    
    Exchange
      rate
    
    P
    
    89
    
    (89
    )US dollar
      Forward
    
    1,000
    
    2nd
      quarter of 2002
    
    Exchange
      rate
    
    P
    
    66
    
    (66
    )US dollar
      Forward
    
    1,000
    
    2nd
      quarter of 2002
    
    Exchange
      rate
    
    P
    
    66
    
    (66
    )US dollar
      Forward
    
    1,000
    
    2nd
      quarter of 2002
    
    Exchange
      rate
    
    P
    
    67
    
    (67
    )US dollar
      Forward
    
    800
    
    2nd
      quarter of 2002
    
    Exchange
      rate
    
    P
    
    53
    
    (53
    )US dollar
      Forward
    
    1,000
    
    2nd
      quarter of 2002
    
    Exchange
      rate
    
    P
    
    70
    
    (70
    )US dollar
      Forward
    
    1,500
    
    3rd
      quarter of 2002
    
    Exchange
      rate
    
    P
    
    107
    
    (107
    )US dollar
      Forward
    
    1,500
    
    3rd
      quarter of 2002
    
    Exchange
      rate
    
    P
    
    107
    
    (107
    )US dollar
      Forward
    
    1,500
    
    3rd
      quarter of 2002
    
    Exchange
      rate
    
    P
    
    98
    
    (98
    )US dollar
      Forward
    
    1,500
    
    3rd
      quarter of 2002
    
    Exchange
      rate
    
    P
    
    78
    
    (78
    )US dollar
      Forward
    
    1,000
    
    3rd
      quarter of 2002
    
    Exchange
      rate
    
    P
    
    53
    
    (53
    )Swap
    
    1,549
    
    1st
      quarter of 2002
    
    Interest
      rate
    
    P
    
    1,083
    
    (1,532
    )US dollar
      Forward
    
    10,532
    
    1st
      quarter of 2002
    
    Exchange
      rate
    
    P
    
    145
    
    (145
    )US dollar
      Forward
    
    2,716
    
    1st
      quarter of 2002
    
    Exchange
      rate
    
    P
    
    16
    
    (16
    )30,597
    
    
    
    
    
    
    
    2,233
    
    (2,682
    )F-41

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Note 19  Non-Operating Income and Expenses
Amounts
  included in non-operating income and expenses are summarized as follows:
a)     
  Non-operating income:
2002
    
    2001
    
    2000ThUS$
    
    ThUS$
    
    ThUS$Interest
      income
    
    4,140
    
    7,130
    
    4,797Reversal
      of allowance for doubtful accounts
    
    584
    
    2,644
    
    1,173Reversal
      of allowance for staff severance indemnities
    
    1,308
    
    —
    
    —Insurance
      recoveries
    
    1,065
    
    —
    
    —Reversal
      of provision relating to Distrinor
    
    800
    
    —
    
    —Sale
      of swap contracts
    
    —
    
    —
    
    3,213Sale
      of mining concessions
    
    —
    
    4,000
    
    —Sale
      of materials and services
    
    776
    
    611
    
    —Equity
      participation in net income of unconsolidatedsubsidiaries
    
    3,479
    
    1,838
    
    1,428Other
      income
    
    2,094
    
    2,091
    
    2,414Total
    
    14,246
    
    18,314
    
    13,025b)     
  Non-operating expenses:
2002
    
    2001
    
    2000ThUS$
    
    ThUS$
    
    ThUS$Write-off
      of property, plant, and equipment
    
    3,019
    
    2,763
    
    2,640Severance
      payments
    
    —
    
    1,958
    
    —Write-off
      of uncollectible receivable
    
    —
    
    —
    
    1,289Loss
      on investment in related companies
    
    —
    
    —
    
    945Interest
      expense
    
    29,666
    
    36,670
    
    33,348Equity
      participation in net losses of unconsolidatedsubsidiaries
    
    496
    
    567
    
    216Amortization
      of goodwill
    
    1,219
    
    794
    
    881Net
      foreign exchange losses
    
    3,483
    
    3,122
    
    1,934Minimum
      pension liability
    
    1,467
    
    —
    
    —Project
      relating to commercial effectiveness
    
    1,147
    
    —
    
    —Other
      expenses
    
    3,519
    
    1,617
    
    4,559Total
    
    44,016
    
    47,491
    
    45,812F-42

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Note 20  Price-level Restatement
Amounts
  charged or credit to income relating to price-level restatement are summarized
  as follows:(Charge)
      credit to income from operations2002
    
    2001
    
    2000ThUS$
    
    ThUS$
    
    ThUS$Property,
      plant and equipment
    
    147
    
    157
    
    240Other
      assets and liabilities
    
    59
    
    257
    
    (145
    )Shareholders
      equity
    
    (1,386
    )
    (1,588
    )
    (2,718
    )Subtotal
      price-level restatement
    
    (1,180
    )
    (1,174
    )
    (2,623
    )Net
      readjustment of assets and liabilities denominated in UF
    
    320
    
    403
    
    791Net
      price-level restatement
    
    (860
    )
    (771
    )
    (1,832
    )F-43

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Note 21  Assets and Liabilities Denominated in Local and Foreign Currency
2002
    
    2001ThUS$
    
    ThUS$AssetsChilean
      pesos
    
    117,160
    
    117,961US
      dollars
    
    1,125,221
    
    1,221,270Euros
    
    57,878
    
    51,952Japanese
      Yen
    
    1,786
    
    2,432Brazilian
      Real
    
    2,496
    
    3,972Mexican
      pesos
    
    15,213
    
    13,562UF
    
    1,013
    
    806Other
      currencies
    
    1,527
    
    1,473Current
      liabilitiesChilean
      pesos
    
    32,927
    
    27,372US
      dollars
    
    40,851
    
    81,280Euros
    
    15,815
    
    8,647Japanese
      Yen
    
    244
    
    154Brazilian
      Real
    
    468
    
    858Mexican
      pesos
    
    1,317
    
    2,020UF
    
    6,325
    
    4,351Other
      currencies
    
    405
    
    562Long-term
      liabilitiesChilean
      pesos
    
    —
    
    2,282US
      dollars
    
    343,119
    
    423,525Japanese
      Yen
    
    67
    
    84UF
    
    8,043
    
    7,166Other
      currencies
    
    2
    
    —F-44


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Note 22  Extraordinary Items
Extraordinary
  items relate only to the year-ended December 31, 2001 and relate to restructuring
  expenses are summarized as follows:
2001ThUS$Employee
      benefits paid
    
    (450
    )Restructuring
      and advisory expenses
    
    (5,341
    )Tax
      effect on extraordinary items
    
    857Total
    
    (4,934
    )Note
  23  Commitments and contingencies
I.
    Contingencies:(a)
    The
      Company did not record the potential insurance reimbursement for damages
      incurred in the potassium sulfate wells in the Atacama salt deposit.(b)
    Material
      lawsuits or other legal actions of which the Company is party to:During
      the first quarter of 2001, the Company filed an arbitration claim against
      its insurers, ACE Seguros S.A. and Chubb de Chile Compañía
      de Seguros Generales S.A., for payment of ThUS$36,316 in indemnifications
      related with the leak of brines from the pre-concentrations ponds that were
      built by the Company in the Salar de Atacama, which caused losses to the
      Company of boron, lithium, potassium sulfate and other salts that were to
      be obtained from such ponds and used in production. The insurance companies
      argued that the leak was caused by a defect on the design of the ponds attributable
      to SQM and, therefore, have denied payment of all amounts.During
      the first quarter of 2002, the French company Compagnie du Guano de Poisson
      Angibaud S.A. (“Angibaud”) filed an arbitration claim under the rules of
      the Association Francaise d’Arbitrage (French law) against the Company requesting
      indemnification for the alleged early termination of a contract with Generale
      de Nutrition Vegetale SAS (GNV), a French company in which Angibaud
      and the Company have a 50% share ownership, which provided for distribution
      rights to certain of the Companys products in France. Angibaud has
      since filed additional claims against the Company for payment of GNV’s debts,
      recovery of invoiced amounts and other matters. The total amount demanded
      is ThEuro$ 30,295. Based on the advice of legal council, management of the
      Company believes payment is unlikely and therefore no provision has been
      recorded related to this lawsuit.F-45

