UNITED
STATES
 SECURITIES
AND EXCHANGE COMMISSION
 Washington,
D.C. 20549
 
 FORM 20-F
   ̈   
REGISTRATION STATEMENT PURSUANT TO SECTION 12(b) OR (g) OF THE
SECURITIES EXCHANGE ACT OF 1934
 OR
 
 x  
ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
 For
the fiscal year ended December 31, 2008
 OR
 
  ̈   
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
 OR
 
  ̈  
SHELL COMPANY REPORT PURSUANT TO SECTION 23 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
 Date of
event requiring this shell company report_______________________________
..
 For the
transition period from   _____________to__________
 .
  Commission
file number  33-65728
 
 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, 6th Floor,
Santiago, Chile +56 2 425-2000
 (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
      registeredSeries
      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
                142,819,552Series
      B shares
                120,376,972
 
 Indicate
by check mark if the registrant is a well-known seasoned issuer, as defined in
rule 405 of the Securities Act:      x YES     
 ̈
NO
 
 If this
report is an annual or transition report, indicate by check mark if the
registrant is not required to file reports pursuant to Section 13 or 15(d) of
the Securities Exchange act of 1934:       ̈ YES     
x  NO
 
 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.      x  YES     
 ̈ 
NO
 
 Indicate
by check mark whether the registrant has submitted electronically and posted on
its corporate Web site, if any, every Interactive Data File required to be
submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this
chapter) during the preceding 12 months (or for such shorter period that the
registrant was required to submit and post such
files).                                                                                                                                         
 ̈
YES       ̈ 
NO
 
 Indicate
by check mark whether the registrant is a large accelerated filer, an
accelerated filer, or a non accelerated filer. See definition of “accelerated
filer and large accelerated filer” in rule 12b-2 of the Exchange
Act.
 x 
Large accelerated
filer             ̈ 
Accelerated
filer             ̈ 
Non- accelerated filer
 
 Indicate
by check mark which basis of accounting the registrant has used to prepare the
financial statements included in this filing:
  ̈ U.S.
GAAP  ̈ 
International Financial Reporting Standards as issued by the International
Accounting Standards Board x Other
 If
“Other” has been checked in response to the previous question, indicate by check
mark which financial statement item the registrant has elected to
follow.
 Indicate
by check mark which financial statement item the registrant has elected to
follow.       ̈  Item
17      x Item
18
 If this
is an annual report, indicate by check mark whether the registrant is a shell
company (as defined in Rule 12b-2 of the Exchange Act):
  ̈ YESx  NO
  
 
 TABLE OF CONTENTS
  PagePRESENTATION
      OF INFORMATION
              
              iiiGLOSSARY
              
              iiiCAUTIONARY
      STATEMENT REGARDING FORWARD-LOOKING STATEMENTS
              
              viPART
      I
              
              1ITEM
      1.
              IDENTITY
      OF DIRECTORS, SENIOR MANAGEMENT AND ADVISERS
              
              1ITEM
      2.
              OFFER
      STATISTICS AND EXPECTED TIMETABLE
              
              1ITEM
      3.
              KEY
      INFORMATION
              
              1ITEM
      4.
              INFORMATION
      ON THE COMPANY
              
              13ITEM
      5.
              OPERATING
      AND FINANCIAL REVIEW AND PROSPECTS
              
              49ITEM
      6.
              DIRECTORS,
      SENIOR MANAGEMENT AND EMPLOYEES
              
              65ITEM
      7.
              MAJOR
      SHAREHOLDERS AND RELATED PARTY TRANSACTIONS
              
              77ITEM
      8.
              FINANCIAL
      INFORMATION
              
              79ITEM
      9.
              THE
      OFFER AND LISTING
              
              81ITEM
      10.
              ADDITIONAL
      INFORMATION
              
              84ITEM
      11.
              QUANTITATIVE
      AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
              
              95ITEM
      12.
              DESCRIPTION
      OF SECURITIES OTHER THAN EQUITY SECURITIES
              
              96PART
      II
              
              97ITEM
      13.
              DEFAULTS,
      DIVIDEND ARREARAGES AND DELINQUENCIES
              
              97ITEM
      14.
              MATERIAL
      MODIFICATIONS TO THE RIGHTS OF SECURITY HOLDERS AND USE OF
      PROCEEDS
              
              97ITEM
      15.
              CONTROLS
      AND PROCEDURES
              
              97ITEM
      16.
              RESERVED
              
              98ITEM
      16.a.
              AUDIT
      COMMITTEE FINANCIAL  EXPERT
              
              98ITEM
      16.B.
              CODE
      OF ETHICS
              
              98ITEM
      16.C
              PRINCIPAL
      ACCOUNTANT FEES AND SERVICES
              
              98ITEM
      16.D
              EXEMPTIONS
      FROM THE LISTING STANDARDS FOR AUDIT COMMITTEES
              
              99ITEM
      16.E
              PURCHASES
      OF EQUITY SECURITIES BY THE ISSUERS AND AFFILIATED
    PURCHASERS.
              
              99ITEM
      16.F
              CHANGE
      IN REGISTRANT'S CERTIFYING ACCOUNTANT.
              
              99ITEM
      16.G
              CORPORATE
      GOVERNANCE.
              
              99PART
      III
              
              100ITEM
      17.
              FINANCIAL
      STATEMENTS
              
              100ITEM
      18.
              FINANCIAL
      STATEMENTS
              
              100ITEM
      19.
              EXHIBITS
              
              100SIGNATURES
              
              101CONSOLIDATED
      FINANCIAL STATEMENTS
              
              102EXHIBIT
      1.1EXHIBIT
      8.1EXHIBIT
      12.1EXHIBIT
      12.2EXHIBIT
      13.1EXHIBIT
      13.2


ii




PRESENTATION OF
INFORMATION




In this
Annual Report on Form 20-F, unless the context requires otherwise, all
references to "we",
"us", "Company" or "SQM" are to Sociedad Química y
Minera de Chile S.A., an open stock corporation (sociedad anónima abierta) organized under
the laws of the Republic of Chile, and its consolidated
subsidiaries.




All
references to "$,"
"US$," "U.S. dollars," “USD” and "dollars" are to United States
dollars, references to "pesos," “CLP” and "Ch$" are to Chilean pesos,
references to ThUS$ are to thousands of United States dollars, references to
ThCh$ are to thousands of Chilean pesos and references to "UF" are to Unidades de
Fomento.  The UF is an inflation-indexed, peso-denominated unit
that is linked to, and adjusted daily to reflect changes in, the previous
month's Chilean consumer price index.  As of May 31, 2009, UF 1.00 was
equivalent to US$37.44 and Ch$20,989.29.




The
Republic of Chile is governed by a democratic government, organized in fourteen
regions plus the Metropolitan Region (surrounding and including Santiago, the
capital of Chile).  Our production operations are concentrated in
northern Chile, specifically in the Tarapacá Region and in the Antofagasta
Region.




Our
fiscal year ends on December 31.




We use
the metric system of weights and measures in calculating our operating and other
data.  The United States equivalent units of the most common metric
units used by us are as shown below:




1
kilometer equals approximately 0.6214 miles




1 meter
equals approximately 3.2808 feet




1
centimeter equals approximately 0.3937 inches




1 hectare
equals approximately 2.4710 acres




1 metric
ton equals 1,000 kilograms or approximately 2,205 pounds.




We are
not aware of any independent, authoritative source of information regarding
sizes, growth rates or market shares for most of our
markets.  Accordingly, the market size, market growth rate and market
share estimates contained herein have been developed by us using internal and
external sources and reflect our best current estimates.  These
estimates have not been confirmed by independent sources.




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.






GLOSSARY*




"assay
      values"  Chemical result or mineral component amount that
      contains the sample.




"average global metallurgical
      recoveries"  Percentage
      that measures the metallurgical treatment effectiveness based on the
      quantitative relationship between the initial product contained in the
      mine-extracted material and the final product produced in the
      plant.




"average mining
      exploitation
      factor"  Index or ratio that measures the mineral
      exploitation effectivenes, based on the quantitative relationship between
      (in-situ mineral minus exploitation losses) / in-situ
    mineral.




“cash and cash
      equivalents”The Financial
      Accounting Standards Board (FASB) defines cash equivalents as highly
      liquid securities with maturities of less than three months. Liquid
      securities typically are those that can be sold easily with little or no
      loss of value.




“Controller
      Group”   A person or company or group of persons or
      companies that have executed a joint performance agreement, that have a
      direct or indirect share in a company’s ownership and have the power to
      influence the decisions of the company’s
  management.




"Corfo"  Production
      Development Corporation (Corporación de Fomento de la
      Producción), formed in 1939, a
      national organization in charge of promoting Chile's manufacturing
      productivity and commercial
development.




"cut-off
      grade"  The minimal assay value or chemical amount of
      some mineral component above which exploitation is
    economical.




iii


"dilution"  Loss
      of mineral grade because of contamination with barren material (or waste)
      incorporated in some exploited ore
mineral.




"exploitation
      losses"  Amounts of ore mineral that have not been
      extracted in accordance with exploitation
  designs.




"fertigation"  The
      process by which plant nutrients are applied to the ground using an
      irrigation system.




"geostatistical
      analysis"  Statistical tools applied to mining planning,
      geology and geochemical data that allow estimation of averages, grades and
      quantities of mineral resources and
reserves.




"heap
      leaching"  A process whereby minerals are leached from a
      heap, or pad, of crushed ore by leaching solutions percolating down
      through the heap and collected from a sloping, impermeable liner below the
      pad.




"horizontal
      layering"  Rock mass (stratiform seam) with generally
      uniform thickness that conform to the sedimentary fields (mineralized and
      horizontal rock in these cases).




"hypothetical
      resources"  Mineral resources that have limited
      geochemical reconnaissance, based mainly on geological data and samples
      assay values spaced between 500–1000
meters.




"Indicated Mineral
      Resource"  See "Resources—Indicated Mineral
      Resource."




"Inferred Mineral
      Resource"  See "Resources—Inferred Mineral
      Resource."




"industrial
      crops"  Refers to crops that require processing after
      harvest in order to be ready for consumption or sale.  Tobacco,
      tea and seed crops are examples of industrial
  crops.




“Kriging Method”A technique used
      to estimate ore reserves, in which the spatial distribution of continuous
      geophysical variables is estimated using control points where values are
      known.




"LIBOR"  London
      Inter Bank Offered Rate.




"limited
      reconnaissance"  Low or limited level of geological
      knowledge.




"Measured Mineral
      Resource"  See "Resources—Measured Mineral
      Resource."




"metallurgical
      treatment"  A set of chemical and physical processes
      applied to rocks to extract their useful minerals (or
    metals).




"ore
      depth"  Depth of the mineral that may be economically
      exploited.




"ore
      type"  Main mineral having economic value contained in
      the caliche ore (sodium nitrate or
iodine).




"ore"  A
      mineral or rock from which a substance having economic value may be
      extracted.




"Probable Mineral
      Reserve"  See "Reserves—Probable Mineral
      Reserve."




"Proved Mineral
      Reserve"  See "Reserves—Proved Mineral
      Reserve."




"Reserves—Probable Mineral
      Reserve"*  The economically mineable part of an Indicated
      Mineral Resource and, in some circumstances, Measured Mineral Resource.
      The calculation of the reserves includes diluting of materials and
      allowances for losses which may occur when the material is
      mined.  Appropriate assessments, which may include feasibility
      studies, have been carried out and include consideration of and
      modification by realistically assumed mining, metallurgical, economic,
      marketing, legal, environmental, social and governmental factors. These
      assessments demonstrate at the time of reporting that extraction is
      reasonably justified. A Probable Mineral Reserve has a lower level of
      confidence than a Proved Mineral
Reserve.




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




iv


"Resources—Indicated Mineral
      Resource"*  That part of a Mineral Resource for which
      tonnage, densities, shape, physical characteristics, grade and mineral
      content can be estimated with a reasonable level of
      confidence.  The calculation is based on exploration, sampling
      and testing information gathered through appropriate techniques from
      locations such as outcrops, trenches, pits, workings, and drill
      holes.  The locations are too widely or inappropriately spaced
      to confirm geological continuity and/or grade continuity but are spaced
      closely enough for continuity to be assumed.  An Indicated
      Mineral Resource has a lower level of confidence than that applying to a
      Measured Mineral Resource, but has a higher level of confidence than that
      applying to an Inferred Mineral
Resource.




A deposit
may be classified as an Indicated Mineral Resource when the nature, quality,
amount and distribution of data are such as to allow the Competent Person
determining the Mineral Resource to confidently interpret the geological
framework and to assume continuity of mineralization.  Confidence in
the estimate is sufficient to allow the appropriate application of
technical and economic parameters and to enable an evaluation of economic
viability.




"Resources—Inferred Mineral
      Resource"*  That part of a Mineral Resource for which
      tonnage, grade and mineral content can be estimated with a low level of
      confidence, by inferring them on the basis of geological evidence and
      assumed but not verified geological and/or grade
      continuity.  The estimate is based on information gathered
      through appropriate techniques from locations such as outcrops, trenches,
      pits, workings and drill holes, and this information is of limited or
      uncertain quality and/or reliability.  An Inferred Mineral
      Resource has a lower level of confidence than that applying to an
      Indicated Mineral Resource.




"Resources—Measured Mineral
      Resource"  The part of a Mineral Resource for which
      tonnage, densities, shape, physical characteristics, grade and mineral
      content can be estimated with a high level of confidence. The estimate is
      based on detailed and reliable exploration, sampling and testing
      information gathered through appropriate techniques from locations such as
      outcrops, trenches, pits, workings, and drill holes.  The
      locations are spaced closely enough to confirm geological and/or grade
      continuity.




A
      deposit may be classified as a Measured Mineral Resource when the nature,
      quality, amount and distribution of data are such as to leave no
      reasonable doubt, in the opinion of the Competent Person determining the
      Mineral Resource, that the tonnage and grade of the deposit can be
      estimated within close limits and that any variation from the estimate
      would not significantly affect potential economic
      viability.  This category requires a high level of confidence
      in, and understanding of, the geology and controls of the mineral deposit.
      Confidence in the estimate is sufficient to allow the appropriate
      application of technical and economic parameters and to enable an
      evaluation of economic viability.




“vat
      leaching”  A process whereby minerals are extracted from
      crushed ore by placing the ore in large vats  containing
      leaching solutions.




"waste"  Rock
      or mineral which is not economical for metallurgical
      treatment.




"Weighted Average
      Age"  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, 2008 divided by the total gross book value of the Company's fixed
      assets at such facility as of December 31,
2008.




*
            The
      definitions we use for resources and reserves are based on those provided
      by the “Instituto de
      Ingenieros de Minas de Chile” (Chilean Institute of Mining
      Engineers).


**
            The
      definition of a Controller Group that has been provided is the one that
      applies to the Company.  Chilean law provides for a broader
      definition of a Controller Group.




SQM will
provide 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), upon written or oral request.  Written
requests for such copies should be directed to Sociedad Química y Minera de
Chile S.A., El Trovador 4285, 6th Floor,
Santiago, Chile, Attention: Investor Relations Department.  Requests
may also be made by telephone (562-425-2000), facsimile (562-425-2493) or e-mail
(ir@sqm.com).


v


CAUTIONARY STATEMENT
REGARDING FORWARD-LOOKING STATEMENTS




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:




·
            the
      Company's capital investment program and development of new
      products;




·
            trends
      affecting the Company's financial condition or results of
      operations;




·
            level
      of production, quality of the ore and brines, and production
      yields;




·
            the
      future impact of competition;




·
            any
      statements preceded by, followed by, or that include the words "believe,"
      "expect," "predict," "anticipate," "intend," "estimate," "should," "may,"
      "could" or similar expressions; and




·
            other
      statements contained in this Form 20-F that are not historical
      facts.




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




·
            SQM's
      ability to implement its capital expenditures, including its ability to
      arrange financing when required;




·
            the
      nature and extent of future competition in SQM's principal
      markets;




·
            political,
      economic and demographic developments in the emerging market countries of
      Latin America and Asia where SQM conducts a large portion of its business;
      and




·
            the
      factors discussed below under Item 3.  Key Information—Risk
      Factors.




vi




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




3.A.Selected
Financial Data




The
following table presents selected consolidated financial information for SQM and
one or more of its subsidiaries, as applicable, 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 as of December 31, 2008 and 2007 and for each of the three years
in the period ended December 31, 2008. The consolidated financial statements as
of December 31, 2005 and 2004 and for the years then ended are not included
herein. The Company's Consolidated Financial Statements are prepared in
accordance with Chilean GAAP, which differs in certain material respects from
U.S. GAAP. Note 30 to the Consolidated Financial Statements as of December 31,
2008 and 2007 and for each of the three years in the period ended December 31,
2008 provides a description of the principal differences between Chilean GAAP
and U.S. GAAP and a reconciliation of net income for the years ended December
31, 2008, 2007 and 2006 and total shareholders' equity as of December 31, 2008
and 2007 to U.S. GAAP.




Year
      ended December 31,2008
            
            
            2007
            
            
            2006
            
            
            2005
            
            
            2004Income
      Statement Data
            
            
            
            
            (in millions of
      US$)(1)Chilean GAAPTotal
      Revenues
            
            
            1,774.1
            
            
            
            1,187.5
            
            
            
            1,042.9
            
            
            
            896.0
            
            
            
            788.5Operating
      Income
            
            
            632.2
            
            
            
            259.5
            
            
            
            219.9
            
            
            
            181.2
            
            
            
            124.1Non-operating
      results, net
            
            
            (19.3
            )
            
            
            (27.1
            )
            
            
            (36.1
            )
            
            
            (34.4
            )
            
            
            (17.6
            )Net
      income
            
            
            501.4
            
            
            
            180.0
            
            
            
            141.3
            
            
            
            113.5
            
            
            
            74.2Net
      earnings per share (2)
            
            
            1.91
            
            
            
            0.68
            
            
            
            0.54
            
            
            
            0.43
            
            
            
            0.28Net
      earnings per ADR (2) (3)
            
            
            1.91
            
            
            
            0.68
            
            
            
            0.54
            
            
            
            0.43
            
            
            
            0.28Dividend
      per share (4) (5)
            
            
            1.24
            
            
            
            0.44
            
            
            
            0.35
            
            
            
            0.28
            
            
            
            0.18Weighted
      average shares outstanding (000s) (2)
            
            
            263,197
            
            
            
            263,197
            
            
            
            263,197
            
            
            
            263,197
            
            
            
            263,197


US GAAPTotal
      Revenues
            
            
            1,774.1
            
            
            
            1,187.5
            
            
            
            1,042.9
            
            
            
            896.0
            
            
            
            788.5Operating
      Income
            
            
            623.0
            
            
            
            237.0
            
            
            
            205.5
            
            
            
            163.9
            
            
            
            114.6Non-operating
      results, net (6)
            
            
            (26.9
            )
            
            
            1.7
            
            
            
            (14.1
            )
            
            
            (6.1
            )
            
            
            (1.6
            )Equity
      participation in income (loss) of related companies, net
            
            
            14.4
            
            
            
            3.6
            
            
            
            2.0
            
            
            
            2.6
            
            
            
            1.8Net
      income
            
            
            500.9
            
            
            
            192.7
            
            
            
            154.3
            
            
            
            125.2
            
            
            
            86.8Basic
      and diluted earnings per share
            
            
            1.90
            
            
            
            0.73
            
            
            
            0.59
            
            
            
            0.48
            
            
            
            0.33Basic
      and diluted earnings per ADR (3)
            
            
            1.90
            
            
            
            0.73
            
            
            
            0.59
            
            
            
            0.48
            
            
            
            0.33Weighted
      average shares outstanding (000s) (2)
            
            
            263,197
            
            
            
            263,197
            
            
            
            263,197
            
            
            
            263,197
            
            
            
            263,197


1




As
      of December 31,2008
            
            
            2007
            
            
            2006
            
            
            2005
            
            
            2004Balance
      Sheet Data
            
            
            
            
            (in millions of
      US$)(1)Chilean GAAPTotal
      assets
            
            
            2,567.2
            
            
            
            1,986.3
            
            
            
            1,871.2
            
            
            
            1,640.6
            
            
            
            1,361.4Long-term
      debt
            
            
            515.9
            
            
            
            486.7
            
            
            
            480.7
            
            
            
            100.0
            
            
            
            200.0Total
      shareholders’ equity
            
            
            1,463.1
            
            
            
            1,182.4
            
            
            
            1,085.9
            
            
            
            1,020.4
            
            
            
            948.6Capital
      stock
            
            
            477.4
            
            
            
            477.4
            
            
            
            477.4
            
            
            
            477.4
            
            
            
            477.4US GAAPTotal
      assets
            
            
            2,549.1
            
            
            
            1,959.6
            
            
            
            1,846.0
            
            
            
            1,609.0
            
            
            
            1,318.5Long-term
      debt
            
            
            514.5
            
            
            
            485.0
            
            
            
            478.7
            
            
            
            100.0
            
            
            
            200.0Total
      shareholders’ equity
            
            
            1,368.0
            
            
            
            1,084.1
            
            
            
            994.5
            
            
            
            923.4
            
            
            
            856.9Capital
      stock
            
            
            479.3
            
            
            
            479.3
            
            
            
            479.3
            
            
            
            479.3
            
            
            
            479.3





Note: The
Company is not aware of any material differences between Chilean and U.S. GAAP
that are not addressed in Note 30 to the Consolidated Financial Statements of
December 31, 2008.





(1)
Except shares outstanding, dividend and net earnings per share and net earnings
per ADR.





(2) There
are no authoritative pronouncements related to the calculation of earnings per
share in accordance with Chilean GAAP. For comparative purposes the calculation
has been based on the same number of weighted average shares outstanding as used
for the U.S. GAAP calculation.





(3) The
ratio of ordinary shares to Series A ADRs was 10:1 for all periods reflected in
the table. The Series A ADRs were delisted from the New York Stock Exchange on
March 27, 2008. The ratio of ordinary shares to Series B ADRs changed from 10:1
to 1:1 on March 28, 2008. The calculation of earnings per ADR is based on the
ratio of 1:1.





(4)
Dividends per share are calculated based on 263,196,524 shares for the periods
ended December 31, 2004, 2005, 2006, 2007 and 2008.





(5)
Dividends may only be paid from net income before amortization of negative
goodwill as determined in accordance with Chilean GAAP; see Item 8.A.8. Dividend
Policy. For dividends in Ch$ see Item 8.A.8.Dividend Policy —
Dividends.





(6) Does
not include equity participation in income (loss) of related companies,
net.




EXCHANGE
RATES




Chile has
two currency markets, the Mercado Cambiario Formal, or
Formal Exchange Market, and the Mercado Cambiario Informal,
or Informal Exchange Market. The Formal Exchange Market comprises banks and
other entities authorized by the Chilean Central Bank. The Informal Exchange
Market comprises entities that are not expressly authorized to operate in the
Formal Exchange Market, such as certain foreign exchange houses and travel
agencies, among others. The Chilean Central Bank is empowered to determine that
certain purchases and sales of foreign currencies be carried out on the Formal
Exchange Market.





Both the
Formal and Informal Exchange Markets are driven by free market forces. Current
regulations require that the Chilean Central Bank be informed of certain
transactions and that they be effected through the Formal Exchange Market. For
the purposes of the operation of the Formal Exchange Market, the Chilean Central
Bank sets a dólar acuerdo, or Reference Exchange
Rate. The Reference Exchange Rate is reset daily by the Chilean Central Bank,
taking into account internal and external inflation and variations in parities
between the Chilean peso and each of the U.S. dollar, the euro and the Japanese
yen at a ratio of 80:15:5, respectively. In order to keep the average exchange
rate within certain limits, the Chilean Central Bank may intervene by buying or
selling foreign currency on the Formal Exchange Market.







The dólar observado, or Observed
Exchange Rate, which is reported by the Chilean Central Bank and published daily
in the Chilean newspapers, is computed by taking the weighted average of the
previous business day’s transactions on the Formal Exchange Market. On September
2, 1999, the Chilean Central Bank eliminated the band within which the Observed
Exchange Rate could fluctuate, in order to provide greater flexibility in the
exchange market. Nevertheless, the Chilean Central Bank has the power to
intervene by buying or selling foreign currency on the Formal Exchange Market to
attempt to maintain the Observed Exchange Rate within a desired
range.


2


On April
10, 2008, the Chilean Central Bank decided to intervene in the Formal Exchange
Market by increasing the level of international reserves by US$8
billion.  This intervention program took place between April 14, 2008
and December 12, 2008.  The Central Bank decided to implement this
program in order to strengthen the international liquidity of the Chilean
economy, in the face of recent uncertainty in the global financial
markets.  In addition, the Central Bank considered that world economic
conditions had caused the exchange rate between the Chilean peso and the U.S.
dollar to fall below the level that should prevail under normal economic
conditions.





The
Informal Exchange Market reflects transactions carried out at an informal
exchange rate, or the Informal Exchange Rate. 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.





The
following table sets forth the annual low, high, average and year-end Observed
Exchange Rate for U.S. dollars for each year starting in 2004 as reported by the
Chilean Central Bank. The Federal Reserve Bank of New York does not report a
noon buying rate for Chilean pesos.





On May
31, 2009, the Observed Exchange Rate was Ch$560.58 = US$1.00.




Observed
      Exchange Rate (1)Ch$
      per US$Year/Month
                  
                  Low (1)
                  
                  
                  High (1)
                  
                  
                  Average
                    (2)(3)
                  
                  
                  Year/Month
                    End2004
                  
                  
                  559.21
                  
                  
                  
                  649.45
                  
                  
                  
                  612.13
                  
                  
                  
                  559.832005
                  
                  
                  509.70
                  
                  
                  
                  592.75
                  
                  
                  
                  559.27
                  
                  
                  
                  514.212006
                  
                  
                  511.44
                  
                  
                  
                  549.63
                  
                  
                  
                  531.03
                  
                  
                  
                  534.432007
                  
                  
                  493.14
                  
                  
                  
                  548.67
                  
                  
                  
                  521.95
                  
                  
                  
                  495.822008
                  
                  
                  431.22
                  
                  
                  
                  676.75
                  
                  
                  
                  528.88
                  
                  
                  
                  629.11Dec-08
                  
                  
                  625.59
                  
                  
                  
                  674.83
                  
                  
                  
                  649.32
                  
                  
                  
                  629.11Jan-09
                  
                  
                  610.09
                  
                  
                  
                  643.87
                  
                  
                  
                  623.01
                  
                  
                  
                  612.43Feb-09
                  
                  
                  583.32
                  
                  
                  
                  623.87
                  
                  
                  
                  606.00
                  
                  
                  
                  595.76Mar-09
                  
                  
                  572.39
                  
                  
                  
                  614.85
                  
                  
                  
                  592.93
                  
                  
                  
                  582.10Apr-09
                  
                  
                  575.12
                  
                  
                  
                  601.04
                  
                  
                  
                  583.18
                  
                  
                  
                  588.62May-09
                  
                  
                  558.95
                  
                  
                  
                  580.10
                  
                  
                  
                  565.72
                  
                  
                  
                  564.64




Source:  Central
Bank of Chile




(1)
            Observed
      exchange rates are the actual high and low on a day-to-day basis, for each
      period.




(2)
            The
      yearly average rate is calculated as the average of the exchange rates on
      the last day of each month during the
period.




(3)
            The
      monthly average rate is calculated on a day-to-day basis for each
      month.




3




3.B.Capitalization
and Indebtedness




Not
applicable.




3.C.Reasons
for the Offer and Use of Proceeds




Not
applicable.




3.D.Risk
Factors




Our
operations are subject to certain risk factors that may affect SQM's financial
condition or results of operations.  In addition to other information
contained in this Annual Report on Form 20-F, you should consider carefully the
risks described below.  These risks are not the only ones we
face.  Additional risks not currently known to us or that are known
but we currently believe are not significant may also affect our business
operations.  Our business, financial condition or results of
operations could be materially affected by any of these risks.




Risks Relating to our
Business




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




We sell
our products in more than 100 countries around the world.  In 2008,
approximately 45% of our sales were made to emerging market countries: (i)
approximately 21% in Central and South America, excluding Chile; (ii)
approximately 13% in Chile; and (iii) approximately 11% in Asia, excluding
Japan.  We expect to expand our sales in these and other emerging
markets in the future.  The results of and prospects for our
operations in these countries and other countries in which we establish
operations can be expected to be dependent, in part, on the general level of
political stability and economic activity and policies in those
countries.  Future developments in the political systems or economies
of these countries or the implementation of future governmental policies in
those countries, including the imposition of withholding and other taxes,
restrictions on the payment of dividends or repatriation of capital, the
imposition of new environmental regulations or price controls or changes in
relevant laws or regulations could have a material adverse effect on our sales
or operations in those countries.




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




The
prices of our products are determined principally by world prices, which in some
cases have been subject to substantial volatility in recent
years.  World fertilizer and chemical prices vary depending upon the
relationship between supply and demand at any given
time.  Furthermore, the supply of certain fertilizers or chemical
products, including certain products that we provide, varies principally
depending upon the production of the major producers (SQM included) and their
respective business strategies.




In
particular, during 2008 world prices of potassium-based commodity fertilizers
increased significantly during the first nine months of the year. Towards the
end of 2008, commodity fertilizers prices in general fell as a result of the
global financial crisis. During the first months of 2009 the volatility in
prices has continued affecting commodity markets around the world. The global
economic crisis could have a material adverse effect on the prices of our
potassium-based specialty plant nutrients and the prices of the potassium
chloride we sell to third parties.




During
the last two decades, world iodine prices have displayed volatility in response
to supply and demand conditions.  Iodine prices have followed an
upward trend since late 2003, reaching an average price of approximately US$24
per kilogram in 2008.  On October of 2008, we announced an increase of
iodine prices by 25%. This impact should be reflected during the year 2009. We
cannot assure you that this upward trend will continue.


4


We
started production of lithium carbonate from the brines of the Salar de Atacama
in October 1996 and started selling lithium carbonate commercially in January
1997. Our entry into the market created an oversupply of lithium carbonate,
resulting in a drop in prices from over US$3,000 per ton before our entry to
less than US$2,000 per ton.  At the end of 2008, prices were
approximately US$6,000 per ton. The increase in prices was the result of market
dynamics reflecting sustained growth in demand in the past few years and supply
that grew only enough to match demand. Before the global economic crisis, we
believed this price increase was due mainly to high growth in demand, which had
not been fully balanced by the supply of lithium carbonate. Considering recent
events in global markets demand for lithium carbonate has declined, and as
expected, lithium prices and sales volumes for 2008 were slightly lower compared
to the previous year. Because many applications for lithium are related to
the construction industry, which contracted significantly during recent months,
we expect that lithium sales volumes in 2009 will be lower than in
2008.  If demand continues to fall, we can not assure that prices will
not be affected.




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




Our
inventory levels may increase because of the global economic
situation




The
current economic downturn and its potentially negative effects on the financial
situation of our customers may delay some purchases and as consequence increase
our inventory levels. These increased levels of inventory increases the
Company’s need for cash to fund working capital. We believe demand could recover
during the second half of 2009, at which point inventory levels should start to
normalize. If inventory levels remain high, however, we could be forced to shut
down part of our production capacity which could have a material adverse effect
on our business, financial condition and results of operations.




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




The
current economic downturn and its potentially negative effects on the financial
situation of our customers may extend the payment terms of SQM’s accounts
receivable and may increase our exposure to bad debt.  While SQM is
taking measures, such as using credit insurance, letters of credits and
prepayment for a portion of sales, to minimize this risk, this global economic
situation may bring losses that could have a material adverse effect on our
business, financial condition and results of operations.




Production
of lithium carbonate in China and other countries




Potential
new production of lithium carbonate in China could adversely affect prices.
There is limited information on the status of lithium carbonate capacity
expansion projects being developed by Chinese competitors, and so we cannot make
accurate projections regarding their capacities and the dates on which they
could become operational. Potential new production of lithium carbonate from
other countries could have a similar impact on market conditions. If these
potential projects are completed in the short term, they could adversely affect
market prices, which in turn could adversely affect our business, financial
position and results of operations.




We
have an ambitious capital expenditure program that is subject to significant
risks and uncertainties




Our
business is capital intensive. Specifically, the exploration and exploitation of
reserves, mining and processing costs, the maintenance of machinery and
equipment and compliance with applicable laws and regulations require
substantial capital expenditures.  We must continue to invest capital
to maintain or to increase our exploitation levels and the amount of finished
products we produce.  We require environmental permits for our new
projects. Obtaining permits in certain cases may cause significant delays in the
execution and implementation of such new projects and, consequently, may require
us to reassess the related risks and economic incentives. No assurance can be
made that we will be able to maintain our production levels or generate
sufficient cash flow, or that we will have access to sufficient investments,
loans or other financing alternatives to continue our exploration, exploitation
and refining activities at or above present levels, or that we will be able to
implement our projects or receive the necessary permits required for them in
time. Any or all of these factors may have a material adverse impact on our
business, financial condition and results of operations.


5


Currency
fluctuations may have a negative effect on our financial results




The
Chilean peso has been subject to large devaluations and revaluations in the past
and may be subject to significant fluctuations in the future. We transact a
significant portion of our business in U.S. dollars, and the U.S. dollar is the
currency of the primary economic environment in which we operate and is our
functional currency for financial statement reporting purposes. A significant
portion of our operating costs, however, are related to the Chilean peso.
Therefore, an increase or decrease in the exchange rate between the Chilean peso
and the U.S. dollar would affect our costs of production.  As of
December 31, 2008, the Chilean peso to U.S. dollar exchange rate was Ch$ 629.11
per U.S. dollar. As of December 31, 2007, the Chilean peso to U.S. dollar
exchange rate was Ch$ 495.82 per U.S. dollar. As of May 31, 2009, the U.S.
dollar has depreciated approximately 11.4%, against the Chilean peso compared to
the exchange rate at December 31, 2008.




Additionally,
as an international company operating in Chile and several other countries, we
transact a portion of our business and have assets and liabilities in Chilean
pesos and other non-U.S. dollar currencies, such as the Euro and the South
African Rand, among others. As a result, fluctuations in the exchange rates of
such foreign currencies to the U.S. dollar may affect our business, financial
condition and results of operations.




High
raw materials and energy prices could increase our production costs and cost of
goods sold




We rely
on certain raw materials and various sources of energy (diesel, electricity,
natural gas, fuel oil and others) to manufacture our products. Purchases of raw
materials that we do not produce and energy constitute a significant part of our
cost of sales (approximately 15.5% in 2008). To the extent we are unable to pass
on increases in raw materials and energy prices to our customers, our business,
financial condition and results of operations could be materially, adversely
affected.




Our
reserves estimates could significantly vary




Our
mining reserves estimates are prepared by our geologists. Estimation methods
involve numerous uncertainties as to the quantity and quality of the reserves,
and these could change, up or down. A downward change in the quantity and/or
quality of our reserves could affect future volumes and costs of production and
therefore have a material adverse effect on our business, financial condition
and results of operations.




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




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




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




Our
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 sufficient by prudent and experienced persons
engaged in a business or businesses similar to ours. Nonetheless, we may be
subject to certain events that may not be covered under the insurance policies,
and that could have a material adverse effect on our financial condition or
results of operations.


6


We
face significantly higher energy costs as a result of the natural gas shortage
in Chile




As part
of a cost reduction effort, in 2001 we connected our facilities to a natural gas
network. The natural gas, which originates in Argentina and is subject to a
10-year agreement, is used mainly for heat generation at our industrial
facilities. Due to energy shortages in Argentina, in 2004 local authorities
began to restrict exports of natural gas to Chile in order to increase the
supply to their domestic markets. Additionally, even though we have
long-term price agreements related to natural gas, the Argentinean government
has increased taxes on gas exports and there can be no assurance that they will
not do so again in the future.




We
suffered partial shortages of natural gas during 2004, 2005 and 2006, and during
2007 and 2008 we received practically no natural gas.  We believe this
situation will continue and that during 2009 we will likely receive little or no
natural gas from Argentina.  Most of our industrial equipment that
uses natural gas can also operate on fuel oil, and the remaining equipment
can operate on diesel. However, the cost of fuel oil and diesel is significantly
higher than the cost of natural gas, and therefore we have recently faced
significantly higher energy costs.  We expect this situation to
continue, and therefore we expect the reduction in our natural gas supply to
continue to have a material adverse effect on our business, financial condition
and results of operations.




Decline
in the supply of natural gas is negatively affecting the supply of electricity
in the Northern Power Grid




The
natural gas supply crisis discussed above has placed the Northern Power Grid
(Sistema Interconectado del
Norte Grande or “SING”) under significant stress. The lack of natural gas
received from Argentina during 2008 has made this situation even more
critical.  Continued stress on the Northern Power Grid could lead to a
system failure that would then affect the supply of electricity. Restrictions on
the Company’s electricity consumption could materially, adversely affect our
operations, potentially decreasing our production volumes and increasing our
production costs.




Decline
in the supply of natural gas and volatility of global oil prices could
negatively affect our electricity contracts




As the
supply of natural gas continues to be uncertain, as discussed above, we are
faced with the potential early termination, partial amendment or temporary
suspension of our long-term electricity supply contracts.  We maintain
contracts with two main utilities in Chile, Electroandina S.A. and Norgener
S.A., and in the past both have sought relief from the terms of their
electricity supply agreements, arguing that certain unforeseen events have
restricted the supply and increased the price of gas from
Argentina.  As a result of the requests, we entered into negotiations
resulting in new tariffs that have a negative effect on our results of
operations.  Further increases in the cost of energy could prompt
these companies to once again seek to modify, terminate or suspend these
contracts.  If that were to happen, and these companies were to
prevail in any resulting arbitration proceedings, our business, financial
condition and results of operations could be materially adversely
affected.





During
2008, purchases of electricity represented approximately 5.5% of our cost of
sales.





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




Of our
permanent employees in Chile, 61% are represented by 29 labor unions, which
represent their members in collective bargaining negotiations with the Company.
Accordingly, we are exposed to labor strikes that could impact our production
levels. Should a strike occur and extend for a sustained period of time, we
could be faced with increased costs and even disruption in our product flow that
could have a material adverse effect on our business, financial condition or
results of operations.




In 2006,
the Chilean Congress amended the Labor Code, and effective January 15, 2007,
certain changes were made, affecting companies that hire subcontractors to
provide certain services.  This new law, known as the “Law on
Subcontracting”, establishes a new requirement that applies in the event of
accidents in the workplace.  The law states that when a serious
accident occurs, the company must halt work at the site where the accident took
place until authorities from the National Geology and Mining Service inspect the
site and prescribe the measures the company must take to prevent future
risks.  Work may not be resumed until the company has taken the
prescribed measures, and the period of time before work may be resumed may last
for a number of hours, days, or longer.  The effects of this new law
could have a material adverse effect on our business, financial condition or
results of operations.


7




Pending
lawsuits could adversely impact us




We are
party to lawsuits and arbitrations involving different matters. Although we
intend to defend our positions vigorously, our defense of these actions may not
be successful. Judgment in or settlement of these lawsuits may have an adverse
effect on our business, financial condition or results of
operations.  See Item 8.A.7. Legal Proceedings and Note 23 to the
Consolidated Financial Statements. Furthermore, our strategy of being a
world leader includes entering into commercial and production alliances, joint
ventures and acquisitions to improve our global competitive position. As these
operations increase in complexity and are carried out in different
jurisdictions, our Company might be subject to legal proceedings that, if
settled against us, could have a material adverse effect on the Company's
business, financial condition or results of operations.





In 2006,
the Chilean Congress approved Law No. 20,087 which established new procedures
for judges who specialize in labor matters. In 2008, these new procedures where
implemented gradually and are currently valid in the Tarapaca and Antofagasta
regions. These new procedures establish an obligatory mediation period between
the employer and the employee. In the event that the parties do not reach a
mutual agreement, an oral trial may decide the matter. The majority of the oral
trials have found in favor of the employee. These new procedures could increase
the probability of having judgments against us which could have a material
adverse effect on our business, financial condition and results of
operations.





Risks Relating to
Chile





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




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.




Changes
in mining and water rights laws or in regulations affecting port concessions
could affect our operating costs




We
conduct our mining (including brine extraction) operations under exploitation
and exploration concessions granted in accordance with provisions of the Chilean
Constitution, and the Constitutional Mining Law and related statutes. Our
exploitation concessions essentially grant a perpetual right to conduct mining
operations in the areas covered by the concessions, provided that we pay annual
concession fees (with the exception of the Salar de Atacama rights, which have
been leased to us until 2030). Our exploration concessions permit us to explore
for mineral resources on the land covered thereby for a specified period of
time, and to subsequently request a corresponding exploitation
concession.




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




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




We hold
water rights that are key to our business development.  These rights
were obtained from the Chilean Water Authority for a supply of water from rivers
and wells near our production facilities, which we believe are sufficient to
meet current operating requirements. However, the Water Code is subject to
changes, which could have a material adverse impact on our business, financial
condition and results of operations.  Law No. 20,017, published on
June 16, 2005, modified the Chilean laws relating to water
rights. Under certain conditions, these modifications allow the
constitution of permanent water rights of up to 2 liters per second
for each well built prior to June 30, 2004, in the locations where we conduct
our mining operations.  Such rights may be constituted in favor of
parties that requested water rights prior to January 1, 2000, when such request
had not yet been processed as of June 16, 2005.  In constituting these
new water rights, the law does not factor in the availability of water, or how
the new rights may affect holders of existing rights.  Therefore, the
amount of water we can effectively extract based on our existing rights could be
reduced if these additional rights are exercised.  Furthermore, we
must pay annual concession fees to maintain water rights we are not exercising.
These and other potential future changes to the Water Code could have a material
adverse effect on our business, financial condition and results of
operations.


8




The
Chilean government could levy additional taxes on corporations operating in
Chile




In 2005,
the Chilean Congress approved Law No. 20,026 (also known as the “Royalty Law”)
establishing a royalty tax to be applied to mining activities developed in
Chile.  We cannot assure you that the way in which the Royalty Law is
interpreted and applied will not change in the future.  In addition,
the Chilean Government may decide to levy additional taxes on mining companies
or other corporations in Chile.  Such changes could have a material
adverse effect on our business, financial condition and results of
operations.




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




Our
operations in Chile are subject to a variety of national and local regulations
relating to environmental protection.  The main environmental laws in
Chile are the Health Code and Law No. 19,300, which we refer to as the “Chilean
Environmental Framework Law.” The Chilean Environmental Framework Law
created the Comisión Nacional del Medio Ambiente
(“National Environmental Commission” or “CONAMA”), which is the government
agency in charge of supervising the due compliance with the Chilean
Environmental Framework Law.  Under this law, we are required to
conduct environmental impact studies of any future projects or activities (or
their significant modifications) that may affect the
environment.  CONAMA evaluates environmental impact studies submitted
for its approval and oversees the implementation of projects.  The
Chilean Environmental Framework Law also enables private citizens, public
agencies or local authorities to challenge projects that may affect the
environment, either before these projects are executed or once they are
already operating.  Enforcement remedies available include fines and
temporary or permanent closure of facilities.




Chilean
environmental regulations have become increasingly stringent in recent years,
both with respect to the approval of new projects and in connection with the
implementation and development of projects already approved.  This
trend is likely to continue.  Furthermore, recently implemented
environmental regulations have created uncertainty because rules and enforcement
procedures for these regulations have not been fully developed.  Given
public interest in environmental enforcement matters, these regulations or their
application may also be subject to political considerations that are beyond our
control.




We
continuously monitor the impact of our operations on the environment and have,
from time to time, made modifications to our facilities to minimize any adverse
impact.  Except for particulate matter levels exceeding permissible
levels in María Elena facilities (see Item 4.B. Business Overview—Safety, Health
and Environmental Regulations), we are currently in compliance in all material
respects with applicable environmental regulations in Chile of which we are
aware.  Future developments in the creation or implementation of
environmental requirements, or in their interpretation, could result in
substantially increased capital, operation or compliance costs or otherwise
adversely affect our business, financial condition and results of
operations.




In
connection with our current investments at the Salar de Atacama we have obtained
approval for an environmental impact assessment study that allows us to increase
brine and water extraction, subject to a rigorous environmental monitoring
system.  The success of these investments is dependent on the behavior
of the ecosystem variables being monitored over time.  If the behavior
of these variables in future years does not meet environmental requirements, our
operation may be subject to important restrictions by the authorities on the
maximum allowable amounts of brine and water extraction.




In
connection with our future investments in nitrate and iodine operations, we have
submitted and expect to submit several environmental impact assessment
studies.  The success of these investments is dependent on the
approval of such submissions by the pertinent governmental
authorities.




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


9


Our
worldwide operations are also subject to environmental
regulations.  Since laws and regulations in the different
jurisdictions in which we operate may change, we cannot guarantee that future
laws, or changes to existing laws, will not materially impact our business,
financial condition or results of operations.




Our
financial statements are reported, and our dividends are declared, based on
Chilean GAAP, which generally differs from U.S. GAAP




There are
important differences between Chilean GAAP and U.S. GAAP. As a result, Chilean
financial statements and reported earnings generally differ from those that are
reported based on U.S. GAAP. In particular, our earnings and the amount of
dividends that we declare under Chilean GAAP may be subject to a higher
degree of fluctuation as compared to U.S. GAAP, due to accounting pronouncements
or other modifications required under Chilean GAAP. Note 30 to the consolidated
Financial Statements includes a description of differences and a reconciliation
of the net income and shareholders’ equity amounts reported under Chilean GAAP
to U.S. GAAP.




Our
financial statements will be reported in accordance with IFRS sometime next
year





As
required by the Superintendency of Securities and Insurance, we will adopt IFRS
standards next year. We can not ensure that changing to IFRS accounting
principles during the next year will not affect our financial statements. If our
financial statements vary significantly, rating agencies, banks and investors
could re-evaluate the Company’s risk, which in turn could adversely affect our
financial costs. These changes could have a material adverse effect on the
Company’s financial condition and results of operations.





Ratification
of the International Labor Organization’s Convention 169 concerning Indigenous
and Tribal Peoples might affect our development plans




In 2008,
Chile, a member of the International Labor Organization (“ILO”), ratified the
ILO’s Convention 169 (“Convention”) concerning Indigenous and Tribal Peoples.
This Convention establishes several rights for indigenous individuals and
communities. These newly outlined rights of the Convention will become effective
September 15, 2009. Most of these rights, however, would require further
legislation and regulations in Chile to become mandatory. Among other
rights, the Convention outlines (i) that indigenous groups be notified of and
consulted prior to the development of any project on land deemed indigenous.
Right to veto is not included; (ii) that indigenous groups have, to the
extent possible, a stake in benefits resulting from the exploitation of natural
resources in alleged indigenous land. The extent of these benefits has not been
defined by the government. The new rights outlined in the Convention could
affect the development of our investment projects in alleged indigenous lands
which could have a material adverse effect on our business, financial condition
and results of operations.




Risks related to our
financial activities




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




We
maintain short and long-term debt priced at LIBOR, plus a spread. As we do not
have derivative instruments to hedge the LIBOR, we are subject to fluctuations
in this rate.  As of December 31, 2008, we had approximately 55% of
our financial debt priced at LIBOR, therefore significant increases in the rate
could impact our financial condition.




Risks related to our shares
and to our ADRs




The
price of our ADRs and the U.S. dollar value of any dividends will be affected by
fluctuations in the U.S. dollar/Chilean peso exchange rate




Chilean
trading in the shares underlying our ADRs is conducted in Chilean pesos. The
depositary will receive cash distributions that we make with respect to the
shares in pesos. The depositary will convert such pesos to U.S. dollars at the
then prevailing exchange rate to make dividend and other distribution payments
in respect of ADRs.  If the value of the peso falls relative to the
U.S. dollar, the value of the ADRs and any distributions to be received from the
depositary will decrease.


10




Developments
in other emerging markets could materially affect the value of our
ADRs




The
Chilean financial and securities markets are, to varying degrees, influenced by
economic and market conditions in other emerging market countries or regions of
the world. Although economic conditions are different in each country or region,
investor reaction to developments in one country or region can have significant
effects on the securities of issuers in other countries and regions, including
Chile and Latin America.  Events in other parts of the world may have
an adverse effect on Chilean financial and securities markets and on the value
of our ADRs.




The
volatility and low liquidity of the Chilean securities markets could affect the
ability of our shareholders to sell our ADRs




The
Chilean securities markets are substantially smaller, less liquid and more
volatile than the major securities markets in the United States. The volatility
and low liquidity of the Chilean markets could increase the price volatility of
our ADRs and may impair the ability of a holder to sell our ADRs into the
Chilean market in the amount and at the price and time he wishes to do
so.




Our
share price may react negatively to future acquisitions and
investments




As world
leaders in our core businesses, part of our strategy is to constantly look for
opportunities that will allow us to consolidate and strengthen our competitive
position. Pursuant to this strategy, we may from time to time, evaluate and
eventually carry out acquisitions relating to any of our businesses or to new
businesses in which we believe we may have sustainable competitive
advantages.  Depending on our capital structure at the time of such
acquisitions, we may need to raise significant debt and/or equity which will
affect our financial condition and future cash flows. Any change in our
financial condition could affect our results of operations, negatively impacting
our share price.




You
may be unable to enforce rights under U.S. Securities Laws




Because
we are a Chilean company subject to Chilean law, the rights of our shareholders
may differ from the rights of shareholders in companies incorporated in the
United States, and you may not be able to enforce or may have difficulty
enforcing rights currently in effect under U.S. Federal or State securities
laws.




Our
Company is a "sociedad
anónima abierta"
(open stock corporation) incorporated under the laws of the Republic of
Chile.  Most of SQM's directors and officers reside outside the United
States, principally in Chile.  All or a substantial portion of the
assets of these persons are located outside the United States. As a result, if
any of our shareholders, including holders of our ADRs, were to bring a lawsuit
against our officers or directors in the United States, it may be difficult
for them to effect service of legal process within the United States upon these
persons. Likewise, it may be difficult for them to enforce judgments obtained in
United States courts based upon the civil liability provisions of the federal
securities laws of the United States against them in United States
courts.




In
addition, there is no treaty between the United States and Chile providing for
the reciprocal enforcement of foreign judgments. However, Chilean courts have
enforced judgments rendered in the United States, provided that the Chilean
court finds that the United States court respected basic principles of due
process and public policy. Nevertheless, there is doubt as to whether an action
could be brought successfully in Chile in the first instance on the basis
of liability based solely upon the civil liability provisions of the United
States federal securities laws.




As
preemptive rights may be unavailable for our ADR holders, they have the risk of
their holdings being diluted if we issue new stock




Chilean
laws require companies to offer their shareholders preemptive rights whenever
selling new shares of capital stock. Preemptive rights permit holders to
maintain their existing ownership percentage in a company by subscribing for
additional shares. If we increase our capital by issuing new shares, a holder
may subscribe for up to the number of shares that would prevent dilution of the
holder's ownership interest.


11


If we
issue preemptive rights, United States holders of ADRs would not be able to
exercise their rights unless a registration statement under the Securities Act
were effective with respect to such rights and the shares issuable upon exercise
of such rights or an exemption from registration were available. We cannot
assure holders of ADRs that we will file a registration statement or that an
exemption from registration will be available.  We may, in our
absolute discretion, decide not to prepare and file such a registration
statement.  If our holders were unable to exercise their preemptive
rights because SQM did not file a registration statement, the depositary bank
would attempt to sell their rights and distribute the net proceeds from the sale
to them, after deducting the depositary's fees and expenses.  If the
depositary could not sell the rights, they would expire and holders of ADRs
would not realize any value from them.  In either case, ADR holders'
equity interest in SQM would be diluted in proportion to the increase in SQM's
capital stock.




If
the Company were classified as a Passive Foreign Investment Company there could
be adverse consequences for U.S. investors




We
believe that we were not classified as a passive foreign investment company, or
PFIC, for 2008.  Characterization as a PFIC could result in adverse
U.S. tax consequences to you if you are a U.S. investor in our shares or
ADRs.  For example, if we (or any of our subsidiaries) are a PFIC, our
U.S. investors may become subject to increased tax liabilities under U.S. tax
laws and regulations and will become subject to burdensome reporting
requirements.  The determination of whether or not we (or any of our
subsidiaries or portfolio companies) are a PFIC is made on an annual basis and
will depend on the composition of our (or their) income and assets from
time to time. See Item 10.E Taxation – United States Tax
Considerations.


12




ITEM
      4.
            INFORMATION
      ON THE COMPANY




4.A.History
and Development of the Company




Historical
Background


Sociedad
Química y Minera de Chile S.A. "SQM" is an open stock corporation (sociedad anónima abierta) 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 Registry of Commerce of Santiago, on page 4.537 No.
1.992.  SQM's headquarters are located at El Trovador 4285, Fl. 6, Las
Condes, Santiago, Chile.  The Company's telephone number is +56 2
425-2000.




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




Since its
inception, in addition to producing nitrates, the Company has produced iodine,
which is also found in the caliche ore deposits in northern Chile.




Between
the years 1994 and 1999, we invested approximately US$300 million in the
development of the Salar de Atacama project in northern Chile.  The
project involved the construction of a potassium chloride plant, a lithium
carbonate plant, a potassium sulfate plant, and a boric acid plant.




To help
finance the above projects, we accessed the international capital markets by
issuing additional Series B ADRs on the New York Stock Exchange in
1995.  In 1999 we issued additional Series A shares, which were also
listed on the New York Stock Exchange as ADRs.  Effective March 27,
2008, the Company voluntarily delisted its Series A ADR (“SQM-A”) from the New
York Stock Exchange.




During
the period from 2000 through 2004 we principally consolidated the investments
carried out in the preceding five years. We focused on reducing costs and
improving efficiencies throughout the organization.




Since
2005, we have strengthened our leadership in our main businesses by increasing
our capital expenditure program and making appropriate acquisitions and
divestitures. During this period we acquired Kefco in Dubai and the iodine
business of DSM. We also sold (i) Fertilizantes Olmeca, our Mexican subsidiary,
(ii) our butyllithium plant located in Houston, Texas and (iii) our stake in
Impronta S.R.L., our Italian subsidiary. These sales allowed SQM to concentrate
its efforts on its core products.  In 2007, we completed the
construction of a new prilling and granulating plant.  In 2008, we
completed our lithium carbonate capacity expansion and began work on the
engineering stage of a new potassium nitrate plant.




13




Capital Expenditure
Program




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




SQM's
capital expenditures in the 2006-2008 period were the following:




2008
            
            
            2007
            
            
            2006(2)(in
      millions of US$)Capital
      Expenditures (1)
            
            
            286.6
            
            
            
            185.0
            
            
            
            290.5




(1)
            For
      purposes of this item, capital expenditures include investments aimed at
      sustaining, improving or increasing production levels, including
      acquisitions and investments in related
  companies.






(2)
            Includes
      acquisition of DSM’s iodine business for a total of US$72 million, plus
      all the cash, accounts receivable and final product inventories minus the
      total liabilities of the Chilean and Dutch companies considered in the
      transaction.




We have
developed a capital expenditure program calling for investments totaling
approximately US$340 million for the year 2009 and a total of approximately
US$650 million during 2010 and 2011. The main purpose of our capital expenditure
program is to increase the production capacities of several of our products,
including expansions in natural nitrates (by approximately 25%) and
potassium-based products from the Salar de Atacama (by approximately 25%),
with a special focus on potassium products as they contribute significantly
to the Company’s margins. In addition, part of this investment plan is intended
to modernize production processes in order to improve SQM’s operating
efficiency.




During
2008, the Company had total capital expenditures of approximately US$287
million, primarily related to:


·
            completion
      of lithium carbonate facility
expansion;


·
            start-up
      of construction of a new potassium nitrate production facility at Coya
      Sur;


·
            start-up
      of investments related to increase production capacity of potassium-based
      products at the Salar de Atacama;


·
            upgrade
      of our railroad system to handle expanded
  capacity;


·
            construction
      of a new mining camp at María Elena;
and


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





The
Company has budgeted for 2009 total capital expenditures of approximately US$340
million, primarily relating to:


·
            new
      potassium nitrate production facility at Coya
  Sur;


·
            investments
      related to increase production capacity of potassium-based products at the
      Salar de Atacama;


·
            upgrade
      of our railroad system to handle expanded capacity;
  and


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





For 2010
and 2011, we estimate total capital expenditures of approximately US$650
million, primarily for (i) the completion of the potassium nitrate production
facility at Coya Sur; (ii) the increase in the production capacity of
potassium-based products; (iii) a portion of the investments necessary to
increase finished products  production capacity; (iv) upgrade of our
railroad system to handle expanded capacity; (v) various projects designed to
maintain capacity, increase yields and lower costs.


14




4.B.Business
Overview




The
Company




We
believe we are the world’s largest integrated producer of potassium nitrate,
iodine and lithium carbonate. We also produce other specialty plant nutrients
(such as potassium sulfate), potassium chloride, iodine and lithium and their
derivatives, and certain industrial chemicals, including industrial nitrates,
and we import and commercialize other commodity fertilizers in Chile. Our
products are sold in over 100 countries through our worldwide distribution
network, and we generate approximately 84% of our revenues from countries
outside Chile. Our products are mainly derived from mineral deposits found in
northern Chile, specifically in the Tarapacá and Antofagasta Regions, where we
mine and process caliche ore and brine deposits. The caliche ore in northern
Chile 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 Salar de Atacama, a salt-encrusted depression within the Atacama
Desert in northern Chile, contain high concentrations of lithium and potassium
as well as significant concentrations of sulfate and boron.





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





Our
products are divided into six main categories: specialty plant nutrients; iodine
and its derivatives; lithium and its derivatives; industrial chemicals;
potassium chloride; and other commodity fertilizers. Specialty plant nutrients
are fertilizers that enable farmers to improve yields and quality of certain
crops. Iodine, lithium and their derivatives are used in human nutrition,
pharmaceuticals and other industrial applications. Specifically, iodine and its
derivatives are mainly used in the x-ray contrast media and biocides industries,
and a growing application is in the production of polarizing film, which is
an important component in liquid crystal display (“LCD”)
screens.  Lithium and its derivatives are mainly used in batteries,
greases and frits for production of ceramics. Industrial chemicals have a wide
range of applications in certain chemical processes such as the manufacturing of
glass, explosives and ceramics, and more recently, industrial nitrates are being
used in solar energy plants as a means for energy storage.  Potassium
chloride is a commodity fertilizer that is produced and sold by the Company in
the Chilean market, and as we increase production, in the rest of the world.
During  2008, potassium chloride began to contribute significantly to
our operations, and we expect this trend to continue in the near
future.   In addition, we complement our portfolio of plant
nutrients in Chile by importing other commodity fertilizers.





For the
year ended December 31, 2008, we had revenues of US$1,774.1 million, operating
income of US$632.2 million and net income of US$501.4 million.





Specialty Plant
Nutrition: We produce five principal types of specialty plant
nutrients:  potassium nitrate, sodium nitrate, sodium potassium
nitrate, potassium sulfate and specialty blends.  All of these
specialty plant nutrients are used in either solid or liquid form mainly on high
value crops such as fruits, vegetables, cereals and cotton, and they are widely
used in crops that employ modern agricultural techniques such as hydroponics,
greenhousing, fertigation (where fertilizer is dissolved in water prior to
irrigation) and foliar application.  According to the type of use or
application the products are marketed under the brands:  UltrasolTM
(fertigation), QropTM (field application), SpeedfolTM (foliar application),
AllganicTM (organic farming) and NutrilakeTM (aquaculture).  Specialty
plant nutrition has certain advantages over commodity fertilizers, such
as 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 that meet
specific needs along with technical service provided by us, allow us to create
plant nutrition solutions that add value to crops through higher yields and
better quality production.  Because our products are natural or
derived from natural nitrate compounds or natural potassium brines, they have
certain advantages over synthetically produced fertilizers, including 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, our specialty plant nutrients enable our customers to achieve
higher yields and better quality crops. Consequently, specialty plant nutrients
are sold at a premium price.


15


Iodine: We
are 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, polarizing films for liquid
crystal displays (LCDs), antiseptics, biocides and disinfectants; in the
synthesis of pharmaceuticals, herbicides, electronics, pigments, dye components
and heat stabilizers.





Lithium:  We
are the world's leading producer of lithium carbonate, which is used in a
variety of applications, including batteries, frits for the ceramic and enamel
industries, heat-resistant glass (ceramic glass), primary aluminum, lithium
bromine for air conditioner equipment, continuous casting powder for steel
extrusion, pharmaceuticals, and lithium derivatives. We are also a leading
supplier of lithium hydroxide, which is used primarily as a raw material in the
lubricating grease industry.





Industrial
Chemicals: We produce four industrial chemicals: sodium nitrate,
potassium nitrate, boric acid and potassium chloride. Sodium nitrate is used
primarily in the production of glass, explosives, charcoal briquettes and metal
treatment. Potassium nitrate is used in the manufacture of specialty glass, and
it is also an important raw material for the production of frits for the
ceramics and enamel industries. Also, a combination of potassium nitrate and
sodium nitrate is used as a thermal storage medium in solar-based electricity
generating plants. Boric acid is used in the manufacture of frits for the
ceramics and enamel industries, liquid crystal displays (LCD), glass and
fiberglass. Potassium chloride is used as an additive in oil drilling as well as
in the production of carragenine.





Potassium
Chloride:During 2008we
produced and marketed potassium chloride, destined to the Chilean market,
through our subsidiary Soquimich Comercial S.A. (“SQMC”). We have close to 100%
market share for this product in Chile. In 2008, we also exported some
additional volumes to markets outside of Chile. Since we are currently
increasing production, we expect to export to different markets in 2009 and
beyond.





Other Commodity
Fertilizers: In Chile we import fertilizers that are distributed through
Soquimich Comercial S.A., offering complete fertilization services to our
customers.





The
following table sets forth the percentage breakdown of our revenues in the
2004-2008 period according to our product lines:





2008
              
              
              2007
              
              
              2006
              
              
              2005
              
              
              2004Specialty
      Plant Nutrition
              
              
              55
              %
              
              
              49
              %
              
              
              48
              %
              
              
              54
              %
              
              
              54
              %Iodine
      and Derivatives
              
              
              14
              %
              
              
              18
              %
              
              
              21
              %
              
              
              17
              %
              
              
              14
              %Lithium
      and Derivatives
              
              
              10
              %
              
              
              15
              %
              
              
              12
              %
              
              
              9
              %
              
              
              8
              %Industrial
      Chemicals
              
              
              7
              %
              
              
              7
              %
              
              
              7
              %
              
              
              8
              %
              
              
              9
              %Potassium
      Chloride
              
              
              8
              %
              
              
              4
              %
              
              
              3
              %
              
              
              4
              %
              
              
              5
              %Other
      Commodity Fertilizers
              
              
              6
              %
              
              
              7
              %
              
              
              9
              %
              
              
              8
              %
              
              
              10
              %Total
              
              
              100
              %
              
              
              100
              %
              
              
              100
              %
              
              
              100
              %
              
              
              100
              %




Business
Strategy




Our
general business strategy is to:




(1)     maintain
leadership in our core business areas – specialty plant nutrition, iodine and
lithium– in terms of installed capacity, costs, production, pricing and
development of new products;




(2)    continually
increase the efficiency of our production processes and reduce
costs;




(3)    evaluate
acquisitions, joint ventures and commercial alliances in each of the three main
businesses;




(4)    maintain
a solid, conservative financial position; and




(5)    pursue
vertical integration into value-added markets.


16


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




Specialty
Plant Nutrition




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





Iodine


Our
strategy in our iodine business is to (i) maintain our leadership in the iodine
market by encouraging demand growth and expanding our production capacity in
line with such demand growth; (ii) develop new iodine derivatives and
participate in iodine recycling projects; and (iii) reduce our production costs
through improved processes and higher labor productivity in order to compete
more effectively.





Lithium


Our
strategy in our lithium business is to (i) maintain our leadership in the
lithium industry as the largest producer and distributor of lithium carbonate
and lithium hydroxide; (ii) selectively pursue downstream opportunities in the
lithium derivatives business; and (iii) reduce our production costs through
improved processes and higher labor productivity in order to compete more
effectively.





Industrial
Chemicals


Our
strategy in our industrial chemical business is to (i) maintain our leadership
position in sodium nitrate and potassium nitrate; (ii) develop new industrial
markets for our current products; (iii) target sales of boric acid and potassium
chloride to industrial niche markets; and (iv) reduce our production costs
through improved processes and higher labor productivity in order to compete
more effectively.





Potassium
Chloride


Our
strategy is to supply 100% of the Chilean domestic market and to increase our
presence in other foreign markets. Given that we have expanded production we
anticipate exporting more potassium chloride and increasing our sales
significantly during 2009. The strategy to allocate this new tonnage is (i) to
offer a portfolio or package of products including potassium sulfate, potassium
nitrate and other fertilizers to our traditional clients and (ii) to focus in
markets where we have logistical advantages.





New
Business Ventures


From time
to time we evaluate opportunities to expand our business in our current core
businesses or within new businesses in which we believe we may have sustainable
competitive advantages, both within and outside Chile, and we expect to continue
to do so in the future. We may decide to acquire part or all of the equity of,
or undertake joint ventures or other transactions with, other companies involved
in our businesses or in other businesses.




Production
Process




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




·
            Caliche
      ore deposits: contain nitrates and
iodine.




·
            Salar
      brines: contain potassium, lithium, sulfate and
  boron.


17


Caliche
Ore Deposits




We mine
caliche ore from open pit deposits located in northern Chile.  Caliche
deposits are the largest known source of natural nitrates in the
world.  The geological origin of caliche ore deposits in northern
Chile is uncertain, with a number of possible geological formation
theories.  The consensus 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 we currently operate four
mines:  Pedro de Valdivia, María Elena, Pampa Blanca and Nueva
Victoria.




Caliche
ore is found under a layer of barren overburden in seams with variable thickness
from twenty centimeters to five meters, and 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 carried out, including full
geological reconnaissance, sampling and drilling caliche ore to determine the
features of each deposit and its quality.  Drill-hole samples properly
identified are tested at our chemical laboratories.  With the
exploration information on a closed grid pattern of drill holes, the ore
evaluation stage provides information for mine planning 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.  After
drill holes are made, information is updated to offer the most accurate ore
supply schedule to the processing plants.




Generally,
bulldozers first rip and remove the overburden in the mining
area.  This process is followed by production drilling and blasting to
break the caliche seams.  Front-end loaders load the ore on off-road
trucks.  In the Pedro de Valdivia mine, trucks deliver the ore to
stockpiles next to rail loading stations.  The stockpiled ore is later
loaded on to railcars that take the mineral to the processing
facilities.  In the María Elena mine, trucks haul the ore and dump it
directly at a crushing installation, after which a 14-kilometer-long overland
conveyor belt system delivers the ore to the processing facilities.




At the
Pedro de Valdivia and María Elena facilities, the ore is crushed and leached to
produce concentrated solutions carrying the nitrate, iodine and sodium
sulfate.  The crushing of the ore produces a coarse fraction that is
leached in a vat system and a fine fraction that is leached by
agitation.  These are followed by liquid-solid separation, where
solids precipitate as sediment and liquids containing nitrate and iodine are
sent to be processed.




In Pampa
Blanca and Nueva Victoria the run of mine ore is loaded in heaps and leached to
produce concentrated solutions.




Caliche
Ore-Derived Products




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




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 contents.  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 treatment
plants.  The crystallized sodium nitrate is separated from the
remaining solution by centrifuging.  The residue resulting from the
crushing of the caliche ore is leached at ambient temperature with water,
producing a weak solution that is pumped to solar evaporation ponds at our Coya
Sur facilities, near María 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 and efficiently.




The
remaining materials from the sodium nitrate crystallization process are vat
leach tailings and a weak solution.  The ore tailings are unloaded
from the leaching vats and deposited at sites near the production
facilities.  The weak solution is re-cycled for further leaching and
for the extraction of iodine.


18


Our
current crystallized sodium nitrate production capacity at Pedro de Valdivia and
María Elena is approximately 770,000 metric tons per
year.  Crystallized sodium nitrate is processed further at Coya Sur
and María Elena to produce prilled sodium nitrate, which is transported to our
port facilities in Tocopilla for shipping to customers and distributors
worldwide.  A significant part of the sodium nitrate produced at María
Elena and Pedro de Valdivia is used in the production of potassium nitrate at
Coya Sur, sodium potassium nitrate at María Elena and a highly refined
industrial grade sodium nitrate at Coya Sur.




Potassium
Nitrate




Potassium
nitrate is produced at our Coya Sur facility using production methods we have
developed.  The solutions from the leaching of the fine fraction of
the ore, once the iodine is extracted, are pumped to the Coya Sur
facilities.  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 solution, which is
rich in potassium nitrate, is crystallized using a cooling and centrifuging
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.




Concentrated
nitrate salts are produced at Pampa Blanca by leaching caliche ore in heaps in
order to extract solutions that are rich in iodine and nitrate.  These
solutions are sent to plants where iodine is extracted and subsequently the
solutions are sent to solar evaporation ponds where the solutions are evaporated
and rich nitrate salt is produced.  These concentrated nitrate salts
are sent to Coya Sur or another of our salt processing facilities where they are
leached and the resulting rich nitrate solution is used in the production
of potassium nitrate.




Our
current potassium nitrate production capacity at Coya Sur is approximately
650,000 metric tons per year, including 260,000 metric tons per year of
technical grade potassium nitrate. We expect to increase that capacity by
approximately 300,000 metric tons per year by mid 2010.  The effective
production of the new facility will depend on the availability of nitrate salts
to feed the facility.




Crystallized
or prilled potassium nitrate produced at Coya Sur and María Elena is transported
to Tocopilla for shipping to customers and distributors worldwide.




Sodium
Potassium Nitrate




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




The
production process for sodium potassium nitrate is basically the same as that
for sodium nitrate and potassium nitrate.




Our
aggregate current production capacity for nitrate salts is 1,100,000 metric tons
per year.  With certain production restraints and following market
conditions we may supply sodium nitrate, potassium nitrate or sodium potassium
nitrate either in prilled or crystallized form.




Iodine
and Iodine Derivatives




We
produce iodine at our Pedro de Valdivia, Nueva Victoria and (since December
2008) Iris facilities. Iodine is produced by extracting it from the solutions
resulting from the leaching of caliche ore at the Pedro de Valdivia, María
Elena, Nueva Victoria and Pampa Blanca facilities.  As in the case of
nitrates, the process of extracting iodine from the caliche ore is well
established, but variations in the iodine and other chemical contents of the
treated ore and other operational parameters require a high level of know-how to
manage the process effectively and efficiently.




The
solutions from the leaching of caliche carry iodine in iodate
form.  Part of the iodate solution is reduced to iodide using sulfur
dioxide, which is produced by burning sulfur.  The resulting iodide is
combined with the rest of the untreated iodate solution to release elemental
iodine.  The solid iodine is then refined through a smelting process
and prilled.  We have obtained patents in the United States for our
iodine prilling process.


19


Prilled
iodine is tested for quality control purposes, then packed in 20-50 kilogram
drums or 350-700 kilogram maxibags and transported by truck to Antofagasta or
Iquique for export.  Our iodine and iodine derivative production
facilities have qualified under the ISO-9002 program, providing third-party
certification – by TÜV Rheinland – of the quality management system and
international quality control standards that we have implemented.




Our total
iodine production in 2008 was approximately 8.33 thousand metric tons:
approximately 2.24 thousand metric tons from Pedro de Valdivia, 1.01 thousand
metric tons from María Elena, 1.06 thousand metric tons from Pampa Blanca, and
4.02 thousand metric tons from Nueva Victoria.  The Nueva Victoria
facility is also used for tolling iodine delivered from Pampa Blanca and María
Elena and for recycling iodine from the potassium iodide contained in the LCD
waste solutions imported mainly from Korea. We have the flexibility to adjust
our production according to market conditions. Our current iodine production
capacity is approximately 11,000 metric tons per year including capacity at our
Iris facility, which has been operating since December 2008.




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




Salar de Atacama Brine
Deposits




The Salar
de Atacama (“salar”),
located approximately 250 kilometers east of Antofagasta, is a salt-encrusted
depression within the Atacama Desert, within which lies an underground deposit
of brines contained in porous sodium chloride rock fed by an underground inflow
of water from the Andes Mountains.  The brines are estimated to cover
a surface of approximately 2,800 square kilometers and contain commercially
exploitable deposits of potassium, lithium, sulfates and
boron.  Concentrations vary at different locations throughout the
salar. Our production
rights to the Salar de Atacama are pursuant to a contract with the Chilean
government, expiring in 2030.




Brines
are pumped from depths between 1.5 and 60 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.




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




Potassium
Chloride




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




In order
to produce potassium chloride, brines from the Salar de Atacama are pumped to
solar evaporation ponds.  Evaporation of the brines results in a
complex crystallized mixture of salts of potassium chloride and sodium
chloride.  One portion of this mixture is harvested and stored, and
the other portion is reprocessed and the remaining salts are transferred by
truck to a processing facility where the potassium chloride is separated by a
grinding, flotation, and filtering process.  Potassium chloride is
sent approximately 300 kilometers to our Coya Sur facilities via a dedicated
truck transport system, where it is used in the production of potassium
nitrate.  We sell potassium chloride produced at the Salar de Atacama
in excess of our needs to third parties.  Our production facilities
currently have a production capacity up to 650,000 metric tons per
year.  Actual capacity will depend on volumes and quality of the
mining resources pumped from the salar. During 2008 actual
production was higher than in 2007 and we expect that 2009 production will be
higher than in 2008.




During
2009 we expect to increase production capacity of our potassium chloride
facility to approximately 900,000 metric tons per year. In addition, we expect
to convert our potassium sulfate facility to a dual plant, with the capacity to
produce only potassium chloride or to produce both potassium sulfate and
potassium chloride. If the facility produces only potassium chloride,
we expect to have an additional 460,000 metric tons per year of capacity of
potassium chloride.


20


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 amount in excess of our needs is
reinjected into the Salar de Atacama; (ii) sodium chloride, which is similar to
the surface material of the Salar de Atacama and is deposited at sites near the
production facility; and (iii) other salts containing magnesium
chloride.




Lithium
Carbonate and Lithium Chloride




A portion
of the brines remaining after the production of potassium chloride is sent to
additional solar concentration ponds adjacent to the potassium chloride
production facility.  Following additional evaporation, the remaining
concentrated solution of lithium chloride is transported by truck to a
production facility located near Antofagasta, approximately 230 kilometers from
the Salar de Atacama.  At the production facility, the solution is
purified and treated with sodium carbonate to produce lithium carbonate, which
is dried and then, if necessary, compacted and finally packaged for shipment. A
portion of this purified lithium chloride solution is packaged and shipped to
customers. The production capacity of our lithium carbonate facility is
approximately 40,000 metric tons per year. Future production will depend on the
actual volumes and quality of the lithium solutions sent by the Salar de Atacama
operations, as well as prevailing market conditions.




Lithium
Hydroxide




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




Potassium
Sulfate and Boric Acid




Approximately
12 kilometers northeast of the potassium chloride facilities at the Salar de
Atacama, we use the brines from the Salar de Atacama to produce potassium
sulfate, potassium chloride (as a by product of potassium sulfate process) and
boric acid.  The plant is located in an area of the salar where high sulfate and
potassium concentrations are found in the brines.  Brines are pumped
to preconcentration solar evaporation ponds where waste sodium chloride salts
are removed by precipitation.  After further evaporation, the sulfate
and potassium salts are harvested and sent for treatment at the potassium
sulfate plant.  Potassium sulfate is produced using flotation,
concentration and reaction processes, after which it is crystallized, dried and
packaged for shipment.  Production capacity for potassium sulfate is
approximately 230,000 metric tons per year (approximately 30% of this capacity
is indirect production of potassium chloride, a by product of the potassium
sulfate production process).  Boric acid is produced in crystallized
form by acidulation of the final concentrated brines, and then it is dried and
packaged for shipment at the same facility.  Production capacity for
boric acid is approximately 10,000 metric tons per year.




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 Salar de
Atacama or returned to the evaporation ponds. The principal by-products of the
boric acid production process are remaining solutions that are treated with
sodium carbonate to neutralize acidity and then are reinjected into the Salar de
Atacama.


21


Main Business
Lines




Specialty Plant
Nutrition




We
believe we are the world's largest producer of potassium nitrate.  We
estimate that our sales accounted for approximately 47% of world potassium
nitrate sales by volume in 2008. We also produce the following specialty plant
nutrients: sodium nitrate, sodium potassium nitrate, potassium sulfate,
urea phosphate and specialty blends (containing various combinations of
nitrogen, phosphate and potassium and generally known as "NPK
blends").  These specialty plant nutrients have specific
characteristics that increase productivity and enhance quality when used on
certain crops and soils.  Additionally, these plant nutrients are well
suited for high-yield agricultural techniques such as hydroponics, fertigation,
greenhousing and foliar applications.  High-value crop farmers are
prompted to invest in specialty plant nutrients due to their technical
advantages over commodity fertilizers (such as urea and potassium
chloride).  These advantages translate into products and crops with
higher yields and added quality.  Our specialty plant nutrients have
significant advantages for certain applications over commodity fertilizers based
on nitrogen and potassium, such as the aforementioned urea and potassium
chloride.




In
particular, our specialty plant nutrients:




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




·
            are
      absorbed more rapidly by plants because they do not require nitrification,
      unlike ammonia-based fertilizers;




·
            are
      free of chlorine content, reducing the risk of scorching roots and other
      problems caused by chlorine;




·
            do
      not release hydrogen after application, thereby 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
      nutrients per unit of product
applied.




In 2008,
our revenues from specialty plant nutrients were approximately US$978.9 million,
representing approximately 55% of our total revenues for that
year.  Revenue growth in 2008 was due to a sustained increase in
prices for this business line, which more than offset a decline in sales
volumes.





Specialty
Plant Nutrition:  Market





The
target market for our specialty plant nutrients is high-value crops such as
fruits, vegetables, and crops grown using modern agricultural
techniques.  Since 1990, the international market for specialty plant
nutrients has grown at a faster rate than the international market for
commodity-type fertilizers.  This is mostly due to: (i) the
application of new agricultural technologies such as fertigation and hydroponics
and 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 fresh fruits and vegetables per capita; and (v)
the increasing demand for higher quality crops.





Worldwide
scarcity of water and weather changes forces farmers to develop new agricultural
techniques such as fertigation that minimize water
requirements.  These applications require fully water-soluble plant
nutrients.


22


Increasing
land costs near urban centers also force farmers to maximize their yield per
surface area.  Specialty plant nutrients, when applied to certain
crops, help to increase productivity for various reasons.  In
particular, since our nitrate-based specialty plant nutrients provide nitrogen
in nitric form, crops absorb them faster than they absorb urea- or
ammonium-based fertilizers, which provide nitrogen in ammonium
form.  This is because crops absorb nitrogen in nitric form; thus
nitrogen in ammonium form has to be converted into nitric form in the soil
first.  This process does not occur immediately (it takes time and
requires special soil conditions), and it 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.





Our
potassium-based specialty plant nutrients are chlorine free, unlike potassium
chloride, which is the most commonly used potassium-based commodity fertilizer.
In certain crops, chlorine has negative effects that translateinto lower yield and
quality.





The most
important agricultural applications of sodium nitrate, potassium nitrate,
potassium sulfate and sodium potassium nitrate plant nutrients are: industrial
crops, vegetables, fruits, sugar beet, cotton and other high-value
crops.





While the
recent economic slowdown has had a negative impact on volumes and prices in
general, specialty products have been less affected. While volumes for our
specialty plant nutrients have declined, they have not declined as much as
commodity fertilizers. The substantial increase in prices seen during 2008 in
specialty plant nutrients helped to partially offset the decline in volumes. For
further information regarding increase in prices for potassium-related
fertilizers see Item 4.B. Business Overview-Main Business Lines (Potassium
Chloride).





Specialty
Plant Nutrition:  Our Products


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





The
following table shows our sales volumes of and revenues from specialty plant
nutrients during the 2004-2008 period.




2008
                  
                  
                  2007
                  
                  
                  2006
                  
                  
                  2005
                  
                  
                  2004Sales Volume (in metric
      tons)Sodium
      nitrate
                  
                  
                  22,800
                  
                  
                  
                  45,900
                  
                  
                  
                  43,300
                  
                  
                  
                  63,300
                  
                  
                  
                  58,900Potassium
      nitrate and sodium potassium nitrate
                  
                  
                  538,200
                  
                  
                  
                  695,300
                  
                  
                  
                  615,000
                  
                  
                  
                  690,200
                  
                  
                  
                  707,600Potassium
      sulfate
                  
                  
                  138,300
                  
                  
                  
                  172,000
                  
                  
                  
                  172,400
                  
                  
                  
                  178,600
                  
                  
                  
                  157,700Blended
      and other specialty plant nutrients(1)
                  
                  
                  309,000
                  
                  
                  
                  378,600
                  
                  
                  
                  393,800
                  
                  
                  
                  350,700
                  
                  
                  
                  374,400Revenues
      (in US$ millions)
                  
                  
                  978.9
                  
                  
                  
                  580.8
                  
                  
                  
                  503.1
                  
                  
                  
                  487.8
                  
                  
                  
                  426.8




(1)
            Includes
      blended and other specialty plant nutrients.  It also includes
      Yara's products sold pursuant to our commercial
  agreement.