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Note
      23  Commitments and Contingencies, continuedI.
    Contingencies,
      continued(c)
    The
      Company is involved in litigation in the ordinary course of business. Based
      on the advice of counsel, management believes the litigation will not have
      a material effect on the consolidated financial statements.II.
    Commitments:(a)
    The
      subsidiary SQM Salar S.A. maintains an agreement with a government agency,
      whereby the Company must make annual payments until 2030 based on the Companys
      annual sales. This amount, which has been paid since the beginning of the
      agreement in 1996, amounted to ThUS$3,411, ThUS$3,169 and ThUS$ 2,062 in
      2002, 2001 and 2000, respectively.(b)
    The
      Company has certain indirect guarantees, which relate to agreements with
      no remaining payments pending. These guarantees are still in effect and
      have been approved by the Companys Board of Directors; however, they
      have not been used by the subsidiaries.Note
      24  Third Party GuaranteesAs
      of December 31, 2002 and 2001 the Parent Company has the following indirect
      guarantees outstanding:Debtor
    
    Balances
        outstandingBeneficiary
    
    Name
    
    Relationship
    
    December
        31, 2002
    
    December
        31, 2001ThUS$
    
    ThUS$ING
      Bank  Phelps Dodge Corporation
    
    SQM
      Potasio S.A.
    
    Subsidiary
    
    2,650
    
    3,426Bank
      of America N.A.
    
    RS Agro-Chemical
      Trading A.V.V.
    
    Subsidiary
    
    80,207
    
    80,239Note
      25  SanctionsDuring
      2002 and 2001, the SVS did not apply sanctions to the Company, its directors
      or managers.F-46

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Note
  26  Environmental Projects
Disbursements
    incurred by the Company as of December 31, 2002 relating to its investments
    in production processes and compliance with regulations related to industrial
    processes and facilities are as follows:
Future2002
    
    DisbursementsThUS$
    
    ThUS$ProjectEnvironmental
      department
    311
    
    376Coya
      Sur sewage treatment plant
    506
    
    —Tocopilla
      project
    415
    
    —Engineering
      and building of María Elena piles
    4,680
    
    —Replacement
      of oil with natural gas
    857
    
    5,500Other
    173
    
    187Total
    6,942
    
    6,063Note
  27  Subsequent Events
  On January
    31, 2003, SQM S.A. purchased from SQM Nitratos S.A. one share of SCM Antucoya
    for ThUS$ 100, which gave the Company a 100% controlling interest in SCM Antucoya.
    SCM Antucoya was then dissolved.  Except
    as mentioned in the preceding paragraph, the Companys management is
    not aware of any other significant events which have occurred between December
    31, 2002 and the date of these financial statements, which may affect these
    consolidated financial statements.
F-47

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Note 28  Differences between Chilean and United States Generally Accepted Accounting Principles
Accounting
    principles generally accepted in Chile (Chilean GAAP) vary in
    certain important respects from accounting principles generally accepted in
    the United States (US GAAP). Such differences involve certain
    methods for measuring the amounts shown in the financial statements, as well
    as additional disclosures required by US GAAP.
  The principal
    differences between Chilean GAAP and US GAAP are described below together
    with explanations, where appropriate, of the method used in the determination
    of the adjustments that affect net income and total shareholders equity.
    References below to SFAS are to United States Statements of Financial
    Accounting Standards.
  The preparation
    of financial statements in conformity with Chilean GAAP, along with the reconciliation
    to US GAAP, requires management to make estimates and assumptions that affect
    the reported amounts of assets and liabilities, disclosures of contingent
    assets and liabilities as of the date of the financial statements and the
    reported amounts of revenues and expenses during the reported period. Actual
    results could differ from those estimates.
I.
    Differences in measurement methodsThe
      principal methods applied in the preparation of the accompanying financial
      statements, which have resulted in amounts that differ from those that would
      have otherwise been determined under US GAAP, are as follows:a)
    Revaluation of property, plant and equipmentAs
      described in Note 2 k), certain property, plant and equipment are reported
      in the financial statements at amounts determined in accordance with a technical
      appraisal performed in 1988. US GAAP does not allow the revaluation of property,
      plant and equipment. The effects of the reversal of this revaluation, as
      well as of the related accumulated depreciation and depreciation charge
      for each year are set-forth under paragraph I p) below.b)
    Deferred income taxesAs
      described in note 2 j), on January 1, 2000 the Company began applying Technical
      Bulletin No. 60, and related amendments, of the Chilean Association of Accountants
      concerning deferred taxes. These technical bulletins require the recognition
      of deferred income taxes for all temporary differences arising after January
      1, 2000, whether recurring or not, using an asset and liability approach.
      For US GAAP purposes, the Company applies SFAS 109, Accounting for
      Income Taxes, whereby income taxes are also recognized using substantially
      the same asset and liability approach with deferred income tax assets and
      liabilities established for temporary differences between the financial
      reporting basis and tax basis of the Companys assets and liabilities
      based on enacted rates at the dates that the temporary differences arose.Prior
      to implementation of Technical Bulletin No. 60, no deferred income taxes
      were recorded under Chilean GAAP if the related timing differences were
      expected to be offset in the year that they were projected to reverse by
      new timing differences of a similar nature.F-48


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Note 28  Differences between Chilean and United States Generally Accepted Accounting Principles, continued
b)
    Deferred income taxes, continuedIn
      order to mitigate the effects of recording deferred income taxes that under
      the prior income tax accounting standard were not expected to be realized,
      Technical Bulletin N° 60 provides for a period of transition whereby
      the full effect of using the liability method is not recorded immediately
      in income but at the same time recording the deferred taxes are recorded
      in the balance sheet . Under this transitional provision, a contra asset
      or liability has been recorded offsetting the effects of the deferred tax
      assets and liabilities not recorded prior to January 1, 2000. Such contra
      assets or liabilities must be amortized to income over the estimated average
      reversal periods corresponding to the underlying temporary differences to
      which the deferred tax asset or liability relates.The
      primary difference between Chilean GAAP and US GAAP relates to the reversal
      of the amortization of the complementary asset and liability recorded in
      accordance with the transition procedures for unrecorded deferred income
      taxes as of January 1, 2000, the effect of which is set-forth under paragraph
      I p) below and certain disclosures required under SFAS 109 are set forth
      under paragraph II b) below.c)
    Translation of foreign currency financial statementsIn
      accordance with Chilean GAAP, the financial statements of subsidiaries which
      do not maintain their accounting records in US dollars, are translated from
      local currency to US dollars as described in Note 2 d).For
      the purposes of reconciling to US GAAP, the US dollar is the functional
      currency of all domestic and foreign subsidiaries. Accordingly, financial
      statements of subsidiaries, which do not maintain their accounting records
      in US dollars, are remeasured into US dollars, after the elimination of
      price-level adjustments, if any, as follows:Balance
      sheet accounts:•
    Monetary
      assets and liabilities are translated at the year-end exchange rate; and•
    Non-monetary
      assets and liabilities and shareholders' equity are translated at historical
      exchange rates.F-49

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Note
  28  Differences between Chilean and United States Generally Accepted Accounting
  Principles, continued
c)
    Translation
      of foreign currency financial statement, continuedIncome statement
    accounts:

•
    Cost
      of sales, depreciation and amortization expense and other accounts derived
      from non-monetary assets and liabilities are translated at historical rates;
      and•
    All
      other accounts are translated at monthly-average exchange rates, which approximate
      the actual rates of exchange at the date the transactions occurred.Remeasurement
  gains and losses are included in the determination of net income for the period. The effect
    of eliminating price-level restatement and the incorporation of translation
    gains and losses from subsidiaries that maintain their records in Chilean
    pesos is included in paragraph I p) below.
d)
    Empresas
      Melón S.A.During
    1998, the Company purchased a 14.05% participation in Empresas Melón
    S.A., (Melón) a cement manufacturing company. There are
    a number of adjustments between Chilean GAAP and US GAAP relating to Melón
    both in the accounting of the purchase and in the subsequent accounting treatment.
    The adjustments are described in detail, as follows:
d-1)
    Purchase accounting adjustmentsAt the
    time of the purchase, under Chilean GAAP, the Company recorded goodwill on
    the transaction, calculated as the difference between the purchase price and
    the proportionate share of net book value acquired as presented in the most
    recent month end financial statements of Empresas Melón prior to the
    date of the acquisition. Such goodwill is being amortized over a period of
    20 years.
  Under US
    GAAP, the Company calculated goodwill on the transaction as the difference
    between the purchase price and the proportionate fair value of the assets
    and liabilities purchased. The purchase price was allocated to the assets
    and liabilities based on the estimated fair market value of such assets and
    liabilities at the date of acquisition, resulting in an increase in fixed
    assets and other long-term assets.
  Under
    US GAAP, due to the increased net value of the acquired assets and liabilities,
    negative goodwill was generated. Such negative goodwill has been allocated
    to the fixed assets acquired, changing the accounting base, and subsequently
    the depreciation of such fixed assets.
  The effects
    of reversing goodwill recorded and its related amortization recognized under
    Chilean GAAP and the recognition of the new basis of assets and liabilities
    and subsequent depreciation are set forth in paragraph I p) below.
F-50

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Note 28  Differences between Chilean and United States Generally Accepted Accounting Principles, continued
d-2)
    Accounting
      for participation in Melón on a US GAAP basisPursuant
    to a shareholders agreement, the Company exerts significant influence over
    Empresas Melón S.A and thus it accounts for this investment under the
    equity method, similar to Chilean GAAP.
  The Company
    must recognize its participation of income and net assets of Melón
    under US GAAP, therefore a US GAAP basis of Melón is prepared. The
    principle differences between Chilean GAAP and US GAAP as they exist in Melón
    relate to deferred taxes and the elimination of price-level restatement.
  As the
    functional currency of Melón is the Chilean peso, under US GAAP the
    financial statements must be converted into dollars in accordance with SFAS
    No. 52 as described in paragraph c) above. The effect of recognizing income
    and net assets under the equity method under US GAAP is set forth in paragraph
    I p) below.
e)
    Consolidation
      and net loss of subsidiaries in the development stageUnder Chilean GAAP subsidiaries in the development stage are
    not consolidated and their results from operations are not included in the
    income statement. For purposes of US GAAP, these subsidiaries must be consolidated
    with their losses recorded in the income statement. SQM Lithium Specialties
    Limited Partnership LLP is the only development stage company in operation,
    and the effect of recognizing its net loss is set forth in paragraph I p)
    below.
  The principal
    effects in 2002 and 2001 of recognizing assets and liabilities as recorded
    under US GAAP, which would result from the consolidation of the subsidiaries
    SCM Antucoya and SQM Lithium Specialties Limited Partnership LLP, are as follows:
2002
    
    2001Effect
      on:
    ThUS$           
        ThUS$Assets
      Increase /(Decrease)Current
      assets
    787
    
    247Fixed
      asset
    32,994
    
    24,455Investment
      in related companies
    (33,925
    )
    (24,259
    )Other
      Assets
    904
    
    851Related
      party receivable
    —
    
    (164
    )Liabilities
      (Increase)/DecreaseCurrent
      liabilities
    (581
    )
    (1,230
    )Related
      party payables
    100
    
    100Deferred
      income taxes
    (279
    )
    —F-51

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Note 28  Differences between Chilean and United States Generally Accepted Accounting Principles, continued
f)
    Minimum
      DividendAs required
    by the Chilean Companies Act, unless otherwise decided by the unanimous vote
    of the issued and subscribed shares, an open stock corporation must distribute
    a cash dividend in an amount equal to at least 30% of the companys net
    income for each year as determined in accordance with Chilean GAAP. Since
    the payment of the 30% dividend out of each years income is a legal
    requirement in Chile, provision has been made in the accompanying US GAAP
    reconciliation in paragraph I p) below to recognize the corresponding decrease
    in net equity at December 31 for each year for the difference between 30%
    of net income and interim dividends paid during the year.
  Net income
    related to the amortization of negative goodwill can only be distributed as
    an additional dividend by the approval of the shareholders, and accordingly,
    is not included in the calculation of the minimum dividend to be distributed.
g)
    Loans
      to EmployeesDuring
    1989, 1995 and 2000, the Company loaned, in the aggregate, ThUS$ 1,452, ThUS$
    8,224 and ThUS$ 6,435, respectively, at market interest rates, to certain
    employees for the purpose of acquiring shares of the Company in the open market.
    In accordance with US GAAP, the remaining unpaid balance of such loans, amounting
    to ThUS$ 3,903, ThUS$ 6,865 and ThUS$ 8,302 at December 31, 2002, 2001 and
    2000, respectively, has been treated as a reduction of shareholders' equity
    under paragraph I p) below.
h)
    Capital
      leasesDuring
  1992 and 1994, the Company entered into rental agreements covering certain equipment,
  which had an original cost basis of ThUS$16,507. In accordance with Chilean
  GAAP these transactions have been recorded as operating leases with the rental
  payments recognized in income on an accrual basis. Under US GAAP, the transactions
  were recorded as capital leases, with the equipment recorded in fixed assets
  and the associated present value of future minimum lease payments recorded as
  an obligation. During 2002, the Company exercised the purchase option on such
  assets. Accordingly, the fixed assets were recognized at the cost of the purchase
  option in Chilean GAAP, and as of December 31, 2002 have been fully depreciated
  under Chilean and US GAAP. The effect of accounting for the equipment as capital
  leases under US GAAP and the subsequent exercise of the purchase option is set-forth
  in paragraph I p) below.
i)
    Staff
      Severance IndemnitiesThe Company
    has negotiated certain collective bargaining agreements with employees for
    staff severance indemnities. Under Chilean GAAP the liability has been recorded
    at the present value of the accrued benefits which are calculated by applying
    a real discount rate to the benefit accrued over the estimated average remaining
    service period.
F-52

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Note
  28  Differences between Chilean and United States Generally Accepted Accounting
  Principles, continued
i)
    Staff
      Severance Indemnities, continuedUnder US
  GAAP, termination indemnity employee benefits should be accounted for in accordance
  with SFAS No. 87 consistent with that of a defined benefit pension plan, measuring
  the liability by projecting the future expected severance payments using an
  assumed salary progression rate, net of inflation adjustments, mortality and
  turnover assumptions, and discounting the resulting amounts to their present
  value using real interest rates. The effect of accounting for the indemnities
  in accordance with SFAS 87 is set forth under paragraph I p) below and the effects
  in income in the years ended December 31, 2000 and 2001 are disclosed in II
  Additional Disclosure Requirements below.
j)
    Marketable
      securitiesThe
  Companys marketable securities may be sold in the short term if appropriate
  based on market conditions. Under Chilean GAAP, these securities are valued
  at the lower of cost or market value. Under US GAAP such securities are classified
  as available-for-sale and are shown at market value in the balance sheet with
  any unrealized gains or losses recognized in other comprehensive income. The
  unrealized gains and losses related to these securities are not material for
  the periods presented.
k)
    DerivativesIn June
    1998, the Financial Accounting Standards Board issued SFAS 133, Accounting
    for Derivative Instruments and Hedging Activities. SFAS 133 requires
    that all of a companys derivative instruments be recorded in the balance
    sheet at fair value and that changes in a derivative instrument's fair value
    be recognized currently in earnings unless specific hedge accounting criteria
    are met. Special accounting for qualifying hedges allows a derivative instrument's
    gains and losses to offset related results on the hedged item in the income
    statement, to the extent effective, and requires that a company must formally
    document, designate, and assess the effectiveness of transactions that receive
    hedge accounting. The Company adopted SFAS 133 on January 1, 2001 and the
    cumulative effect of adoption was not significant. The Company does not apply
    hedge accounting.
k-1)
    Sale
      of swapsDuring
    2000, the Company sold three interest rate swap contracts with original expiration
    dates in 2001 and 2003, which generated a gain of ThUS$3,213. Under Chilean
    GAAP, the gain was recognized in income at the time of sale. Under US GAAP,
    the gain is deferred and amortized over the effective life of the instruments
    that it hedged. The effect of deferring the gain is set forth under paragraph
    I p) below.
F-53