Specialty
Plant Nutrition:  Marketing and Customers


In 2008,
we sold our specialty plant nutrients in close to 90
countries.  During the same year, approximately 93% of the Company's
specialty plant nutrients sales were exported: approximately 34% were sold to
customers in Central and South America, 19% to customers in North America, 20%
to customers in Europe and 20% to customers in other regions.  Without
considering any sales to related parties, no single customer represented more
than 5.7% of SQM's specialty plant nutrient sales during 2008, and our 10
largest customers accounted in the aggregate for approximately 30.4% of sales
during that period.


23





Sales
      Breakdown
                  
                  2008
                  
                  
                  2007
                  
                  
                  2006
                  
                  
                  2005
                  
                  
                  2004Central
      & South America
                  
                  
                  34
                  %
                  
                  
                  28
                  %
                  
                  
                  29
                  %
                  
                  
                  29
                  %
                  
                  
                  29
                  %North
      America
                  
                  
                  19
                  %
                  
                  
                  23
                  %
                  
                  
                  22
                  %
                  
                  
                  22
                  %
                  
                  
                  22
                  %Europe
                  
                  
                  20
                  %
                  
                  
                  19
                  %
                  
                  
                  19
                  %
                  
                  
                  20
                  %
                  
                  
                  19
                  %Others
                  
                  
                  20
                  %
                  
                  
                  20
                  %
                  
                  
                  21
                  %
                  
                  
                  20
                  %
                  
                  
                  20
                  %Chile
                  
                  
                  7
                  %
                  
                  
                  10
                  %
                  
                  
                  9
                  %
                  
                  
                  9
                  %
                  
                  
                  10
                  %




The
amounts set forth in the table above reflect sales of SQM’s specialty plant
nutrition products and do not include sales by SQM of third-party specialty
plant nutrition products.  We sell our specialty plant nutrition
products outside Chile mainly through our own worldwide network of
representative offices and through our distribution affiliates.





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





We also
signed a joint venture agreement with Yara and Israel Chemicals Limited at the
end of 2001. Under this joint venture agreement, SQM, Yara, and Israel Chemicals
Limited are developing the liquid and soluble plant nutrient blends business
through their participation in a Belgian company called NU3 N.V. (“NU3”), to
which SQM and Israel Chemicals Limited contributed their blending facility in
Belgium, and Yara International ASA contributed its blending facility in the
Netherlands. With this joint venture agreement, important synergies have been
achieved, particularly in production costs, administration and the marketing of
soluble blends, strengthening the development of new products and improving
customer services.





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





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





In May
2008 we signed a joint venture agreement with Migao Corporation (“Migao”) for
the production and distribution of specialty plant nutrients in
China.  Through the joint venture, we will construct a potassium
nitrate plant with a production capacity of 40,000 metric tons per
year.  We expect this plant to be ready during the second quarter of
2010.  In addition, the joint venture will distribute the potassium
nitrate produced by Migao in China and imports of SQM’s specialty plant
nutrients to China, and it will also handle any exports of potassium nitrate
produced by the joint venture or by Migao.  This joint venture will
enable us to increase our presence in China, which represents one of the most
important and fastest-growing markets for the fertilizer industry.





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





In
connection with our marketing efforts, we provide technical and agronomical
assistance and support to our customers.  By working closely with our
customers, we are able to identify new, higher-value-added products and
markets.  Our specialty plant nutrition products are used on a wide
variety of crops, particularly value-added crops, where the use of our products
enables our customers to increase yield and command a premium
price.


24


Our
customers are located in the northern and southern
hemispheres.  Consequently, there are no material seasonal or cyclical
factors that can materially affect the sales of our specialty plant nutrient
products.





Specialty
Plant Nutrition:  Fertilizer Sales in Chile




We market
specialty plants nutrients in Chile through Soquimich Comercial S.A. which sells
these products either alone or in blends with other imported products, mainly
triple super phosphate (TSP) and diammonium phosphate (DAP), among
others.  Soquimich Comercial sells imported fertilizers to farmers in
Chile mainly for application in the production of sugar beets, cereals,
industrial crops, potatoes, grapes and other fruits.  Most of the
fertilizers that Soquimich Comercial imports are purchased on a spot basis from
different countries in the world.




We
believe that all contracts and agreements between Soquimich Comercial and third
party suppliers, with respect to imported fertilizers, contain standard and
customary commercial terms and conditions.  During the preceding ten
years, Soquimich Comercial has experienced no material difficulties in obtaining
adequate supplies of such fertilizers at satisfactory prices, and we expect
continuing to do so in the future.




We
estimate that Soquimich Comercial's sales of fertilizers represented
approximately 34% of total fertilizer sales in Chile during 2008.  No
single customer represented more than 4% of Soquimich Comercial’s total
fertilizer sales revenues, and its 10 largest customers in total represented
less than 10% of revenues.




Revenues
generated by Soquimich Comercial represented 15.9% of the Company's 2008
consolidated revenues.  Soquimich Comercial's consolidated revenues
were approximately US$249 million, US$203 million, and US$142 million, in 2008,
2007 and 2006 respectively.





Specialty
Plant Nutrition:  Competition




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





In the
potassium nitrate market our largest competitor is Haifa Chemicals Ltd., in
Israel, which is a subsidiary of Trans Resources International
Inc.  We estimate that sales of potassium nitrate by Haifa Chemicals
accounted for approximately 37% of total world sales during the year 2008
(excluding sales by Chinese producers who generally sell to the domestic Chinese
market).





S.C.M.
Virginia, a Chilean iodine producer, ultimately controlled by Inverraz S.A.,
also produces potassium nitrate from caliche ore and potassium
chloride.





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





In June
2008, Atacama Minerals Corp., a Canadian company with iodine operations in
Chile, announced plans to build a plant in order to produce sodium nitrate,
potassium nitrate and sodium potassium nitrate.  According to
statements made by Atacama Minerals Corp., the plant should have production
capacity of 70,000 tons per year. Recent announcements by the company, however,
indicate that these plans have been put on hold until the global financial
situation improves.





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





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


25


Through a
partially owned facility, NU3, we also produce soluble and liquid fertilizers
using our potassium nitrate as a raw material.  Through this activity,
we have acquired production technology and marketing know-how, which we believe
will be useful for selling our products to greenhouse growers and for use
in certain high-technology processes such as fertigation and
hydroponics.





We
believe we are the largest Chilean producer of bulk specialty blends. In Chile,
our products mainly compete with imported fertilizer blends that use calcium
ammonium nitrate or potassium magnesium sulfate.  Our specialty plant
nutrients also compete indirectly with lower-priced synthetic commodity-type
fertilizers such as ammonia and urea, which are produced by many producers in a
highly price-competitive market.  Our products compete on the basis of
advantages that make them more suitable for certain applications as described
above.





Potassium
chloride is an important component for our specialty plant nutrition business
line. It will also be an important business line during 2009. We estimate that
SQM accounted for 0.4% of global sales in 2008. We also believe that the largest
producers of potassium chloride are Potash Corporation of Saskatchewan (“PCS”),
accounting for approximately 17% of the global sales, and the companies Uralkali
and BPC, which together account for 33% of global sales.





Iodine




We
believe we are the world's largest producer of iodine. In 2008, our revenues
from iodine and iodine derivatives amounted to approximately US$246.9 million,
representing approximately 14% of our total revenues in that year. We estimate
that our sales accounted for approximately 33% of world iodine sales by volume
in 2008.





Iodine:  Market




Iodine
and iodine derivatives are used in a wide range of medical, agricultural and
industrial applications as well as in human and animal nutrition products.
Iodine and iodine derivatives are used as raw materials or catalysts in the
formulation of products such as x-ray contrast media, biocides, antiseptics and
disinfectants, pharmaceutical intermediates, polarizing films for liquid crystal
displays (LCDs), chemicals, herbicides, organic compounds and pigments. Iodine
is also added in the form of potassium iodate or potassium iodide to edible salt
to prevent iodine deficiency disorders.





Iodine:  Our
Products




We
produce iodine, and through a joint venture with Ajay (a U.S. based company), we
produce organic and inorganic iodine derivatives. Ajay-SQM Group (ASG),
established in the mid 1990s, has production plants in the United States, Chile
and France. ASG is the world's leading inorganic and organic iodine derivatives
producer.




SQM,
through Ajay-SQM or alone, is also actively participating in the iodine
recycling business using iodinated side-streams from a variety of chemical
processes in Europe, the United States and Asia.




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





We
manufacture our iodine and iodine derivatives in accordance with international
quality standards and have qualified our iodine facilities and production
processes under the ISO-9001:2000 program, providing third party certification
of the quality management system and international quality control standards
that we have implemented.





The
following table sets forth our total sales and revenues from iodine and iodine
derivatives in the period 2004-2008:


26





2008
                
                
                2007
                
                
                2006
                
                
                2005
                
                
                2004Sales
      Volume (thous. metric tons)Iodine
      and derivatives
                
                
                10.5
                
                
                
                9.1
                
                
                
                9.8
                
                
                
                8.1
                
                
                
                7.7Revenues
      (in US$ millions)
                
                
                246.9
                
                
                
                215.1
                
                
                
                217.7
                
                
                
                149.1
                
                
                
                110.5




Iodine:  Marketing
and Customers




In 2008,
we sold our iodine products to around 350 customers in more than 70
countries.  During the same year, most of our sales were exported:
approximately 30% was sold to customers in Europe, 40% to customers in North
America, 2% to customers in Central and South America and 28% to customers in
Asia, Oceania and other regions.  Not considering sales to related parties,
no single customer accounted for more than 10% of the Company's iodine sales in
2008, and our ten largest customers accounted in the aggregate for approximately
38% of sales.




Sales
      Breakdown
                  
                  2008
                  
                  
                  2007
                  
                  
                  2006
                  
                  
                  2005
                  
                  
                  2004Europe
                  
                  
                  30
                  %
                  
                  
                  31
                  %
                  
                  
                  34
                  %
                  
                  
                  30
                  %
                  
                  
                  27
                  %North
      America
                  
                  
                  40
                  %
                  
                  
                  38
                  %
                  
                  
                  40
                  %
                  
                  
                  37
                  %
                  
                  
                  38
                  %Central
      & South America
                  
                  
                  2
                  %
                  
                  
                  5
                  %
                  
                  
                  5
                  %
                  
                  
                  13
                  %
                  
                  
                  13
                  %Others
                  
                  
                  28
                  %
                  
                  
                  26
                  %
                  
                  
                  21
                  %
                  
                  
                  20
                  %
                  
                  
                  22
                  %




We sell
iodine through our own worldwide network of representative offices and through
our sales, support and distribution affiliates. We maintain inventories of
iodine at our facilities throughout the world to facilitate prompt delivery to
customers. Iodine sales are made pursuant to spot purchase orders and short,
medium and long-term contracts. Sales agreements generally specify annual
minimum and maximum purchase commitments, and prices are adjusted on
periodically, according to prevailing market prices.




Iodine:  Competition




SQM and
several producers in Chile, Japan and the United States are the world's main
iodine producers.




Japanese
producers extract iodine from underground brines, which are mainly obtained
together with the extraction of natural gas. Several Japanese producers also
have recycling facilities where they recover iodine and iodine derivatives from
iodine waste streams. Iodine recycling, mainly related to LCD consumption, has
increased over the past few years and currently represents approximately 15% of
world iodine sales. It is estimated that around 70 - 75% of the world recycling
was done by Japanese iodine producers.





We
estimate that eight Japanese iodine producers accounted for approximately 21% of
world iodine sales in the year 2008. We estimate that the largest Japanese
producer, Ise Chemicals Ltd., accounted for approximately 13% of the world
virgin iodine sales.





We
estimate that iodine producers in the United States (one of which is owned by
Ise Chemicals) accounted for almost 5% of world iodine sales in the year 2008,
while four Chilean companies, including SQM, accounted for approximately 57% of
such sales (33% by SQM and 24% by the other Chilean producers). Other Chilean
producers include ACF Minera S.A. and S.C.M. Virginia, which is controlled by
Inverraz S.A. Additionally, Atacama Minerals Corp., a Canadian company, has its
iodine operations in Chile.





We
estimate that worldwide sales of iodine amounted to approximately 29,200 metric
tons in 2008.





The
prices of our iodine and iodine derivative products are determined by world
iodine prices, which are subject to market conditions. World iodine prices vary
depending upon, among other things, 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 us) and their respective
business strategies. As a result of a steady growing demand, iodine prices have
been increasing since the end of 2003. While prices were around US$13 per
kilogram in 2003, they reached an average of approximately US$24 per kilogram in
2008.


27


Demand
for iodine varies depending upon overall levels of economic activity and the
level of demand in the medical, pharmaceutical, industrial and other sectors
that are the main users of iodine and iodine derivative products. 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, a few of whom either have or can acquire additional production
capacity.





The main
factors of competition in the sale of iodine and iodine derivative products are
reliability, price, quality, customer services and the price and availability of
substitutes. We believe we have competitive advantages compared to other
producers due to the size of our mining reserves and the installed capacity. We
believe our iodine is competitive with that produced by other manufacturers in
certain advanced industrial processes. We also believe we have benefited
competitively from the long-term relationships we have established with our
larger customers. While there are substitutes for iodine available for certain
applications, such as antiseptics and disinfectants, there are no cost-effective
substitutes currently available for the main nutritional, pharmaceutical, animal
feed, and main chemical uses of iodine, which together account for most
iodine sales.





We have a
total production capacity of approximately 11,000 metric tons of iodine per year
which exceeds our current production levels. During the year 2008, and in line
with the growing demand, we significantly reduced our iodine inventory levels.
We are planning to rebuild iodine inventory levels during the year
2009.





Lithium




We
believe we are the world's largest producer of lithium carbonate and one of the
world’s largest producers of lithium hydroxide. In 2008, our revenues from
lithium sales amounted to approximately US$172.3 million, representing
approximately 10% of our total revenues. We estimate that our sales accounted
for approximately 30% of the world's demand of lithium chemicals.





Lithium:  Market




Lithium
carbonate is used in a variety of applications including batteries, frits for
the ceramic and enamel industries, heat resistant glass (ceramic glass), primary
aluminum, air conditioning chemicals, continuous casting powder for steel
extrusion, pharmaceuticals and lithium derivatives. Lithium hydroxide is
primarily used as a raw material in the lubricating grease industry, as well as
in the dyes and battery industries.





Lithium:  Our
Products




We
produce lithium carbonate at the Salar del Carmen facilities, near Antofagasta,
Chile, from solutions with high concentrations of lithium coming from the
potassium chloride production at the Salar de Atacama. The technologies we use,
together with the high concentrations of lithium we obtain from the Salar de
Atacama, allow us to be one of the lowest cost producers worldwide.





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





In 2008,
we sold our butyllithium plant located in Houston, Texas, U.S.A.





The
following table sets forth our total sales and revenues from lithium carbonate
and derivatives in the period 2004-2008:




2008
                
                
                2007
                
                
                2006
                
                
                2005
                
                
                2004Sales
      Volume (thous. metric tons)Lithium
      and derivatives
                
                
                27.9
                
                
                
                28.6
                
                
                
                30.4
                
                
                
                27.8
                
                
                
                31.2Revenues
      (in US$ millions)
                
                
                172.3
                
                
                
                179.8
                
                
                
                128.9
                
                
                
                81.4
                
                
                
                62.6


28


Lithium:
Marketing and Customers




In 2008,
we sold our lithium products to approximately 290 customers in approximately 50
countries. Virtually all of our lithium products were sold overseas:
approximately 31% to customers in Europe, 18% to customers in North America, 48%
to customers in Asia and Oceania and 2% to customers in other
regions.  No single customer accounted for more than 16% of the
Company's sales in 2008, and our ten largest customers accounted in the
aggregate for approximately 46% of sales.




Sales
                    Breakdown
                  
                  2008
                  
                  
                  2007
                  
                  
                  2006
                  
                  
                  2005
                  
                  
                  2004Europe
                  
                  
                  31
                  %
                  
                  
                  34
                  %
                  
                  
                  32
                  %
                  
                  
                  33
                  %
                  
                  
                  32
                  %North
      America
                  
                  
                  18
                  %
                  
                  
                  21
                  %
                  
                  
                  24
                  %
                  
                  
                  25
                  %
                  
                  
                  26
                  %Asia
      & Oceania
                  
                  
                  48
                  %
                  
                  
                  38
                  %
                  
                  
                  36
                  %
                  
                  
                  31
                  %
                  
                  
                  37
                  %Others
                  
                  
                  2
                  %
                  
                  
                  7
                  %
                  
                  
                  8
                  %
                  
                  
                  11
                  %
                  
                  
                  5
                  %




Lithium:  Competition




Our main
competitors in the lithium carbonate and lithium hydroxide businesses are
Chemetall GmbH (“Chemetall”, subsidiary of Rockwood Specialties Group Inc.) and
FMC Corporation (“FMC”).  In addition, a number of Chinese producers
together accounted for approximately 22% of the world market in 2008. Chemetall
produces lithium carbonate in its operations located in Chile
(Sociedad Chilena del Litio Limitada) and Nevada, USA. Its production of
downstream lithium products is mostly performed in the United States, Germany
and Taiwan. FMC has production facilities in Argentina (Minera del Altiplano
S.A.), where they produce lithium chloride and lithium carbonate. Production of
its downstream lithium products is mostly performed in the United States and the
United Kingdom.





Additionally,
lithium carbonate is being produced in China and we believe this production will
increase in the near future.





We
estimate that worldwide sales of lithium chemicals expressed as lithium
carbonate equivalent (excluding direct use for lithium minerals) amounted to
approximately 92,000 metric tons in 2008.





Industrial
Chemicals




In
addition to producing sodium nitrate for agricultural applications, we produce
three grades of sodium nitrate for industrial applications: industrial,
technical and refined grades. The three grades differ mainly in purity. Our
industrial grades of potassium nitrate also differ from agricultural grade
potassium nitrate in its degree of purity. We enjoy certain operational
flexibility when producing industrial potassium nitrate because it is produced
from the same process as its equivalent agricultural grade, needing only an
additional step of purification. We may, with certain constraints, shift
production from one grade to the other depending on market conditions. This
flexibility allows us to maximize yields as well as to reduce commercial risk.
In addition to producing industrial nitrates, we produce boric acid. Boric acid
is a by-product of the production of potassium sulfate. Industrial-grade
potassium chloride is also sold in industrial markets in crystalline form. In
2008, our revenues from industrial chemicals were approximately US$123.6
million, representing approximately 7% of our 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, charcoal
briquettes and various chemical processes and metal treatments. In addition,
industrial nitrates are being used as a medium for heat storage in solar energy
projects.  Boric acid is mainly used in glass, ceramics, fiberglass,
enamels and as a raw material in the fabrication of screens for LCDs.
Industrial-grade potassium chloride is also sold to be used as an additive in
oil and gas drilling as well as in the production of
carragenine.


29


We
estimate that our sales of industrial sodium nitrate (excluding production in
China and India, which is consumed internally) and potassium nitrate in 2008
accounted for 52% and 38%, respectively, of worldwide demand.





Industrial
Chemicals:  Our Products


The
following table sets forth our sales volumes of industrial chemicals and total
revenues in the period 2004-2008:




2008
                
                
                2007
                
                
                2006
                
                
                2005
                
                
                2004Sales
      Volume (metric tons)Industrial
      nitrates
                
                
                161,900
                
                
                
                175,200
                
                
                
                162,000
                
                
                
                176,300
                
                
                
                192,800Boric
      Acid
                
                
                7,200
                
                
                
                9,200
                
                
                
                9,700
                
                
                
                6,300
                
                
                
                6,120Revenues
      (in US$ millions)
                
                
                123.6
                
                
                
                81.2
                
                
                
                71.3
                
                
                
                70.5
                
                
                
                68.8




Our
aggregate current sodium nitrate production capacity is approximately 740,000
metric tons per year (agricultural and industrial grades). Within certain
production constraints, we may use our production capacity to produce either
agricultural or industrial sodium nitrate. We have a plant capacity to produce
approximately 260,000 metric tons per year of technical potassium nitrate and
10,000 metric tons per year of boric acid.




Industrial
Chemicals:  Marketing and Customers




We sold
our industrial nitrate products in more than 50 countries in
2008.  Approximately 34% of our sales of industrial chemicals were
made to customers in North America, 38% to customers in Europe, 18% to customers
in Central and South America and 10% to customers in Asia, Oceania and other
regions.  No single customer accounted for more than 5% of the
Company's sales of industrial chemicals in 2008, and our ten largest customers
accounted in the aggregate for approximately 25% of such sales.




Sales
      Breakdown
                    
                    2008
                    
                    
                    2007
                    
                    
                    2006
                    
                    
                    2005
                    
                    
                    2004North
      America
                    
                    
                    34
                    %
                    
                    
                    40
                    %
                    
                    
                    41
                    %
                    
                    
                    42
                    %
                    
                    
                    38
                    %Europe
                    
                    
                    38
                    %
                    
                    
                    34
                    %
                    
                    
                    29
                    %
                    
                    
                    28
                    %
                    
                    
                    23
                    %Central
      & South America
                    
                    
                    18
                    %
                    
                    
                    17
                    %
                    
                    
                    17
                    %
                    
                    
                    17
                    %
                    
                    
                    24
                    %Others
                    
                    
                    10
                    %
                    
                    
                    9
                    %
                    
                    
                    13
                    %
                    
                    
                    13
                    %
                    
                    
                    15
                    %





We sell
our industrial chemical products mainly through our own worldwide network of
representative offices and through our sales and distribution affiliates. We
maintain inventories of our industrial sodium nitrate and technical potassium
nitrate products at our facilities in Europe, North America, South Africa and
South America to achieve prompt deliveries to customers. Industrial sodium
nitrate and technical potassium nitrate sales are made pursuant to spot purchase
orders. Our Research and Development department, together with our foreign
affiliates, provide technical support to our customers and continuously
work with them to develop new products or applications for our
products.





Industrial
Chemicals:  Competition




We
believe we are the world's largest producer of industrial sodium
nitrate.  We estimate that our production satisfied 52% of world
demand for industrial sodium nitrate in 2008 (excluding China and India internal
demand, for which reliable estimates are not available). Our competitors are
mainly in Europe and Asia, producing sodium nitrate as a by-product of other
production processes. In refined grade sodium nitrate, BASF AG, a German
corporation and several producers in Japan (the largest of which is Mitsubishi
& Co. Ltd.) and eastern Europe are highly competitive in the European and
Asian markets. Our industrial sodium nitrate products also compete indirectly
with substitute chemicals, including sodium carbonate, sodium hydroxide, sodium
sulfate, calcium nitrate and ammonium nitrate, which may be used in certain
applications instead of sodium nitrate and are available from a large number of
producers worldwide.


30


Our main
competitor in the technical potassium nitrate market is Haifa Chemicals Ltd.,
which we estimate has a 34% market share in the industrial sector. We estimate
our market share at approximately 38% for 2008.





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





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




Potassium
Chloride




In 2008,
our potassium chloride revenues amounted to approximately US$140.0 million,
representing approximately 8% of our total revenues in 2008. We are currently
making investments in potassium chloride that will enable us to increase our
production and sales of this product. We expect this trend to continue in the
future. In 2009, potassium chloride should have a positive impact on our
operating margins.





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





Potassium
chloride is the most common source of potassium found in fertilizers. Because of
its high chloride content, potassium chloride is used in crops such as wheat,
corn, soy and rice among others. Potassium is one of the three macronutrients
that a plant needs to develop. Although potassium does not form part of a
plant’s structure, it is essential to the development of its basic
functions.





Potassium
chloride is also an important component for our specialty plant nutrition
business line. It is used as a raw material to produce potassium
nitrate.





Potassium
Chloride: Market




During
the last decade, the potassium chloride market has experienced rapid growth due
to several key factors such as a growing world population, higher demand for
protein-based diets and less arable land. All of these factors have contributed
to growing demand for fertilizers, and in particular potassium chloride, as
efforts are being made to maximize crop yields and use resources efficiently.
During this same period, major players in this industry on the supply side
have produced potassium chloride according to market demand. Historically
production levels have been below market production capacity. However, due to
the factors previously mentioned, market demand and production are being pushed
towards existing levels of production capacity. For much of 2008 demand outpaced
production which led to substantial increases in potassium chloride
prices.





During
the later part of 2008, however, demand for potassium chloride began to fall as
a result of the global economic crisis.  During 2009, major producers
in this industry have announced production curtailments in order to match
production to demand and to maintain prices to the extent possible.





Potassium
Chloride: Our Products




Potassium
chloride differs from our other specialty plant nutrient products because it is
a commodity fertilizer and contains chloride. SQM offers potassium chloride in
two grades: standard and granular





The
following table shows our sales volumes of and revenues from potassium chloride
during the 2004-2008 period.




2008
                
                
                2007
                
                
                2006
                
                
                2005
                
                
                2004Sales
      Volume (thous. metric tons)Potassium
      Chloride
                
                
                185.6
                
                
                
                179.0
                
                
                
                126.4
                
                
                
                128.8
                
                
                
                210.4Revenues
      (in US$ millions)
                
                
                140.0
                
                
                
                51.3
                
                
                
                32.1
                
                
                
                32.4
                
                
                
                36.7


31


SQM’s
current production capacity is 650,000 metric tons, and we are currently
undergoing capacity expansions. By 2009 our potassium chloride plant will have a
capacity of 900,000 metric tons, and our potassium sulfate plant will become a
dual plant with a potential production capacity up to 460,000 metric tons of
potassium chloride.




Potassium
Chloride: Marketing and Customers




In 2008,
we sold potassium chloride in approximately 18 countries. Our sales in 2008 were
mainly concentrated in the Chilean market. As we expand our production of
potassium chloride, we will begin to focus our sales of potassium chloride in
foreign markets.





Sales
                    Breakdown
                  
                  2008
                  
                  
                  2007
                  
                  
                  2006
                  
                  
                  2005
                  
                  
                  2004Chile
                  
                  
                  58
                  %
                  
                  
                  63
                  %
                  
                  
                  62
                  %
                  
                  
                  82
                  %
                  
                  
                  85
                  %Latin
      America
                  
                  
                  23
                  %
                  
                  
                  18
                  %
                  
                  
                  17
                  %
                  
                  
                  18
                  %
                  
                  
                  14
                  %Others
                  
                  
                  19
                  %
                  
                  
                  11
                  %
                  
                  
                  0
                  %
                  
                  
                  0
                  %
                  
                  
                  1
                  %





In April
of 2009, SQM announced that it had signed a supply contract with Potash
Corporation of Saskatchewan (PCS). The agreement establishes that SQM Salar
S.A., affiliate of SQM, will sell to PCS Sales (USA) Inc., affiliate of PCS,
between 150,000 and 250,000 tons annually of potassium chloride to be sold by
PCS in Japan, India and China. The negotiated period of the contract will be
from May 1, 2009 to May 1, 2012. Sales for this contract will be made at market
prices.





Potassium
Chloride: Competition




We
estimate that SQM accounted for 0.4% of global sales of potassium chloride in
2008. We also believe that the largest producers of potassium chloride are
Potash Corporation of Saskatchewan (“PCS”), accounting for approximately 17% of
the global sales, and Uralkali and Belarusian Potash Company (“BPC”), which
together account for 33% of global sales.





Raw
Materials




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





Other
important raw materials are sodium carbonate (in lithium carbonate production
and for the neutralization of iodine solutions), sulfur, sulfuric acid,
kerosene, anti-caking and anti-dust agents, ammonium nitrate (in the preparation
of the anfo that is used as explosives in the mining operations), woven bags for
packaging our final products, electricity acquired from electric utilities, and
diesel and fuel oil in heat generation.  The Company previously used
natural gas as the main energy source in heat generation, but natural gas
shortages have led us to use alternative fuels. Our raw material costs
(excluding caliche ore and salar brines and including energy) represented
approximately 15.5% of our cost of sales in 2008.





Most of
our raw materials experienced significant price increases during the first nine
months of 2008.





In 1998
we entered into a long-term (fifteen-year) electricity supply agreement with
Norgener S.A., a major Chilean electricity producer. In 1999, we entered into a
long-term electricity supply agreement with Electroandina S.A., also a major
Chilean electricity producer.  The agreement has a 10-year term,
extending to 2009, with two, three-year renewal options exercisable by
SQM.  Since April 2000, the Company has been connected to the Northern
Power Grid (Sistema
Interconectado del Norte Grande or “SING”), which currently supplies
electricity to most cities and industrial facilities in northern
Chile.  During 2006 and 2007, both Norgener and Electroandina sought
relief from the terms of their electricity supply agreements, arguing that
certain unforeseen events had restricted the supply and increased the price of
gas from Argentina.  As of December 2007, in the case of Norgener, an
agreement was reached among the parties, whereas in the case of Electroandina,
an arbitrator determined the resolution of the dispute.  In both cases
the prices of energy to be paid by SQM were adjusted upwards, in line with
increases in variable generation costs.  For a discussion of risks
related to electricity supply, see Item 3. Key Information—Risk
Factors.


32


In May
2001, we entered into a 10-year gas supply contract with Distrinor S.A., which
would supply a maximum of 3,850,000 million Btu per year.  This gas
supply was sufficient to satisfy the requirements for the facilities that are
connected to a natural gas supply.  However, beginning in 2004, the
Argentinean government has imposed restrictions on the supply of natural gas,
and in 2008 we received practically no gas from
Argentina.  Consequently, we have had to use other, higher-cost fuels
as substitutes for natural gas. For a discussion of risks related to natural gas
supply see Item 3. Key Information—Risk Factors.





We obtain
ammonium nitrate, sulfur, sulfuric acid, kerosene and soda ash from several
large suppliers, mainly in Chile and the United States, under long-term
contracts or general agreements, some of which contain provisions for annual
revisions of prices, quantities and deliveries.  In addition to the
potassium chloride we produce, we acquire potassium chloride from Sociedad
Chilena del Litio Limitada, a local Chilean supplier.  Diesel fuel is
obtained under contracts that provide for sales of fuel at international market
prices.





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





Water
Supply




The main
sources of water for our nitrate and iodine facilities at Pedro de Valdivia,
María Elena and Coya Sur are the Loa and San Salvador rivers, which run near our
production facilities. Water for our Pampa Blanca, Nueva Victoria and Salar de
Atacama facilities is obtained from wells near the production facilities. In the
case of Pampa Blanca and the Salar del Carmen we additionally buy water from
third parties for our production processes. We have permits from the Chilean
Water Authority to explore for additional non-potable water and permits to use
granted water rights for an indefinite period of time (based on specified
maximum volumes) without charge. In addition, we purchase potable water from
local utility companies. We have not experienced significant difficulties
obtaining the necessary water to conduct our operations.





Government
Regulations





Regulations
in Chile Generally




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





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





We also
hold water rights obtained from the Chilean water regulatory authority for a
supply of water from rivers or wells near our production facilities sufficient
to meet our current and anticipated operating requirements.  See Item
3.  Key Information for a discussion under "Risk Factors" of how
changes in mining and water rights laws could affect our operating costs. We
operate port facilities at Tocopilla for shipment of products and delivery of
certain raw materials pursuant to maritime concessions, under applicable Chilean
laws, which are normally renewable on application, provided that such facilities
are used as authorized and annual concession fees are paid.





Under Law
No. 16,319, the Company has an agreement with the Chilean Commission of Nuclear
Energy (“CCHEN”) regarding the exploitation and sale of lithium from the Salar
de Atacama. The agreement sets yearly quotas for the tonnage of lithium
authorized to be sold for each year of the Salar de Atacama, as determined by
the agreement.


33


We hold
water rights that are key to our business development.  These rights
were obtained from the Chilean Water Authority for a supply of water from rivers
and wells near our production facilities, which we believe are sufficient to
meet current operating requirements. However, the Water Code is subject to
changes, which could have a material adverse impact on our business, financial
condition and results of operations.  Law No. 20,017, published
on June 16, 2005, modified the Chilean laws relating to water
rights. Under certain conditions, these modifications allow the
constitution of permanent water rights of up to 2 liters per second
for each well built prior to June 30, 2004, in the locations where we conduct
our mining operations.  Such rights may be constituted in favor of
parties that requested water rights prior to January 1, 2000, when such request
had not yet been processed as of June 16, 2005.  In constituting these
new water rights, the law does not consider the availability of water, or how
the new rights may affect holders of existing rights.  Therefore, the
amount of water we can effectively extract based on our existing rights could be
reduced if these additional rights are exercised.  These and other
potential future changes to the Water Code could have a material adverse impact
on our business, financial condition and results of operations.





In 2005,
the Chilean Congress approved Law No. 20,026 (also known as the “Royalty Law”)
establishing a royalty tax to be applied to mining activities developed in
Chile.  The Chilean Government may decide to levy additional taxes on
mining companies or other corporations in Chile, and such taxes could have a
material adverse impact on our business, financial condition and results of
operations.





In 2006,
the Chilean Congress amended the Labor Code, and effective January 15, 2007,
certain changes were made, affecting companies that hire subcontractors to
provide certain services.  This new law, known as the “Law on
Subcontracting”, establishes a new requirement that applies in the event of
accidents in the workplace.  The law states that when a serious
accident occurs, the company must halt work at the site where the accident took
place until authorities from the National Geology and Mining Service inspect the
site and prescribe the measures the company must take to prevent future
risks.  Work may not be resumed until the company has taken the
prescribed measures, and the period of time before work may be resumed may last
for a number of hours, days, or longer.  The effects of this new law
could have a material adverse effect on our financial condition or results of
operations.





There are
currently no material legal or administrative proceedings pending against the
Company with respect to any regulatory matter, except as discussed under
“Safety, Health and Environmental Regulations” below, and we believe that we are
in compliance in all material respects with all applicable statutory and
administrative regulations with respect to our business.





Safety,
Health and Environmental Regulations in Chile




Our
operations in Chile are subject to both national and local regulations related
to safety, health, and environmental protection.





In Chile,
the main regulations on these matters that are applicable to SQM are the Code on
Safety in Mining Operations, the Health Code, the Law on Subcontracting, and the
Environmental Framework Law.





Health
and safety at work are fundamental aspects in the management of mining
operations, which is why SQM has made constant efforts to maintain good health
and safety conditions of the people working at its mining sites.





In
addition to the role played by the Company in this important matter, the
government has a regulatory role, enacting and enforcing regulations in order to
protect and ensure the health and safety of workers. The State, acting through
the Ministry of Health and the National Service for Geology and Mining
(“Sernageomin”), performs mine safety inspections and oversees mining projects,
among other tasks, and it has exclusive powers to enforce standards related to
environmental conditions and the health and safety of the people performing
activities related to mining.


34


The Mine
Health and Safety Act of 1989 (Ministry of Economy, Reglamento de Seguridad
Minera, Supreme Decree DS No. 72, amended by DS No. 132/2002) protects workers
and nearby communities against health and safety hazards, and it provides for
enforcement of the law where compliance has not been achieved.
 
 The main
provisions of this act are related to:
  ·
                Securing
      the health, safety and well-being of people at
  work;
 ·
                Protecting
      nearby communities against risks to health or safety arising out of or in
      connection with mining operations in the
  vicinity;
 ·
                Controlling
      the use and storage of explosive, highly flammable or otherwise dangerous
      substances;
 ·
                Controlling
      the emission or pollution into the atmosphere of noxious or offensive
      substances.
 
 SQM’s
Internal Mining Standards (“Reglamentos Internos
Mineros”) establish our obligation to maintain a workplace that is safe
and free of health risks, inasmuch as this is reasonably
practicable.  We must comply with the general provisions of the Health
and Safety Act 1999 (Ministry of Health, Standards on Basic Sanitary and
Environmental Conditions in the Workplace, or “Reglamento sobre Condiciones
Sanitarias y Ambientales Básicas en los Lugares de Trabajo” DS No. 594, amended
by DS No. 57/2003), our own internal standards, and the provisions of the Mine
Health and Safety Act of 1989.  In the event of non-compliance, the
Ministry of Health and particularly the National Service for Geology and Mining
are entitled to use their enforcement powers to achieve compliance with the
law.
 
 The
Chilean Environmental Framework Law created the National Commission of the
Environment (“Comisión Nacional del Medio Ambiente” or “CONAMA”), which is the
governmental agency responsible for coordinating and supervising environmental
issues. Under the Environmental Framework Law, we are required to conduct
environmental impact studies of any future projects or activities (or their
significant modifications) that may affect the environment. CONAMA, together
with other public institutions with mandates related to the environment,
evaluates environmental impact studies submitted for its approval, and also
audits the environmental performance during the construction and operation of
the projects. The Environmental Framework Law also promotes citizen
participation in project evaluation and implementation.
 
 On August
10, 1993, the Ministry of Health published in the Official Gazette a resolution
establishing that atmospheric particulate levels at our production facilities in
María Elena and Pedro de Valdivia exceeded air quality standards, affecting the
nearby towns.  The high particulate matter levels are principally from
dust produced during the processing of caliche ore, particularly the crushing of
the ore before leaching.  Residents of the town of Pedro de Valdivia
were relocated to the town of María Elena, practically removing Pedro de
Valdivia from the scope of the determination of the Ministry of
Health.  In the year 2000, CONAMA approved a plan to reduce the
atmospheric particulate levels below permissible levels by July of the same
year, with certain amendments, by Decree No. 164/2000. Although we followed the
plan, and reduced substantially the atmospheric particulate concentration levels
at our production facilities at Maria Elena, as a result of the investments and
processes implemented, we were not able to fully comply with the July 2000
timetable.  Resolution No. 384, published in the Official Gazette on
May 16, 2000, initiated a revision and reformulation of the plan.  The
new plan was published by Decree No. 37/2004 on March 2004, and it called for an
80% reduction of the emissions of atmospheric particulate material in two
years.  We designed a new project to modify the milling and screening
systems used in the processing of the caliche ore at María Elena facilities, in
order to achieve the necessary reduction of particulate material emissions. An
environmental impact study for this project was approved by CONAMA through
Resolution No. 270 in October 2005. Upon issuing the approval for the
environmental impact study, CONAMA issued the Decree No. 53975, authorizing this
project as the one through which we would comply with the emission reductions
required by Decree No. 37/2004.  Construction of this project was
completed in April of 2007. A second construction phase took place during 2008,
and currently the new plant is operating in good condition, which has allowed
for the permanent closure of the old milling and screening facility at Maria
Elena and has consequently improved air quality in the
area.
  35
  On March
16, 2007, the Ministry of Health published in the Official Gazette a resolution
establishing that atmospheric particulate levels exceeded air quality standards
in the coast-town of Tocopilla, where we have our port operations. The high
particulate matter levels are caused mainly by two thermoelectric power plants
that use coal and fuel oil and are located next to our port operations. Our
participation in particulate matter emissions is very small (less than 0.50% of
the total). However, a decontamination plan was developed by CONAMA, and its
formal approval is expected during mid 2009. During 2008, SQM implemented
control measures for particulate emissions in our port operations according to
the requirements of this plan.
 
 We
continuously monitor the impact of our operations on the environment and have
made, from time to time, modifications to our facilities trying to eliminate any
adverse impacts.  Also, over time, new environmental standards and
regulations have been enacted, which have required minor adjustments or
modifications of our operations for full compliance.  We anticipate
that additional laws and regulations will be enacted over time with respect to
environmental matters.  While we believe that we will continue to be
in compliance with all applicable environmental regulations of which we are now
aware, there can be no assurance that future legislative or regulatory
developments will not impose new restrictions on our operations.  We
are committed to both complying with all applicable environmental regulations
and applying an Environmental Management System (EMS) to continuously improve
our environmental performance.
 
 We have
submitted and will continue to submit several environmental impact assessment
studies related to our projects to the governmental authorities.  We
require the authorization of these submissions in order to maintain and to
increase our production capacity.
 
 International
Regulations
 In 2007,
a new European Community Regulation on chemicals and their safe use went into
effect.  This regulation, called REACH (Regulation, Evaluation,
Authorisation and Restriction of Chemical Substances), requires all
manufacturers and importers of chemicals – including SQM – to identify and
manage risks linked to the substances they manufacture and
market.  Non-compliance with this regulation would preclude the
Company from commercializing its products in the European
market.
  36
  4.C.Organizational
Structure
  All of our principal operating
subsidiaries are essentially wholly-owned, except for Soquimich Comercial, which
is 61% owned by SQM and whose shares are listed and traded on the Chilean Stock Exchanges, and
Ajay SQM Chile S.A., which is 51% owned by SQM.  The following is a
summary of our main subsidiaries as of March 31, 2009. For a list of all our
consolidated subsidiaries see Note 2(a) to the Consolidated Financial
Statements.
 
 Main subsidiaries
                                  
                                  Activity
                                  
                                  Country of
                                    Incorporation
                                  
                                  SQM Beneficial
                                    Ownership
                                    Interest
                                    (Direct/Indirect)SQM
      Nitratos S.A.
                                  
                                  Extracts
      and sells caliche ore to subsidiaries and affiliates of
SQM
                                  
                                  Chile
                                  
                                  
                                  100
                                  %SQM
      Industrial S.A.
                                  
                                  Produces
      and markets the Company’s products directly and through other subsidiaries
      and affiliates of SQM
                                  
                                  Chile
                                  
                                  
                                  100
                                  %SQM
      Salar S.A.
                                  
                                  Exploits
      the Salar de Atacama to produce and market the Company’s products directly
      and through other subsidiaries and affiliates of SQM
                                  
                                  Chile
                                  
                                  
                                  100
                                  %Minera
      Nueva Victoria S.A.
                                  
                                  Produces
      and markets the Company’s products directly and through other subsidiaries
      and affiliates of SQM
                                  
                                  Chile
                                  
                                  
                                  100
                                  %Servicios
      Integrales de Tránsitos y Transferencias S.A. (SIT)
                                  
                                  Owns
      and operates a rail transport system and also owns and operates the
      Tocopilla port facilities
                                  
                                  Chile
                                  
                                  
                                  100
                                  %Soquimich
      Comercial S.A.
                                  
                                  Markets
      the Company’s specialty plant nutrition products domestically and imports
      fertilizers for resale in Chile
                                  
                                  Chile
                                  
                                  
                                  61
                                  %Ajay-SQM
      Chile S.A.
                                  
                                  Produces
      and markets the Company’s iodine and iodine derivatives
                                  
                                  Chile
                                  
                                  
                                  51
                                  %Sales
      and distribution subsidiaries in the United States, Belgium, Brazil,
      Venezuela, Ecuador, Peru, Argentina, Mexico, South Africa and other
      locations.
                                  
                                  Market
      the Company’s products throughout the world
                                  
                                  Various
  37
  4.D.Property,
      Plant and Equipment
  Discussion
of our mining rights is organized below according to the geographic location of
our mining operations. SQM's mining interests located throughout the valley of
the Tarapacá and Antofagasta regions of northern Chile (in a part of the country
known as “el Norte Grande”), referred to collectively as the "Caliche Ore
Mines", are discussed first. The Company's mining interests within the Atacama
Desert in the eastern region of el Norte Grande (the "Salar de Atacama
Brines") are discussed second.
 
 Description of the Caliche
Ore Mines
  As of
December 31, 2008, we held exploitation rights to mineral resources representing
approximately 557,684 hectares, and we have applied for additional exploitation
rights for approximately 1,662,618hectares.  In
addition, we held exploration rights to mineral resources representing
approximately 589,084 hectares, and we have applied for additional exploration
rights for approximately 1,947,718 hectares. As part of these rights, we have
four mines covering an area of approximately 1,146,768 hectares.  These
four mines are currently being exploited.
 
 In 2007,
we modified the criteria we use to define a mine.  These new criteria
require that a property have both reserves and the processing facilities
necessary to carry out exploitation.  As a result, certain properties we
previously defined as mines but that do not have processing facilities are now
considered part of other mines, and the number of mines has been
reduced from six to four.  The Nueva Victoria mine includes the mining
properties Soronal, Mapocho and Iris, which were described separately in
previous Company filings. The mining properties in terms of surface area and
quantity of reserves have not changed as a result of the new
criteria.
 
 Pedro
de Valdivia
 The mine
and facilities that we operate in Pedro de Valdivia are located 170 kilometers
northeast of Antofagasta and are accessible by highway.  These
facilities have been in operation for approximately 77 years and were previously
owned and operated by Anglo Lautaro. The areas currently being mined are located
approximately 17 kilometers southeast and approximately 20 kilometers west of
the Pedro de Valdivia production facilities.  Our mining facilities
at Pedro de Valdivia have a Weighted Average Age of approximately 11.01
years.  Electricity, diesel, and fuel oil are the primary sources of
power for this operation.
 
 María
Elena
 The mine
and facilities that we operate in María Elena are located 220 kilometers
northeast of Antofagasta and are accessible by highway. These facilities have
been in operation for approximately 82 years and were previously owned and
operated by Anglo Lautaro. The area currently being mined is located
approximately 14 kilometers north of the María Elena production facilities. The
power sources of power utilized are mainly electricity, diesel, and fuel oil.
The Weighted Average Age of the Company's mining facilities at María Elena is
approximately 8.03 years.
 
 Pampa
Blanca
 We
currently conduct caliche ore operations in Pampa Blanca, which is located 100
kilometers northeast of Antofagasta and is accessible by highway. Ore from the
Pampa Blanca mine is transported by truck to nearby heap leaching pads where it
is used to produce iodine and nitrate salts. The Weighted Average Age of the ore
recovery facilities at Pampa Blanca is approximately 14.46 years. The power
source utilized is mostly electricity, produced by mobile diesel
generators.
 
 Nueva
Victoria
 We
currently conduct caliche ore operations in Nueva Victoria, which is located 180
kilometers north of María Elena and is accessible by highway. Since 2007, the
Nueva Victoria mine includes the mining properties Soronal, Mapocho and Iris.
Ore from Nueva Victoria is transported by truck to heap leaching pads where it
is then used to produce iodine. Nueva Victoria mine includes former Iris mining
property acquired from DSM Minera S.A. in 2006. The Weighted Average Age of the
ore recovery facilities at Nueva Victoria is approximately 6.13 years. The
power source utilized is mostly electricity, obtained from the Northern Power
Grid (SING).
  38
  Description of the Salar de
Atacama Brines
  Salar
de Atacama Brines
  We hold
rights to exploit the mineral resources in an area covering approximately
197,000 hectares of land in the Salar de Atacama in northern Chile, and we have
applied for additional exploitation rights covering approximately 64,100
hectares.  In addition, we hold exploration rights covering
approximately 202,490 hectares, and we have applied for additional exploration
rights covering approximately 758,000 hectares.  Exploration rights
are valid for a period of two years, after which the Company can (i) request an
exploitation concession for the land, (ii) request an extension of the
exploration rights for an additional two years (the extension only applies to a
reduced surface area equal to 50% of the initial area), or (iii) cease
exploration of the zone covered by the rights. The Weighted Average Age of our
mining facilities at the Salar de Atacama is approximately 9.21
years.  The main source of power used by the operation is
electricity.
  Additional
Mining Operations Leased in the Salar de Atacama Region
  SQM Salar
S.A. holds exclusive rights to exploit the mineral resources in an area covering
approximately 197,000 hectares of land in the Salar de Atacama 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 SQM Salar S.A. is
responsible for the maintenance of Corfo’s exploitation rights and for annual
payments to the Chilean government, and it expires on December 31,
2030.  SQM Salar S.A. is required to make lease-royalty payments to
Corfo according to specified percentages of the value of production of minerals
extracted from the Salar de Atacama brines.  In the years 2008,
2007, and 2006, royalty payments amounted to approximately US$17.7 million,
US$13.9 million and US$ 9.2 million, respectively.
 
 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 65,200
additional hectares in the Salar de Atacama.  Under the terms of the
Salar de Atacama Project Agreement between Corfo and SQM Salar 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 65,200 hectares of the
Salar de Atacama.  The Project Agreement expires on December 31,
2030.
 
 Concessions, Extraction
Yields and Reserves for the Caliche Ore Mines and Salar Brines
 
 Concessions
Generally
  Caliche ore.  We
hold our mineral rights pursuant to one of two types of exclusive concessions
granted pursuant to applicable law in Chile:
 
 (1)
"Exploitation Concessions"  These are concessions whereby we are
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; or
 
 (2)
"Exploration Concessions"  These are concessions whereby we are
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 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 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 our 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.
  39
  Concessions
for the Caliche Ore Mines and Salar Brines
  Approximately
66% of our total mining concessions are held pursuant to Exploitation
Concessions and 34% pursuant to Exploration Concessions, not including areas
within the Salar de Atacama.  Of the Exploitation Concessions,
approximately 83% have been already granted pursuant to applicable Chilean law,
and approximately 17% are in the process of being granted. Of the Exploration
Concessions, approximately 37% have been already granted pursuant to applicable
Chilean law, and approximately 63% are in the process of being granted. Chile
owns substantially all the surface land covering our Exploration and
Exploitation Concessions.
 
 We made
payments to the Chilean government for our Exploration and Exploitation
Concessions of approximately US$9.3 million in the year 2008.
 
 The
following table sets forth our exploitation and exploration concessions as of
December 31, 2008:
 
 Exploitation Concessions
                    
                    
                    Exploration Concessions
                    
                    
                    TotalMines (1)
                    
                    Total
                        number
                    
                    
                    Hectares
                    
                    
                    Total
                        number
                    
                    
                    Hectares
                    
                    
                    Total
                        number
                    
                    
                    HectaresPedro
      de Valdivia
                    
                    
                    584
                    
                    
                    
                    148,802
                    
                    
                    
                    3
                    
                    
                    
                    700
                    
                    
                    
                    587
                    
                    
                    
                    149,502Maria
      Elena
                    
                    
                    617
                    
                    
                    
                    183,104
                    
                    
                    
                    23
                    
                    
                    
                    7,800
                    
                    
                    
                    640
                    
                    
                    
                    190,904Pampa
      Blanca
                    
                    
                    463
                    
                    
                    
                    136,882
                    
                    
                    
                    1
                    
                    
                    
                    400
                    
                    
                    
                    464
                    
                    
                    
                    137,282Nueva
      Victoria (2)
                    
                    
                    341
                    
                    
                    
                    88,896
                    
                    
                    
                    52
                    
                    
                    
                    22,500
                    
                    
                    
                    393
                    
                    
                    
                    111,396Salar
      de Atacama
                    
                    
                    392
                    
                    
                    
                    260,685
                    
                    
                    
                    2,442
                    
                    
                    
                    960,890
                    
                    
                    
                    2,834
                    
                    
                    
                    1,221,575Subtotal
      mines
                    
                    
                    2,397
                    
                    
                    
                    818,369
                    
                    
                    
                    2,521
                    
                    
                    
                    992,290
                    
                    
                    
                    4,918
                    
                    
                    
                    1,810,659Other
      caliche areas
                    
                    
                    7,446
                    
                    
                    
                    1,662,618
                    
                    
                    
                    923
                    
                    
                    
                    285,100
                    
                    
                    
                    8,369
                    
                    
                    
                    1,947,718Other
      salars and other areas
                    
                    
                    573
                    
                    
                    
                    115,884
                    
                    
                    
                    212
                    
                    
                    
                    54,218
                    
                    
                    
                    785
                    
                    
                    
                    170,102Subtotal
      other areas
                    
                    
                    8,019
                    
                    
                    
                    1,778,502
                    
                    
                    
                    1,135
                    
                    
                    
                    339,318
                    
                    
                    
                    9,154
                    
                    
                    
                    2,117,820Total
                    
                    
                    10,416
                    
                    
                    
                    2,596,871
                    
                    
                    
                    3,656
                    
                    
                    
                    1,331,608
                    
                    
                    
                    14,072
                    
                    
                    
                    3,928,479
  (1)
              We
      have included in this table both concessions that have been granted and
      concessions in the process of being
granted.
  (2)
              Nueva
      Victoria amounts include the Mapocho and Soronal properties, which were
      presented separately in our 2006 Annual Report on Form
    20-F.
  40
  Extraction
Yields
  The
following table sets forth certain operating data relating to each of our
mines:
  (Values in thousands unless
      otherwise stated)
                                            
                                            2008
                                            
                                            
                                            2007
                                            
                                            
                                            2006Pedro
      de ValdiviaMetric
      tons of ore mined
                                            
                                            
                                            11,003
                                            
                                            
                                            
                                            10,670
                                            
                                            
                                            
                                            11,652Average
      grade nitrate (% by weight)
                                            
                                            
                                            7.1
                                            
                                            
                                            
                                            7.5
                                            
                                            
                                            
                                            7.4Iodine
      (parts per million (ppm))
                                            
                                            
                                            345
                                            
                                            
                                            
                                            354
                                            
                                            
                                            
                                            399Metric
      tons of crystallized nitrate produced
                                            
                                            
                                            407
                                            
                                            
                                            
                                            422
                                            
                                            
                                            
                                            454Metric tons of iodine
    produced
                                            
                                            
                                            2.2
                                            
                                            
                                            
                                            2.3
                                            
                                            
                                            
                                            2.5María
      Elena (1)Metric
      tons of ore mined
                                            
                                            
                                            4,683
                                            
                                            
                                            
                                            4,651
                                            
                                            
                                            
                                            5,682Average
      grade nitrate (% by weight)
                                            
                                            
                                            7.1
                                            
                                            
                                            
                                            7.4
                                            
                                            
                                            
                                            7.5Iodine
      (ppm)
                                            
                                            
                                            358
                                            
                                            
                                            
                                            363
                                            
                                            
                                            
                                            399Metric
      tons of crystallized nitrate produced
                                            
                                            
                                            454
                                            
                                            
                                            
                                            424
                                            
                                            
                                            
                                            503Metric
      tons of iodine produced
                                            
                                            
                                            1.0
                                            
                                            
                                            
                                            1.0
                                            
                                            
                                            
                                            1.3Pampa
      BlancaMetric
      tons of ore mined
                                            
                                            
                                            3,811
                                            
                                            
                                            
                                            3,108
                                            
                                            
                                            
                                            4,832Iodine
      (ppm)
                                            
                                            
                                            533
                                            
                                            
                                            
                                            527
                                            
                                            
                                            
                                            530Metric
      tons of iodine produced
                                            
                                            
                                            1.1
                                            
                                            
                                            
                                            1.1
                                            
                                            
                                            
                                            1.4Nueva
      Victoria (2)Metric
      tons of ore mined
                                            
                                            
                                            15,760
                                            
                                            
                                            
                                            12,285
                                            
                                            
                                            
                                            14,635Iodine
      (ppm)
                                            
                                            
                                            475
                                            
                                            
                                            
                                            495
                                            
                                            
                                            
                                            490Metric
      tons of iodine produced
                                            
                                            
                                            4.0
                                            
                                            
                                            
                                            3.7
                                            
                                            
                                            
                                            4.6Salar
      de AtacamaMetric
      tons of lithium carbonate produced (3)
                                            
                                            
                                            30
                                            
                                            
                                            
                                            30
                                            
                                            
                                            
                                            29Metric
      tons of potassium chloride produced
                                            
                                            
                                            700
                                            
                                            
                                            
                                            611
                                            
                                            
                                            
                                            539Metric
      tons of potassium sulfate produced
                                            
                                            
                                            163
                                            
                                            
                                            
                                            157
                                            
                                            
                                            
                                            170Metric
      tons of boric acid produced
                                            
                                            
                                            8
                                            
                                            
                                            
                                            7
                                            
                                            
                                            
                                            8
  (1)
              Includes
      production at Coya Sur from treatment of fines from María Elena and Pedro
      de Valdivia and nitrates from pile treatment at Pampa
    Blanca.
  (2)
              Includes the Iris mining
      property, which was acquired in 2006 and was presented separately in the
      2006 Annual Report on Form 20-F.  Nueva Victoria extraction
      yields were higher in 2006 than they were in 2007 because they
      reflect extraction
      yields from the Iris property, which SQM continued to exploit for the
      first six months of 2006, subsequent to the acquisition.  The
      Iris property has been operating since December 2008, and it is located
      next to Nueva Victoria
operations.
  (3)
              Lithium carbonate is extracted at
      the Salar de Atacama and processed at our facilities at the Salar del
      Carmen.
  41
  Reserves
 
 Reserves
for the Caliche Ore Deposits
 Our
in-house staff of geologists and mining engineers prepares our estimates of
caliche ore reserves.  The proven and probable reserve figures
presented below are estimates, and no assurance can be given that the indicated
levels of recovery of nitrates and iodine will be realized. See Item 3. D. Risk
Factors.
 
 We
estimate ore reserves based on engineering evaluations of assay values derived
from sampling of drill-holes and other openings. Drill-holes have been made at
different space intervals in order to recognize mining resources. Normally, we
start with 400x400 meters and then we reduce spacing to 200x200 meters, 100x100
meters and 50x50 meters. The geological occurrence of caliche mineral is unique
and different from other metallic and non-metallic minerals.  Caliche
ore is found in large horizontal layers at depths ranging from 1 to 4 meters and
has an overburden between 0 and 2 meters. This horizontal layering is a natural
geological condition and allows the Company to estimate the continuity of the
caliche bed based on surface geological reconnaissance and analysis of samples
and trenches. Mining resources can be calculated using the information from
the drill-hole sampling.
 
 According
to our experience in caliche ore, the grid pattern drill-holes with spacing
equal to or less than 100 meters produce data on the caliche resources that is
sufficiently defined to consider them measured resources and then, adjusting for
technical, economic and legal aspects, as proven reserves.  These
reserves are obtained using the Kriging Method and the application of operating
parameters to obtain economically profitable reserves. Similarly, the
information obtained from detailed geologic work and samples taken from grid
pattern drill-holes with spacing equal to or less than 200 meters can be used to
determine indicated resources.  By adjusting such
indicated resources to account for technical, economic and legal factors,
it is possible to calculate probable reserves.  Probable reserves are
calculated by evaluating polygons and have an uncertainty or error margin
greater than that of proven reserves; however, the degree of certainty of
probable reserves is high enough to assume continuity between points of
observation.
 
 Proven
and probable reserves are determined using extensive drilling, sampling and mine
modeling, in order to estimate potential restrictions on production yields,
including cut-off grades, ore type, dilution, waste-to-ore ratio and ore
depth.  Economic feasibility is determined on the basis of this
information.
 
 The
updated estimates of our proven reserves of caliche ore at each of our mines, as
of December 31, 2008, are as follows:
 Mine
                        
                        Proven Reserves (1)
                          (millions of metric tons)
                        
                        
                        Nitrate Average Grade
                          (percentage by weight)
                        
                        
                        Iodine Average Grade
                          (parts per million)Pedro
      de Valdivia
                        
                        
                        156.7
                        
                        
                        
                        7.1
                        %
                        
                        
                        367María
      Elena
                        
                        
                        140.5
                        
                        
                        
                        7.3
                        %
                        
                        
                        413Pampa
      Blanca
                        
                        
                        75.5
                        
                        
                        
                        5.6
                        %
                        
                        
                        547Nueva
      Victoria (2)
                        
                        
                        299.0
                        
                        
                        
                        5.8
                        %
                        
                        
                        434
  In
addition, the updated estimates of our probable reserves of caliche ore at each
of our principal mines as of December 31, 2008, are as follows:
  Mine
                          
                          Probable Reserves (1) (3)
                            (millions of metric tons)
                          
                          
                          Nitrate Average Grade
                            (percentage by weight)
                          
                          
                          Iodine Average Grade
                            (parts per million)Pedro
      de Valdivia
                          
                          
                          116.7
                          
                          
                          
                          6.9
                          %
                          
                          
                          447María
      Elena
                          
                          
                          97.6
                          
                          
                          
                          7.3
                          %
                          
                          
                          380Pampa
      Blanca
                          
                          
                          447.8
                          
                          
                          
                          5.8
                          %
                          
                          
                          538Nueva
      Victoria (2)
                          
                          
                          132.6
                          
                          
                          
                          5.4
                          %
                          
                          
                          405
  Notes on
Reserves:
  (1)
              The proven and probable
      reserves set forth in the tables above are shown before losses related to
      exploitation and mineral treatment.  Proven and probable
      reserves are affected by mining exploitation methods, which result in
      differences between the estimated reserves that are available for
      exploitation in the mining plan and the recoverable material that is
      finally transferred to the leaching vats or heaps. The average mining
      exploitation factor for our different mines ranges between 80% and 90%,
      whereas the average global metallurgical recoveries of processes for
      nitrate and iodine contained in the recovered material vary between 55%
      and 65%.
  42
  (2)
              Proven
      and probable reserves for Nueva Victoria include the Soronal and Mapocho
      mining properties, which were presented separately in the Company’s 2006
      Annual Report on Form 20-F.  Nueva Victoria also includes the
      reserves for the former Iris mining property, which was acquired from DSM
      in 2006.
  (3)
              Probable
      reserves amounts can be transformed in order to obtain amounts expressed
      as proven reserves.  On average, the transformation factor to
      express probable reserves as proven reserves is higher than
      60%.  This factor depends on geological conditions and caliche
      ore continuity, which vary from mine to mine.  The difference
      between the probable reserve amounts and the transformed probable reserve
      amounts is the result of the lower degree of certainty pertaining to
      probable reserves compared with proven
reserves.
  The
proven and probable reserves shown above are the result of exploration and
evaluation of approximately 16.0% of the total caliche-related mining property
of our Company.  However, we have explored those areas in which we
believe there is a higher potential of finding high-grade caliche ore minerals.
The remaining 84.0% of this area has not been explored yet or has limited
reconnaissance as inferred or hypothetical resources. Reserves shown in these
tables consider and are calculated over mining properties that are not involved
in any legal issues between SQM and other parties.
  Exploration Program. We
maintain an ongoing program of exploration and resource evaluation on the land
surrounding the mines at Nueva Victoria, Pedro de Valdivia, María Elena and
Pampa Blanca and at other sites for which we have the appropriate
concessions.  In 2008, we continued a basic reconnaissance program on
new mining properties including a geological mapping of the surface and spaced
drill-hole campaign covering approximately 38,773
hectares.  Additionally, we conducted general explorations based on a
closer grid pattern of drill-holes over a total area of approximately 4,940
hectares and, in addition, carried out in-depth sampling of approximately 2,816
hectares (341 hectares at Pedro de Valdivia, 581 hectares at María Elena, 3
hectares at Pampa Blanca and 1,891 hectares at Nueva Victoria).  The
exploration and development program in 2009 calls for a basic reconnaissance
program over a total area of 32,823 hectares, general exploration over a total
area of about 252 hectares and, in addition, in-depth sampling of approximately
1,919 hectares.
 
 Reserves
for the Salar de Atacama Brines
  Our
in-house staff of hydro-geologists and mining engineers prepares our estimates
of potassium, sulfate, lithium and boron reserves at the Salar de
Atacama.  We have exploration concessions of approximately 819.2
square kilometers where we have carried out brine sampling and geostastical
analysis. We estimate that our proven and probable reserves, based on economic
restrictions, geostatistical analysis and brine sampling up to a depth of 30 and
50 meters in some areas and up to a depth of 200 meters in approximately 5% of
our total exploration concessions, are as follows:
  Proven Reserves (1)
                        (millions of metric tons)
                      
                      
                      Probable Reserves (1)
                        (millions of metric tons)Potassium
      (K +)
      (2)
                      
                      
                      50.3
                      
                      
                      
                      11.1Sulfate
      (SO4 2-)
      (3)
                      
                      
                      35.2
                      
                      
                      
                      1.9Lithium
      (Li +)
      (4)
                      
                      
                      2.7
                      
                      
                      
                      2.6Boron
      (B 3+)
      (5)
                      
                      
                      0.9
                      
                      
                      
                      0.3
  Notes on
Reserves:
  (1)
              Metric
      tons of potassium, sulfate, lithium and boron considered in the proven and
      probable reserves are shown before losses from evaporation processes and
      metallurgical treatment.  The recoveries of each ion depend on
      both brine composition, which changes over time, and the process applied
      to produce the desired commercial
products.
  (2)
              Recoveries
      for potassium vary from 47% to 70%.
  (3)
              Recoveries
      for sulfate vary from 27% to 45%.
  (4)
              Recoveries
      for lithium vary from 28% to 37%.
  (5)
              Recoveries
      for boron vary from 28% to 32%.
  43
  The
proven and probable reserves are based on drilling, brine sampling and
geo-statistic reservoir modeling in order to estimate brine volumes and their
composition.  To evaluate reserves, we conduct a geostatistical study
using the Kriging Method in 2D.  We calculate the quality of brine
effectively drainable or exploitable in each evaluation unit.  We
consider chemical parameters to determine the process to be applied to the
brines.  Based on the chemical characteristics, the volume of brine
and drainable percentage, we determine the number of metric tons for each of the
chemical ions.  Proven reserves are defined as those geographical
blocks that comply with a Kriging method estimation error of up to
15%.  In the case of probable reserves, the selected blocks must
comply with an estimation error between 15% and 35%.  Blocks with an
error greater than 35% are not considered in the evaluation of
reserves.  This procedure is used to estimate potential restrictions
on production yields, and the economic feasibility or producing such commercial
products as potassium chloride, potassium sulfate, lithium carbonate and boric
acid is determined on the basis of the evaluation.
 
 PORTS AND WATER
RIGHTS
  We
operate port facilities at Tocopilla for shipment of products and delivery of
certain raw materials pursuant to renewable concessions granted by Chilean
regulatory authorities, provided that such facilities are used as authorized and
annual concession fees are paid by us. We also hold water rights for a supply of
water from rivers and wells near our production facilities sufficient to meet
our current operational requirements.
 
 PRODUCTION
FACILITIES
 Our
principal production facilities are located near our mines and extraction
facilities in northern Chile.  The following table sets forth the
principal production facilities as of December 31, 2008:
 
 Location
                                    
                                    Type of Facility
                                    
                                    Approximate Size (Hectares)Pedro
      de Valdivia (1)
                                    
                                    Nitrates
      and iodine production
                                    
                                    
                                    126María
      Elena (1)
                                    
                                    Nitrates
      and iodine production
                                    
                                    
                                    110Coya
      Sur  (1)
                                    
                                    Nitrates
      and iodine production
                                    
                                    
                                    232Pampa
      Blanca (1)
                                    
                                    Concentrated
      nitrate salts and iodine production
                                    
                                    
                                    111Nueva
      Victoria (2)
                                    
                                    Iodine
      production
                                    
                                    
                                    239Salar
      de Atacama (1)(3)
                                    
                                    Potassium
      chloride, lithium chloride, potassium sulfate and boric
    acid
                                    
                                    
                                    2,395Salar
      del Carmen, Antofagasta (1)
                                    
                                    Lithium
      carbonate and lithium hydroxide production
                                    
                                    
                                    62Tocopilla
                                    
                                    Port
      facilities
                                    
                                    
                                    21.5
  (1)
              Includes
      production facilities, solar evaporation ponds and leaching
      heaps.
  (2)
              Includes
      production facilities and solar evaporation
  ponds.
  (3)
              We
      lease the exploitation rights used at the Salar de Atacama from
      Corfo.
 
 We own,
directly or indirectly through subsidiaries, all of the facilities free of any
material liens, pledges or encumbrances, and believe that they are suitable and
adequate for the business we conduct in them. As of December 31, 2008, the
approximate gross book value of the property and associated plant and equipment
at our locations was as follows: Pedro de Valdivia (US$69.1 million), María
Elena (US$177.42 million), Coya Sur (US$146.20 million), Pampa Blanca (US$7.04
million), Nueva Victoria (US$115.84 million), Salar de Atacama (US$342.46
million), Salar del Carmen (US$100.91 million) and Tocopilla (US$46.19
million).
 
 In
addition to the above-listed facilities, we operate a computer and information
system linking our principal subsidiaries to our operating facilities throughout
Chile via a local area network. The computer and information system is used
mainly for accounting, monitoring of supplies and inventories, billing, quality
control and research activities. The system's mainframe computer equipment is
located at our offices in Santiago.
  44
  The
approximate Weighted Average Age of our production facilities as of December 31,
2008 was as follows: Pedro de Valdivia (11.01 years), María Elena (8.03 years),
Coya Sur (6.97 years), Nueva Victoria (6.13 years), Salar de Atacama (9.21
years), and Salar del Carmen (6.49 years). Our railroad line between our
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 10.46 years. We consider the
condition of our principal plant and equipment to be good.
  45
  The map
below shows the location of SQM's principal mining operations and land
concessions which have been granted and those that are in the process of being
granted.
 
 
  46
 
 TRANSPORTATION AND STORAGE
FACILITIES
  We own
and operate railway lines and equipment, as well as port and storage facilities,
for the transport and handling of finished products and consumable
materials.
 
 The main
center for our production and storage of raw materials is the hub composed of
the facilities in Coya Sur, Pedro de Valdivia and María Elena. Our Salar de
Atacama facilities constitute the second largest concentration of plants and raw
material storage. Other facilities include Nueva Victoria, Pampa Blanca, and the
lithium carbonate and lithium hydroxide finishing plants. The Tocopilla Port
Terminal, which we own, is the main facility for storage and shipment of our
products.
 
 Nitrate
raw materials are produced and first stored at our Pampa Blanca, Pedro de
Valdivia and María Elena mines, and then transported by rail (Pedro de
Valdivia), conveyor belt (María Elena) and truck (others) to the plants
described in the next paragraph, for further  production
processes.
 
 Nitrate
finished products are produced at our facilities in Pedro de Valdivia, María
Elena and Coya Sur and then transported by our rail system to Tocopilla Port
Terminal, where they are stored and shipped, either bagged or in
bulk.
 
 Potassium
chloride is produced at our facilities in the Salar de Atacama and transported
either to Tocopilla Port Terminal or Coya Sur by a dedicated dual transport
system (rail/truck) owned by a third-party dedicated
contractor.  Product transported to Coya Sur is used as a raw material
for the production of potassium nitrate or for potassium chloride finished
product.
 
 Potassium
sulfate and boric acid are both produced at our facilities in the Salar de
Atacama and then are transported to Tocopilla Port Terminal to follow the rest
of the process.  Potassium sulfate is transported by the same dual
mode system as potassium chloride, and boric acid is transported by a contracted
trucking company, after being bagged at the Salar de Atacama.
 
 Lithium
solutions, produced at our facilities in the Salar de Atacama, are transported
to the lithium carbonate facility in the Salar del Carmen area, where finished
lithium carbonate is produced. Part of the lithium carbonate is fed to the
adjacent lithium hydroxide plant, where finished lithium hydroxide is produced.
These two products are bagged and stored on the premises and are
subsequently transported by truck to Tocopilla Port Terminal or to the
Antofagasta Terminal for shipment on charter vessels or container
vessels.
 
 Iodine
raw material, obtained in the same mines as the nitrates, is processed, bagged
and stored exclusively in the facilities of Pedro de Valdivia and Nueva
Victoria, and then shipped by truck to Antofagasta or Iquique for vessel
container transport or by truck to Santiago, where iodine derivatives are
produced.
 
 The
facilities at Tocopilla Port Terminal are located approximately 186 kilometers
north of Antofagasta and approximately 124 kilometers west of Pedro de Valdivia,
84 kilometers west of María Elena and Coya Sur and 372 kilometers west of the
Salar de Atacama. SIT operates the facilities under maritime concessions
granted pursuant to applicable Chilean laws.  The port also complies
with ISPS (International Ship and Port Facility Security Code) regulation. The
Tocopilla Port Terminal facilities include a railcar dumper to transfer bulk
product into the Conveyor Belt system used to store and ship bulk
product.
 
 Storage
facilities consist of a six silo system, with a total capacity of 54,000 metric
tons, and an open storage area for approximately 230,000 metric tons. Previous
open storage capacity was 180,000 metric tons. To reach 230,000 metric tons of
capacity, the Company carried out a series of investments totaling US$900,000 at
our port facilities including building additional infrastructure such as walls
and paved areas. Additionally, to meet future storage needs, the Company will
continue to make investments in accordance with the investment plan outlined by
management. During 2008, the Company invested close to US$1 million in a new,
state-of-the-art bagging system that uses polyurethane bags, which automated
operations and increased packaging capacity by 200%.
  47
  For
shipping bulk product, the conveyor belt system extends over the coast line to
deliver product directly inside bulk carrier hatches.  Using this
system, the loading capacity is 1,200 tons per hour.  Bags are loaded
to bulk vessels using barges that are loaded in Tocopilla Port Terminal dock and
unloaded by vessel cranes into the hatches. Both bulk and bagged trucks are
loaded in Tocopilla Port Terminal for transferring product directly to customers
or for container vessels shipping from other ports, mainly Antofagasta,
Mejillones and Iquique.
 
 Bulk
carrier loading in the Tocopilla Port Terminal is mostly contracted for by us to
transfer the product to our hubs around the world or for shipping to customers,
which in limited cases use their own contracted vessels for delivery. Trucking
is provided by a mix of spot, contracted and customer owned
equipment.
  ITEM
4A. UNRESOLVED STAFF COMMENTS
  Not
applicable
  48
   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.
 
 We
believe that our critical accounting policies in the preparation of our 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 below in the Notes to the Financial
Statements in Note 30—Differences between Chilean and United States Generally
Accepted Accounting Principles. 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 as of December 31, 2008 and 2007, and for each
of the three years in the period ended December 31, 2008.
 
 Allowance
for doubtful accounts
  The
Company maintains allowances for doubtful accounts for estimated losses
resulting from a case-by-case analysis of the probability of its customers being
unable to make required payments. If the financial condition of our customers
were to deteriorate unexpectedly, impacting their ability to make payments,
additional allowances may be required. We routinely review the financial
condition of our customers and make assessments of collectability.
 
 Deferred
income tax asset valuation allowance
  Our
Company and each of its subsidiaries compute and pay income tax on a separate
basis, except for the U.S. subsidiaries. We estimate our tax exposure and assess
temporary differences resulting from differing treatment of various items for
tax and accounting purposes. These differences result in deferred tax assets and
liabilities, which are reflected in our consolidated balance sheet.
 
 We record
a valuation allowance to reduce deferred tax assets to the amount that we
believe is more likely than not to be realized. The valuation of the deferred
tax asset is dependent on, amongst other things, the ability of the Company to
generate a sufficient level of future taxable income.
 
 Inventories
  Inventories
of finished products and work in process are valued at average production
cost.  Raw materials and goods for resale acquired from third parties
are stated at average acquisition cost and materials-in-transit are valued at
cost.  These 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 for which the Company estimates a turnover period in
excess of one year, which are classified as other long-term assets.
 
 Inventories
are stated net of allowances for items that cannot be sold and obsolete items
determined based on technical studies of inventory conditions and
usefulness.
 
 Staff
severance indemnities
  We have
significant staff severance indemnity liabilities, which are recognized on an
accrual basis. Inherent in the valuations of these obligations are key
assumptions, including discount rates. We are required to consider current
market conditions, including changes in interest rates, in selecting these
assumptions. Changes in the related benefit plan liabilities may occur in the
future due to changes resulting from fluctuations in our related headcount or to
changes in the assumptions.
  49
  Mining
development costs
  Mine
exploration costs and stripping costs to maintain production of mineral
resources extracted from operating mines are considered variable production
costs and are included in the cost of inventory produced during the period. Mine
development costs at new mines, and major development costs at operating mines
outside existing areas under extraction that are expected to benefit future
production, are capitalized under “other long-term assets” and amortized using a
units-of-production method over the associated proven and probable reserves. The
Company determines its proven and probable reserves based on drilling, brine
sampling and geostatistic reservoir modeling in order to estimate mineral volume
and composition. See Item 4.D. Property, Plants and
Equipment—Reserves.
 
 All other
mine exploration costs, including expenses related to low grade mineral
resources rendering reserves that are not economically exploitable, are charged
to the results of operations in the period in which they are
incurred.
 
 Long-lived
assets and their impairment
  We
estimate the useful lives of property, plant and equipment in order to determine
the amount of depreciation expense to be recorded during any reporting period.
The estimated useful lives are based on historical experience with similar
assets, taking into account anticipated technological or other changes. If
technological changes are expected to occur more rapidly or in a different way
than previously anticipated, the useful lives assigned to these assets may need
to be reduced, resulting in the recognition of increased depreciation expense in
future periods.
 
 We
evaluate the recoverability of our long-lived assets (other than intangibles and
deferred tax assets) in accordance with Technical Bulletin No. 33 “Accounting
treatment of Property, Plant and Equipment”, issued by the Chilean Association
of Accountants, and SFAS No. 144 "Accounting for the Impairment or Disposal of
Long-Lived Assets". Long-lived assets are reviewed for impairment whenever
events or changes in circumstances indicate that the carrying amount of an asset
may not be recoverable. The rules require recognition of impairment of
long-lived assets in the event that the net book value of such assets exceeds
the future undiscounted net cash flows attributable to such assets. Impairment,
if any, is recognized in the period of identification to the extent the carrying
amount of an asset exceeds the fair value of such asset. We believe that the
accounting estimate related to asset impairment is critical because it requires
us to make assumptions about future cash flows generated from the use of the
assets over their estimated useful lives.
 
 Impairment
of goodwill
  We have
recorded goodwill related to business acquisitions. Under Chilean GAAP, goodwill
should be reviewed for impairment when events or circumstances, such as
recurrent losses for two or more periods, indicate a possible inability to
realize the carrying amount. Under SFAS No. 142, goodwill must be allocated to
reporting units and tested for impairment at least annually or more frequently
if events or circumstances, such as adverse changes in the business climate,
indicate that there may be justification for conducting an interim test. The
first part of the test is a comparison, at the reporting unit level, of the fair
value of each reporting unit to its carrying amount, including goodwill. If the
fair value is less than the carrying value, then the second part of the test is
needed to measure the amount of potential goodwill impairment. The implied fair
value of the reporting unit’s goodwill is calculated and compared to the
carrying amount of goodwill recorded in the Company’s financial records. If the
carrying value of the reporting units goodwill exceeds the implied fair value of
that goodwill, then we would recognize an impairment loss in the amount of the
difference, which would be recorded as a charge against net income.
 
 The fair
values of the reporting units are determined using discounted cash flow models
based on each reporting unit’s internal forecasts.
 