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Note 28  Differences between Chilean and United States Generally Accepted Accounting Principles, continued
k)
    Derivatives,
      continuedk-2)
    Fair
      value accounting of derivativesThe
    Company enters into forward exchange contracts principally to mitigate the
    risk associated with maintaining certain accounts receivable in foreign currencies.
    The purpose of the Company's foreign currency-hedging activities is to protect
    the Company from the risk that cash flows will be adversely affected by changes
    in exchange rates resulting from the collection of receivables from international
    customers.
  The Company
    periodically uses interest rate swap agreements to manage interest rate risk
    on its floating rate debt portfolio. Interest rate swap agreements are generally
    entered into at the time floating rate debt is issued, in order to convert
    the floating rate debt to a fixed rate. As of December 31, 2002 the Company
    has one interest rate swap contract to fix interest at 5.94% on principal
    of ThUS$ 124,800, which expires in February 2003.
The effect of measuring the derivative instruments at their fair value and the corresponding effect in income is set forth under paragraph I p) below.
l)
              GoodwillFor US GAAP
    purposes, the Company adopted SFAS 142, Goodwill and Other Intangible
    Assets, as of January 1, 2002. SFAS 142 applies to all goodwill and
    identified intangible assets acquired in a business combination.
  Under
    the new standard, all goodwill, including that acquired before initial application
    of the standard, and indefinite-lived intangible assets is not amortized,
    but must be tested for impairment at least annually. In addition to the transitional
    impairment test required by the standard, which was performed during the third
    quarter of 2002 and which did not result in any impairment, the Company must
    perform the required annual impairment test in the year of adoption of the
    standard.
  Under
    Chilean GAAP, goodwill is amortized over the estimated period of return of
    the investment made. Impairment tests are only performed if there is evidence
    of impairment. No impairment has been recognized for any of the periods presented
    under either Chilean GAAP or US GAAP. The effect of reversing the amortization
    of goodwill under Chilean GAAP is set forth under paragraph I p) below.
F-54

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Note
  28  Differences between Chilean and United States Generally Accepted Accounting
  Principles, continued
m)
    Negative
      goodwillNegative
    goodwill was generated on the acquisition of the investments in SQM Salar
    S.A. and Minera Mapocho S.A. Under Chilean GAAP, such negative goodwill was
    capitalized as a credit to the balance sheet and is being amortized over a
    period of 10 years.
Under US
  GAAP, prior to the adoption of SFAS 142, negative goodwill was considered as
  a reduction of the long-term assets of the acquired company, and if a credit
  remained after reducing those assets to zero, negative goodwill was recorded
  and amortized over the period of expected benefit. However, in the period of
  adoption, SFAS 142 requires that unamortized negative goodwill be written off
  and the resulting gain be recognized as an effect of a change in accounting
  principle. The effects of reversing goodwill recorded and its related amortization,
  the recognition of the new basis of assets and liabilities and subsequent depreciation
  and writing off the remaining balance of negative goodwill are set-forth in
  paragraph I p) below.
n)
    Capitalized
      interestIn accordance
    with Chilean GAAP, only those companies that have financial expenses may capitalize
    interests on debt related to property, plant, equipment under construction
    and other projects.
Under US
  GAAP, the capitalization of interest on qualifying assets under construction
  is required, regardless of whether interest is associated with debt directly
  related to a project. The accounting differences between Chilean and US GAAP
  for financing costs and the related depreciation expense are included in the
  reconciliation to US GAAP under paragraph I p) below.
o)
    Minority
      interestThe effects
    on the minority interest of the US GAAP adjustments in subsidiaries that are
    not wholly-owned by the Company have been reflected in Minority interest and
    are included in paragraph I p) below.

F-55

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Note
  28  Differences between Chilean and United States Generally Accepted Accounting
  Principles, continued
p)
    Effects
      of conforming to US GAAPThe
      adjustments to reported net income required to conform to US GAAP are as
      follows:
2002
    
    2001
    
    2000ThUS$
    
    ThUS$
    
    ThUS$Net
      income as shown in the accompanying financial statements
    40,202
    
    30,102
    
    27,104Reversal
      of additional depreciation on revaluation increment of property,plant
      and equipment (paragraph a)
    3,787
    
    4,177
    
    5,090Deferred
      income taxes (paragraph b)
    (1,657
    )
    (2,651
    )
    551Translation
      loss and elimination of monetary correction (paragraph c)
    (2,385
    )
    (3,893
    )
    (2,275
    )Empresas
      Melón S.A. purchase accounting adjustments (paragraph d-1)
    (128
    )
    (153
    )
    (219
    )Accounting
      for participation in Melón on a US GAAP basis(paragraph
      d-2)
    146
    
    25
    
    (1,338
    )Net
      loss from a subsidiary in the development stage (paragraph e)
    (1,438
    )
    (391
    )
    -Capital
      leases (paragraph h)
    (783
    )
    (713
    )
    (713
    )Staff
      severance indemnities (paragraph i)
    1,007
    
    (702
    )
    (300
    )Derivatives
       sale of swaps (paragraph k-1)
    1,180
    
    1,859
    
    (3,213
    )Derivatives
       Fair value accounting of derivatives (paragraph k-2)
    4,148
    
    (4,457
    )
    —Goodwill
      (paragraph l)
    714
    
    —
    
    —Negative
      goodwill (paragraph m)
    157
    
    (414
    )
    (414
    )Capitalized
      interest (paragraph n)
    1,643
    
    —
    
    —Effect
      of minority interest on US GAAP adjustments (paragraph o)
    959
    
    367
    
    624Deferred
      income tax effect of the above US GAAP adjustments
    (1,111
    )
    672
    
    (1,026
    )Other
    —
    
    555
    
    764Net
        income under US GAAP before effect of change in accounting principle
    46,441
    
    24,383
    
    24,635Cumulative
      effect of change in accounting principle (paragraph m)
    457
    
    —
    
    —Net
      income under US GAAP
    46,898
    
    24,383
    
    24,635Other
      comprehensive income, net of tax:Minimum
      pension liability adjustment
    (1,147
    )
    —
    
    —Translation
      adjustment
    (3,959
    )
    (5,514
    )
    (2,319
    )Deferred
      gain from sale of swaps (paragraph k-1)
    (979
    )
    1,121
    
    —Total
      comprehensive income under US GAAP
    40,813
    
    19,990
    
    22,316
F-56

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Note
  28  Differences between Chilean and United States Generally Accepted Accounting
  Principles, continued
p)
    Effects
      of conforming to US GAAP, continuedThe
      adjustments required to conform shareholders' equity amounts under Chilean
      GAAP to US GAAP are as follows:
2002
    
    2001ThUS$
    
    ThUS$Net
      shareholders equity as shown in the accompanying financial statements
    849,662
    
    831,697Reversal
      of additional depreciation on revaluation increment of property, plant and
      equipment (paragraph a)
    (35,491
    )
    (39,278
    )Deferred
      income taxes (paragraph b)
    (40,644
    )
    (38,987
    )Translation
      loss and elimination of monetary correction (paragraph c)
    (8,861
    )
    (9,472
    )Empresas
      Melón S.A  Calculation of goodwill and purchase accounting
      adjustments (paragraph d-1)
    (1,156
    )
    (1,028
    )Accounting
      for participation in Melón on a US GAAP basis (paragraph
      d-2)
    (290
    )
    553Minimum
      dividend (paragraph f)
    (11,685
    )
    (8,731
    )Employer
      loans used to purchase shares (paragraph g)
    (3,903
    )
    (6,865
    )Capital
      leases (paragraph h)
    —
    
    783Staff
      severance indemnities (paragraph i)
    (1,570
    )
    (2,577
    )Derivatives  Fair value accounting of derivatives (paragraph k-2)
    (309
    )
    (4,457
    )Goodwill
      (paragraph l)
    714
    
    —Negative
      goodwill (paragraph m)
    (847
    )
    (1,461
    )Capitalized
      interest (paragraph n)
    1,643
    
    —Effect
      of minority interest on US GAAP adjustments (paragraph o)
    1
    
    200Deferred
      income tax effect of the above US GAAP adjustments
    68
    
    978Shareholders'
      equity in accordance with US GAAP
    747,332
    
    721,355F-57

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Note 28  Differences between Chilean and United States Generally Accepted Accounting Principles, continued
p)
    Effects
      of conforming to US GAAP, continuedThe
      changes in the net equity accounts determined under US GAAP are summarized
      as follows:
Balance
      at January 1, 2000
    713,864Reversal
      of accrued minimum dividend at December 31, 1999
    14,423Distribution
      of final 1999 dividend
    (23,831
    )Accrued
      minimum dividend at December 31, 2000
    (8,131
    )Employer
      loans used to purchase shares
    (6,327
    )Other
      comprehensive income
    (2,319
    )Net
      income for the year
    24,635Balance
      at December 31, 2000
    712,314Reversal
      of accrued minimum divided at December 31, 2000
    8,131Distribution
      of final 2000 dividend
    (13,345
    )Accrued
      minimum dividend at December 31, 2001
    (8,731
    )Employer
      loans used to purchase shares
    1,437Gain
      on sale of shares in subsidiary
    1,559Other
      comprehensive income
    (4,393
    )Net
      income for the year
    24,383Balance
      at December 31, 2001
    721,355Reversal
      of accrued minimum divided at December 31, 2001
    8,731Distribution
      of final 2001 dividend
    (14,844
    )Accrued
      minimum dividend at December 31, 2002
    (11,685
    )Employer
      loans used to purchase shares
    2,962Other
      comprehensive income
    (6,085
    )Net
      income for the year
    46,898Balance
      at December 31, 2002
    747,332F-58

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Note 28  Differences between Chilean and United States Generally Accepted Accounting Principles, continued
II.
    Additional
      Disclosure RequirementsThe following
  disclosures are not generally required or recommended for presentation in the
  financial statements under Chilean GAAP, but are required under US GAAP:
a)
    Earnings
      per shareThe following
    disclosure of earnings per share information is not generally required for
    presentation in financial statements under Chilean accounting principles but
    is required under US GAAP:
2002
    
    2001
    
    2000(Expressed
      in single US dollars)Basic
      and diluted earnings per share under Chilean GAAP
    0.15
    
    0.11
    
    0.10Basic
      and diluted earnings per share under US GAAP before effect ofchange
      in accounting principle
    0.18
    
    0.09
    
    0.09Effect
      of accounting change on earnings per share
    0.00
    
    —
    
    —Basic
      and diluted earnings per share under US GAAP
    0.18
    
    0.09
    
    0.09Dividends
      declared per share (1)
    0.06
    
    0.05
    
    0.09Weighted
      average number of common shares outstanding (thousands)
    263,197
    
    263,197
    
    263,197(1)
    Represents
      dividends declared in accordance with Chilean GAAP.The earnings
    per share data shown above is determined by dividing net income for both Chilean
    GAAP and US GAAP purposes by the weighted average number of shares of common
    stock outstanding during each year. For the years presented the Company did
    not have convertible securities outstanding.
b)
    Income
      taxesThe provision
    for income taxes differs from the amount of income tax determined by applying
    the applicable Chilean statutory income tax rate of 16% (15% in 2001 and 2000)
    to pretax accounting income on a US GAAP basis as a result of the following
    differences:
2002
    
    2001
    
    2000ThUS$
    
    ThUS$
    
    ThUS$Consolidated
      pretax income under US GAAP
    
    60,430
    
    33,900
    
    29,971Statutory
      tax rate
    
    16
    %
    15
    %
    15
    %Theoretical
      tax at statutory rate
    
    9,669
    
    5,085
    
    4,496Non-deductible
      items
    
    2,180
    
    3,613
    
    100Difference
      in tax rates in foreign jurisdictions
    
    1,095
    
    330
    
    534Valuation
      allowance
    
    775
    
    —
    
    —Other
    
    (187
    )
    489
    
    206Total
      income tax under US GAAP
    
    13,532
    
    9,517
    
    5,336F-59
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Note 28  Differences between Chilean and United States Generally Accepted Accounting Principles, continued
b)
    Income
      taxes, continuedDeferred
      tax assets (liabilities) are summarized as follows at December 31 under
      US GAAP:2002
    
    2001ThUS$
    
    ThUS$Deferred
      Tax AssetsAllowance
      for doubtful debts
    1,570
    
    1,280Vacation
      accrual
    767
    
    830Unrealized
      gains on sales of products
    5,310
    
    5,284Provision
      for obsolescence
    1,651
    
    631Losses
      from derivative transactions
    399
    
    480Tax
      loss carryforwards (1)
    19,138
    
    25,612Other
      accruals
    1,414
    
    1,114Gross
      deferred tax assets
    30,249
    
    35,231Valuation
      allowance
    (775
    )
    —Total
      deferred tax assets
    29,474
    
    35,231Deferred
      Tax LiabilitiesProduction
      expenses
    (12,794
    )
    (9,036
    )Accelerated
      depreciation
    (58,833
    )
    (56,309
    )Staff
      severance indemnities
    (1,384
    )
    (2,171
    )Exploration
      expenses
    (4,122
    )
    (4,623
    )Capitalized
      interest
    (6,730
    )
    (6,644
    )Other
    (1,575
    )
    (1,830
    )Total
      deferred tax liabilities
    (85,438
    )
    (80,613
    )(1)
    The
      Companys tax loss carry forwards were primarily generated from losses
      incurred in Chile and Mexico. In accordance with current laws, in Chile
      tax losses may be carried forward indefinitely and in Mexico they expire
      after 10 years. For the years ended December 31, 2002, 2001 and 2000 the
      Company realized benefits from the use of tax loss carry forwards amounting
      to ThUS$8,572, ThUS$ 4,506 and ThUS$ 1,788, respectively.Tax loss carry forwards relate to the following countries as of December 31:
2002
    
    2001ThUS$
    
    ThUS$Chile
    13,867
    
    20,021Mexico
    3,818
    
    3,924Other
    1,453
    
    1,667Total
    19,138
    
    25,612F-60

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Note
  28  Differences between Chilean and United States Generally Accepted Accounting
  Principles, continued
b)
    Income
      taxes, continuedThe
      classification of the deferred tax assets and liabilities detailed above
      is as follows:
2002
    
    2001ThUS$
    
    ThUS$Short-term
    (4,799
    )
    (2,005
    )Long-term
    (51,165
    )
    (43,377
    )Net
      deferred tax liabilities
    (55,964
    )
    (45,382
    )The provision for income taxes in accordance with US GAAP is as follows:
2002
    
    2001
    
    2000ThUS$
    
    ThUS$
    
    ThUS$Income
      tax expense under Chilean GAAP  Note 14
    10,764
    
    7,538
    
    4,861Additional
      deferred tax under US GAAP
    1,111
    
    (672
    )
    1,026Reversal
      of complementary Accounts
    1,657
    
    2,651
    
    (551
    )Total
      tax provision U.S GAAP
    13,532
    
    9,517
    
    5,336In accordance
    with Chilean Law No. 19,753, which was issued on September 28, 2001, the corporate
    income tax rate increased from 15% to 16% for the year 2002, and will increase
    to16.5% for the year 2003 and to 17% for the year 2004 and thereafter. The
    effect of such rate increases on deferred taxes under US GAAP was ThUS$ 5,634
    for the year ended December 31, 2001.
US GAAP
  before tax income related to Chile and foreign operations for the years ended
  December 31 is as follows:
2002
    
    2001
    
    2000US$
    
    US$
    
    US$Chile
    62,726
    
    32,863
    
    31,208Foreign
    (2,296
    )
    1,037
    
    (1,237
    )Total
    60,430
    
    33,900
    
    29,971The portion of current and deferred taxes that related to Chile and foreign operations for the years ended December 31 in accordance with US GAAP is as follows:
2002
    