 The
impairment analysis requires management to make subjective judgments concerning
estimates of how the assets will perform in the future using a discounted cash
flow analysis. Additionally, estimated cash flows may extend beyond ten years
and, by their nature, are difficult to determine. Events and factors that may
significantly affect the estimates include, among others, competitive forces,
customer behavior and attrition, changes in revenue growth trends, cost
structures and technology, and changes in interest rates and specific industry
or market sector conditions.
  50
  5.A.Operating
Results
  Introduction
  The
following discussion should be read in conjunction with the Company's
Consolidated Financial Statements and the Notes thereto included in Item
18.  Certain calculations (including percentages) that appear herein
have been rounded.
  Our
Consolidated Financial Statements are prepared in accordance with Chilean GAAP,
which differ in certain material respects from U.S. GAAP.  Note
30  to the Consolidated Financial Statements 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, 2008, 2007 and 2006
and of total shareholders' equity as of December 31, 2008 and
2007.  Our Consolidated Financial Statements are prepared in U.S.
dollars.  The U.S. dollar is the primary currency in which we
operate.
  We
operate as an independent corporation. Nonetheless we are a "controlled
corporation", as that term is defined under Chilean law. See Item
6.E.  Share Ownership.
  Certain
segment information by products group and by geographical area is provided in
Note 30 –Differences between Chilean and United States Generally Accepted
Accounting Principles— II. k) Industry segment and geographic area
information.
  Overview of Our Results of
Operations
  We divide
our operations into the following six product lines:
  ·
              Specialty
      plant nutrition: production and commercialization of specialty
      fertilizers.
  ·
              Iodine
      and derivatives: production and commercialization of iodine and
      derivatives.
  ·
              Lithium
      and derivatives: production and commercialization of lithium and
      derivatives.
  ·
              Industrial
      chemicals:  production and commercialization of industrial
      nitrates, and boric acid.
  ·
              Potassium
      chloride: production and commercialization of potassium
      chloride
  ·
              Other
      commodity fertilizers: production and commercialization of other commodity
      fertilizers.
  In 2008,
potassium chloride had an important impact on the Company’s margins, and we
expect this trend to continue in line with our plans to increase our potassium
chloride production capacity and sales in the near future.
  We sell
our products through three primary channels: our own sales offices, a network of
distributors and, with respect to our fertilizer products, through Yara
International ASA pursuant to a commercial agreement.
  FACTORS
AFFECTING OUR RESULTS OF OPERATIONS
  Our
results of operations substantially depend on:
  ·
              Trends
      in demand for and supply of our products.  See Item
      5.D.  Trend Information;
  ·
              Efficiently  operating
      our facilities, as some of them  run at nameplate
      capacity;
  ·
              Our
      ability to accomplish our capital expenditures program in a timely manner,
      as we are the main supplier in our core
  businesses;
  51
  ·
              Trends
      in the exchange rate between the U.S. dollar and Chilean peso, as a
      significant portion of the cost of sales is related to the Chilean
      peso;
  ·
              Trends
      in the exchange rate between the U.S. dollar and the Euro, as a
      significant portion of our sales are denominated in Euros;
    and
  ·
              Energy,
      logistics, raw materials and maintenance costs, See Item 5.D. Trend
      information.
  The
following table sets forth our revenues (in millions of U.S. dollars) and the
percentage accounted for by each of our product lines for each of the periods
indicated:
  Year
      ended December 31,2008
                    
                    
                    2007
                    
                    
                    2006US$
                    
                    
                    %
                    
                    
                    US$
                    
                    
                    %
                    
                    
                    US$
                    
                    
                    %Specialty
      plant nutrition
                    
                    
                    978.9
                    
                    
                    
                    55
                    
                    
                    
                    580.0
                    
                    
                    
                    49
                    
                    
                    
                    503.1
                    
                    
                    
                    48Iodine
      and derivatives
                    
                    
                    246.9
                    
                    
                    
                    14
                    
                    
                    
                    215.1
                    
                    
                    
                    18
                    
                    
                    
                    217.7
                    
                    
                    
                    21Lithium
      and derivatives
                    
                    
                    172.3
                    
                    
                    
                    10
                    
                    
                    
                    179.8
                    
                    
                    
                    15
                    
                    
                    
                    128.9
                    
                    
                    
                    12Industrial
      chemicals
                    
                    
                    123.6
                    
                    
                    
                    7
                    
                    
                    
                    81.2
                    
                    
                    
                    7
                    
                    
                    
                    71.3
                    
                    
                    
                    7Potassium
      chloride
                    
                    
                    140.0
                    
                    
                    
                    8
                    
                    
                    
                    51.3
                    
                    
                    
                    4
                    
                    
                    
                    32.0
                    
                    
                    
                    3Other
      commodity fertilizers(1)
                    
                    
                    112.3
                    
                    
                    
                    6
                    
                    
                    
                    79.4
                    
                    
                    
                    7
                    
                    
                    
                    89.9
                    
                    
                    
                    9Total
                    
                    
                    1,774.1
                    
                    
                    
                    100
                    
                    
                    
                    1,187.5
                    
                    
                    
                    100
                    
                    
                    
                    1,042.9
                    
                    
                    
                    100
  (1)
                Primarily
      imported fertilizers distributed in
Chile.
  The
following table sets forth certain financial information of the Company under
Chilean GAAP (in millions of U.S. dollars) for each of the periods indicated, as
a percentage of revenues:
 
 Year
      ended December 31,2008
                    
                    
                    2007
                    
                    
                    2006US$
                    
                    
                    %
                    
                    
                    US$
                    
                    
                    %
                    
                    
                    US$
                    
                    
                    %Total
      revenues
                    
                    
                    1,774.1
                    
                    
                    
                    100.0
                    
                    
                    
                    1,187.5
                    
                    
                    
                    100.0
                    
                    
                    
                    1,042.9
                    
                    
                    
                    100.0Cost
      of goods sold
                    
                    
                    (1,056.2
                    )
                    
                    
                    (59.5
                    )
                    
                    
                    (857.7
                    )
                    
                    
                    (72.2
                    )
                    
                    
                    (753.3
                    )
                    
                    
                    (72.2
                    )Gross
      margin
                    
                    
                    717.9
                    
                    
                    
                    40.5
                    
                    
                    
                    329.8
                    
                    
                    
                    27.8
                    
                    
                    
                    289.6
                    
                    
                    
                    27.8Selling
      and administrative expenses
                    
                    
                    (85.7
                    )
                    
                    
                    (4.8
                    )
                    
                    
                    (70.3
                    )
                    
                    
                    (5.9
                    )
                    
                    
                    (69.7
                    )
                    
                    
                    (6.7
                    )Operating
      income
                    
                    
                    632.2
                    
                    
                    
                    35.6
                    
                    
                    
                    259.5
                    
                    
                    
                    21.9
                    
                    
                    
                    219.9
                    
                    
                    
                    21.1Non-operating
      income
                    
                    
                    40.7
                    
                    
                    
                    1.4
                    
                    
                    
                    25.9
                    
                    
                    
                    2.2
                    
                    
                    
                    19.2
                    
                    
                    
                    1.8Non-operating
      expenses
                    
                    
                    (60.0
                    )
                    
                    
                    (2.5
                    )
                    
                    
                    (53.0
                    )
                    
                    
                    (4.5
                    )
                    
                    
                    (55.3
                    )
                    
                    
                    (5.3
                    )Income
      before income taxes
                    
                    
                    612.9
                    
                    
                    
                    34.5
                    
                    
                    
                    232.4
                    
                    
                    
                    19.6
                    
                    
                    
                    183.8
                    
                    
                    
                    17.6Income
      tax
                    
                    
                    (108.0
                    )
                    
                    
                    (6.1
                    )
                    
                    
                    (48.6
                    )
                    
                    
                    (4.1
                    )
                    
                    
                    (37.9
                    )
                    
                    
                    (3.6
                    )Minority
      interest
                    
                    
                    (3.5
                    )
                    
                    
                    (0.2
                    )
                    
                    
                    (3.8
                    )
                    
                    
                    (0.3
                    )
                    
                    
                    (4.7
                    )
                    
                    
                    (0.5
                    )Amortization
      of negative goodwill
                    
                    
                    0.0
                    
                    
                    
                    0.0
                    
                    
                    
                    0.0
                    
                    
                    
                    0.0
                    
                    
                    
                    0.1
                    
                    
                    
                    0.0Net
      income
                    
                    
                    501.4
                    
                    
                    
                    28.3
                    
                    
                    
                    180.0
                    
                    
                    
                    15.2
                    
                    
                    
                    141.3
                    
                    
                    
                    13.5
  52
  Results of Operations–2008 compared to
2007
 During
2008, we generated total revenues of approximately US$1,774.1 million, which is
approximately 49.4% higher than the US$1,187.5 million recorded for the year
ended December 31, 2007.
 
 The main
factors that explain the increase in revenues and the operational variations in
the different product lines are the following:
 
 Specialty
Plant Nutrition
 
 Revenues
from sales of specialty plant nutrition products increased 68.6% from US$580.8
million in 2007 to US$978.9 million in 2008. Set forth below are sales volume
data in the specified year by product category.
 
 2008
                            
                            
                            2007
                            
                            
                            %
      ChangeSodium
      nitrate
                            
                            Th.
      Ton
                            
                            
                            22.8
                            
                            
                            
                            45.9
                            
                            
                            
                            (50
                            )%Potassium
      nitrate and sodium potassium nitrate
                            
                            Th.
      Ton
                            
                            
                            538.2
                            
                            
                            
                            695.3
                            
                            
                            
                            (23
                            )%Blended
      and other specialty fertilizers
                            
                            Th.
      Ton
                            
                            
                            205.9
                            
                            
                            
                            261.5
                            
                            
                            
                            (21
                            )%Other
      non-SQM specialty plant nutrients
                            
                            Th.
      Ton
                            
                            
                            103.1
                            
                            
                            
                            117.1
                            
                            
                            
                            (12
                            )%Potassium
      sulfate
                            
                            Th.
      Ton
                            
                            
                            138.3
                            
                            
                            
                            172.0
                            
                            
                            
                            (20
                            )%
 
 The
year-over-year growth in revenues was due to substantially higher prices in this
business line, which more than offset a decline in sales volumes. On average,
specialty plant nutrition prices increased 116% with respect to 2007. This
increase can be explained by a generalized increase in prices for
potassium-related fertilizers reflecting the long term scarcity of capacity.
(For further information regarding increase in prices for potassium-related
fertilizers see Item 4.B Business Overview – Main Business Lines (Potassium
Chloride)).Furthermore, the specialized nature of this business line continues
to command higher prices for our specialty plant nutrition products.
 
 The
demand for specialty plant nutrition across our main markets fell year-over-year
as farmers were mainly affected by tight credit conditions generated by global
financial turmoil. This decline in demand, however, which was more pronounced in
the fourth quarter, is not sustainable given that specialty crop producers must
fertilize to maximize yields and continue to provide export-quality
products in order to maintain margins. We believe that the underlying
fundamentals of this business line, such as the high cost of land, scarcity of
water and a growing global population, remain solid.
 
 Iodine
and Derivatives
 
 Revenues
for iodine and derivatives amounted US$246.9 million, 14.8% higher than the
US$215.1 million recorded for 2007. Set forth below are sales volume data in the
specified year.
 
 2008
                                
                                
                                2007
                                
                                
                                %
      ChangeIodine
      and derivatives
                                
                                Th.
      Ton
                                
                                
                                10.5
                                
                                
                                
                                9.1
                                
                                
                                
                                15
                                %
 
 The
Company’s results in the iodine and derivatives segment for 2008 were driven by
an increase in volumes The increase in our volumes was explained by market
growth and by SQM’s ability to capture market share. The tightness in the market
prompted SQM to announce in the fourth quarter a price increase of approximately
25% which should have a positive impact on revenues of 2009. Additionally, this
price increase will help finance the expansion of iodine
production.
  53





During the first half of 2008, core
demand growth in the iodine market was sustained bydemand for polarizing film in liquid
crystal displays (LCDs), x-ray contrast media for diagnostic imaging and animal
feed and human nutrition applications. In the second half of 2008, demand for
iodine salts used in LCDs and nylon applications for the automotive industry began to decline.However, as mentioned
before, the overall results were positive and revenues for iodine derivatives were
14.8% higher than in 2007.





Lithium
and Derivatives





Revenues
for lithium and derivatives decreased 4% to US$172.3 million in 2008 from
US$179.8 million in 2007. Set forth below are sales volume data in the specified
year.





2008
                      
                      
                      2007
                      
                      
                      %
      ChangeLithium
      and derivatives
                      
                      Th.
      Ton
                      
                      
                      27.9
                      
                      
                      
                      28.6
                      
                      
                      
                      (2
                      )%





The
Company’s results for the lithium and derivatives segment for 2008 were a result
of lower volumes and slightly lower prices due to the global economic slowdown.
Many applications for lithium are related to the construction industry, which
contracted significantly during recent periods affecting the sales volumes in
the last part of 2008.





In 2008,
the car companies Mitsubishi and Nissan-Renault announced plans to introduce
hybrid cars powered by lithium-ion batteries sometime in 2010. These
announcements are in addition to those made by other car manufacturers in
previous years, and we believe that they can result in an increase in sales
volumes for lithium and derivatives.





Another
important factor to consider in this market is that the previously announced new
capacity from Chinese suppliers in the lithium market did not reach anticipated
levels.





Industrial
Chemicals





Revenues
for industrial chemicals increased 52.3% to US$123.6 million in 2008 from
US$81.2 million in 2007. Set forth below are sales volume data in the specified
year by product category.





2008
                      
                      
                      2007
                      
                      
                      %
      ChangeIndustrial
      nitrates
                      
                      Th.
      Ton
                      
                      
                      161.9
                      
                      
                      
                      175.2
                      
                      
                      
                      (8
                      )%Boric
      acid
                      
                      Th.
      Ton
                      
                      
                      7.2
                      
                      
                      
                      9.2
                      
                      
                      
                      (22
                      )%





Revenues
from sales of industrial chemicals increased in 2008 largely as a consequence of
rising prices.  Prices of industrial nitrates and prices of specialty
plant nutrients are indirectly related, and on average prices for this business
line were approximately 66% higher than they were in 2007.





As a
consequence of the global economic crisis the sales volumes for industrial
nitrates declined approximately 8% with respect to 2007, with a pronounced drop
in the fourth quarter.





Growing
demand for industrial-grade sodium nitrate to be used in solar energy plants
should continue as environmental policies in some countries begin to require the
use of renewable energy sources.


54





Potassium
chloride





Revenues
from sales of potassium chloride increased 173% from US$51.3 million in 2007 to
US$140.0 million in 2008. Set forth below are sales volume data in the specified
year.





2008
                      
                      
                      2007
                      
                      
                      %
      ChangePotassium
      Chloride
                      
                      Th.
      Ton
                      
                      
                      185.6
                      
                      
                      
                      179.0
                      
                      
                      
                      4
                      %





The
considerable increase in year-over-year potassium chloride revenues was a result
of a substantial increase in prices. Because our relatively small size in this
market allows us more flexibility in allocating product, SQM was not impacted by
lower demand in the fourth quarter despite the prevailing economic
conditions.





Going
forward, underlying demand fundamentals are strong given that the market will
ultimately be driven by historically low food inventories and a growing global
population. In 2008, global potash prices  experienced a sustained
increase in recent periods, due to the combined effect of tight supply and
growing demand.





Other
commodity fertilizers





Revenues
from sales of other commodity fertilizers increased from US$79.4 million in 2007
to US$112.3 million in 2008, as a result of the better pricing conditions. SQM
recorded losses during the fourth quarter for inventories of nitrogen and
phosphate fertilizers related to trading activities; these inventories were
acquired in previous periods but were negatively impacted by the declining
prices in the last part of 2008.





Production
Costs





During
the first nine months of 2008 production costs increased due to the appreciation
of the Chilean peso and higher costs of oil and raw materials. However, in the
second half of 2008, the U.S. dollar began to strengthen against the Chilean
peso, alleviating peso-denominated costs and reversing the rising cost trend
that had prevailed in previous years. Furthermore, freight rates, oil prices and
the cost of raw materials began to fall during the second semester.





Gross
Profit





Gross
profit increased 118% from US$329.8 million in 2007 to US$717.9 million in 2008.
The increase in the gross profit, as explained before, was mainly explained by
higher prices in our main businesses and higher volumes in Iodine which helped
us to offset lower sales volumes in the Specialty Plant Nutrition business line
and slightly higher costs.





Selling
and Administrative Expenses





Selling
and administrative expenses totaled US$85.7 million (4.8% of revenues) for 2008,
compared to the US$70.3 million (5.9% of revenues) recorded during 2007. These
higher expenses were mainly the result of increased sales commissions in the
specialty plant nutrition business line.





Operating
Income





As a
result of the factors described above, operating income increased 144% to
US$632.2 million in 2008 from US$259.5 million in 2007.





Non-Operating
Income and Expenses





The
Company recorded a non-operating loss of US$19.3 million for 2008 which is lower
than the US$27.1 million loss recorded for full-year 2007. The decrease in the
non-operating loss was mainly explained by higher financial income, which
increased from US$ 9.3 million in 2007 to US$ 13.9 million in 2008, and
relatively stable financial expenses.





55




Income
Taxes





In 2008,
income taxes were US$108.0 million, resulting in an effective consolidated tax
rate of 17.6%, compared to income taxes of US$48.6 million in 2007 and an
effective consolidated tax rate of 20.9%. In accordance with Chilean law, SQM
and each of its Chilean subsidiaries compute and pay taxes on an individual
basis, not on a consolidated basis. We had tax loss carry-forwards of US$16.9
million as of December 31, 2008, the majority of which have no expiration dates
and are expected to be utilized in the future.





The
corporate income tax rate in Chile was 17% for 2008 and 2007.  The
Company’s effective tax rate is higher than the Chilean rate because its foreign
operations are subject to higher tax rates.





The 122%
increase in income taxes is mainly due to the increase in our taxable
income.





For a
more detailed analysis of the Company’s current and deferred income taxes see
Note 14 to the Consolidated Financial Statements.




Results of Operations–2007 compared to
2006


During
2007, we generated total revenues of approximately US$1,187.5 million, which was
approximately 13.9% higher than the US$1,042.9 million recorded for the year
ended December 31, 2006.





The main
factors that explain the increase in revenues and the operational variations in
the different product lines were the following:





Specialty
Plant Nutrition





Revenues
from sales of specialty plant nutrition products increased 15.4% to US$580.8
million in 2007 from US$503.1 million in 2006. Set forth below are sales volume
data in the specified year by product category.





2007
                      
                      
                      2006
                      
                      
                      %
      ChangeSodium
      nitrate
                      
                      Th.
      Ton
                      
                      
                      45.9
                      
                      
                      
                      43.3
                      
                      
                      
                      6
                      %Potassium
      nitrate and sodium potassium nitrate
                      
                      Th.
      Ton
                      
                      
                      695.3
                      
                      
                      
                      615.0
                      
                      
                      
                      13
                      %Blended
      and other specialty fertilizers
                      
                      Th.
      Ton
                      
                      
                      261.5
                      
                      
                      
                      250.9
                      
                      
                      
                      4
                      %Other
      non-SQM specialty plant nutrients
                      
                      Th.
      Ton
                      
                      
                      117.1
                      
                      
                      
                      142.9
                      
                      
                      
                      (18
                      )%Potassium
      sulfate
                      
                      Th.
      Ton
                      
                      
                      172.0
                      
                      
                      
                      172.4
                      
                      
                      
                      0
                      %




Growth in
revenues obtained during 2007 was mainly explained by a combination of better
price conditions and higher sales volumes in this business
segment.  On average, specialty plant nutrition prices increased 9% as
compared to the previous year.   The tight supply scenario
affected the global potassium-related markets and the general lack of potassium
in the soil found in developing countries pushed demand for
potash.  On the other hand, specialty plant nutrients were benefited
from changing preferences on the part of consumers, who increasingly demand
better-quality agricultural products, and as a result, farmers strive to improve
yields in order to meet the increased demand.  Rising prices had a
beneficial effect on the Company’s results on the third quarter of 2007, with a
sustainable upward trend in the fourth quarter.




56





Higher
prices in the Specialty Plant Nutrition segment were complemented by higher
sales volumes during the year.  Demand for specialty plant nutrients
in European markets, which were affected by bad weather in 2006, recovered in
2007; as a result, the Company reported an increase in sales volumes of water
soluble potassium nitrate to Europe, and especially to Spain.  During
2007 the Company also recorded a substantial increase in volumes of potassium
nitrate sold to China.  In addition, sales of potassium nitrate and
sodium potassium nitrate in Latin America were higher in 2007, due in large part
to the strong agriculture markets in Brazil.  The decrease in sales
volumes of other non-SQM specialty plant nutrients was predominantly due to
the sale of our trading affiliate in Mexico during the third quarter of
2006.





Iodine
and Derivatives





Revenues
for iodine and derivatives decreased 1.2% to US$215.1 million in 2007 from
US$217.7 million in 2006. Set forth below are sales volume data in the specified
year.





2007
                      
                      2006
                      
                      %
      ChangeIodine
      and derivatives
                      
                      Th.
      Ton
                      
                      
                      9.1
                      
                      
                      
                      9.8
                      
                      
                      
                      (7
                      )%





The
Company’s results in the Iodine and Derivatives segment for 2007 were explained
both by higher prices and lower volumes.  Iodine prices increased
approximately 7% compared to 2006, as rising production costs were reflected in
the pricing.  The higher prices were also a result of the growth in the
demand at the global level, which was driven by the use of iodine in such
applications as x-ray contrast media for diagnostic imaging, biocides for paints
and wood treatment products, and liquid crystal displays (LCDs).





Demand
for iodine salts in LCD screens grew close to 30% in 2007. In particular, the
LCD TV market expanded in terms of sales volumes and in terms of growing screen
sizes.  Part of the growth in demand was satisfied by iodine recycled
in that same industry, as only a fraction of this product remains in the
polarizing film. The remaining iodine, which producers used to discard, is now
increasingly being reprocessed, and as a result, recycled iodine has become
essentially an additional “competitor” in this market.





Higher
pricing was offset by lower sales volumes in the year, as the Company decreased
its total volumes by approximately 7% compared to 2006.  This decrease was
the result of an increasingly competitive market environment; other Chilean
producers increased their production capacity during the year, and there were
also increases in production from recycling.





Lithium
and Derivatives





Revenues
for lithium and derivatives increased 39.5% to US$179.8 million in 2007 from
US$128.9 million in 2006. Set forth below are sales volume data in the specified
year.





2007
                          
                          2006
                          
                          
                          %
      ChangeLithium
      and derivatives
                          
                          Th.
      Ton
                          
                          
                          28.6
                          
                          
                          
                          30.4
                          
                          
                          
                          (6
                          )%





Revenue
growth in this business line was driven by lithium prices, which increased
approximately 48% in 2007.  Sales volumes decreased slightly compared
to 2006, but this effect was outweighed by the substantial price increase
observed.





The
favorable pricing conditions that had prevailed in the past couple of years
prompted Chinese producers to increase their lithium capacity.  As a
result of this new production, tightness in lithium carbonate supply observed
during the first half of 2007 eased in the second half.




57





World
lithium demand grew approximately 7% per year in 2007.  The upward
trend was due to the increase in consumption in markets as rechargeable
batteries, which grew an estimated 20% in 2007.  Lithium-ion batteries
are traditionally used in mobile phones, laptops, digital cameras, and many
other devices.





In 2007,
this business line also benefited from growth in the market for lubricating
greases, the primary end market for lithium hydroxide.  In addition,
the Company recorded revenues from sales of butyllithium and lithium chloride on
the order of US$10.7 million for the year.





Industrial
Chemicals




Revenues
for industrial chemicals increased 13.9% to US$81.2 million in 2007 from US$71.3
million in 2006. Set forth below are sales volume data in the specified year by
product category.




2007
                        
                        
                        2006
                        
                        
                        %
      ChangeIndustrial
      nitrates
                        
                        Th.
      Ton
                        
                        
                        175.2
                        
                        
                        
                        161.7
                        
                        
                        
                        8
                        %Boric
      acid
                        
                        Th.
      Ton
                        
                        
                        9.2
                        
                        
                        
                        9.9
                        
                        
                        
                        (7
                        )%





Revenues
from sales of industrial chemicals increased in 2007 as a consequence of rising
prices.  Prices of industrial nitrates and prices of specialty plant
nutrients are indirectly related, and on average prices for this business line
were approximately 6% higher than they were in 2006.





Growth in
sales volumes in the Industrial Chemicals business segment was primarily
explained by sales in Latin America.  Favorable conditions in the
commodities markets resulted in increased mining activity in this region, which
generated greater demand for explosives, in which the Company’s industrial-grade
sodium nitrate is a key component.  The Company reported higher
volumes of sodium nitrate sold in Europe which is partly due to the use of this
product as a medium for heat storage in a solar energy project in
Spain.





Potassium
chloride





Revenues
from sales of potassium chloride increased 59.8% to US$51.3 million in 2007 from
US$32.1 million in 2006. Set forth below are sales volume data in the specified
year.





2007
                      
                      
                      2006
                      
                      
                      %
      ChangePotassium
      Chloride
                      
                      Th.
      Ton
                      
                      
                      179.0
                      
                      
                      
                      126.4
                      
                      
                      
                      42
                      %





The
substantial increase in potassium chloride revenues was driven by prices, which
rose nearly 13% in 2007, as well as sales volumes, which were more than 40%
higher than sales volumes in 2006.  Global potash prices experienced a
sustained increase due to the combined effect of tight supply and growing
demand.





Other
commodity fertilizers





Revenues
from sales of other commodity fertilizers decreased from US$89.8 million in 2006
to US$79.4 million in 2007, as a result of the sale of our trading affiliate in
Mexico during the third quarter of 2006.





Production
Costs





Production
costs during 2007 were higher than in 2006, as they were affected by higher
costs related to energy, raw materials and the appreciation of the Chilean peso
against the U.S. dollar, affecting the Company’s peso-denominated
expenses.  Natural gas shortages forced us to use higher-cost
alternative fuels, such as diesel and fuel oil.  Additionally, the
price increases that affected raw materials and spare parts in recent years
maintained their upward trend during 2007, and the Chilean peso continued to
strengthen against the U.S. dollar in 2007.




58




Gross
Profit





As a
result of the factors described above, gross profit increased 13.9% to US$329.8
million in 2007 from US$289.6 million in 2006.





Selling
and Administrative Expenses





Selling
and administrative expenses totaled US$70.3 million (5.9% of revenues) for the
full year, compared to the US$69.7 million (6.7% of revenues) recorded during
full-year 2006.





Operating
Income





As a
result of the factors described above, operating income increased 18.0% to
US$259.5 million in 2007 from US$219.9 million in 2006.





Non-Operating
Income and Expenses





The
Company recorded a non-operating loss of US$27.1 million for 2007 which was
lower than the US$36.1 million loss recorded for full-year 2006.





Net
financial expenses totaled US$(10.6) million during 2007.  This figure
was lower than the US$(16.2) million recorded for 2006, primarily as a result of
the lower levels of debt held by the Company during 2007.





Income
Taxes





In 2007,
income taxes were US$48.6 million, resulting in an effective consolidated tax
rate of 20.9%, compared to income taxes of US$37.9 million and an effective
consolidated tax rate of 20.6% in 2006. In accordance with Chilean law, SQM and
each of its Chilean subsidiaries compute and pay taxes on an individual basis,
not on a consolidated basis. We had tax loss carry-forwards of US$142.2 million
as of December 31, 2007, the majority of which have no expiration dates and are
expected to be utilized in the future.





The
corporate income tax rate in Chile was 17% for 2007 and 2006.  The
Company’s effective tax rate was higher than the Chilean rate because its
foreign operations are subject to higher tax rates.





The 28.2%
increase in income taxes is mainly due to the increase in our taxable
income.





For a
more detailed analysis of the Company’s current and deferred income taxes see
Note 14 to the Consolidated Financial Statements.




Foreign
Exchange Rates and Inflation




We
transact a significant portion of our business in U.S. dollars, which is the
currency of the primary economic environment in which we operate and is our
functional currency for financial reporting purposes. A significant portion of
our operating costs is related to the Chilean peso, and therefore an increase or
decrease in the exchange rate between the Chilean peso and the U.S. dollar
affects our costs of production. Additionally, as an international company
operating in Chile and several other countries, we transact a portion of
our business and have assets and liabilities in Chilean pesos and other
non-dollar currencies, such as the Euro, the South African Rand and the Mexican
peso. As a result, fluctuations in the exchange rate of such currencies to the
U.S. dollar affect our financial condition and results of
operations.


59


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, 2008
and 2007:




2008
                  
                  
                  2007Th US$
                  
                  
                  Th US$Chilean
      pesos
                  
                  
                  (104,605
                  )
                  
                  
                  36,975Brazilian
      real
                  
                  
                  (1,367
                  )
                  
                  
                  (1,281
                  )Euro
                  
                  
                  64,627
                  
                  
                  
                  31,730Japanese
      yen
                  
                  
                  1,033
                  
                  
                  
                  692Mexican
      pesos
                  
                  
                  2,188
                  
                  
                  
                  (2,900
                  )South
      African rand
                  
                  
                  11,584
                  
                  
                  
                  8,346Dirhams
                  
                  
                  15,353
                  
                  
                  
                  10,012Other
      currencies
                  
                  
                  14,971
                  
                  
                  
                  8,584Total,
      net
                  
                  
                  3,784
                  
                  
                  
                  92,158




We
monitor and attempt to maintain our non-dollar assets and liabilities position
in balance and make use of foreign exchange contracts and other hedging
instruments to try to minimize our exposure to the risks of changes in foreign
exchange rates.  As of December 31, 2008, for this purpose we had open
forward exchange contracts and options to buy U.S. dollars and sell foreign
currency for approximately 30 million Euros (US$41.91 million), and 15 million
South African Rands (US$1.57 million), as well as forward exchange contracts to
sell Chilean pesos and buy U.S. dollars for approximately 26,730.9 million
Chilean Pesos (US$42 million).




The net
impact of price level adjustments to non-monetary assets and liabilities and
equity for those subsidiaries that maintain their accounting records in Chilean
pesos is 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 that are denominated in UF
or are linked to inflation in some manner increase their U.S. dollar values in
the same way inflation increases (assuming that the exchange rate remains
unchanged).




The
prospects and results of operations of SQM 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 we have no control.




U.S. GAAP
Reconciliation


This
discussion on our operating and financial results and condition presented above
is based on our primary financial statements prepared in accordance with Chilean
GAAP. Chilean GAAP differs significantly in certain aspects from U.S. GAAP. The
principal differences between Chilean GAAP and U.S. GAAP as they relate to our
Company are (i) the elimination of the effects of  the technical
appraisal of property, plant and equipment undertaken in 1988, (ii) the
effects of elimination of monetary correction (price-level restatement) and
conversion of financial statements of subsidiaries that keep their accounting
records in currencies other than U.S. dollars, (iii) the accounting for
derivative contracts, (iv) the accounting for staff severance indemnities, (v)
treatment of goodwill, and (vi)  the elimination of deferred tax
complementary accounts.  For further details of these differences
between Chilean GAAP and U.S. GAAP, see Note 30 to the Consolidated Financial
Statements.




Net
income under U.S. GAAP for 2008, 2007, and 2006 was US$ 500.9 million, US$192.7
million and US$154.3 million, respectively, compared to that reported under
Chilean GAAP of US$501.4 million, US$180.0 million and US$141.3 million,
respectively.




Total
shareholders' equity under U.S. GAAP at December 31, 2008 and 2007 was
US$1,368.0 million and US$1,084.1, respectively, compared to that reported under
Chilean GAAP of US$1,463.1 million and US$1,182.4 million,
respectively.




60




5.B.Liquidity
and Capital Resources




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




The
current ratio (current assets divided by current liabilities) decreased
from 4.70 as of December 31, 2007 to 3.00 as of December 31,
2008.




The
following table sets forth key information about our outstanding
debt:




On Balance Sheet Financial Instruments
                                      
                                      Interest Rate
                                      
                                      
                                      Issue Date
                                      
                                      Maturity Date
                                      
                                      AmortizationsBond
      – US$200 million
                                      
                                      
                                      6.125
                                      %
                                      
                                      Apr.
      5, 2006
                                      
                                      Apr.
      15, 2016
                                      
                                      BulletBond
      – UF 2.70 million (1)
                                      
                                      
                                      4.00
                                      %
                                      
                                      Jan.
      24, 2006
                                      
                                      Dec.
      1, 2026
                                      
                                      Semiannual partialamortizationsSyndicated
      loan – US$100 million
                                      
                                      LIBOR 3M + 0.375
                                      %
                                      
                                      Mar.
      3, 2005
                                      
                                      Feb.
      25, 2010
                                      
                                      BulletSyndicated
      loan – US$ 80 million
                                      
                                      LIBOR
      6M + 0.30
                                      %
                                      
                                      Nov.
      28, 2006
                                      
                                      Nov.
      28, 2011
                                      
                                      BulletBilateral
      loan – US$ 50 million
                                      
                                      LIBOR
      6M + 1.5
                                      %
                                      
                                      Dec.
      24, 2008
                                      
                                      Dec.
      24, 2010
                                      
                                      Bullet




(1)
              UF-denominated
      bond fully hedged to US$ with a cross currency swap (originally issued for
      UF3 million; UF2.7 million outstanding as of December 31, 2008, under
      Chilean GAAP).  Approximately equivalent to US$92.3 million as
      of December 31, 2008.  Fixed US$ interest rate of
      5.84%.




As of
December 31, 2008, we had total debt (short-term borrowings, current portion of
long-term bank debt and bonds payable, long-term bank debt, and long-term
obligations with the public) of US$657.7  million, as compared to total
debt of US$498.1  million as of December 31, 2007.  Of the total debt
as of December 31, 2008, US$141.7 million was short-term debt plus the current
portion of long-term bank debt.  All of our long-term debt (including the
current portion) as of December 31, 2008  was denominated in U.S. dollars,
with the exception of our UF 2.7 million local bond, which was hedged with a
cross currency swap to the U.S. dollar.




The
financial covenants related to our debt instruments include: (i) limitation on
the ratio of total liabilities to equity (including minority interest) on a
consolidated basis, (ii) limitation on the ratio of total liabilities to equity
(including minority interest) on an individual basis, (iii) minimum net worth,
(iv) limitation on net financial debt to EBITDA ratio on a consolidated basis,
(v) limitation on interest indebtedness of operating subsidiaries, and (vi)
minimum production assets.  We believe that the terms and conditions
of our debt agreements are standard and customary and that we are in compliance
in all material respects with such terms and conditions.




The
following table sets forth the maturities of our long-term debt as of December
31, 2008:




Maturity(*)
                  
                  Amount ( millions of US$)2010
                  
                  
                  155.132011
                  
                  
                  85.132012
                  
                  
                  5.132013
                  
                  
                  5.132014
                  
                  
                  5.132015
      and thereafter
                  
                  
                  261.58Total
                  
                  
                  517.23




(*)
      Only the capital  has been included. For the UF 2.7 million bond, the
      amounts presented reflect the real U.S. dollar obligation resulting from
      the effects of the cross currency swap that fully hedges this bond to the
      U.S. dollar.  For further information, see Item 11. Quantitative
      and Qualitative Disclosures about Market
Risk.




As of
December 31, 2008, we had US$303 million of cash and cash equivalents, including
marketable securities.  In addition, as of December 31, 2008, we had unused
uncommitted credit lines amounting to approximately US$350 million and unused
committed credit lines amounting to approximately US$55 million. We expect to
renew part of these committed lines during 2009.




61




Shareholders’
equity increased from US$1,182.4 million in 2007 to US$1,463.1 million in
2008.  Our ratio of total liabilities (including minority interest) to
equity on a consolidated basis increased from 0.62:1 as of December 31,
2007 to 0.70 :1 as of December 31, 2008.




Our
capital expenditures in 2008 amounted to US$286.6 million.




For 2009,
we expect total capital expenditures of approximately US$340 million.  We
have currently budgeted capital expenditures of a total of US$650 million
during 2010 and 2011 that can be increased/decreased depending on market
conditions.





Our other
major use of funds is the payment of dividends.  Our current dividend
policy, as approved by shareholders, is to pay 65% of our net income for each
fiscal year in dividends.  Under Chilean law, the minimum dividend payout
is 30% of net income for each fiscal year.





For a
description of the items included in our capital expenditures in previous years
as well as future plans, see Item 4. Information on the Company—Capital
expenditure program.





From
December 31, 2008 to the time this report was prepared, the Company issued the
following debt:


·
            On
      January 13, 2009, the Company placed two series of bonds in the Chilean
      market for approximately US$173
million:


o
            Series
      H was for UF 4,000,000 for a term of 21 years, with amortization of
      principal starting in 2019 and at an annual interest rate of 5.05% in
      UF.


o
            Series
      G was for ThCh$ 21,000,000 for a term of 5 years, with a single
      amortization at maturity and an annual interest rate of 7.5% in Chilean
      pesos.


·
            On
      March 24, 2009, the Company issued commercial papers for ThCh$ 15,000,000
      (approximately to US$25,000,000) for a term of 9 months with a single
      amortization at maturity and an annual interest rate of approximately 3.3%
      in pesos.


·
            On
      April 2, 2009, the Company issued commercial papers for ThCh$ 15,000,000
      (approximately to US$25,000,000) for a term of 1 year with a single
      amortization at maturity and an annual interest rate of approximately 3.6%
      in pesos.


·
            On
      May 8, 2009, the Company placed two series of bonds in the Chilean market
      for approximately US$148 million:


o
            Series
      I was issued for UF 1,500,000 for a term of 5 years, with a single
      amortization at maturity and an annual interest rate of 3.67% in
      UF.


o
            Series
      J was issued for ThCh$ 52,000,000 for a term of 5 years, with a single
      amortization at maturity and an annual interest rate of 6.14% in Chilean
      pesos.





We
evaluate from time to time our cash requirements to fund capital expenditures,
dividend payouts and increases in working capital.  If we find that
resources coming from our internally generated cash flows (including
depreciation and retained earnings) will not be enough, we evaluate and choose
the best financial alternative available for the company.  As debt
requirements also depend on the increase or decrease of accounts receivables and
inventories, we cannot accurately determine the amount of debt we will require,
but we believe that cash flow generated by internal operations, cash balances
and available credit lines will enable us to meet our working capital, capital
expenditure and debt service requirements for 2009, 2010 and
2011.




Environmental
Projects




In 2008
we made disbursements amounting to US$7.9 million related to environmental,
safety and health projects. We have budgeted future disbursements for the year
2009 amounting to US$9.9 million related to environmental, safety and health
projects. This amount forms part of the capital expenditure program discussed
above. Regarding the María Elena Project as well as our other major
environmental projects see Item 4. Information on the Company—Environmental
Regulations.




5.C.Research
and Development, Patents and Licenses, etc.




One of
the main objectives of our Research and Development team consists of developing
new processes and products in order to maximize the returns obtained from the
resources that we exploit.  The areas of research cover topics such as
chemical process design, phase chemistry, chemical analysis methodologies and
physical properties of finished products.




62




There are
three units that perform this function: one reports to the Senior VP of Nitrate
and Iodine Operations, another reports to the Senior VP of Salar Operations, and
the third reports to the Senior VP of Safety, Health and
Environment.




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




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





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





For the
years ended December 31, 2008, 2007, and 2006 we spent approximately US$2.6
million, US$2.8 million, and US$2.4 million, respectively, on research and
development activities.




5.D.Trend
Information


Given the
global economic crisis which has negatively affected demand in markets in
general, we expect that in 2009 sales volumes across our business lines will be
lower than sales volumes in 2008, with the exception of potassium chloride where
we expect to significantly increase our sales volumes.
  In 2008,
the prices of our specialty plant nutrition segment increased compared to 2007,
due to a strong upward trend in worldwide prices of potassium-based
fertilizers.  At this point, it is difficult to predict prices in this
segment for the second half of 2009 although in the first months of 2009 prices
have remained relatively stable compared to 2008 prices.  Sales
volumes of potassium nitrate and sodium potassium nitrate decreased during 2008
with respect to 2007. We believe sales volumes could fall between 10-15% in 2009
compared to 2008.
  Lithium
prices remained relatively unchanged during 2008 compared to
2007.  The previously announced additional capacity from Chinese was
less than we originally anticipated. (For further information, see Item 3.D.
Risk Factors – new production of lithium carbonate in China and other
countries.) Sales volumes in 2008 were slightly lower than they were in 2007,
and we believe sales volumes could decrease between 15-20% in 2009 compared to
2008. In 2008, Mitsubishi and Nissan-Renault announced plans to introduce hybrid
cars powered by lithium-ion batteries sometime 2010; these announcements are in
addition to those made by other car manufacturers in previous years. We expect
to start seeing significant increase in volumes from cars using lithium
batteries within two to three years. Prices for lithium in the first months of
2009 have remained relatively stable compared to 2008 prices.
  Iodine
prices remained unchanged in 2008 as compared to 2007.  For the year
2009 we expect iodine prices to increase.  Sales volumes in 2008 were
15% higher than they were in 2007, as the result of market growth and our
ability to capture additional market share. We believe sales volumes could fall
approximately 20% in this business segment during 2009.
  Prices
for industrial-grade nitrates increased in 2008 as compared to 2007. It is
difficult to predict at this time what prices for industrial-grade nitrates will
be in the near future given that they are to a certain extent linked to the
prices of agricultural-grade nitrates.
  With the
exception of iodine where prices have increased in recent periods, prices during
the first half of 2009 in general have been relatively stable compared to 2008
prices. At this stage, the Company cannot predict what the price trends will be
for 2010 onwards.
  During
2008, production costs were higher than in 2007, mainly due to the depreciation
of the U.S. dollar and the higher cost of energy seen during the first nine
months of the year. However, these trends began to reverse during the last part
of 2008, and considering the current energy market, exchange rate expectations,
and the downward trend in raw materials prices and freight rates, we expect that
2009 production costs will be lower than in 2008.