    2001
    
    2000Deferred
    
    Current
    
    Total
    
    Deferred
    
    Current
    
    Total
    
    Deferred
    
    Current
    
    TotalUS$
    
    US$
    
    US$
    
    US$
    
    US$
    
    US$
    
    US$
    
    US$
    
    US$Chile
    10,471
    
    2,313
    
    12,784
    
    8,725
    
    1,339
    
    10,064
    
    2,898
    
    1,808
    
    4,706Foreign
    150
    
    598
    
    748
    
    (1,578
    )
    1,031
    
    (547
    )
    (10
    )
    640
    
    630Total
    10,621
    
    2,911
    
    13,532
    
    7,147
    
    2,370
    
    9,517
    
    2,888
    
    2,448
    
    5,336F-61

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Note 28  Differences between Chilean and United States Generally Accepted Accounting Principles, continued
c)
    Other
      Comprehensive IncomeIn accordance
    with SFAS No. 130, Reporting Comprehensive Income, the Company
    reports a measure of all changes in shareholders equity that result
    from transactions and other economic events of the period other than transactions
    with owners (comprehensive income). Comprehensive income is the
    total net income and other non-owner equity transactions that result in changes
    in net equity.
The following represents accumulated other comprehensive income balances, net of tax, as of December 31, 2002, 2001 and 2000:
Year
      ended December 31, 2000Before-tax
    
    Tax
      (expense)
    
    Net-of-taxamount
    
    or
      benefit
    
    amountThUS$
    
    ThUS$
    
    ThUS$Beginning
      balance
    (3,731
    )
    —
    
    (3,731
    )Translation
      adjustment
    (2,319
    )
    —
    
    (2,319
    )Ending
      balance
    (6,050
    )
    —
    
    (6,050
    )Year
      ended December 31, 2001Before-tax
    
    Tax
      (expense)
    
    Net-of-taxamount
    
    or
      benefit
    
    amountThUS$
    
    ThUS$
    
    ThUS$Beginning
      balance
    (6,050
    )
    —
    
    (6,050
    )Translation
      adjustment
    (5,514
    )
    —
    
    (5,514
    )Deferred
      gain on sale of swaps
    1,354
    
    (233
    )
    1,121Net
      unrealized losses
    (4,160
    )
    (233
    )
    (4,393
    )Ending
      balance
    (10,210
    )
    (233
    )
    (10,443
    )Year
      ended December 31, 2002Before-tax
    
    Tax
      (expense)
    
    Net-of-taxamount
    
    or
      benefit
    
    amountThUS$
    
    ThUS$
    
    ThUS$Beginning
      balance
    (10,210
    )
    (233
    )
    (10,443
    )Translation
      adjustment
    (3,959
    )
    —
    
    (3,959
    )Deferred
      gain on sale of swaps
    (1,180
    )
    201
    
    (979
    )Minimum
      pension liability adjustment
    (1,850
    )
    703
    
    (1,147
    )Net
      unrealized losses
    (6,989
    )
    904
    
    (6,085
    )Ending
      balance
    (17,199
    )
    671
    
    (16,528
    )F-62

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Note 28  Differences between Chilean and United States Generally Accepted Accounting Principles, continued
d)
    Credit
      AgreementsThe Company
    has renewable lines of credit arrangements for short-term Chilean peso and
    US dollar borrowings with various Chilean and foreign banks totaling, in the
    aggregate, ThUS$ 260,000 and ThUS$ 300,000 at December 31, 2002 and 2001,
    respectively. There was ThUS$ 202,500 and ThUS$ 221,800 available as of December
    31, 2002 and 2001, respectively.
The Company
  pays no commitment fees on such lines of credit. A breakdown of the lines of
  credit and the average interest rates as of December 31, 2002 are as follows:
Available
    
    AverageLine
      of
    
    InterestCredit
    
    RateThUS$Chilean
      banks (in Chilean Pesos)
    151,000
    
    LIBOR
      + 0.65%Foreign
      banks (in US Dollars)
    51,500
    
    LIBOR
      + 0.85%Total
    202,500e)
    Lease
      commitmentsThe Company leases office facilities by way of a capital lease payable in installments through 2011, with a bargain purchase option at the end of the lease.
Minimum lease payments under capital leases are as follows:
CapitalThUS$2003
    
    1862004
    
    1862005
    
    1862006
    
    1862007
    
    186Thereafter
    
    664Total
      future minimum lease payments
    
    1,594Interest
    
    (452
    )Present
      value of net minimum lease payments
    
    1,142F-63

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Note 28  Differences between Chilean and United States Generally Accepted Accounting Principles, continued
e)
    Lease
      commitments, continuedSQM Salar
  S.A., a consolidated subsidiary of the Company, entered into a contract with
  a government agency for the rental of land for the purpose of exploration and
  exploitation of certain minerals. Rental payments are stated in US dollars and
  are determined based on actual mineral sales through 2030 in accordance with
  specified rates in the agreement. The Company paid ThUS$ 3,411 and ThUS$ 3,169
  in 2002 and 2001, respectively, related to such rental payments (including the
  minimum annual rental, which was ThUS$ 2,816 and ThUS$ 2,762 for 2002 and 2001,
  respectively. Future minimum annual rentals are as follows:
MinimumAnnualRentalsThUS$2003
    
    2,9742004
    
    3,0322005
    
    3,1352006
    
    3,1352007
    
    3,135Thereafter
    
    72,090Total
    
    87,501f)
    Foreign
      exchange lossesFor US GAAP
  presentation purposes, the net foreign exchange losses on transactions in foreign
  currencies and UF amounted to ThUS$ 5,868 and ThUS$ 7,015 and ThUS$ 4,209 in
  2002, 2001 and 2000, respectively.
g)
    Concentration
      of credit riskFinancial instruments, which potentially subject the Company to significant concentrations of credit risk, consist principally of cash investments and trade accounts receivable.
  The Company
    maintains cash and cash equivalents, marketable securities, and certain other
    financial instruments with various financial institutions. These financial
    institutions are located in Chile and other parts of the world, and the Companys
    policy is designed to limit exposure to any one institution. The Company performs
    periodic evaluations of the relative credit standing of these financial institutions
    as part of the Company's investment strategy.
Concentrations of credit risk with respect to trade accounts receivable are limited because of the large number of entities comprising the Company's customer base and their dispersion around the world. The Companys policy is to require collateral for certain accounts as deemed necessary by management, such as letters of credit and guarantee clauses, among others.
F-64

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Note 28    Differences between Chilean and United States Generally Accepted Accounting Principles, continued
h)      Advertising costs
Advertising costs are expensed as incurred and amounted to ThUS$ 1,134, ThUS$ 1,073 and ThUS$ 1,290 for the years ended December 31, 2002, 2001 and 2000, respectively.
          i)      Impairment
            of goodwill and intangible assets with indefinite useful lives
		  As described
    in paragraph I l) above the Company adopted SFAS 142 as of January 1, 2002.
    SFAS 142 applies to all goodwill and identified intangible assets acquired
    in a business combination.
  The following
    details what US GAAP net income for the Company would have been for the years
    ended December 31, 2001 and 2000, excluding goodwill amortization expense
    recognized during those years:
For
        the years ended
      December
        31,2001
    
    2000ThUS$
    
    ThUS$Reported
      net income
    24,383
    
    24,635Add
      back: Goodwill amortization
    251
    
    245Adjusted
      net income
    24,634
    
    24,880Goodwill
      under US GAAP as of December 31 is summarized as follows:2002
    
    2001ThUS$
    
    ThUS$Goodwill,
      gross
    6,286
    
    5,892Accumulated
      amortization
    (1,425
    )
    (1,425
    )Goodwill,
      net
    4,861
    
    4,467F-65

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Note 28    Differences between Chilean and United States Generally Accepted Accounting Principles, continued
          j)      Reclassification
            differences between Chilean GAAP and US GAAP
The following
    reclassifications are required to conform the presentation of Chilean GAAP
    income statement information to that required under US GAAP. The reclassification
    amounts are determined in accordance with Chilean GAAP.
Year
      ended December 31, 2002ChileanGAAPThUS$
    