63




5.E.Off-Balance
Sheet Arrangements




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




5.F.Tabular
Disclosure of Contractual Obligations




The following table sets forth our
material expected obligations and commitments as of December 31,
2008:


Less
      Than
                            
                            
                            1 - 3
                            
                            
                            3 - 5
                            
                            
                            More
      ThanTotal
                            
                            
                            1
      year
                            
                            
                            years
                            
                            
                            Years
                            
                            
                            5
      yearsThUS$
                            
                            
                            ThUS$
                            
                            
                            ThUS$
                            
                            
                            ThUS$
                            
                            
                            ThUS$Long-
      and short-term debt (*)
                            
                            
                            652,367
                            
                            
                            
                            135,132
                            
                            
                            
                            240,263
                            
                            
                            
                            10,263
                            
                            
                            
                            266,710Capital
      lease obligations
                            
                            
                            623
                            
                            
                            
                            226
                            
                            
                            
                            397
                            
                            
                            
                            -
                            
                            
                            
                            -Operating
      leases (**)
                            
                            
                            294,028
                            
                            
                            
                            13,365
                            
                            
                            
                            26,730
                            
                            
                            
                            26,730
                            
                            
                            
                            227,203Purchase
      commitments
                            
                            
                            215,356
                            
                            
                            
                            133,621
                            
                            
                            
                            81,735
                            
                            
                            
                            -
                            
                            
                            
                            -Staff
      severance indemnities
                            
                            
                            22,129
                            
                            
                            
                            -
                            
                            
                            
                            -
                            
                            
                            
                            -
                            
                            
                            
                            22,129Total
      Contractual Obligations and Commitments
                            
                            
                            1,189,811
                            
                            
                            
                            288,947
                            
                            
                            
                            338,862
                            
                            
                            
                            26,730
                            
                            
                            
                            535,272


(*) Only the
Capital has been included and the effect of the cross currency
swap
 (**)SeeConsolidated
Financial Statements Note 30 II. e)




64




ITEM6.  DIRECTORS,
SENIOR MANAGEMENT AND EMPLOYEES




6.A.Directors
and Senior Management




We are
managed by our executive officers under the direction of our Board of Directors,
which, in accordance with the Company's By-laws, consists of eight directors,
seven of whom are elected by holders of Series A shares and one of whom is
elected by holders of Series B shares.  The entire Board of Directors
is regularly elected every three years at our ordinary shareholders’
meeting.  Cumulative voting is allowed for the election of
directors.  At the annual ordinary shareholders’ meeting that took
place on April 30, 2008, a new Board was elected, and their terms will expire in
2011. 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.  Our Chief Executive Officer is
appointed by the Board of Directors and holds office at the discretion of the
Board.  The Chief Executive Officer appoints our executive
officers.  There are regularly scheduled meetings of the Board of
Directors once a month. Extraordinary meetings may be called by the Chairman
when requested by (i) the director elected by holders of the Series B shares,
(ii) any other director with the assent of the Chairman or (iii) an absolute
majority of all directors.  The Board has a Directors' Committee and
its regulations are discussed below.




Our
directors as of May 31, 2009 are as follows:




DirectorsName
                      
                      Position
                      
                      Current position held sinceJulio
      Ponce L. (1)
                      
                      Chairman
      of the Board and Director
                      
                      September
      1987Mr.
      Ponce is a Forestry Engineer with a degree 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.Wayne R. Brownlee
                      
                      Vice
      Chairman of the Board and Director
                      
                      December
      2001Mr.
      Brownlee is Executive Vice-President, Treasurer and Chief Financial
      Officer of Potash Corporation of Saskatchewan, Inc.  Mr.
      Brownlee earned degrees in Arts and Science and Business Administration
      from the University of Saskatchewan.  He is on the Board of
      Great Western Brewing Company.  He became a director of SQM in
      December 2001.Hernán
      Büchi B.
                      
                      Director
                      
                      April
      1993Mr.
      Büchi is a Civil Engineer with a degree from the Universidad de
      Chile.  He served as Vice Chairman of SQM's Board from January
      2000 to April 2002.  He is currently a Board member of Quiñenco
      S.A. Banco de Chile, S.A.C.I. Falabella and Madeco S.A., among
      others.  He is also Chairman of the Board of Universidad del
      Desarrollo.


65





José María Eyzaguirre B.
                  
                  Director
                  
                  December
      2001Mr.
      Eyzaguirre is a lawyer and is a 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 the New York University School of Law.  He
      was admitted to the New York Bar in 1988.  He is also a member
      of the board of directors of Gasoducto del Pacífico S.A., a
      transandean gas pipeline, Embotelladora Andina S.A., a bottler of The Coca
      Cola Company, and Chairman of the Board of Directors of Club de Golf Valle
      Escondido.Daniel
      Yarur E.
                  
                  Director
                  
                  April
      2003Mr.
      Yarur is an Information Engineer with a degree from the Universidad de
      Chile and holds an MSc in Finance from the London School of Economics and
      an AMP from Harvard Business School.  He is a member of the
      Board of Banco de Crédito e Inversiones, Antofagasta P.L.C. (based in
      London), Antofagasta Minerals, Invertec Pesquera Mar de Chiloé S.A.,
      President Fundación Chilena de Ajedrez, President Fondo de Inversiones
      Alekine.  Mr. Yarur was Chairman of the Chilean Securities and
      Exchange Commission from 1994 to 2000 and was also Chairman of the
      Council Organization of the Securities Regulators of
      America.  He is also a Professor in the Faculty of Economic and
      Administrative Sciences, Universidad de Chile.Wolf
      von Appen (2)
                  
                  Director
                  
                  May
      2005Mr.
      Von Appen is an entrepreneur.  He is currently a Board member of
      Sociedad de Fomento Fabril and Vice president of Centro de Estudios
      Publicos.Eduardo
      Novoa C. (2)
                  
                  Director
                  
                  April
      2008Mr. Novoa is an economist with
      a degree from the Universidad de Chile and holds a Master in Business
      Administration
      from the University of Chicago. He has held positions in business
      development, corporate level strategic direction and asset management at a
      number of Chilean and multinational companies, either as a Board member,
      Chief Development Officer, CountryManager or CEO. Currently, Mr.
      Novoa provides strategic advisory services.


66





Kendrick T. Wallace
                  
                  Director
                  
                  December
      2001Mr.
      Wallace is a lawyer who graduated from Harvard Law School.  He
      is currently a consultant to certain fertilizer industry
      companies.  Until July 1, 2008 when he retired, he was Senior
      Vice President and General Counsel of Yara International ASA in Oslo,
      Norway.  Prior to the spin-off of Yara International ASA from
      Norsk Hydro ASA, he was the chief legal counsel of Norsk Hydro ASA for
      North and South America in Tampa, Florida.  Before that he was a
      partner in the law firm of Bryan Cave LLP in Kansas City,
      Missouri.  He is also on the Board of Directors of Norte Grande
      S.A., Sociedad de Inversiones Oro Blanco S.A. and Sociedad de Inversiones
      Pampa Calichera S.A.


67


Our
executive officers as of May 31, 2009 are as follows:





Executive
      OfficersName
                      
                      Position
                      
                      Current position held sincePatricio Contesse
      G. (2)
                      
                      Chief
      Executive Officer
                      
                      March
      1990Mr.
      Contesse is a Forestry Engineer with a degree from the Universidad de
      Chile.  He joined the Company in 1981 as CEO, a position he held
      until 1982, and again in 1988 for one year.  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.  Mr. Contesse is also a member of
      the Board of Soquimich Comercial.Patricio de Solminihac T.
                      
                      Chief
      Operating Officer and
                        Executive
      Vice President
                      
                      January
      2000Mr.
      de Solminihac is an Industrial Engineer with a degree 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.  Currently he is a member of the Board of Lafarge Chile
      S.A. and CEM S.A.  Mr. de Solminihac is also a member of the
      Board of Soquimich Comercial.Matías Astaburuaga S.
                      
                      General
      Counsel and Senior Vice President
                      
                      February
      1989Mr.
      Astaburuaga is a lawyer with a degree from the Pontificia Universidad
      Católica de Chile.  He joined the Company in
      1989.  Before that, he was Regional Counsel of The Coca Cola
      Export Corporation, Andean Region and Regional Counsel of American Life
      Insurance Company, Latin America Region.Ricardo
      Ramos R. (2)
                      
                      Chief
      Financial Officer and
                        Business
      Development Senior Vice President
                      
                      November
      1994Mr.
      Ramos is an Industrial Engineer with a degree from the Pontificia
      Universidad Católica de Chile.  He joined SQM in 1989.  Mr.
      Ramos is also a member of the Board of Soquimich
Comercial.


68





Jaime San Martín L. (2)
                  
                  Nueva
      Victoria Operations Senior Vice President
                  
                  March
      2008Mr.
      San Martín is a Transportation Engineer with a degree 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, Business Development and Mining
      Property Vice President in 1999, Technical Senior Vice President in 2001,
      and Senior Vice President of Lithium Operations and Mining Affairs in
      January 2007.Eugenio
      Ponce L.
                  
                  Senior
      Commercial Vice President
                  
                  March
      1999Mr.
      Ponce is a Mechanical Engineer with a degree from the Universidad Católica
      de Valparaíso.  In 1981, he joined the Company as a Sales
      Manager.  He became Commercial Manager in 1982, Commercial and
      Operations Manager in 1988 and Chief Executive Officer of SQM Nitratos
      S.A. in 1991. Currently he is a member of the board of Soquimich Comercial
      and Vice Chairman of the Board of Pampa Calichera.  He is Julio
      Ponce’s brother.Mauricio
      Cabello C.
                  
                  Nitrates-Iodine
      Operations Senior Vice President
                  
                  June
      2005Mr.
      Cabello is a Mechanical Engineer with a degree from the Universidad de
      Santiago de Chile. He joined the Company in 2000 as Maintenance
      Superintendent of SQM Salar. He became Maintenance Manager of SQM’s
      nitrates and iodine operations in 2002 and Production Manager of SQM’s
      nitrates and iodine operations in 2004. He previously worked in various
      engineering-related positions in Pesquera San José S.A., Pesquera Coloso
      S.A. and Cintac S.A.Pauline
      De Vidts S.
                  
                  Safety,
      Health & Environment Senior Vice President
                  
                  June
      2005Mrs.
      De Vidts is an Industrial Engineer with a degree from the Pontificia
      Universidad Católica de Chile and holds a Ph.D. in Chemical Engineering
      from Texas A&M University. She joined the Company in 1996 to work in
      process development for the Salar de Atacama Operations, becoming
      Development Manager for these operations in 1998, and in 2001, she became
      Corporate R&D and Environmental Issues Vice President.


69





Juan Carlos Barrera P. (2)
                  
                  Salar
      and Lithium Operations Senior Vice President
                  
                  January
      2007Mr. Barrera is an Industrial
      Engineer with a degree from the Pontificia Universidad Católica de Chile and holds a
      Master in Business Administration degree
      from Tulane University and a Master in Business Administration degree from
      Universidad de Chile.  He joined the Company in 1991 as an
      advisor in the Business Development area and has served in many positions
      since then.  In 1995, he became Business
      Development Manager of SQM Nitratos S.A. In 1999,he became the Corporate
      Quality Manager, in 2000 Corporate Supply Chain Vicepresidentand, in 2006, General Manager
      of Soquimich Comercial S.A. Mr. Barrera is also a member
      of the boardof
      Soquimich Comercial S.A.Daniel
      Jiménez Sch.
                  
                  Human
      Resources and Corporate Affairs
                    Senior
      Vice President
                  
                  May
      2007Mr. Jiménez is an Industrial Engineer
      with a degree from the Pontificia Universidad Católica de Chile and holds a
      Master inBusiness Administration degree
      from Old Dominion University.  He joined the Company in 1991, holding
      several positions in the finance and sales areas at SQM’s headquarters and foreign
      subsidiaries in USA and Belgium, countries he was based in for 8
      years.In 2002, he became VP Sales
      and Marketing Iodine, Lithium and Industrial Chemicals.




(1)
            Mr. Julio
      Ponce’s ownership interest in SQM is explained in Item 6.E. Share
      Ownership.


(2)
            The
      individual beneficially owns less than one percent of the Company’s
      shares.




6.B.Compensation




During
2008, Directors were paid a monthly fee (UF 300 to the Chairman and UF 50 to
each of the remaining seven Directors), which was independent of attendance and
the number of Board sessions.  In addition, the Directors received
variable compensation (in Chilean pesos) based on a profit-sharing program
approved by the shareholders.  During 2008, the Chairman of the Board
received the equivalent of 0.50% of 2007 net income (after amortization of
negative goodwill), and the remaining seven Directors received the equivalent of
0.50% of 2007 net income (after amortization of negative goodwill), divided
equally among those Directors. The same variable compensation policy will be
applied to 2008 net income (after amortization of negative
goodwill).




At the
last annual general shareholders meeting of SQM held in April 2009, shareholders
approved a change in variable compensation for the fiscal year 2009 to an amount
equal to 0.35% of 2009 net income (after amortization of negative goodwill)
for the Chairman of the Board and of 0.04% of 2009 net income (after
amortization of negative goodwill) for each of the remaining seven
Directors.  Profit-sharing payments are paid in the year following the
fiscal year in which they are earned.




70





During
2008, the total compensation paid to each of our directors who served on the
Board during the year was as follows (amounts in Chilean
pesos):




SQM
      S.A.
                  
                  
                  SQMC
                  
                  
                  TOTALName
                  
                  Meeting(Ch$)
                  
                  
                  Committee
      (Ch$)
                  
                  
                  Meeting
      (Ch$)
                  
                  
                  Committee
      (Ch$)
                  
                  
                  (Ch$)Julio
      Ponce Lerou
                  
                  
                  480,651,826
                  
                  
                  
                  -
                  
                  
                  
                  73,796,766
                  
                  
                  
                  -
                  
                  
                  
                  554,448,592Wayne
      R. Brownlee
                  
                  
                  71,341,013
                  
                  
                  
                  -
                  
                  
                  
                  -
                  
                  
                  
                  -
                  
                  
                  
                  71,341,013Hernán
      Büchi Buc
                  
                  
                  72,560,290
                  
                  
                  
                  12,531,831
                  
                  
                  
                  -
                  
                  
                  
                  -
                  
                  
                  
                  85,092,121José
      María Eyzaguirre Baeza
                  
                  
                  70,268,384
                  
                  
                  
                  -
                  
                  
                  
                  -
                  
                  
                  
                  -
                  
                  
                  
                  70,268,384Eduardo
      Novoa Castellón
                  
                  
                  6,222,623
                  
                  
                  
                  6,222,623
                  
                  
                  
                  -
                  
                  
                  
                  -
                  
                  
                  
                  12,445,246José
      Antonio Silva Bafalluy (1)
                  
                  
                  63,005,717
                  
                  
                  
                  3,964,169
                  
                  
                  
                  -
                  
                  
                  
                  -
                  
                  
                  
                  66,969,886Wolf
      Von Appen
                  
                  
                  66,048,466
                  
                  
                  
                  -
                  
                  
                  
                  -
                  
                  
                  
                  -
                  
                  
                  
                  66,048,466Kendrick
      T. Wallace
                  
                  
                  71,341,013
                  
                  
                  
                  -
                  
                  
                  
                  -
                  
                  
                  
                  -
                  
                  
                  
                  71,341,013Daniel Yarur Elsaca
                  
                  
                  70,268,382
                  
                  
                  
                  11,226,834
                  
                  
                  
                  -
                  
                  
                  
                  -
                  
                  
                  
                  81,495,216Total
                  
                  
                  971,707,714
                  
                  
                  
                  33,945,457
                  
                  
                  
                  73,796,766
                  
                  
                  
                  
                  
                  
                  
                  1,079,449,937




(1)
            Mr.
      José Antonio Silva was a member of the Board until April 30, 2008, when he
      was replaced by Mr. Eduardo Novoa.




For the
year ended December 31, 2008, the aggregate compensation paid to our 92 main
executives based in Chile was approximately Ch$10,091.1 million.  We do not
disclose to our shareholders or otherwise make available to the public
information as to the compensation of our individual executive
officers.




We
maintain incentive programs for our employees, based on individual performance,
company performance, and short- medium- and long-term indicators. Additionally,
in order to provide incentives to key Company executives and to retain such
executives, the Company maintains a long-term cash bonus compensation plan
for certain senior executives, which consists of a long-term bonus linked to
the Company's share price and is payable between 2007 and
2011.




As of
December 31, 2008, the Company had a provision related to all of the
incentive programs for a total of approximately US$33.2 million.




Regarding
the long-term bonus linked to the Company’s share price, as of December 31, 2008
the provision would have increased or decreased by approximately US$800 thousand
per each US$1 variation in the Series B share price.  The amount of
actual cash bonuses payable under the long-term incentive program will vary
depending on the market share price of the Series B shares on the
date as of which the bonuses are paid.




We do not
maintain any pension or retirement programs for the members of the Board or our
officers in Chile.




6.C.Board
      Practices




Information
regarding the period of time each of SQM's current Directors has served in their
respective office is provided in the discussion of each member of the board
above in Item 6.A Directors and Senior Managers.





The date
of expiration of the term of the current Board of Directors is April 2011. The
contracts of our executive officers are indefinite.





The
members of the Board are remunerated in accordance with the information provided
above in Item 6.B. Compensation. There are no contracts between SQM, or any of
its subsidiaries, and the members of the Board providing for benefits upon
termination of their term.





Directors'
Committee – Audit Committee


As
required by Chilean Law, we have a Comitéde Directores(Directors'
Committee) composed of three directors, which performs many of the functions of
an Audit Committee.




71





As of May
31, 2009, the Company’s Directors’ Committee was formed by SQM Directors: Mr.
Hernán Büchi B., Mr. Eduardo Novoa C. and Mr. Daniel Yarur E. This Committee
operates in accordance with article 50 bis of Law No18.046, which provides that
the Committee shall:





(a)
            Examine
      and issue an opinion regarding the external auditor's report including
      financial statements prior to its final presentation for approval at the
      Ordinary Shareholders Meeting


(b)
            Propose
      to the Board of Directors the external auditors and the rating agencies
      that will be presented to the Ordinary Shareholders
  Meeting


(c)
            Examine
      and elaborate a report concerning the operations covered by articles 44
      and 89 of Law No18.046


(d)
            Examine
      the remuneration and compensation plans of the senior
      management





Pursuant
to the above, these were the main activities of our Directors' Committee during
2008:


a)
            Analysis
      of un-audited financial reports.


b)
            Analysis
      of audited financial reports.


c)
            Analysis
      of reports submitted by external auditors, account  inspectors
      and rating agencies, and formulation of proposals to the Board of
      Directors recommending external auditors, account inspectors and rating
      agencies that could be designated by the respective Annual General
      Shareholders’ Meeting.


d)
            Analysis
      of functions, objectives and working programs of the Internal Audit
      Department.


e)
            Analysis
      of the Company’s Senior Executives remuneration and compensation
      plans.


f)
            Analysis
      of the records relating to the transactions referred to in articles 44 and
      89 of Law of Corporation.


g)
            Analysis
      of matters related to the "Sarbanes-Oxley Act" of the U.S.A., especially
      regarding Section 404.


h)
            Analysis
      of matters related to the norms “IFRS” and “PCAOB” of the
      U.S.A.


i)
            Analysis
      of Internal Control Report.





In
accordance with the provisions of Article 44 of Law No. 18,046, during 2008 the
Directors Committee examined the following contracts between the Company and
third parties related to one or more of the members of the Board of
Directors:





During
its session held on December 16, 2008, the Directors Committee analyzed certain
sea freight contracts between the “SQM Group” and the “Ultramar Group” (linked
to Mr. Wolf von Appen, Director of SQM S.A.) and recommended the implementation
of the contracts.





On April
29, 2009, the Annual General Shareholders Meeting of SQM agreed to pay a monthly
remuneration of 50UF to each member of the Directors Committee, regardless of
the number of sessions held by the Committee during the period between May 2009
and April 2010, both months included. This remuneration is also independent from
what the Committee members obtain as members of the Company’s Board of
Directors. In this same meeting, an operational budget for the Directors
Committee of 1.800UF 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.  During 2008,
the Directors Committee did not incur any consulting expenses.





Article
50 bis states that the Committee should consist of three directors, of which the
majority should preferably be independent from the controller (i.e. any person
or entity who “controls” the company for Chilean law purposes), if any, and that
their functions be remunerated.





Considering
the effective shareholder structure as of December 31, 2008, the majority of the
members of the Directors Committee are independent.





On May
24, 2005, the Board of Directors approved the establishment of an audit
committee to comply with the requirements of the NYSE corporate governance
rules.





As of May
31, 2009, the members of the audit committee are Hernán Büchi B., Eduardo Novoa
C. and Daniel Yarur E.  Each of the three members meets the NYSE
independence requirements for audit committee members.




72





Under the
NYSE corporate governance rules, the audit committee of a U.S. company must
perform the functions detailed in the NYSE Listed Company Manual Rules 303A.06
and 303A.07.  Non-U.S. companies are required to comply with Rule
303A.06 beginning July 31, 2005, but are not at any time required to comply with
Rule 303A.07.





Comparative
Summary of Differences in Corporate Governance Standards




The
following table provides a comparative summary of differences in corporate
governance practices followed by us under our home-country rules and those
applicable to U.S. domestic issuers pursuant to Section 303A of the New York
Stock Exchange (NYSE) Listed Company Manual.





Listed
Companies that are foreign private issuers, such as SQM, are permitted to follow
home country practices in lieu of the provisions of Section 303A, except such
companies are required to comply with the requirements of Section 303A.06,
303A.11 and 303A.12(b) and (c).




Section
                              
                              NYSEStandards
                              
                              SQMpracticespursuanttoChileanStockExchange
                                regulations303A.01
                              
                              Listed
      companies must have a majority of independent directors.
                              
                              There
      is no legal obligation to have a majority of independent directors on the
      Board but according to Chilean law, the Company's directors cannot serve
      as executive officers.303A.02
                              
                              No director qualifies as
      "independent" unless the board of directors affirmatively determines that
      the director has no material relationship with the listed company
      (eitherdirectly or
      as a partner, shareholder or officer of an organization that has a
      relationship with the company). Companies must identify which directors
      are independent and disclose the basis for that
      determination.
                                In
      addition, a director is not independent if:
                                (i) The
      director is, or has been within the last three years, an employee of
      the listed company, or an immediate family member is, or has been within
      the last three years, an executive officer, of the listed
      company.
                                (ii) The
      director has received, or has an immediate family member who has
      received, during any twelve-month period within the last three years, more
      than $120,000 in direct compensation from the listed company, other
      than director and committee fees and pension or other forms of deferred
      compensation for prior service (provided such compensation is not
      contingent in any way on continued service).
                                (iii)
      (A) The director is a current partner or employee of a firm that is the
      company's internal or external auditor; (B) the director has an immediate
      family member who is a current partner of such a firm; (C) the director
      has an immediate family member who is a current employee of such a firm
      and personally works on the listed company's audit; or (D) the director or
      an immediate family member was within the last three years a partner or
      employee of such a firm and personally worked on the listed company's
      audit within that time.
                                (iv) The
      director or an immediate family member is, or has been with the last three
      years, employed as an executive officer of another company where any
      of the listed company's present executive officers at the same time serves
      or served on that company's compensation committee.
                                (v)
      The director is a current employee, or an immediate family
      member is a current executive officer, of a company that has made
      payments to, or received payments from, the listed company for property or
      services in an amount which, in any of the last three fiscal years,
      exceeds the greater of $1 million, or 2% of such other company's
      consolidated gross revenues.
                              
                              A
      Director is considered independent if he would have been elected without
      the vote of the controlling shareholder and related persons and
      entities.


73





Section
                                    
                                    NYSEStandards
                                    
                                    SQMpracticespursuanttoChileanStockExchange
                                      regulations303A.03
                                    
                                    The
      non-management directors must meet at regularly scheduled executive
      sessions without management.
                                    
                                    These
      meetings are not needed given that directors cannot serve as executive
      officers.303A.04
                                    
                                    (a)
      Listed companies must have a nominating/corporate governance committee
      composed entirely of independent directors.
                                      (b)
      The nominating/corporate governance committee must have a written charter
      that addresses:
                                      (i)
      the committee's purpose and responsibilities – which, at minimum, must be
      to: identify individuals qualified to become board members, consistent
      with criteria approved by the board, and to select, or to recommend that
      the board select, the director nominees for the next annual meeting of
      shareholders; develop and recommend to the board a set of corporate
      governance guidelines applicable to the corporation; and oversee the
      evaluation of the board and management; and
                                      (ii)
      an annual performance evaluation of the committee.
                                    
                                    This
      committee is not required as such in the Chilean
      regulations.  However, pursuant to Chilean regulations SQM has a
      Directors' Committee (see Board practices above).303A.05
                                    
                                    Listed
      companies must have a compensation committee composed entirely of
      independent directors, and must have a written charter
                                    
                                    This
      committee is not required as such in the Chilean regulations. Pursuant to
      Chilean regulations SQM has a Director’s Committee (see Board practices
      above) that is in charge of reviewing management’s
      compensation.303A.06
                                    
                                    Listed
      companies must have an audit committee.
                                    
                                    This
      committee is not required as such in the Chilean
      regulations.  On May 24, 2005, the Board of Directors approved
      the establishment of an audit committee to comply with the requirements of
      the NYSE corporate governance rules.303A.07
                                    
                                    The
      audit committee must have a minimum of three members. Each of them must
      satisfy requirements of independence, and the committee must have a
      written charter.The
      listed companies must have an internal audit function to provide
      management with ongoing assistance of the Company's risk management
      process and the system of internal controls
                                    
                                    Pursuant
      to Section 303A.00, SQM is not required to comply with requirements in
      303A.07. Pursuant to Chilean Regulations SQM has a Director’s Committee
      (see Board practices above) with certain requirements of
      independence.303A.08
                                    
                                    Shareholders
      must have the opportunity to vote on all equity-compensation plans
      involving directors, executives, employees, or other service
      providers.
                                    
                                    SQM
      does not have equity compensation plans.  However, as mentioned
      in Item 6.B Compensation, the Company does have a long-term cash bonus
      compensation plan for certain senior executives, which consists of a
      long-term bonus linked to the Company's share price. Directors and
      executives may only acquire SQM shares by individual
      purchases.  The purchaser must give notice of such purchases to
      the Company and the Superintendence of Securities and
      Insurance.303A.09
                                    
                                    Listed
      companies must adopt and disclose corporate governance
      guidelines.
                                    
                                    Chilean
      law does not require that corporate governance guidelines be
      adopted.  Directors' responsibilities and access to management
      and independent advisors are directly provided for by applicable
      law.  Directors' compensation is approved at the annual meeting
      of shareholders, pursuant to applicable
law.


74





Section
                                
                                NYSEStandards
                                
                                SQMpracticespursuanttoChileanStockExchange
                                  regulations303A.10
                                
                                Listed
      companies must adopt and disclose a code of business conduct and ethics
      for directors, officers and employees and promptly disclose any waivers of
      the code for directors or executive officers.
                                
                                Not
      required in the Chilean regulations.  SQM has adopted and
      disclosed a Code of Business Conduct and Ethics, available at the
      Company's website, www.sqm.com.303A.11
                                
                                Listed
      foreign private issuers must disclose any significant ways in which their
      corporate governance practices differ from those followed by domestic
      companies under NYSE listed standards.
                                
                                Pursuant
      to 303A.11, this table sets forth a comparative summary of differences in
      corporate governance practices followed by SQM under Chilean regulations
      and those applicable to U.S. domestic issuers pursuant to Section
      303A.303A.12
                                
                                Each
      listed company CEO must (a) certify to the NYSE each year that he or she
      is not aware of any violation by the company of NYSE corporate
      governance listing standards; (b) promptly notify the NYSE in writing
      after any executive officer becomes aware of any material non-compliance
      with any applicable provisions of Section 303A; and (c) must submit an
      executed Written Affirmation annually to the NYSE. 
      In addition, each listed company must submit an interim Written
      Affirmation each time a change occurs to the board or any of the
      committees subject to Section 303A.  The annual and interim Written
      Affirmations must be in the form specified by the NYSE.
                                
                                Not
      required in the Chilean regulations.  The CEO must only comply
      with Section 303A.12 (b) and (c).303A.13
                                
                                The
      NYSE may issue a public reprimand letter to any listed company that
      violates a NYSE listing standard.
                                
                                Not
      specified in the Chilean regulations.303A.14
                                
                                Listed
      companies must have and maintain a publicly accessible
      website.
                                
                                Not
      required in the Chilean
regulations.




6.D.Employees




As of
December 31, 2008, we had 4,561 permanent employees, of whom 229 were employed
outside of Chile. The average tenure of our full time employees is approximately
8.1 years.




2008
                  
                  
                  2007
                  
                  
                  2006
                  
                  
                  2005
                  
                  
                  2004Permanent
      employees
                  
                  
                  4,561
                  
                  
                  
                  3,746
                  
                  
                  
                  3,745
                  
                  
                  
                  3,672
                  
                  
                  
                  3,418Employees
      in Chile
                  
                  
                  4,332
                  
                  
                  
                  3,515
                  
                  
                  
                  3,415
                  
                  
                  
                  3,350
                  
                  
                  
                  3,138Employees
      outside of Chile
                  
                  
                  229
                  
                  
                  
                  231
                  
                  
                  
                  330
                  
                  
                  
                  322
                  
                  
                  
                  280





The
increase in the number of employees is largely explained by new regulatory
measures that require Chilean companies to incorporate certain third party
employees into their organizations. The number of employees also increased due
to an increase in the number of investment projects.




Of our
permanent employees in Chile, 61% are represented by 29 labor unions, which
represent their members in collective 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 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), which is a health care
organization that provides medical services primarily to our employees and
Sociedad Prestadora de Servicios de Salud Cruz de Norte S.A., which is a
hospital in María Elena.  We make contributions to Isapre Norte Grande
and to Sociedad Prestadora de Servicios de Salud Cruz de Norte in accordance
with Chilean laws and the provisions of our various collective bargaining
agreements but we are not otherwise responsible for its
liabilities.


75




Non-unionized
employees receive individually negotiated salaries, benefits provided for by law
and certain additional benefits provided by the company.




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




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




We have
experienced no strikes or significant work stoppages in the last 14 years and
consider the relationship with our employees to be good.  At the end
of 2008, SQM began negotiations with its unions with the objective of having all
collective bargaining agreements renegotiated for a new three-year
period.  This collective bargaining process should be completed early
2010.




6.E.Share
Ownership




As of May
31, 2009, SQM has been informed that the Canadian company Potash Corporation of Saskatchewan,
Inc. (“PCS”) indirectly controls 100% of the stock of Inversiones el Boldo
Limitada and 100% of the stock of Inversiones RAC Limitada. Through these
companies, PCS controls 32% of the total share of SQM. During 2008, PCS made
various share purchases on stock exchanges until its stake reached 32% of the
total shares of SQM S.A.





As of May
31, 2009, SQM has also been informed that Mr. Julio Ponce L. and related persons
control 100% of the total shares of Inversiones SQYA S.A., which currently and
indirectly controls 32% of the total shares of SQM S.A. The above, considering
that Inversiones SQYA S.A. controls 79.14% of the total shares of Norte Grande
S.A., that Norte Grande S.A. controls 83.66% of the total shares of Sociedad de
Inversiones Oro Blanco S.A., that Sociedad de Inversiones Oro Blanco S.A
controls 73.27% of the total shares of Sociedad de Inversiones Pampa Calichera
S.A. and that Sociedad de Inversiones Pampa Calichera S.A. and its subsidiary
Inversiones Global Mining (Chile) Ltda. ultimately control 32% of the total
shares of SQM.





On
December 21, 2006, Sociedad de Inversiones Pampa Calichera S.A. and Kowa Company
Ltd. –the latter being owner, directly and indirectly, of 2.05% of the total
shares of SQM as of May 31, 2009–executed a Joint Performance Agreement that
allows them to control 34.05% of the total shares of SQM. As a result of this
Agreement, the “Group” led by Mr. Julio Ponce L. indirectly controls 34.05% of
the total shares of SQM S.A. and is, therefore, the controller of SQM S.A., as
that term is defined under Chilean Law.





The
following table shows the combined stakes that the Controller Group held in SQM
as of:





%
      Beneficial ownershipMay
      31, 2009
                      
                      
                      34.05
                      %December
      31, 2008
                      
                      
                      34.05
                      %December
      31, 2007
                      
                      
                      34.03
                      %





No other
director or executive officer owns more than 1% of each share class of the
Company as of May 31, 2009. See Item 6. Directors, Senior Management and
Employees—footnote (1). Individual ownership has not been publicly
disclosed.




We do not
grant stock options or other arrangements involving the capital of SQM to
directors, managers or employees.


76


ITEM 7.MAJOR
SHAREHOLDERS AND RELATED PARTY TRANSACTIONS




7.A.Major
Shareholders




The
following table sets forth certain information concerning beneficial ownership
of the Series A shares and Series B shares of SQM as of May 31, 2009 with
respect to each shareholder known by us to beneficially own more than 5% of the
outstanding Series A shares or Series B shares.  The following
information is derived from our 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
                                    
                                    Numberof
                                      SeriesA
                                      SharesBeneficially
                                      Owned
                                    
                                    
                                    %
                                      SeriesA
                                      Shares
                                    
                                    
                                    Numberof
                                      SeriesB
                                      SharesBeneficially
                                      Owned
                                    
                                    
                                    %
                                      SeriesB
                                      Shares
                                    
                                    
                                    %Total
                                      SharesSociedad
      de Inversiones Pampa Calichera S.A. (1) (2)
                                    
                                    
                                    57,934,256
                                    
                                    
                                    
                                    40.56
                                    %
                                    
                                    
                                    12,490,092
                                    
                                    
                                    
                                    10.38
                                    %
                                    
                                    
                                    26.76
                                    %Inversiones
      El Boldo Ltda.(3)
                                    
                                    
                                    44,604,761
                                    
                                    
                                    
                                    31.23
                                    %
                                    
                                    
                                    17,718,111
                                    
                                    
                                    
                                    14.72
                                    %
                                    
                                    
                                    23.68
                                    %The
      Bank of New York
                                    
                                    
                                    47,580
                                    
                                    
                                    
                                    0.03
                                    %
                                    
                                    
                                    55,764,136
                                    
                                    
                                    
                                    46.32
                                    %
                                    
                                    
                                    21.21
                                    %Inversiones
      RAC Chile Ltda. (3)
                                    
                                    
                                    19,200,242
                                    
                                    
                                    
                                    13.44
                                    %
                                    
                                    
                                    2,699,773
                                    
                                    
                                    
                                    2.24
                                    %
                                    
                                    
                                    8.32
                                    %Inversiones
      Global Mining (Chile) Limitada. (1)
                                    
                                    
                                    13,798,539
                                    
                                    
                                    
                                    9.66
                                    %
                                    
                                    
                                    -
                                    
                                    
                                    
                                    0.00
                                    %
                                    
                                    
                                    5.24
                                    %AFP
      Provida S.A. (4)
                                    
                                    
                                    -
                                    
                                    
                                    
                                    0.00
                                    %
                                    
                                    
                                    4,938,971
                                    
                                    
                                    
                                    4.10
                                    %
                                    
                                    
                                    1.88
                                    %Inversiones
      La Esperanza Ltda.
                                    
                                    
                                    3,643,977
                                    
                                    
                                    
                                    2.55
                                    %
                                    
                                    
                                    -
                                    
                                    
                                    
                                    0.00
                                    %
                                    
                                    
                                    1.38
                                    %AFP
      Capital S.A. (4)
                                    
                                    
                                    9,335
                                    
                                    
                                    
                                    0.01
                                    %
                                    
                                    
                                    3,354,343
                                    
                                    
                                    
                                    2.79
                                    %
                                    
                                    
                                    1.28
                                    %AFP
      Habitat S.A. (4)
                                    
                                    
                                    -
                                    
                                    
                                    
                                    0.00
                                    %
                                    
                                    
                                    3,317,019
                                    
                                    
                                    
                                    2.76
                                    %
                                    
                                    
                                    1.26
                                    %Banco
      de Chile por Cuenta de Terceros
                                    
                                    
                                    -
                                    
                                    
                                    
                                    0.00
                                    %
                                    
                                    
                                    3,226,365
                                    
                                    
                                    
                                    2.68
                                    %
                                    
                                    
                                    1.23
                                    %





(1)
            Mr.
      Julio Ponce L., Chairman of the Board of SQM, and related persons control
      100% of Inversiones SQYA S.A.  Inversiones SQYA S.A. indirectly
      controls and beneficially owns Sociedad de Inversiones Pampa Calichera
      S.A., which in turn owns 100% of Global Mining Investments (Chile)
      S.A.  Therefore, Mr. Ponce and related persons beneficially own
      through the above entities 84,222,887 shares constituting 32.00% of the
      total shares of SQM. The stake held by Mr. Ponce and related parties as of
      December 31, 2008, 2007 and 2006 was, respectively, 32.00%, 32.00% and
      30.26% of the total shares of SQM.




(2)
            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 SQM.  Pampa Calichera was formed to
      hold the capital stock of SQM contributed by such employees or later
      acquired in the open market.




(3)
            Potash
      Corporation of Saskatchewan Inc. owns 100% of Inversiones el Boldo
      Limitada and 100% of Inversiones RAC Ltda., being therefore the beneficial
      owner of 84,222,887 SQM's shares that represent 32.00% of SQM's total
      shares. The stake held by Potash Corporation of Saskatchewan as of
      December 31, 2008, 2007, and 2006 was, respectively, 32.00%, 32.00% and
      24.99% of the total shares of SQM.




(4)
            AFPs
      are legal entities that manage pension funds in
  Chile.




As of
December 31, 2007, Yara International ASA owned 49% of the shares of Inversiones
SQYA S.A., which in turn, indirectly owned 32.00% of the shares of SQM
S.A.  On April 21, 2008, Yara International ASA sold 100% of the
shares it held in Inversiones SQYA S.A. to Mr. Julio Ponce and related
persons.  As a result of this sale, as of May 31, 2009, Mr. Julio
Ponce and related persons owned 100% of the shares of Inversiones SQYA
S.A.


77


On
December 21, 2006, Sociedad de Inversiones Pampa Calichera S.A. and Kowa Company
Ltd. -the latter being owner, directly and indirectly, of 2.05% of the total
shares of SQM as of May 31, 2009 - executed a Joint Performance Agreement that
allows them to currently control 34.05% of the total shares of SQM. As a result
of this Agreement, the “group” led by Mr. Julio Ponce L. became the Controller
Group of SQM, as that term is defined under Chilean law.





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 our 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 of Directors Meeting without the
authorization of the Chairman of the Board of Directors. These preferences will
remain until 2043. Maximum individual voting power personally and/or in
representation of other shareholders per Series is 37.5% of the subscribed
shares of each Series with voting rights and 32% of the total subscribed shares
of the Company with voting rights. To calculate these percentages, shares that
belong to the voting shareholder’s related persons must be added. In addition,
the director elected by the Series B shares cannot vote in the election of the
Chairman of the Board of Directors after a tie vote has occurred in the prior
voting process. As of May 31, 2009, there are 142,819,552 Series A shares and
120,376,972 Series B shares outstanding.




7.B.Related
Party Transactions




Article
89 of Law No. 18,046, or the Chilean Corporations Act, requires that our
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
Corporations Act provides that any transaction in which a director has a
personal interest or is acting on behalf of a third party may be implemented
only after the same is approved by the Board of Directors under terms 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 may be sought by the
Company, shareholders or interested third parties that suffer losses as a result
of such violations.  We believe that we have complied with the
requirements of Article 89 and Article 44 in all transactions with related
parties.




Accounts
receivable from and payable to related companies are stated in U.S. dollars and
accrue no interest.  Transactions are made under terms and conditions
that are similar to those offered to unrelated third parties.




We
further believe that we 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 our transactions with affiliates and other
related parties, see Note 5 of the Consolidated Financial
Statements.




7.C.Interests
of Experts and Counsel




Not
applicable


78




ITEM 8.FINANCIAL
INFORMATION




8.A.Consolidated
Statements and Other Financial Information




8.A.1See Item
18.  Consolidated Financial Statements for our consolidated financial
statements.




8.A.2See Item
18.  Consolidated Financial Statements.




8.A.3See Item
18.  Consolidated Financial Statements—Report of Independent
Registered Public Accounting Firm.




8.A.4Not
applicable.




8.A.5Not
applicable.




8.A.6  Export
Sales




We derive
most of our revenues from sales outside of Chile.  The distribution of
sales presented below reflects the regions in which the Company’s subsidiaries
are located and does not necessarily reflect the final destination of the
products sold. The following is the composition of the consolidated sales for
the periods ending on December 31:




Th.
      US$
                  
                  2008
                  
                  
                  2007
                  
                  
                  2006Foreign
      sales
                  
                  
                  1,395,834
                  
                  
                  
                  954,641
                  
                  
                  
                  878,066Total
      sales
                  
                  
                  1,774,119
                  
                  
                  
                  1,187,527
                  
                  
                  
                  1,042,886%
      of foreign sales
                  
                  
                  78.68
                  %
                  
                  
                  80.39
                  %
                  
                  
                  84.20
                  %





8.A.7  Legal
Proceedings




The
Company is party to various other lawsuits arising in the ordinary course of
business. See Note 23 to the Consolidated Financial Statements for details of
other pending legal proceedings. We believe it is unlikely that any losses
associated with such lawsuits will significantly affect the Company’s results of
operations, financial position, and cash flows.