    ReclassificationThUS$
    
    US
      GAAPpresentationThUS$Operating
      income
    82,683
    
    (2,319
    )
    80,364Non-operating
      income
    14,246
    
    (4,533
    )
    9,713Non-operating
      expenses
    (44,016
    )
    6,852
    
    (37,164
    )Year
      ended December 31, 2001ChileanGAAPThUS$
    
    ReclassificationThUS$
    
    US
      GAAPpresentationThUS$Operating
      income
    73,720
    
    (4,051
    )
    69,669Non-operating
      income
    18,314
    
    (7,255
    )
    11,059Non-operating
      expenses
    (47,491
    )
    5,515
    
    (41,976
    )Income
      taxes
    (7,538
    )
    857
    
    (6,681
    )Extraordinary
      items
    (4,934
    )
    4,934
    
    —Year
      ended December 31, 2000ChileanGAAPThUS$
    
    ReclassificationThUS$
    
    US
      GAAPpresentationThUS$Operating
      income
    67,268
    
    (4,137
    )
    63,131Non-operating
      income
    13,025
    
    (1,173
    )
    11,852Non-operating
      expenses
    (45,812
    )
    5,310
    
    (40,502
    )F-66

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Note 28    Differences between Chilean and United States Generally Accepted Accounting Principles, continued
k)     Industry segment and geographic area information
The Company provides disclosures in accordance with Statement of Financial Standards No. 131, Disclosures About Segments of an Enterprise and Related Information (SFAS 131), which establishes standards for reporting information about operating segments in annual financial statements as well as related disclosures about products and services and geographic areas. Operating segments are defined as components of an enterprise about which separate financial statement information available is evaluated regularly by the chief operating decision maker in making decisions about allocating resources and assessing performance. In accordance with SFAS 131, the Company has five segments, which are split into geographical areas: Chile, Latin American and Caribbean except Chile, Europe, USA and Asia and other.
The accounting policies of each segment are the same as those described in the Summary of Significant Accounting Policies(Note 2).
The following segment information is presented in accordance with US GAAP reporting requirements, however, the amounts have been determined in accordance with Chilean GAAP.
Chile
    
    LatinAmericaandCaribbeanexcept Chile
    
    Europe
    
    NorthAmerica
    
    Asiaandother
    
    Elimination
    
    ConsolidatedFor
      the year ended December 31, 2002
    ThUS$
    
    ThUS$
    
    ThUS$
    
    ThUS$
    
    ThUS$
    
    ThUS$
    
    ThUS$Sales
      to unaffiliated customers
    113,551
    
    78,969
    
    187,801
    
    151,978
    
    21,509
    
    —
    
    553,809Transfers
      between geographic areas
    257,902
    
    15,709
    
    134,414
    
    113,876
    
    13,600
    
    (535,502
    )
    —Total
      revenues
    371,453
    
    94,678
    
    322,215
    
    265,854
    
    35,109
    
    (535,502
    )
    553,809Exports
      by region
    —
    
    15,710
    
    111,315
    
    104,277
    
    13,600
    
    —
    
    244,902Net
      assets
    1,548,929
    
    7,018
    
    13,231
    
    60,317
    
    (426
    )
    (779,407
    )
    849,662Goodwill
    11,136
    
    222
    
    224
    
    —
    
    —
    
    —
    
    11,582Long-lived
      assets
    2,317,364
    
    12,278
    
    7,348
    
    65,527
    
    112
    
    (1,566,890
    )
    835,739Expenditures
      on long-lived assets
    39,935
    
    366
    
    796
    
    10,589
    
    5
    
    —
    
    51,691F-67

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Note 28    Differences between Chilean and United States Generally Accepted Accounting Principles, continued
k)     Industry segment and geographic area information, continued
Chile
    
    LatinAmericaandCaribbeanexcept
      Chile
    
    Europe
    
    NorthAmerica
    
    Asiaandother
    
    Elimination
    
    ConsolidatedFor
      the year ended December 31, 2001
    ThUS$
    
    ThUS$
    
    ThUS$
    
    ThUS$
    
    ThUS$
    
    ThUS$
    
    ThUS$Sales
      to unaffiliated customers
    108,702
    
    84,010
    
    180,662
    
    130,528
    
    22,537
    
    —
    
    526,439Transfers
      between geographic areas
    314,186
    
    23,540
    
    156,019
    
    99,999
    
    12,329
    
    (606,073
    )
    —Total
      revenues
    422,888
    
    107,550
    
    336,681
    
    230,527
    
    34,866
    
    (606,073
    )
    526,439Exports
      by region
    —
    
    22,016
    
    137,397
    
    88,836
    
    12,328
    
    —
    
    260,577Net
      assets
    1,540,697
    
    8,434
    
    16,862
    
    43,299
    
    (187
    )
    (777,408
    )
    831,697Goodwill
    13,034
    
    —
    
    493
    
    —
    
    —
    
    (167
    )
    13,360Long-lived
      assets
    2,289,939
    
    14,691
    
    9,536
    
    48,999
    
    117
    
    (1,492,091
    )
    871,191Expenditures
      on long-lived assets
    33,683
    
    99
    
    72
    
    15,792
    
    32
    
    —
    
    49,678Chile
    
    LatinAmericaandCaribbeanexcept
      Chile
    
    Europe
    
    NorthAmerica
    
    Asiaandother
    
    Elimination
    
    ConsolidatedFor
      the year ended December 31, 2000
    ThUS$
    
    ThUS$
    
    ThUS$
    
    ThUS$
    
    ThUS$
    
    ThUS$
    
    ThUS$Sales
      to unaffiliated customers
    118,187
    
    80,716
    
    163,292
    
    118,985
    
    20,612
    
    —
    
    501,792Transfers
      between geographic areas
    558,339
    
    —
    
    22,374
    
    761
    
    —
    
    (581,474
    )
    —Total
      revenues
    676,526
    
    80,716
    
    185,666
    
    119,746
    
    20,612
    
    (581,474
    )
    501,792Exports
      by region
    —
    
    19,420
    
    140,817
    
    72,666
    
    11,639
    
    —
    
    244,542Net
      assets
    1,486,475
    
    7,321
    
    13,675
    
    12,896
    
    (119
    )
    (696,155
    )
    824,093Goodwill
    11,799
    
    —
    
    535
    
    —
    
    —
    
    (199
    )
    12,135Long-lived
      assets
    2,225,985
    
    56,162
    
    8,267
    
    19,829
    
    65
    
    (1,446,189
    )
    864,119Expenditures
      on long-lived assets
    58,216
    
    361
    
    324
    
    4,277
    
    —
    
    —
    
    63,178F-68

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Note 28    Differences between Chilean and United States Generally Accepted Accounting Principles, continued
k)     Industry segment and geographic area information, continued
Sales by product type to unaffiliated customers for the years ended December 31 are as follows:
2002
    
    2001
    
    2000ThUS$
    
    ThUS$
    
    ThUS$Specialty
      fertilizers
    281,360
    
    259,076
    
    229,906Iodine
      and derivatives
    84,131
    
    81,357
    
    87,114Lithium
      and derivatives
    37,325
    
    36,994
    
    32,966Industrial
      chemicals
    70,847
    
    69,645
    
    69,786Others
    80,146
    
    79,367
    
    82,020Sales
      to unaffiliated customers
    553,809
    
    526,439
    
    501,792l)      Estimated
            Fair Value of Financial Instruments and Derivative Financial Instruments
The accompanying tables provide disclosure of the estimated fair value of financial instruments owned by the Company. Various limitations are inherent in the presentation, including the following:


    The
      data excludes non-financial assets and liabilities, such as property, plant
      and equipment, and goodwill.
    While
      the data represents managements best estimates, the data is subjective
      and involvessignificant estimates regarding current economic and market
      conditions and risk characteristics.The
      methodologies and assumptions used depend on the terms and risk characteristics
      of the various instruments and include the following:
    Cash
      and time deposits approximate fair value because of the short-term maturity
      of these instruments.
    Marketable
      securities with a readily determinable market value are recorded at fair
      value.
    Current
      liabilities that are contracted at variable interest rates, the book value
      is considered to be equivalent to their fair value.
    For
      interest-bearing liabilities with an original contractual maturity of greater
      than one year, the fair values are calculated by discounting contractual
      cash flows at current market origination rates with similar
      terms.F-69
            