8.A.8.  Dividend
Policy




As
required by Chilean law and regulations, our dividend policy is decided upon
from time to time by our 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 the declaration of the final dividend or dividends in
respect of the preceding year, consistent with the then-established dividend
policy to the Annual Ordinary Shareholders' Meeting for approval. As required by
the Chilean Companies Act, unless otherwise decided by unanimous vote of
the holders of issued shares, we must distribute a cash dividend in an amount
equal to at least 30% of our 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.





The Board
of Directors has followed a policy of paying a single dividend ranging from 50%
to 65% of our 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. The dividend policy for 2008 established that SQM must
distribute and pay in favor of its shareholders, as a final dividend, the amount
in Chilean pesos equivalent to 65% of the distributable income for 2008. This
policy was partially modified on October 28, 2008, to permit a disbursement of
an interim dividend of US$0.37994 per share, beginning November 21, 2008. In
2009, at the Annual Shareholders’ Meeting held on April 29, 2009, SQM’s
shareholders approved payment of a definitive dividend in the amount of
US$1.23829 per share. From this definitive dividend, the interim dividend amount
of US$0.37994 per share was deducted. Payments for this dividend were made on
May 11, 2009.


79


At the
Annual Shareholders’ Meeting held on April 29, 2009, shareholders also agreed to
pay and distribute a dividend equal to 65% of the distributable income
corresponding to 2009. For this purpose, distributable income excludes (i)
accrued and uncollected profits from SQM investments that are not subject to
consolidation and (ii) amortization of negative goodwill. Also, at the same
meeting, shareholders agreed to the payment and distribution of an interim
dividend that most likely will be paid during the final quarter of 2009 in an
amount not to exceed 65% of the accumulated earnings of the nine months ending
September 30, 2009.





We
generally declare dividends in U.S. dollars (but may declare dividends in
Chilean Pesos) and pay such dividends in Chilean Pesos. When 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 our 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




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 ADR paid in each of the years indicated, based on the Observed Exchange Rate
for the date on which the dividend was declared.




Dividends
                        
                        PerShare
                        
                        
                        PerADR(1)Declaredforthe
                          businessyear
                        
                        Paidin
                        
                        Ch$
                        
                        
                        US$2003
                        
                        2004
                        
                        
                        55.05
                        
                        
                        
                        0.0882004
                        
                        2005
                        
                        
                        106.56
                        
                        
                        
                        0.1822005
                        
                        2006
                        
                        
                        145.11
                        
                        
                        
                        0.2792006
                        
                        2007
                        
                        
                        183.96
                        
                        
                        
                        0.3492007
                        
                        2008
                        
                        
                        204.14
                        
                        
                        
                        0.4452008
      (interim)
                        
                        2008
                        
                        
                        243.34
                        
                        
                        
                        0.3802008
                        
                        2009
                        
                        
                        515.90
                        
                        
                        
                        0.858







(1)
            The
      ratio of ordinary shares to Series A ADRs was 10:1 for all periods
      reflected in the table.  The Series A ADRs were delisted from
      the New York Stock Exchange on March 27, 2008.  The ratio of
      ordinary shares to Series B ADRs changed from 10:1 to 1:1 on March 28,
      2008.  The calculation in the table for all periods is based on
      the ratio of 1:1.




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.




8.B.Significant
Changes




No
significant change has occurred since the date of the financial statements set
forth in Item 18.


80




ITEM 9.THE OFFER
AND LISTING




9.A  Offer
and Listing Details




Price
History




The table
below sets forth, for the periods indicated, the reported high and low closing
prices for our shares on the Santiago Stock Exchange and the high and low
closing prices of the ADRs as reported by the NYSE, as the two main exchanges on
which our shares are traded.  On March 27, 2008, the Company
voluntarily delisted its series A ADRs from the New York Stock
Exchange.  In addition, on March 28, 2008, a ratio change for the
Company’s series B ADRs entered into effect, modifying the ratio of ordinary
shares to series B ADRs from the previous ratio of 10:1 to a new ratio of
1:1.




(a)
            Last
      5 years




Santiago Stock Exchange
                  
                  
                  NYSEPer Share (1)
                  
                  
                  Per ADRSeries A
                  
                  
                  Series B
                  
                  
                  Series A (2)
                  
                  
                  Series B (3)High
                  
                  
                  Low
                  
                  
                  High
                  
                  
                  Low
                  
                  
                  High
                  
                  
                  Low
                  
                  
                  High
                  
                  
                  LowCh$
                  
                  
                  Ch$
                  
                  
                  Ch$
                  
                  
                  Ch$
                  
                  
                  US$
                  
                  
                  US$
                  
                  
                  US$
                  
                  
                  US$2004
                  
                  
                  3,900
                  
                  
                  
                  2,350
                  
                  
                  
                  3,580
                  
                  
                  
                  2,160
                  
                  
                  
                  68.00
                  
                  
                  
                  37.05
                  
                  
                  
                  6.28
                  
                  
                  
                  3.302005
                  
                  
                  7,000
                  
                  
                  
                  3,600
                  
                  
                  
                  7,170
                  
                  
                  
                  3,269
                  
                  
                  
                  129.40
                  
                  
                  
                  66.80
                  
                  
                  
                  13.34
                  
                  
                  
                  5.752006
                  
                  
                  7,100
                  
                  
                  
                  5,220
                  
                  
                  
                  7,347
                  
                  
                  
                  5,000
                  
                  
                  
                  137.5
                  
                  
                  
                  93.15
                  
                  
                  
                  13.95
                  
                  
                  
                  8.992007
                  
                  
                  12,100
                  
                  
                  
                  7,100
                  
                  
                  
                  9,985
                  
                  
                  
                  6,800
                  
                  
                  
                  234.80
                  
                  
                  
                  135.00
                  
                  
                  
                  20.04
                  
                  
                  
                  12.502008
                  
                  
                  29,300
                  
                  
                  
                  12,100
                  
                  
                  
                  27,012
                  
                  
                  
                  6,750
                  
                  
                  
                  -
                  
                  
                  
                  -
                  
                  
                  
                  55.74
                  
                  
                  
                  14.77





(b)
              Last
      10 quarters




Santiago Stock Exchange
                    
                    
                    NYSEPer Share (1)
                    
                    
                    Per ADRSeries A
                    
                    
                    Series B
                    
                    
                    Series A (2)
                    
                    
                    Series B (3)High
                    
                    
                    Low
                    
                    
                    High
                    
                    
                    Low
                    
                    
                    High
                    
                    
                    Low
                    
                    
                    High
                    
                    
                    LowCh$
                    
                    
                    Ch$
                    
                    
                    Ch$
                    
                    
                    Ch$
                    
                    
                    US$
                    
                    
                    US$
                    
                    
                    US$
                    
                    
                    US$2007First
      quarter
                    
                    
                    7,600
                    
                    
                    
                    7,100
                    
                    
                    
                    7,830
                    
                    
                    
                    6,800
                    
                    
                    
                    142.95
                    
                    
                    
                    136.95
                    
                    
                    
                    14.60
                    
                    
                    
                    12.50Second
      quarter
                    
                    
                    9,050
                    
                    
                    
                    7,100
                    
                    
                    
                    9,152
                    
                    
                    
                    6,800
                    
                    
                    
                    180.95
                    
                    
                    
                    136.95
                    
                    
                    
                    17.20
                    
                    
                    
                    12.50Third
      quarter
                    
                    
                    12,100
                    
                    
                    
                    9,050
                    
                    
                    
                    9,160
                    
                    
                    
                    7,650
                    
                    
                    
                    228.75
                    
                    
                    
                    175.10
                    
                    
                    
                    17.62
                    
                    
                    
                    14.10Fourth
      quarter
                    
                    
                    12,100
                    
                    
                    
                    12,100
                    
                    
                    
                    9,985
                    
                    
                    
                    8,042
                    
                    
                    
                    234.80
                    
                    
                    
                    219.75
                    
                    
                    
                    20.04
                    
                    
                    
                    15.892008First
      quarter
                    
                    
                    12,600
                    
                    
                    
                    12,100
                    
                    
                    
                    10,658
                    
                    
                    
                    6,750
                    
                    
                    
                    290.00
                    
                    
                    
                    226.00
                    
                    
                    
                    24.25
                    
                    
                    
                    14.77Second
      quarter
                    
                    
                    29,300
                    
                    
                    
                    16,000
                    
                    
                    
                    27,012
                    
                    
                    
                    10,500
                    
                    
                    
                    -
                    
                    
                    
                    -
                    
                    
                    
                    54.74
                    
                    
                    
                    23.98Third
      quarter
                    
                    
                    25,000
                    
                    
                    
                    16,000
                    
                    
                    
                    22,856
                    
                    
                    
                    13,049
                    
                    
                    
                    -
                    
                    
                    
                    -
                    
                    
                    
                    44.71
                    
                    
                    
                    23.56Fourth
      quarter
                    
                    
                    16,450
                    
                    
                    
                    15,990
                    
                    
                    
                    16,451
                    
                    
                    
                    9,469
                    
                    
                    
                    -
                    
                    
                    
                    -
                    
                    
                    
                    26.05
                    
                    
                    
                    15.252009First
      quarter
                    
                    
                    19,000
                    
                    
                    
                    16,000
                    
                    
                    
                    18,997
                    
                    
                    
                    14,319
                    
                    
                    
                    -
                    
                    
                    
                    -
                    
                    
                    
                    31.73
                    
                    
                    
                    23.84Second
      quarter (through May 31)
                    
                    
                    21,500
                    
                    
                    
                    19,000
                    
                    
                    
                    20,605
                    
                    
                    
                    15,969
                    
                    
                    
                    -
                    
                    
                    
                    -
                    
                    
                    
                    36.66
                    
                    
                    
                    27.75


81


(c)
            Last
      6 months





Santiago Stock Exchange
                  
                  
                  NYSEPer Share (1)
                  
                  
                  Per ADRSeries A
                  
                  
                  Series B
                  
                  
                  Series A (2)
                  
                  
                  Series B (3)High
                  
                  
                  Low
                  
                  
                  High
                  
                  
                  Low
                  
                  
                  High
                  
                  
                  Low
                  
                  
                  High
                  
                  
                  LowCh$
                  
                  
                  Ch$
                  
                  
                  Ch$
                  
                  
                  Ch$
                  
                  
                  US$
                  
                  
                  US$
                  
                  
                  US$
                  
                  
                  US$December
      2008
                  
                  
                  16,001
                  
                  
                  
                  16,000
                  
                  
                  
                  16,451
                  
                  
                  
                  13,598
                  
                  
                  
                  -
                  
                  
                  
                  -
                  
                  
                  
                  25.97
                  
                  
                  
                  20.12January
      2009
                  
                  
                  17,200
                  
                  
                  
                  16,000
                  
                  
                  
                  17,048
                  
                  
                  
                  15,891
                  
                  
                  
                  -
                  
                  
                  
                  -
                  
                  
                  
                  28.28
                  
                  
                  
                  25.25February
      2009
                  
                  
                  19,000
                  
                  
                  
                  17,200
                  
                  
                  
                  18,997
                  
                  
                  
                  16,957
                  
                  
                  
                  -
                  
                  
                  
                  -
                  
                  
                  
                  31.73
                  
                  
                  
                  27.38March
      2009
                  
                  
                  19,000
                  
                  
                  
                  18,500
                  
                  
                  
                  16,612
                  
                  
                  
                  14,319
                  
                  
                  
                  -
                  
                  
                  
                  -
                  
                  
                  
                  29.09
                  
                  
                  
                  23.84April
      2009
                  
                  
                  19,800
                  
                  
                  
                  19,000
                  
                  
                  
                  18,843
                  
                  
                  
                  15,969
                  
                  
                  
                  -
                  
                  
                  
                  -
                  
                  
                  
                  32.87
                  
                  
                  
                  27.75May
      2009
                  
                  
                  21,500
                  
                  
                  
                  19,980
                  
                  
                  
                  20,605
                  
                  
                  
                  18,533
                  
                  
                  
                  -
                  
                  
                  
                  -
                  
                  
                  
                  36.66
                  
                  
                  
                  30.89





(1)
            Pesos
      per share of Common Stock reflect nominal price at trade
    date.


(2)
            Series
      A shares started trading on the New York Stock Exchange on April 9,
      1999.


(3)
            Series
      B shares began trading on the New York Stock Exchange on September 20,
      1993.  Historical prices have been restated to reflect the
      change in the ratio of local shares to ADRs from 10:1 to 1:1, effective
      March 28, 2008.




As of May
31, 2009, there were 47,580 Series A and 55,764,136 Series B ADRs outstanding
held by 1 holder of record for Series A ADRs and 47 holders of record for the
Series B ADRs.  As of May 31, 2009, such ADRs represented
approximately 21.21% of the total number of issued and outstanding shares of our
Company.





Although
the Series A ADRs were voluntarily delisted from the New York Stock Exchange,
there are still Series A ADRs outstanding.  When the Company decided
to delist the Series A ADRs and terminate the Series A ADR program, holders were
notified that they had 90 days to decide to sell their shareholding or exchange
their ADRs for the underlying local shares.  After that 90-day period,
the Depositary Bank has one year (until June 2009) to attempt to sell the local
shares underlying the outstanding ADRs in the Chilean market.




9.B
Plan Of
Distribution




Not
Applicable




9.CMarkets




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).  As of December 31, 2007, each series
was also traded on the New York Stock Exchange in the form of ADRs, where
each ADR represented 10 underlying shares of the corresponding
series.  On February 26, 2008, the Company’s Board of Directors voted
to voluntarily delist the Series A ADRs from the New York Stock Exchange, due to
the low trading volume of those shares.  On the same date, the Board
of Directors also approved a ratio change for the Series B ADRs, modifying the
previous ratio of 10 ordinary shares to 1 ADR to a new ratio of
1:1.  The Series A ADRs were delisted on March 27, 2008, and the
Series B ratio change entered into effect on March 28, 2008.  Prior to
their delisting, the ADRs representing Series A shares traded on the NYSE
beginning on April 9, 1999.  The ADRs representing Series B
shares have traded on the NYSE since September 20, 1993.  The
depositary bank for these ADRs is the Bank of New York Mellon.


82


9.D
Selling
Shareholders




Not
applicable




9.E
Dilution




Not
applicable




9.F
Expenses Of
The Issue




Not
applicable


83




ITEM 10.ADDITIONAL
INFORMATION




10.A.Share
Capital




Not
applicable




10.B.Memorandum
and Articles Of Association




SQM,
headquartered at El Trovador No 4285, 6th Floor,
Santiago, Chile, is an open stock corporation (sociedad anónima abierta) 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.




Corporate
purposes




Our main
purposes, which appear in article 4 of our 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.  We
may comply with the foregoing by acting ourselves or through or with other
different legal entities or natural persons, within the country or abroad, with
properties of our own or owned by third parties, and additionally, in the ways
and territories, and with the aforementioned properties and purposes, we 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.




Directors




The
Company's By-laws, in articles 16 and 16 bis, essentially establish 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 No 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.


84


The Board
of Directors duties are remunerated, as stated in article 17 of the Company's
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 Company's By-laws, Directors can be reelected indefinitely;
thus, there is no age limit for their retirement.




As stated
in article 9 of the Company's By-laws, the possession of shares is not a
necessary condition to become a Director of our 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.  The 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 Company's By-laws establishes that Series B shares may in no case exceed
fifty percent of our issued, outstanding and paid shares.  Series B
shares have a restricted right to vote as they can only elect one Director of
the Company, regardless of their capital stock's share.  Series B
shares have the right to call for an Ordinary or Extraordinary Shareholders’
Meeting when the shareholders of at least 5% of  the Series B issued
shares request so and for 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
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 shares representing more than 37.5% of the outstanding shares with
right to vote of each Series. In calculating a single shareholder's ownership of
Series A or B shares, the shareholder's stock and those pertaining to third
parties related to them are to be added.




Article 5
bis of the Company's By-laws establishes that no person may directly or by means
of related third persons, state-owned companies, decentralized, autonomous,
municipal, or other institutions, concentrate more than 32% of our total shares
with right to vote.




Each
Series A share and Series B share is entitled to share equally in the Company's
profits, i.e., they have the same rights on any dividends declared on the
outstanding shares of SQM.




Our
By-laws do not contain any provision relating to: (i) redemption provisions,
(ii) sinking funds or (iii) liability to capital calls by the
Company.




As
established in Article 103 of Law 18.046, a company subject to the supervision
of the Chilean Securities and Exchange Commission may be liquidated in the
following cases:




(a)  Expiration
      of the duration term, if any, as established in its
    By-laws;




(b)  All
      the shares end up in the possession of one
  individual;




(c)  By
      agreement of an Extraordinary Shareholders
  Meeting;




(d)  By
      abolition, pursuant to applicable laws, of the decree that authorized its
      existence;




(e)  Any
      other reason contemplated in its
By-laws.




Article
40 of the Company's By-laws states that in the event of liquidation, the
Shareholders’ Meeting will appoint a three-member receiver committee that will
have the authority to carry out the liquidation process. Any surplus will be
distributed equally among the shareholders.




The only
way to change the rights of the holders of our shares is by modifying the
By-laws, which can only be carried out by an Extraordinary Shareholders’
Meeting, as set forth in article 28 of the Company By-laws.


85


Shareholders’
meetings




Article
29 of the Company's By-laws states that the call to a Shareholders’ Meeting,
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 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.  Notice of any Shareholders’ Meeting shall be delivered to the
Chilean Securities Commission (SVS), at least fifteen days in advance of such
meeting.




Any
holder of Series A and/or Series B shares registered in the Company's
shareholder registry on  the fifth business day prior to the date of
the meeting will have a right to participate at that meeting.




Foreign
shareholders




There
exists no restriction on ownership or share concentration, or limiting the
exercise of the related right to vote, by local or foreign shareholders other
than those discussed under Item 10.B. Memorandum and Articles of Association
-Shares above.




Change
in control




Our
Company By-laws provide that no shareholder may hold more than 32% of our
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 transactions 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 applies to those transactions in which the controlling party would receive a
material premium price compared with the price that would 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
Company's By-laws do not provide for a minimum threshold at which share
ownership must be disclosed.




10.C.Material
Contracts




The
following summarizes the terms and conditions of the main contracts to which SQM
or any subsidiary is a party:




·
            On
      February 12, 1999, SQM S.A. entered into an Electrical Energy Supply
      contract with Electroandina S.A.  The term of this contract
      extends through March 16, 2010.  SQM has two three-year renewal
      options. Early termination of the contract is subject to payment of
      non-amortized investments.




86


·
            On
      March 21, 1997, SQM Salar S.A. entered into an Electricity Supply
      agreement with Norgener S.A.  The term of this contract extends
      through March 20, 2017, and early termination is subject to
      penalties.




·
            On
      January 13, 1998, SQM Nitratos S.A. entered into an Electrical Energy
      Supply agreement with Norgener S.A.  The term of this contract
      extends through January 31, 2013.  Early termination of the
      contract is subject to payment of non-amortized
    investments.




·
            On
      May 22, 2001, SQM S.A. entered into a Natural Gas Supply agreement with
      Distrinor S.A. The term of this contract extends through May 21,
      2011.  Early termination of the contract is subject to payment
      of non-amortized investments.   SQM pays a fixed annual
      amount (amortization of investments), and when we receive gas, we pay the
      corresponding amounts.  However, in 2008 we received practically
      no gas, and we expect this situation to continue during
    2009.




In addition, the Company, during the
normal course of business,
has entered into different contracts, some of which have been described herein,
related to its production, commercial and legal operations. We believe all of
these contracts are standard for this type of industry, and none of them is
expected to havea material effect on the Company's
results of operations.




10.D.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.




Our 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, our 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 ADRs 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.




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 not domiciled in Chile who withdraws Series A or 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 ADRs 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 ADRs 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.


87


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 foreign currency, 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 ADRs and receive the benefits of the
Foreign Investment Contract, 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 requires approval of
the Central Bank of Chile based on a request 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.




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.  This was
made with the purpose of simplifying and facilitating the flow of capital to and
from Chile.  According to the new regulations, such investments must
be carried out through Chile's Formal Exchange Market and only 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.




As of
December 31, 2008, we had one long-term loan outstanding obtained in the
international markets (through a Rule 144A offering of US$200 million).
Additionally, Royal Seed Trading Corporation, a wholly owned subsidiary, has two
syndicated loans for an amount US$180.0 million outstanding, which are fully
guaranteed by us. SQM Investment Corporation, a wholly owned subsidiary, has a
bilateral loan in the amount of US$50.0 million outstanding, which is fully
guaranteed by us.


88


Any
purchases of U.S. dollars in connection with payments on these loans will occur
with the Formal Exchange Market.  There can be no assurance, however,
that restrictions applicable to payments in respect to 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.




10.E.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.




Cash
Dividends and Other Distributions




Cash
dividends paid by the Company with respect to the shares, including shares
represented by ADRs 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.  Under Chilean
income tax law, dividends are assumed to have been paid out of our oldest
retained tax profits for purposes of determining the rate at which the
First Category Tax was paid.




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.  The
company distributed two dividends corresponding to the business year 2008. The
first dividend, paid in November 2008, was considered taxable, and the total tax
retention rate was approximately 22%. The second dividend, distributed by the
Company in May 2009 corresponding to the business year 2008, was considered
taxable, and the total tax retention rate was approximately 22%.




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.


89


Capital
Gains




Gains
from the sale or other disposition by a foreign holder of ADR outside Chile will
not be subject to Chilean taxation. The deposit and withdrawal of the shares in
exchange for ADRs will not be subject to any Chilean taxes.




The tax
basis of the shares received in exchange for ADRs (repatriation) will be the
acquisition value of the shares. The shares exchanged for ADRs 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 ADRs 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 ADRs 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 ADRs for the shares, (ii)
the foreign holder acquired and disposed of the shares in the ordinary
course of its business or as a regular trader of shares, or (iii) the foreign
holder and the purchaser of the shares are related parties within the meaning of
Chilean tax law.  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.  Gain
recognized in the transfer of common shares that have a high presence in
the stock exchange, however, is not subject to capital gains tax in Chile,
provided that the common shares are transferred in a local exchange, in other
authorized stock exchanges, or within the process of a public tender of common
shares governed by the Chilean Securities Market Act.  The common
shares must also have been acquired either on a stock exchange, within the
referred process of a public tender of a common shares governed by the Chilean
Securities Market Act, in an initial public offer of common shares resulting
from the formation of a corporation or a capital increase of the same, or in an
exchange of convertible bonds.  Common shares are considered to have a
high presence in the stock exchange when they: a) are registered in the
Securities Registry b) are registered in a Chilean Stock Exchange, c) have an
adjusted presence equal  to or above 25%.




As of
June 19, 2001 capital gains obtained in the sale of common shares that are
publicly traded in a stock exchange are also exempt from capital gains tax in
Chile when the sale is made by "foreign institutional investors" such as mutual
funds and pension funds, provided that the sale is made in a stock exchange or
in accordance with the provisions of the securities market law (law 18.045), or
in any other form authorized by the SVS.  To qualify as foreign
institutional investors, the referred entities must be formed outside of Chile,
not have domicile in Chile, and they  must be an "investment fund" in
according with the Chilean tax law.




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).




Other
Chilean Taxes




No
Chilean inheritance, gift or succession taxes apply to the transfer or
disposition of the ADRs 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 ADRs 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 principal 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 ADRs.  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 and available on the date hereof, and
is subject to any changes in these or other laws occurring after such date. In
addition, the summary assumes that the depositary’s activities are clearly and
appropriately defined so as to ensure that the tax treatment of ADRs will be
identical to the tax treatment of the underlying shares.


90


For
purposes of this summary, the term "U.S. Holder" means a beneficial owner of
shares or ADRs 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
created or organized under the laws of the United States or any political
subdivision thereof, (c) an estate, the income of which is subject to U.S.
federal income tax regardless of the source, or (d) a trust (i) that validly
elects to be treated as a U.S. person for U.S. federal income tax purposes or
(ii)(A) if a court within the U.S. is able to exercise primary supervision over
the administration of the trust and (B) one or more U.S. persons have the
authority to control all substantial decisions of the trust.




The term
"Non-U.S. Holder" means, for purposes of this discussion, a beneficial owner of
shares or ADRs that is not a U.S. Holder.




If a
partnership (or any other entity treated as a partnership for U.S. federal
income tax purposes) holds shares or ADRs, the tax treatment of the partnership
and a partner in such partnership generally will depend on the status of the
partner and the activities of the partnership.  Such a partner or
partnership should consult its own tax advisor as to its
consequences.




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 ADRs 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
ADRs 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.




No
reciprocal tax treaties exist between the Republic of Chile and the United
States.




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 ADRs.  U.S. HOLDERS AND NON-U.S. HOLDERS OF SHARES OR
ADRs SHOULD CONSULT THEIR OWN TAX ADVISORS TO DETERMINE THE CONSEQUENCES UNDER
ANY SUCH LAW OF INVESTING IN THE SHARES OR ADRs.




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




TO ENSURE
COMPLIANCE WITH U.S. TREASURY DEPARTMENT CIRCULAR 230, INVESTORS ARE ADVISED
THAT: (A) ANY DISCUSSION OF U.S. FEDERAL TAX ISSUES IN THIS FORM 20-F IS NOT
INTENDED OR WRITTEN TO BE RELIED UPON, AND CANNOT BE RELIED UPON, BY INVESTORS
FOR THE PURPOSE OF AVOIDING PENALTIES THAT MAY BE IMPOSED ON SUCH INVESTORS
UNDER THE U.S. INTERNAL REVENUE CODE OF 1986, AS AMENDED; (B) SUCH DISCUSSION IS
INCLUDED BY THE COMPANY IN CONNECTION WITH THE PROMOTION OR MARKETING (WITHIN
THE MEANING OF CIRCULAR 230) BY THE COMPANY OF THE TRANSACTIONS OR MATTERS
ADDRESSED HEREIN; AND (C) INVESTORS SHOULD SEEK ADVICE BASED ON THEIR PARTICULAR
CIRCUMSTANCES FROM AN INDEPENDENT TAX ADVISOR.




Cash
Dividends and Other Distributions




The U.S.
Treasury Department has expressed concern that depositaries for ADRs, or other
intermediaries between the holders of shares of an issuer and the issuer, may be
taking actions that are inconsistent with the claiming of U.S. foreign tax
credits by U.S. holders of such receipts or shares.  Accordingly, the
analysis regarding the availability of a U.S. foreign tax credit for
Chilean taxes and sourcing rules described below could be affected by future
actions that may be taken by the U.S. Treasury Department.


91


The
following discussion of cash dividends and other distributions is subject to the
discussion below under “Passive Foreign Investment Company
Considerations”.  The gross amount of a distribution with respect to
shares or ADRs generally 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 ADRs, 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 ADRs 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 ADRs.  U.S. Holders
that are corporations will not be allowed a deduction for dividends received in
respect of distributions on the shares or the ADRs.  For example, if
the gross amount of a distribution with respect to the shares or ADRs exceeds
the Company's current and accumulated earnings and profits by US$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 ADRs equals or exceeds
US$10.00.  The Company does not maintain calculations of its earnings
and profits under U.S. federal income tax principles.  Accordingly,
U.S. Holders should assume that any cash distribution made by us will be treated
as a dividend for U.S. federal income tax purposes.




If a
dividend distribution is paid in Chilean 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 ADRs,
of the peso amount distributed, regardless of whether the payment is actually
converted into U.S. dollars.  The amount of any distribution of
property other than cash will be the fair market value of such property on the
date of distribution.  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 category income" or in the case of certain
U.S. Holders “general category 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
ADRs.




Subject to the discussion below under
“Information Reporting and
Backup Withholding”, if
you are aNon-U.S. Holder, you generally will not be subject to U.S.
federal income or withholding tax on dividends received by you on your shares or
ADRs, unless you conduct a trade or business in the United States and such
income is effectively connected with that trade or business.




Capital
Gains




AU.S. Holder will generally
recognize gain or loss on the sale, redemption or other disposition of the
shares or ADRs 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
ADRs.  Thus, if the U.S. Holder sells the shares for US$40.00 and such
U.S. Holder's tax basis in such shares is US$30.00, such U.S. Holder will
generally recognize a gain of US$10.00 for U.S. federal income tax
purposes.  Subject to the discussion below under “Passive Foreign
Investment Company Considerations”, gain or loss upon the sale of the shares or
ADRs will be capital gain or loss if the shares or ADRs 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 ADRs 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
ADR.


92


Subject to the discussion below under “Information Reporting and Backup
Withholding”, a Non-U.S.
Holder of ADRs or shares will not be subject to United States income or
withholding tax on gain from the sale or other disposition of ADRs 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.




Passive
Foreign Investment Company Considerations




A
Non-U.S. corporation will be classified as a “passive foreign investment
company”, or a PFIC, for U.S. federal income tax purposes in any taxable year in
which, after applying certain look-through rules, either (i) at least 75% of its
gross income is “passive income” or (ii) at least 50% of the average value of
its gross assets is attributable to assets that produce “passive income” or are
held for the production of passive income.  Passive income for this
purpose generally includes dividends, interest, royalties, rents and gains from
the sale of stock (including gains from the sale of stock of certain
subsidiaries), partnership interests, securities or commodities.




Based on
certain estimates of our gross income and gross assets and the nature of our
business, the Company believes that it was not classified as a PFIC in
2008.  The Company’s status in future years will depend on its assets
and activities in those years.  If the Company were a PFIC, a U.S.
Holder of shares or ADRs generally would be subject to imputed interest charges
and other disadvantageous tax treatment (including the denial of taxation at the
lower rates applicable to long-term capital gains with respect to any gain
from the sale or exchange of shares or ADRs).




Information
Reporting and Backup Withholding




Payments
of dividends on the shares or ADRs and the proceeds of sale or other disposition
of the shares or ADRs 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 28% 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
United States law and applicable regulations.  U.S. information
reporting and backup withholding of U.S. federal income tax at a rate of 28% 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.




10.F.Dividends
and Paying Agents




Not
applicable




10.G.Statement
by Experts




Not
applicable


93




10.H.Documents
on Display




Documents
referred to in this form 20-F are available to the public at:




http://www.sec.gov/edgar/searchedgar/companysearch.html,
CIK: 909037.




10.I.Subsidiary
Information




See Item
4.C. Organizational Structure.




94




ITEM
11.




QUANTITATIVE
AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK




As
explained elsewhere in this Annual Report, we transact our businesses in more
than 100 countries, thereby rendering our 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.




We, from
time to time and depending upon then current market conditions, review and
re-establish our financial policies to protect our
operations.  Management is authorized by our Board of Directors to
engage in certain derivative contracts such as forwards and swaps to
specifically hedge the fluctuations in interest rates and in currencies other
than the U.S. dollar.




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




Interest Rate
Risk.  As of December 31, 2008, we had approximately 55% of our
financial debt priced at Libor, and therefore significant increases in the rate
could impact our financial condition. We also maintain the majority of our
short-term financial debt priced at Libor plus a spread for which we do not have
any kind of derivative contract.




Expected Maturity DateOn Balance Sheet
                                Financial Instruments
                              
                              2009
                              
                              
                              2010
                              
                              
                              2011
                              
                              
                              2012
                              
                              
                              2013 and
                                thereafter
                              
                              
                              Total
                              
                              
                              Fair Value(in
      thousands of U.S. dollars)Fixed
      Rate (US$)
                              
                              
                              22,775
                              
                              
                              
                              22,471
                              
                              
                              
                              22,167
                              
                              
                              
                              21,875
                              
                              
                              
                              345,571
                              
                              
                              
                              434,858
                              
                              
                              
                              369,094200m
      US$ bond – Avg. Int. rate: 6.125%
                              
                              
                              12,250
                              
                              
                              
                              12,250
                              
                              
                              
                              12,250
                              
                              
                              
                              12,250
                              
                              
                              
                              242,875
                              
                              
                              
                              291,875
                              
                              
                              
                              251,864CCS
      US$ bond- Avg. Int. rate: 5.84% (1)
                              
                              
                              10,525
                              
                              
                              
                              10,221
                              
                              
                              
                              9,917
                              
                              
                              
                              9,625
                              
                              
                              
                              102,696
                              
                              
                              
                              142,983
                              
                              
                              
                              117,230Variable
      Rate (US$)
                              
                              
                              5,170
                              
                              
                              
                              153,613
                              
                              
                              
                              81,567
                              
                              
                              
                              -
                              
                              
                              
                              -
                              
                              
                              
                              240,350
                              
                              
                              
                              232,567100m
      US$ loan – Avg. Projected Int.: 2.08%
                              
                              
                              1,861
                              
                              
                              
                              100,527
                              
                              
                              
                              -
                              
                              
                              
                              -
                              
                              
                              
                              -
                              
                              
                              
                              102,387
                              
                              
                              
                              100,68980m
      US$ loan – Avg. Projected Int.:2.13%
                                50m
      US$ loan – Avg. Projected Int.: 2.97%
                              
                              
                              1,698
      1,611
                              
                              
                              
                              1,712
      51,274
                              
                              
                              
                              81,567
      -
                              
                              
                              
                              -
      -
                              
                              
                              
                              -
      -
                              
                              
                              
                              84,977
      52,985
                              
                              
                              
                              80,371
      51,507Total
                              
                              
                              27,944
                              
                              
                              
                              176,084
                              
                              
                              
                              103,734
                              
                              
                              
                              21,875
                              
                              
                              
                              345,571
                              
                              
                              
                              675,209
                              
                              
                              
                              601,662







(1)
            UF-bond
      fully hedged, under Chilean GAAP, to US$ with a Cross Currency Swap
      (CCS).  Cash flows expressed in their nominal currency are
      presented below:




Expected Maturity Date2009
                
                
                2010
                
                
                2011
                
                
                2012
                
                
                2013and
                  thereafter
                
                
                Total
                
                
                FairValue3M
      UF Bond – Int. rate 4.00%SQM
      pays bond holders (UF)
                
                
                255,456
                
                
                
                249,515
                
                
                
                243,574
                
                
                
                237,633
                
                
                
                2,703,032
                
                
                
                3,698,210
                
                
                
                3,032,610Cross
      Currency SwapCCS
      UF Int. rate 4.00% - Santander pays SQM
                
                
                -255,456
                
                
                
                -249,515
                
                
                
                -243,574
                
                
                
                -237,633
                
                
                
                -2,703,032
                
                
                
                -3,698,210
                
                
                
                -3,032,610CCS
      US$ Int. rate 5.84% - SQM pays Santander
                
                
                10,525
                
                
                
                10,221
                
                
                
                9,917
                
                
                
                9,625
                
                
                
                102,696
                
                
                
                142,983
                
                
                
                117,230





Exchange Rate
Risk.Although the U.S.
dollar is the primary currency in which we transact our businesses, our
operations throughout the world expose us to exchange rate variations for
non-U.S. dollar currencies.  Therefore, fluctuations in the exchange
rate of such local currencies may affect our financial condition and results of
operations.  To lessen these effects, we maintain derivative contracts
to protect the net difference between our principal assets and liabilities for
currencies other than the U.S. dollar.  These contracts are renewed
periodically depending on the amount covered in each currency.  Aside
from this, we do not hedge potential future income and expenses in currencies
other than the U.S. dollar with the exception of the euro and Chilean
peso.  We estimate annual sales in euros and expenses in Chilean pesos
and secure the exchange difference with derivative contracts.


95


As of
December 31, 2008 and 2007 we had the following net monetary assets and
liabilities that are subject to foreign exchange gain or loss
fluctuation:




2008
                      
                      
                      2007Th US$
                      
                      
                      Th US$Chilean
      pesos
                      
                      
                      (104,605
                      )
                      
                      
                      36,975Brazilian
      real
                      
                      
                      (1,367
                      )
                      
                      
                      (1,281
                      )Euro
                      
                      
                      64,627
                      
                      
                      
                      31,730Japanese
      yen
                      
                      
                      1,033
                      
                      
                      
                      692Mexican
      pesos
                      
                      
                      2,188
                      
                      
                      
                      (2,900
                      )South
      African rand
                      
                      
                      11,584
                      
                      
                      
                      8,346Dirhams
                      
                      
                      15,353
                      
                      
                      
                      10,012Other
      currencies
                      
                      
                      14,971
                      
                      
                      
                      8,584Total,
      net
                      
                      
                      3,784
                      
                      
                      
                      92,158




As of
December 31, 2008, we had open forward exchange contracts and options to buy
U.S. dollars and sell foreign currency for approximately 30 million euros
(US$41.91 million), and 15 million South African Rands (US$1.57 million), as
well as forward exchange contracts to sell Chilean pesos and buy U.S. dollars
for approximately 26,730.9 million Chilean pesos (US$42 million).




ITEM 12.DESCRIPTION OF SECURITIES OTHER THAN EQUITY SECURITIES




Not
applicable


96




PART
II




ITEM 13.DEFAULTS,
DIVIDEND ARREARAGES AND DELINQUENCIES




Not
applicable




ITEM 14.MATERIAL
MODIFICATIONS TO THE RIGHTS OF SECURITY HOLDERS AND USE OF PROCEEDS




Not
applicable.




ITEM 15.CONTROLS
AND PROCEDURES




(a) Disclosure Control and
Procedures




Under the
supervision and with the participation of the Company's management, including
the Company's Chief Executive Officer and Chief Financial Officer, we evaluated
the effectiveness of the design and operation of our disclosure controls and
procedures, pursuant to Exchange Act Rules 13(a)-15(b), as of the end of the
period covered by this Annual Report.  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 our internal controls are designed to provide
reasonable assurance that our 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 significant changes in our internal controls over financial reporting
that occurred during the period covered by this Annual Report that have
materially affected, or are likely to materially affect our internal control
over financial reporting.




(b) Management’s
Annual Report on Internal Control Over Financial Reporting




SQM
Management is responsible for establishing and maintaining adequate internal
control over financial reporting. The Company’s internal control over financial
reporting is designed to provide reasonable assurance regarding the reliability
of financial reporting and the preparation of the financial statements for
external purposes in accordance with generally accepted accounting
principles.




Because
of its inherent limitations, internal control over financial reporting may not
necessarily prevent or detect some misstatements. It can only provide reasonable
assurance regarding financial statement preparation and presentation. Also,
projections of any evaluation of effectiveness for future periods are
subject to the risk that controls may become inadequate because of changes in
conditions or because the degree of compliance with the polices or procedures
may deteriorate over time.




Management
assessed the effectiveness of its internal control over financial reporting for
the year ended December 31, 2008. The assessment was based on criteria
established in the framework “Internal Controls — Integrated Framework” issued
by the Committee of Sponsoring Organizations of the Treadway Commission (COSO).
Based on the assessment, SQM management has concluded that as of
December 31, 2008, the Company’s internal control over financial reporting
was effective.


97


(c) Attestation
Report of the Registered Public Accounting Firm




Ernst
& Young Ltda., the independent registered public accounting firm that has
audited our Consolidated Financial Statements, has also issued an attestation
report on the Company’s internal control over financial reporting as of
December 31, 2008. This attestation report appears on pages F-2 and F-3
under Item 18 Financial Statements.




(d) Changes
in internal control




There
were no changes in the Company’s internal control over financial reporting that
occurred during 2008 that have materially affected, or are reasonably likely to
materially affect, the Company’s internal control over financial
reporting.




ITEM 16.[Reserved]




ITEM
16A. AUDIT COMMITTEE FINANCIAL EXPERT




On June
17, 2008, the Board of Directors determined that the Company does not have an
audit committee financial expert within the meaning of the regulations adopted
under Sarbanes-Oxley Act of 2002.




Pursuant
to Chilean regulations, the Company has a Directors' Committee whose main duties
are similar to those of an audit committee. Each of the members of the
Directors' Committee is a member of the audit committee. See 6.C. Board
Practices.




Our Board
believes that the members of the Directors' Committee have the necessary
expertise and experience to perform the functions of the Directors' Committee
pursuant to Chilean regulations.




ITEM
16B. CODE OF ETHICS




We have
adopted a Code of Business Conduct that applies to the Chief Executive Officer,
the Chief Financial Officer and the Internal Auditor, as well as, to all our
officers and employees.  Our Code adheres to the definition set forth
in Item 16B of Form 20-F under the Exchange Act.




No
waivers have been granted therefrom to the officers mentioned
above.




The full
text of the code is available on our website at http://www.sqm.comin the Investor
Relations section under “Corporate Governance Framework”.