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            Note
              28  Differences between Chilean and United States Generally
              Accepted Accounting Principles, continued
            l)
                Estimated Fair Value of Financial Instruments and Derivative
                  Financial Instruments, continuedThe
                  following is a detail of the Companys financial instruments
                  Chilean GAAP carrying amount and estimated fair value:December
                    31,2002
                
                2001Chilean
                  GAAP
                
                
                
                Chilean
                  GAAPCarrying
                
                Estimated
                  Fair
                
                Carrying
                
                EstimatedAmount
                
                Value
                
                Amount
                
                Fair
                  ValueThUS$
                
                ThUS$Assets:Cash
                  and cash equivalents
                65,204
                
                65,204
                
                121,536
                
                121,536Marketable
                  securities
                —
                
                —
                
                14,150
                
                14,529Short-term
                  accounts receivable
                152,521
                
                152,521
                
                164,510
                
                164,510Long-term
                  accounts receivable
                9,341
                
                9,341
                
                14,028
                
                14,028Liabilities:Short-term
                  bank debt
                (2,559
                )
                (2,559
                )
                (61,197
                )
                (61,197
                )Short-term
                  notes and accounts payable
                (55,343
                )
                (55,343
                )
                (39,007
                )
                (39,007
                )Derivative
                  instruments
                (2,010
                )
                (2,319
                )
                (2,233
                )
                (6,690
                )Current
                  and long-term portions of long-term bankdebt
                (344,804
                )
                (357,294
                )
                (418,831
                )
                (427,486
                )Long-term
                  other accounts payable
                (2,858
                )
                (2,858
                )
                (3,848
                )
                (3,848
                )m)
                Post-retirement obligations and staff severance indemnitiesThe
                  Companys subsidiary SQM North America Corporation has
                  a defined benefit, noncontributory pension plan covering substantially
                  all employees who qualify as to age and length of service. Plan
                  benefits are based on years of service and the employees
                  highest five-year average compensation during the last ten years
                  of employment. The plans assets consist primarily of equity
                  mutual funds and group annuity contracts.In
        September 2002, the Board of Directors of SQM North America Corporation
        voted to suspend the plan such that after December 31, 2002, participants
        do not earn additional benefits for future services. Such action resulted
        in a curtailment loss (equal to the amount of unrecognized prior service
        cost) of approximately US$1.3 million for the year ended December 31,
        2002.Assumptions
                  used in determining the actuarial present value of the projected
                  benefit obligation as of December 31 are as follows:2002
                
                2001Weighted-average
                  discount rate
                7.5
                %
                7.5
                %Rate
                  of increase in compensation levels
                5.0
                %
                5.0
                %Long-term
                  rate of return on plan assets
                8.5
                %
                8.5
                %F-70
            
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            Note
              28  Differences between Chilean and United States Generally
              Accepted Accounting Principles, continued
            m)
                Post-retirement obligations and staff severance indemnities,
                  continuedThe
                  following table sets forth the plans funded status and
                  amounts recognized in the consolidated balance sheet as of December
                  31:2002
                
                2001ThUS$
                
                ThUS$Change
                  in benefit obligation:Benefit
                  obligation at beginning of year
                4,492
                
                3,430Service
                  cost
                284
                
                234Interest
                  cost
                340
                
                304Actuarial
                  loss
                20
                
                (142
                )Benefits
                  paid
                (249
                )
                (221
                )Plan
                  amendments
                146
                
                887Curtailments/settlements
                (130
                )
                —Benefit
                  obligation at end of the year
                4,903
                
                4,492Change
                  in plan assets:Fair
                  value of plan assets at beginning of year
                5,741
                
                6,687Actual
                  loss on plan assets
                (1,443
                )
                (726
                )Benefits
                  paid
                (249
                )
                (221
                )Fair
                  value of plan assets at end of year
                4,049
                
                5,740Funded
                  status
                (854
                )
                1,248Unrecognized
                  transitional asset
                (45
                )
                (114
                )Unrecognized
                  net actuarial loss
                2,123
                
                313Adjustment
                  to recognize minimum pension liability
                (2,078
                )
                1,242Accrued
                  pension (liability)/ prepaid pension cost
                (854
                )
                2,689Net
                  periodic pension expense was comprised of the following components
                  for the year ended December 31, 2002:2002
                
                2001ThUS$
                
                ThUS$Service
                  cost or benefits earned during the period
                284
                
                (234
                )Interest
                  cost on benefit obligation
                340
                
                (304
                )Actual
                  return on plan assets
                (477
                )
                575Amortization
                  of unrecognized transitional asset
                (68
                )
                68Other
                101
                
                (91
                )Net
                  periodic pension expense
                180
                
                14F-71
            
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            Note
              28  Differences between Chilean and United States Generally
              Accepted Accounting Principles, continued

  n)
      Cash and cash equivalentsUnder Chilean GAAP cash and cash equivalents
          are considered to be all highly liquid investments with a remaining
          maturity of less than 90 days as of the closing date of the financial
          statements, whereas, US GAAP considers cash and cash equivalents to
          be all highly liquid investments with an original maturity date of less
          than 90 days. The difference between the balance under US GAAP and Chilean
          GAAP of cash and cash equivalents is not material for the periods presented.o)
      Recently issued accounting pronouncementsIn June
    2001 the Financial Accounting Standards Board (FASB) issued Statement
    of Financial Accounting Standards No. 143,Accounting
    for Asset Retirement Obligations.This standard requires that an asset retirement obligation (ARO)
    associated with tangible long-lived assets be measured and recorded at the
    fair value when the obligation is incurred. An entity must also capitalize
    the cost of the ARO by recognizing an increase in the carrying amount of the
    related long-lived asset. Over time, this liability is accreted to its present
    value, and the capitalized cost is depreciated over the useful life of the
    related asset. Upon settlement of the liability, an entity settles the obligation
    and recognizes a gain or loss for any difference from the recorded amount.
    SFAS No. 143 is effective for financial statements issued for fiscal years
    beginning after June 15, 2002. The Company will adopt SFAS No. 143 effective
    January 1, 2003. Management does not believe that implementation of this statement
    will have a significant effect on the Companys results of operations
    or financial position.
  In June
    2002, the FASB issued SFAS No. 146,Accounting
    for Costs Associated with Exit or Disposal Activities.This statement addresses financial accounting and reporting for costs associated
    with exit or disposal activities and nullifies Emerging Issues Task Force
    (EITF) Issue No. 94-3,Liability
    Recognition for Certain Employee Termination Benefits and Other Costs to Exit
    an Activity (including Certain Costs Incurred in a Restructuring).SFAS No. 146 requires that a liability for a cost associated with an exit
    or disposal activity be recognized and measured initially at fair value only
    when the liability is incurred, not when it is "planned". The Company is required
    to adopt the provisions of SFAS No. 146 for exit or disposal activities that
    are initiated after December 31, 2002 and does not expect the adoption to
    have a material impact on the Company's results of operations or financial
    position.
  In January
    2003, the FASB issued Interpretation No. 46,Consolidation
    of Variable Interest Entities-an interpretation of ARB 51,to expand upon and strengthen existing accounting guidance that addresses
    when a company should include in its financial statements the assets, liabilities
    and activities of another entity. Many variable interest entities have commonly
    been referred to as special-purpose entities or off-balance sheet structures,
    but the guidance applies to a larger population of entities. In general, a
    variable interest entity is a corporation, partnership, trust, or any other
    legal structure used for business purposes that either (a) does not have equity
    investors with voting rights or (b) has equity investors that do not provide
    sufficient financial resources for the entity to support its activities. The
    Company must apply Interpretation No. 46 immediately to variable interest
    entities created after January 31, 2003 and apply it to existing variable
    interest entities in the first fiscal year or interim period beginning after
    June 15, 2003. The Company does not expect the interpretation to have a material
    impact on the Companys results of operation or financial position.
  F-72