Amendments
to, or waivers from one or more provisions of the code will be disclosed on our
website.




ITEM
16C. PRINCIPAL ACCOUNTANT FEES AND SERVICES




The table
sets forth the amount of fees billed for each of the last two fiscal years by
our independent auditors, Ernst & Young, in relation to audit services,
audit-related services, tax and other services provided to us (in thousands of
U.S. dollars).




Year ended December 31,2008
                  
                  
                  2007Audit
      fees
                  
                  
                  773.1
                  
                  
                  
                  1,061.6Audit-related
      fees
                  
                  
                  -
                  
                  
                  
                  41.2Tax
      fees
                  
                  
                  26.68
                  
                  
                  
                  78.1Other
      fees
                  
                  
                  73.13
                  
                  
                  
                  114.3Total
      fees
                  
                  
                  872.91
                  
                  
                  
                  1,295.2


98




Audit
fees in the above table are the aggregate fees billed by Ernst & Young in
connection with the audit of our annual Consolidated Financial Statements, as
well as the review of other statutory filings.




Audit-related
fees in the above table are fees billed by Ernst & Young for assurance and
related services that are reasonably related to the performance of the audit or
review of our financial statements and are not reported under "Audit
Fees."




Tax fees
in the above table are fees billed by Ernst & Young for tax advice and tax
planning services.




Directors'
Committee Pre-Approval Policies and Procedures




Chilean
law states that public companies are subject to "pre-approval" requirements
under which all audit and non-audit services provided by the independent auditor
must be pre-approved by the Directors’ Committee. Our Directors’ Committee
approves all audit, audit-related, tax and other services provided by Ernst
& Young.




Any
services provided by Ernst & Young that are not specifically included within
the scope of the audit must be pre-approved by the Directors’ Committee prior to
any engagement.




ITEM
16D. EXEMPTIONS FROM THE LISTING STANDARDS FOR AUDIT COMMITTEE




Not
applicable




ITEM
16E. PURCHASES OF EQUITY SECURITIES BY THE ISSUER AND AFFILIATED
PURCHASERS




Not
applicable




ITEM
16F. CHANGE IN REGISTRANT’S CERTIFYING ACCOUNTANT




Not
applicable




ITEM
16G. CORPORATE GOVERNANCE




For a
summary of the significant differences between our corporate governance
practices and the NYSE corporate governance standards, please see "Item 6.
Directors, Senior Management and Employees-C. Board Practices".


99


PART
III




ITEM 17.FINANCIAL
STATEMENTS




Not
applicable




ITEM 18.FINANCIAL
STATEMENTS




See Item
19(a) for a list of all financial statements filed as part of this Form 20-F
annual report.




ITEM 19.EXHIBITS




(a)
Index to Financial Statements





Report
      of Independent Registered
      Public Accounting Firm
                
                F-1Report
      of Independent Registered
      Public Accounting Firm on the internal control over financial reporting as of December 31,
      2008
                
                F-2Consolidated
      Financial Statements:Audited
      Consolidated Balance Sheets as of December 31, 2008 and
    2007
                
                F-4Audited
      Consolidated Statements of Income for each of the three years in the
      period  ended December 31, 2008, 2007 and 2006
                
                F-6Audited
      Consolidated Statements of Cash Flows for each of the three years in the
      period ended December 31, 2008, 2007 and 2006
                
                F-7Notes
      to the Audited Consolidated Financial Statements
                
                F-9Supplementary
      Schedules*





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




(b)
Exhibits




Exhibit
                    No.
                  
                  Exhibit1.1
                  
                  By-laws
      (Estatutos) of the Company**8.1
                  
                  Significant
      subsidiaries of the Company12.1
                  
                  Section
      302 Chief Executive Officer Certification12.2
                  
                  Section
      302 Chief Financial Officer Certification13.1
                  
                  Section
      906 Chief Executive Officer Certification13.2
                  
                  Section
      906 Chief Financial Officer
Certification





**
Incorporated by reference to the Company’s Annual Report on Form 20-F for the
year ended December 31, 2004 filed with the    Securities
and Exchange Commission on June 30, 2005.


100





SIGNATURES





The
registrant hereby certifies that it meets all of the requirements for filing on
Form 20-F and that it has duly caused 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.)





/s/Ricardo
Ramos





Ricardo
Ramos R.


Chief
Financial Officer and


Business
Development Senior Vice President





Date:
June 30, 2009


101


Consolidated
Financial Statements





SOCIEDAD
QUIMICA Y MINERA DE CHILE S.A. AND SUBSIDIARIES





As of
December 31, 2008 and 2007


and for
each of the three years in the period ended December 31, 2008





ContentsReport
      of Independent Registered Public Accounting Firm
              
              F-1Report
      of Independent Registered Public Accounting Firm on the internal control
      over financial reporting as of December 31, 2008
              
              F-2Consolidated
      Financial Statements:Audited
      Consolidated Balance Sheets as of December 31, 2008 and
    2007
              
              F-4Audited
      Consolidated Statements of Income for each of the three years in the
      period endedDecember
      31, 2008
              
              F-6Audited
      Consolidated Statements of Cash Flows for each of the three years in the
      period ended December 31, 2008
              
              F-7Notes
      to the Audited Consolidated Financial Statements
              
              F-9





US$
            -
            United
      States dollarsThUS$
            -
            Thousands
      of United States dollarsCh$
            -
            Chilean
      pesosThCh$
            -
            Thousands
      of Chilean pesosThEuro
            -
            Thousands
      of EurosUF
            -
            or
      Unidad de Fomento.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.


102


Report
of Independent Registered Public Accounting Firm





To the
Board of Directors and Shareholders of


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 (“the Company”) as of December 31, 2008
and 2007, and the related consolidated statements of income and cash flows for
each of the three years in the period ended December 31, 2008. 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 the standards of the Public Company
Accounting Oversight Board (United States). 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 also includes examining,
on a test basis, evidence supporting the amounts and disclosures in the
financial statements, assessing the accounting principles used and significant
estimates made by management, and 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 at December 31, 2008 and 2007, and the
results of their operations and their cash flows for each of the three years in
the period ended December 31, 2008 in conformity with accounting principles
generally accepted in Chile, which differ in certain respects from accounting
principles generally accepted in the United States of America (see Note 30
to the consolidated financial statements).




We also
have audited, in accordance with the standards of the Public Company Accounting
Oversight Board (United States), the Company’s internal control over financial
reporting as of December 31, 2008, based on the criteria established in
Internal Control-Integrated Framework issued by the Committee of Sponsoring
Organizations of the Treadway Commission and our report dated February 24, 2009,
except for internal control over financial reporting related to Notes 29 and 30
of the 2008 consolidated financial statements as to which the date is June 19,
2009, expressed an unqualified opinion thereon.





ERNST
& YOUNG LTDA.







Santiago,
Chile


February
24, 2009


(Except
for Notes 29 and 30 for which the date is June 19, 2009)


F-1


Report
of Independent Registered Public Accounting Firm





To the
Board of Directors and Shareholders of


Sociedad
Química y Minera de Chile S.A.:





We have
audited Sociedad Química y Minera de Chile S.A. and subsidiaries’ (the
“Company”) internal control over financial reporting as of December 31, 2008,
based on criteria established in Internal Control—Integrated Framework issued by
the Committee of Sponsoring Organizations of the Treadway Commission (the “COSO
criteria”).  The Company’s management is responsible for maintaining
effective internal control over financial reporting, and for its assessment of
the effectiveness of internal control over financial reporting included in the
accompanying Management’s Annual Report on Internal Control Over Financial
Reporting. Our responsibility is to express an opinion on the Company’s internal
control over financial reporting based on our audit.





We
conducted our audit in accordance with the standards of the Public Company
Accounting Oversight Board (United States). Those standards require that we plan
and perform the audit to obtain reasonable assurance about whether effective
internal control over financial reporting was maintained in all material
respects. Our audit included obtaining an understanding of internal control over
financial reporting, assessing the risk that a material weakness exists, testing
and evaluating the design and operating effectiveness of internal control based
on the assessed risk, and performing such other procedures as we considered
necessary in the circumstances. We believe that our audit provides a reasonable
basis for our opinion.





A
company’s internal control over financial reporting is a process designed to
provide reasonable assurance regarding the reliability of financial reporting
and the preparation of financial statements for external purposes in accordance
with generally accepted accounting principles. A company’s internal control over
financial reporting includes those policies and procedures that (1) pertain to
the maintenance of records that, in reasonable detail, accurately and fairly
reflect the transactions and dispositions of the assets of the company; (2)
provide reasonable assurance that transactions are recorded as necessary to
permit preparation of financial statements in accordance with generally accepted
accounting principles, and that receipts and expenditures of the company are
being made only in accordance with authorizations of management and directors of
the company; and (3) provide reasonable assurance regarding prevention or
timely detection of unauthorized acquisition, use, or disposition of the
company’s assets that could have a material effect on the financial
statements.





Because
of its inherent limitations, internal control over financial reporting may not
prevent or detect misstatements.  Also, projections of any evaluation
of effectiveness to future periods are subject to the risk that controls may
become inadequate because of changes in conditions, or that the degree of
compliance with the policies or procedures may deteriorate.




F-2


In our
opinion, Sociedad Química y Minera de Chile S.A. and subsidiaries maintained, in
all material respects, effective internal control over financial reporting as of
December 31, 2008, based onthe COSO
criteria.





We also
have audited, in accordance with the standards of the Public Company Accounting
Oversight Board (United States), the consolidated balance sheets of Sociedad
Química y Minera de Chile S.A. and subsidiaries as of December 31, 2008 and
2007, and the related consolidated statements of income and cash flows for each
of the three years in the period ended December 31, 2008 and our report dated
February 24, 2009, except as to Notes 29 and 30 as to which the date is June 19,
2009 expressed an unqualified opinion thereon.





ERNST
& YOUNG LTDA.







Santiago,
Chile


February
24, 2009


(Except
for internal control over financial reporting related to Notes 29 and 30 of the
2008 consolidated financial statements as to which the date is June 19,
2009)


F-3


Sociedad
Química y Minera de Chile S.A. and Subsidiaries


Audited
Consolidated Balance Sheets


(Expressed
in thousands of US dollars, except as stated)





As
      of December 31,ASSETS
                  
                  Note
                  
                  
                  2008
                  
                  
                  2007ThUS$
                  
                  
                  ThUS$Current
      assetsCash
      and cash equivalents
                  
                  
                  
                  
                  
                  303,799
                  
                  
                  
                  164,212Time
      deposits
                  
                  
                  
                  
                  
                  20,121
                  
                  
                  
                  -Trade
      accounts receivable, net
                  
                  
                  4
                  
                  
                  
                  328,041
                  
                  
                  
                  249,718Other
      accounts receivable, net
                  
                  
                  4
                  
                  
                  
                  6,743
                  
                  
                  
                  6,249Accounts
      receivable from related companies
                  
                  
                  5
                  
                  
                  
                  51,027
                  
                  
                  
                  35,767Inventories,
      net
                  
                  
                  6
                  
                  
                  
                  540,727
                  
                  
                  
                  387,768Recoverable
      taxes
                  
                  
                  
                  
                  
                  
                  37,081
                  
                  
                  
                  31,322Prepaid
      expenses
                  
                  
                  
                  
                  
                  
                  5,490
                  
                  
                  
                  4,197Deferred
      income taxes
                  
                  
                  14
                  
                  
                  
                  34,802
                  
                  
                  
                  -Other
      current assets
                  
                  
                  
                  
                  
                  
                  11,583
                  
                  
                  
                  24,721Total
      current assets
                  
                  
                  
                  
                  
                  
                  1,339,414
                  
                  
                  
                  903,954Property,
      plant and equipment, net
                  
                  
                  7
                  
                  
                  
                  1,119,920
                  
                  
                  
                  983,449Other
      AssetsInvestments
      in related companies
                  
                  
                  8
                  
                  
                  
                  36,951
                  
                  
                  
                  23,935Goodwill,
      net
                  
                  
                  9
                  
                  
                  
                  31,901
                  
                  
                  
                  34,236Negative
      goodwill, net
                  
                  
                  9
                  
                  
                  
                  (1,279
                  )
                  
                  
                  (1,291
                  )Intangible
      assets, net
                  
                  
                  
                  
                  
                  
                  3,115
                  
                  
                  
                  3,814Long-term
      accounts receivable, net
                  
                  
                  4
                  
                  
                  
                  767
                  
                  
                  
                  604Long-term
      accounts receivable from related companies
                  
                  
                  5
                  
                  
                  
                  2,000
                  
                  
                  
                  2,000Other
      long-term assets
                  
                  
                  10
                  
                  
                  
                  34,426
                  
                  
                  
                  35,618Total
      other assets
                  
                  
                  
                  
                  
                  
                  107,881
                  
                  
                  
                  98,916Total
      assets
                  
                  
                  
                  
                  
                  
                  2,567,215
                  
                  
                  
                  1,986,319





The
accompanying notes 1 to 30 form an integral part of these consolidated financial
statements.


F-4


Sociedad
Química y Minera de Chile S.A. and Subsidiaries


Audited
Consolidated Balance Sheets


(Expressed
in thousands of US dollars, except as stated)





As
      of December 31,LIABILITIES
      AND SHAREHOLDERS' EQUITY
                
                Note
                
                
                2008
                
                
                2007ThUS$
                
                
                ThUS$Current
      liabilitiesShort-term
      bank debt
                
                
                11
                
                
                
                133,355
                
                
                
                1,807Current
      portion of long-term bank debt
                
                
                11
                
                
                
                451
                
                
                
                801Current
      portion of bonds payable
                
                
                12
                
                
                
                7,929
                
                
                
                8,868Dividends
      payable
                
                
                
                
                
                
                656
                
                
                
                531Accounts
      payable
                
                
                
                
                
                
                109,763
                
                
                
                103,922Notes
      and accounts payable to related companies
                
                
                5
                
                
                
                178
                
                
                
                1,987Accrued
      liabilities
                
                
                13
                
                
                
                30,414
                
                
                
                22,314Withholdings
                
                
                
                
                
                
                32,252
                
                
                
                22,931Income
      taxes
                
                
                
                
                
                
                89,186
                
                
                
                9,514Deferred
      income
                
                
                27
                
                
                
                31,722
                
                
                
                10,858Deferred
      income taxes
                
                
                14
                
                
                
                -
                
                
                
                6,214Other
      current liabilities
                
                
                
                
                
                
                10,000
                
                
                
                2,675Total
      current liabilities
                
                
                
                
                
                
                445,906
                
                
                
                192,422Long-term
      liabilitiesLong-term
      bank debt
                
                
                11
                
                
                
                230,000
                
                
                
                180,000Bonds
      payable
                
                
                12
                
                
                
                285,940
                
                
                
                306,651Deferred
      income taxes
                
                
                14
                
                
                
                57,485
                
                
                
                55,409Long-term
      accrued liabilities
                
                
                15
                
                
                
                37,310
                
                
                
                22,671Other
      long-term liabilities
                
                
                
                
                
                
                397
                
                
                
                731Total
      long-term liabilities
                
                
                
                
                
                
                611,132
                
                
                
                565,462Minority
      interest
                
                
                16
                
                
                
                47,069
                
                
                
                45,999Commitments
      and contingencies
                
                
                23
                
                
                
                -
                
                
                
                -Shareholders'
      equityPaid-in
      capital
                
                
                17
                
                
                
                477,386
                
                
                
                477,386Other
      reserves
                
                
                17
                
                
                
                159,721
                
                
                
                163,442Retained
      earnings
                
                
                17
                
                
                
                826,001
                
                
                
                541,608Total
      Shareholders' equity
                
                
                
                
                
                
                1,463,108
                
                
                
                1,182,436Total
      Liabilities and Shareholders' equity
                
                
                
                
                
                
                2,567,215
                
                
                
                1,986,319





The
accompanying notes 1 to 30 form an integral part of these consolidated financial
statements.


F-5


Sociedad
Química y Minera de Chile S.A. and Subsidiaries


Audited
Consolidated Statements of Income


(Expressed
in thousands of US dollars, except as stated)





For
      the years ended December 31,Note
                
                
                2008
                
                
                2007
                
                
                2006ThUS$
                
                
                ThUS$
                
                
                ThUS$Operating
      incomeSales
                
                
                
                
                
                1,774,119
                
                
                
                1,187,527
                
                
                
                1,042,886Cost
      of sales
                
                
                
                
                
                (1,056,254
                )
                
                
                (857,765
                )
                
                
                (753,336
                )Gross
      margin
                
                
                
                
                
                717,865
                
                
                
                329,762
                
                
                
                289,550Selling
      and administrative expenses
                
                
                
                
                
                (85,709
                )
                
                
                (70,273
                )
                
                
                (69,662
                )Operating
      income
                
                
                
                
                
                632,156
                
                
                
                259,489
                
                
                
                219,888Non-operating
      income and expenseNon-operating
      income
                
                
                19
                
                
                
                40,590
                
                
                
                25,948
                
                
                
                19,293Non-operating
      expenses
                
                
                19
                
                
                
                (59,896
                )
                
                
                (53,032
                )
                
                
                (55,341
                )Non-operating
      loss
                
                
                
                
                
                
                (19,306
                )
                
                
                (27,084
                )
                
                
                (36,048
                )Income
      before income taxes, minority interest and amortization of negative
      goodwill
                
                
                
                
                
                
                612,850
                
                
                
                232,405
                
                
                
                183,840Income
      tax expense
                
                
                14
                
                
                
                (107,951
                )
                
                
                (48,592
                )
                
                
                (37,916
                )Income
      before minority interest and amortization of negative
    goodwill
                
                
                
                
                
                
                504,899
                
                
                
                183,813
                
                
                
                145,924Minority
      interest
                
                
                16
                
                
                
                (3,492
                )
                
                
                (3,792
                )
                
                
                (4,715
                )Income
      before amortization of negative goodwill
                
                
                
                
                
                
                501,407
                
                
                
                180,021
                
                
                
                141,209Amortization
      of negative goodwill
                
                
                9
                
                
                
                -
                
                
                
                -
                
                
                
                68Net
      income for the year
                
                
                
                
                
                
                501,407
                
                
                
                180,021
                
                
                
                141,277





The
accompanying notes 1 to 30 form an integral part of these consolidated financial
statements.




F-6




Sociedad
Química y Minera de Chile S.A. and Subsidiaries


Audited
Consolidated Statements of Cash Flows


(Expressed
in thousands of US dollars, except as stated)





For
      the years ended December 31Note
                                    
                                    
                                    2008
                                    
                                    
                                    2007
                                    
                                    
                                    2006ThUS$
                                    
                                    
                                    ThUS$
                                    
                                    
                                    ThUS$Cash
      flows from operating activitiesNet
      income
                                    
                                    
                                    
                                    
                                    
                                    501,407
                                    
                                    
                                    
                                    180,021
                                    
                                    
                                    
                                    141,277Charges
      (credits) to income not representing cash flows:Depreciation
      expense
                                    
                                    
                                    7
                                    
                                    
                                    
                                    110,575
                                    
                                    
                                    
                                    97,826
                                    
                                    
                                    
                                    90,354Amortization
      of intangible assets
                                    
                                    
                                    
                                    
                                    
                                    
                                    698
                                    
                                    
                                    
                                    712
                                    
                                    
                                    
                                    915Write-offs
      and accruals
                                    
                                    
                                    
                                    
                                    
                                    
                                    44,710
                                    
                                    
                                    
                                    34,063
                                    
                                    
                                    
                                    16,512Equity
      participation in net income of unconsolidated investees
                                    
                                    
                                    
                                    
                                    
                                    
                                    (14,358
                                    )
                                    
                                    
                                    (3,643
                                    )
                                    
                                    
                                    (2,314
                                    )Equity
      participation in net losses of unconsolidated investees
                                    
                                    
                                    
                                    
                                    
                                    
                                    -
                                    
                                    
                                    
                                    77
                                    
                                    
                                    
                                    362Amortization
      of goodwill
                                    
                                    
                                    9
                                    
                                    
                                    
                                    2,215
                                    
                                    
                                    
                                    2,252
                                    
                                    
                                    
                                    2,229Amortization
      of negative goodwill
                                    
                                    
                                    9
                                    
                                    
                                    
                                    -
                                    
                                    
                                    
                                    -
                                    
                                    
                                    
                                    (68
                                    )Loss
      (gain) on sales of assets
                                    
                                    
                                    
                                    
                                    
                                    
                                    (2,793
                                    )
                                    
                                    
                                    87
                                    
                                    
                                    
                                    (809
                                    )Gains
      on sale of investment
                                    
                                    
                                    
                                    
                                    
                                    
                                    (1,387
                                    )
                                    
                                    
                                    (1,316
                                    )
                                    
                                    
                                    (732
                                    )Other
      credits to income not representing cash flows
                                    
                                    
                                    22
                                    
                                    
                                    
                                    (4,979
                                    )
                                    
                                    
                                    (1,745
                                    )
                                    
                                    
                                    (2,762
                                    )Other
      charges to income not representing cash flows
                                    
                                    
                                    22
                                    
                                    
                                    
                                    205,986
                                    
                                    
                                    
                                    108,075
                                    
                                    
                                    
                                    82,333Foreign
      currency exchange and price-level restatement, net
                                    
                                    
                                    
                                    
                                    
                                    
                                    15,897
                                    
                                    
                                    
                                    (2,212
                                    )
                                    
                                    
                                    2,263Net
      changes in operating assets and liabilities:Accounts
      receivable
                                    
                                    
                                    
                                    
                                    
                                    
                                    (184,713
                                    )
                                    
                                    
                                    (25,830
                                    )
                                    
                                    
                                    (240
                                    )Inventories
                                    
                                    
                                    
                                    
                                    
                                    
                                    (193,469
                                    )
                                    
                                    
                                    (34,983
                                    )
                                    
                                    
                                    (46,730
                                    )Other
      assets
                                    
                                    
                                    
                                    
                                    
                                    
                                    1,976
                                    
                                    
                                    
                                    (6,437
                                    )
                                    
                                    
                                    7,917Accounts
      payable
                                    
                                    
                                    
                                    
                                    
                                    
                                    61,156
                                    
                                    
                                    
                                    (4,000
                                    )
                                    
                                    
                                    (23,359
                                    )Interest
      payable
                                    
                                    
                                    
                                    
                                    
                                    
                                    1,729
                                    
                                    
                                    
                                    582
                                    
                                    
                                    
                                    2,968Net
      income taxes payable
                                    
                                    
                                    
                                    
                                    
                                    
                                    (42,073
                                    )
                                    
                                    
                                    (23,541
                                    )
                                    
                                    
                                    (49,515
                                    )Other
      accounts payable
                                    
                                    
                                    
                                    
                                    
                                    
                                    (15,147
                                    )
                                    
                                    
                                    (2,760
                                    )
                                    
                                    
                                    (10,840
                                    )VAT
      and taxes payable
                                    
                                    
                                    
                                    
                                    
                                    
                                    (33,608
                                    )
                                    
                                    
                                    (9,726
                                    )
                                    
                                    
                                    6,724Minority
      interest
                                    
                                    
                                    16
                                    
                                    
                                    
                                    3,492
                                    
                                    
                                    
                                    3,792
                                    
                                    
                                    
                                    4,715Net
      cash provided by operating activities
                                    
                                    
                                    
                                    
                                    
                                    
                                    457,314
                                    
                                    
                                    
                                    311,294
                                    
                                    
                                    
                                    221,200Cash
      flows from financing activitiesProceeds
      from bank loans
                                    
                                    
                                    
                                    
                                    
                                    
                                    280,000
                                    
                                    
                                    
                                    -
                                    
                                    
                                    
                                    259,257Proceeds
      from issuance of bonds
                                    
                                    
                                    
                                    
                                    
                                    
                                    -
                                    
                                    
                                    
                                    -
                                    
                                    
                                    
                                    299,833Payments
      of dividends
                                    
                                    
                                    
                                    
                                    
                                    
                                    (212,831
                                    )
                                    
                                    
                                    (94,910
                                    )
                                    
                                    
                                    (74,566
                                    )Repayment
      of bank loans
                                    
                                    
                                    
                                    
                                    
                                    
                                    (100,000
                                    )
                                    
                                    
                                    (57,089
                                    )
                                    
                                    
                                    (406,282
                                    )Payment
      of bonds
                                    
                                    
                                    
                                    
                                    
                                    
                                    (5,573
                                    )
                                    
                                    
                                    (5,131
                                    )
                                    
                                    
                                    -Payment
      of expenses for the issuance and placement of bonds
payable
                                    
                                    
                                    
                                    
                                    
                                    
                                    -
                                    
                                    
                                    
                                    -
                                    
                                    
                                    
                                    (6,629
                                    )Net
      cash provided by (used in) financing activities
                                    
                                    
                                    
                                    
                                    
                                    
                                    (38,404
                                    )
                                    
                                    
                                    (157,130
                                    )
                                    
                                    
                                    71,613Cash
      flows from investing activitiesSales
      of property, plant and equipment
                                    
                                    
                                    
                                    
                                    
                                    
                                    25,969
                                    
                                    
                                    
                                    2,498
                                    
                                    
                                    
                                    10,289Sales
      of investments in related companies
                                    
                                    
                                    
                                    
                                    
                                    
                                    1,688
                                    
                                    
                                    
                                    1,478
                                    
                                    
                                    
                                    5,790Other
      investing income
                                    
                                    
                                    
                                    
                                    
                                    
                                    721
                                    
                                    
                                    
                                    399
                                    
                                    
                                    
                                    500Additions
      to property, plant and equipment
                                    
                                    
                                    
                                    
                                    
                                    
                                    (275,893
                                    )
                                    
                                    
                                    (165,640
                                    )
                                    
                                    
                                    (175,788
                                    )Capitalized
      interest
                                    
                                    
                                    
                                    
                                    
                                    
                                    (10,723
                                    )
                                    
                                    
                                    (12,388
                                    )
                                    
                                    
                                    (10,948
                                    )Purchase
      of permanent investments, net of cash acquired of ThUS$
    24,311
                                    
                                    
                                    
                                    
                                    
                                    
                                    -
                                    
                                    
                                    
                                    -
                                    
                                    
                                    
                                    (88,885
                                    )Time
      deposits
                                    
                                    
                                    
                                    
                                    
                                    
                                    (20,121
                                    )
                                    
                                    
                                    -
                                    
                                    
                                    
                                    -Other
      disbursements
                                    
                                    
                                    
                                    
                                    
                                    
                                    (448
                                    )
                                    
                                    
                                    (513
                                    )
                                    
                                    
                                    (504
                                    )Net
      cash used in investing activities
                                    
                                    
                                    
                                    
                                    
                                    
                                    (278,807
                                    )
                                    
                                    
                                    (174,166
                                    )
                                    
                                    
                                    (259,546
                                    )Effect
      of inflation on cash and cash equivalents
                                    
                                    
                                    
                                    
                                    
                                    
                                    (516
                                    )
                                    
                                    
                                    271
                                    
                                    
                                    
                                    2,720Net
      change in cash and cash equivalents
                                    
                                    
                                    
                                    
                                    
                                    
                                    139,587
                                    
                                    
                                    
                                    (19,731
                                    )
                                    
                                    
                                    35,987Beginning
      balance of cash and cash equivalents
                                    
                                    
                                    
                                    
                                    
                                    
                                    164,212
                                    
                                    
                                    
                                    183,943
                                    
                                    
                                    
                                    147,956Ending
      balance of cash and cash equivalents
                                    
                                    
                                    2e)
                                    
                                    
                                    
                                    303,799
                                    
                                    
                                    
                                    164,212
                                    
                                    
                                    
                                    183,943





The accompanying notes 1 to 30 form an
integral part of these consolidated financial
statements.


F-7


Sociedad
Química y Minera de Chile S.A. and Subsidiaries


Audited
Consolidated Statements of Cash Flows


(Expressed
in thousands of US dollars, except as stated)





For the years ended December 312008
                          
                          
                          2007
                          
                          
                          2006ThUS$
                          
                          
                          ThUS$
                          
                          
                          ThUS$Supplemental
      cash flow information:Interest
      paid
                          
                          
                          
                          
                          
                          
                          26,975
                          
                          
                          
                          33,441
                          
                          
                          
                          37,884Income
      taxes paid
                          
                          
                          
                          
                          
                          
                          62,766
                          
                          
                          
                          43,666
                          
                          
                          
                          49,515Capital
      lease obligation
                          
                          
                          
                          
                          
                          
                          268
                          
                          
                          
                          315
                          
                          
                          
                          274





The accompanying notes 1 to 30 form an
integral part of these consolidated financial
statements.


F-8


Sociedad
Química y Minera de Chile S.A. and Subsidiaries


Notes
to the Audited Consolidated Financial Statements


(Expressed
in thousands of US dollars, except as stated)





Note
1 – Company Background





Sociedad
Química y Minera de Chile S.A. (the “Company”, “SQM S.A.” or “SQM”) was
registered with the Chilean Superintendency of Securities and Insurance (Superintendencia de Valores y
Seguros - “SVS”) on March 18, 1983. The Company is regulated by the SVS
as well as by the United States Securities and Exchange Commission (“SEC”) since
issuance of American Depositary Receipts (“ADRs”) in December 1995.





References
herein to “Parent Company” are to Sociedad Química y Minera de Chile S.A. and
references herein to the “Company” or “SQM” are to Sociedad Química y Minera de
Chile S.A. together with its consolidated subsidiaries and the companies in
which Sociedad Química y Minera de Chile S.A. holds significant equity
interest.





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 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 US dollars
in accordance with generally accepted accounting principles in Chile (“Chilean
GAAP”) and the regulations of the SVS. Certain accounting practices applied by
the Company that conform with Chilean GAAP do not conform with generally
accepted accounting principles in the United States (“US GAAP”) or International
Financial Reporting Standards (“IFRS”).





The
consolidated financial statements include the accounts of Sociedad Química y
Minera de Chile S.A. and all majority-owned subsidiaries (companies in which the
Parent Company holds a controlling participation, generally equal to direct or
indirect ownership of more than 50%). All significant inter-company transactions
and balances have been eliminated in the consolidation.




The
preparation of consolidated financial statements in conformity with Chilean 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.


F-9


Sociedad
Química y Minera de Chile S.A. and Subsidiaries


Notes
to the Audited Consolidated Financial Statements


(Expressed
in thousands of US dollars, except as stated)





Note
2 – Summary of Significant Accounting Policies (continued)





a)
            Basis
      for the preparation of the consolidated financial statements
      (continued)





The
majority-owned subsidiaries of SQM S.A. as of December 31, 2008, 2007 and 2006
are as follows:





Direct or indirect ownership2008
                                
                                
                                2007
                                
                                
                                2006%
                                
                                
                                %
                                
                                
                                %Foreign subsidiaries:Nitrate
      Corp. of Chile Limited (United Kingdom)
                                
                                
                                100.00
                                
                                
                                
                                100.00
                                
                                
                                
                                100.00Soquimich
      SRL (Argentina)
                                
                                
                                100.00
                                
                                
                                
                                100.00
                                
                                
                                
                                100.00Nitratos
      Naturais do Chile Ltda. (Brazil)
                                
                                
                                100.00
                                
                                
                                
                                100.00
                                
                                
                                
                                100.00SQM
      Europe NV (Belgium)
                                
                                
                                100.00
                                
                                
                                
                                100.00
                                
                                
                                
                                100.00SQM
      North America Corp. (USA)
                                
                                
                                100.00
                                
                                
                                
                                100.00
                                
                                
                                
                                100.00North
      American Trading Company (USA)
                                
                                
                                100.00
                                
                                
                                
                                100.00
                                
                                
                                
                                100.00SQM
      Perú S.A.
                                
                                
                                100.00
                                
                                
                                
                                100.00
                                
                                
                                
                                100.00SQM
      Corporation NV (Dutch Antilles)
                                
                                
                                100.00
                                
                                
                                
                                100.00
                                
                                
                                
                                100.00S.Q.I.
      Corporation NV (Dutch Antilles)
                                
                                
                                100.00
                                
                                
                                
                                100.00
                                
                                
                                
                                100.00Soquimich
      European Holding BV (Holland)
                                
                                
                                100.00
                                
                                
                                
                                100.00
                                
                                
                                
                                100.00SQMC
      Holding Corporation LLP (USA)
                                
                                
                                100.00
                                
                                
                                
                                100.00
                                
                                
                                
                                100.00SQM
      Ecuador S.A.
                                
                                
                                100.00
                                
                                
                                
                                100.00
                                
                                
                                
                                100.00Cape
      Fear Bulk LLC (USA)
                                
                                
                                -
                                
                                
                                
                                -
                                
                                
                                
                                51.00SQM
      Investment Corporation NV (Dutch Antilles)
                                
                                
                                100.00
                                
                                
                                
                                100.00
                                
                                
                                
                                100.00SQM
      Brasil Ltda.
                                
                                
                                100.00
                                
                                
                                
                                100.00
                                
                                
                                
                                100.00Royal
      Seed Trading Corporation AVV (Aruba)
                                
                                
                                100.00
                                
                                
                                
                                100.00
                                
                                
                                
                                100.00SQM
      Japan K.K.
                                
                                
                                100.00
                                
                                
                                
                                100.00
                                
                                
                                
                                100.00SQM
      Oceanía PTY Limited (Australia)
                                
                                
                                100.00
                                
                                
                                
                                100.00
                                
                                
                                
                                100.00SQM
      France S.A.
                                
                                
                                100.00
                                
                                
                                
                                100.00
                                
                                
                                
                                100.00RS
      Agro-Chemical Trading AVV (Aruba)
                                
                                
                                100.00
                                
                                
                                
                                100.00
                                
                                
                                
                                100.00SQM
      Comercial de México S.A. de C.V.
                                
                                
                                100.00
                                
                                
                                
                                100.00
                                
                                
                                
                                100.00SQM
      Indonesia
                                
                                
                                80.00
                                
                                
                                
                                80.00
                                
                                
                                
                                80.00SQM
      Virginia LLC (USA)
                                
                                
                                100.00
                                
                                
                                
                                100.00
                                
                                
                                
                                100.00Agricolima
      S.A. de C.V. (Mexico)
                                
                                
                                -
                                
                                
                                
                                100.00
                                
                                
                                
                                100.00SQM
      Venezuela S.A.
                                
                                
                                100.00
                                
                                
                                
                                100.00
                                
                                
                                
                                100.00SQM
      Italia SRL (Italy)
                                
                                
                                100.00
                                
                                
                                
                                100.00
                                
                                
                                
                                100.00Comercial
      Caiman Internacional S.A. (Cayman Islands)
                                
                                
                                100.00
                                
                                
                                
                                100.00
                                
                                
                                
                                100.00SQM
      Africa PTY (South Africa)
                                
                                
                                100.00
                                
                                
                                
                                100.00
                                
                                
                                
                                100.00Administración
      y Servicios Santiago S.A. de C.V. (Mexico)
                                
                                
                                100.00
                                
                                
                                
                                100.00
                                
                                
                                
                                100.00SQM
      Lithium Specialties LLC (USA)
                                
                                
                                100.00
                                
                                
                                
                                100.00
                                
                                
                                
                                100.00SQM
      Nitratos México S.A. de C.V. (Mexico)
                                
                                
                                51.00
                                
                                
                                
                                51.00
                                
                                
                                
                                51.00Fertilizantes
      Naturales S.A. (Spain)
                                
                                
                                66.67
                                
                                
                                
                                66.67
                                
                                
                                
                                66.67Iodine
      Minera B.V. (Holland) Fertilizantes Naturales S.A. (Spain)
      (1)
                                
                                
                                100.00
                                
                                
                                
                                100.00
                                
                                
                                
                                100.00PTM
      SQM Iberia S.A. (Spain)
                                
                                
                                -
                                
                                
                                
                                -
                                
                                
                                
                                100.00SQM
      Dubai – Fzco (United Arab Emirates).
                                
                                
                                100.00
                                
                                
                                
                                100.00
                                
                                
                                
                                100.00


F-10


Sociedad
Química y Minera de Chile S.A. and Subsidiaries


Notes
to the Audited Consolidated Financial Statements


(Expressed
in thousands of US dollars, except as stated)





Note
2 – Summary of Significant Accounting Policies (continued)





a)
            Basis
      for the preparation of the consolidated financial statements
      (continued)





Direct or indiret ownership2008
                              
                              
                              2007
                              
                              
                              2006%
                              
                              
                              %
                              
                              
                              %Domestic
      subsidiaries:Servicios
      Integrales de Tránsitos y Transferencias S.A.
                              
                              
                              100.00
                              
                              
                              
                              100.00
                              
                              
                              
                              100.00Soquimich
      Comercial S.A.
                              
                              
                              60.64
                              
                              
                              
                              60.64
                              
                              
                              
                              60.64Isapre
      Norte Grande Limitada
                              
                              
                              100.00
                              
                              
                              
                              100.00
                              
                              
                              
                              100.00Almacenes
      y Depósitos Limitada
                              
                              
                              100.00
                              
                              
                              
                              100.00
                              
                              
                              
                              100.00Ajay
      SQM Chile S.A.
                              
                              
                              51.00
                              
                              
                              
                              51.00
                              
                              
                              
                              51.00SQM
      Nitratos S.A.
                              
                              
                              100.00
                              
                              
                              
                              100.00
                              
                              
                              
                              100.00Proinsa
      Limitada
                              
                              
                              60.58
                              
                              
                              
                              60.58
                              
                              
                              
                              60.58SQM
      Potasio S.A.
                              
                              
                              100.00
                              
                              
                              
                              100.00
                              
                              
                              
                              100.00SQMC
      International Limitada
                              
                              
                              60.64
                              
                              
                              
                              60.64
                              
                              
                              
                              60.64SQM
      Salar S.A.
                              
                              
                              100.00
                              
                              
                              
                              100.00
                              
                              
                              
                              100.00SQM
      Industrial S.A
                              
                              
                              100.00
                              
                              
                              
                              100.00
                              
                              
                              
                              100.00Minera
      Nueva Victoria S.A.
                              
                              
                              100.00
                              
                              
                              
                              100.00
                              
                              
                              
                              100.00Exploraciones
      Mineras S.A.
                              
                              
                              100.00
                              
                              
                              
                              100.00
                              
                              
                              
                              100.00Sociedad
      Prestadora de Servicios de Salud Cruz del Norte S.A.
                              
                              
                              100.00
                              
                              
                              
                              100.00
                              
                              
                              
                              100.00Comercial
      Hydro S.A.
                              
                              
                              60.64
                              
                              
                              
                              60.64
                              
                              
                              
                              60.64





All
significant inter-company balances, transactions and unrealized gains and losses
arising from transactions between these companies have been eliminated in
consolidation.





b)
            Periods
      presented





These
consolidated financial statements have been prepared as of December 31, 2008 and
2007 and for each of the three years in the period ended December 31,
2008.


F-11


Sociedad
Química y Minera de Chile S.A. and Subsidiaries


Notes
to the Audited Consolidated Financial Statements


(Expressed
in thousands of US dollars, except as stated)





Note
2 - Summary of Significant Accounting Policies (continued)





c)
            Reporting
      currency and price-level
restatement





The
consolidated financial statements of the Company are prepared in US dollars
since a significant portion of the Company’s operations are transacted in that
currency. The US dollar is considered the currency of the primary economic
environment in which the Company operates.





Under
Chilean GAAP, the Parent Company and those subsidiaries which maintain their
accounting records in US dollars are not required, or permitted, to restate the
historical dollar amounts for the effects of inflation in Chile.





In
accordance with Chilean GAAP the financial statements of domestic subsidiaries
that 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 year. 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 during the year (8.9% and 7.4% in 2008 and 2007,
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 non-US dollar
denominated monetary assets and liabilities exposed to the effects of
inflation.





Index-linked
assets and liabilities





Assets
and liabilities that are denominated in index-linked units of account are stated
at the year-end values of the respective units of account. The principal
index-linked unit used in Chile is the Unidad de Fomento (“UF”),
which is adjusted daily to reflect the changes in Chile’s CPI. Values for the UF
are as follows (US dollar per UF):




US$December
      31, 2006
                  
                  
                  34.44December
      31, 2007
                  
                  
                  39.49December
      31, 2008
                  
                  
                  33.71


F-12


Sociedad
Química y Minera de Chile S.A. and Subsidiaries


Notes
to the Audited Consolidated Financial Statements


(Expressed
in thousands of US dollars, except as stated)





Note
2 - Summary of Significant Accounting Policies (continued)





d)
            Foreign
      currency





i)
            Foreign
      currency transactions





Monetary
assets and liabilities denominated in Chilean pesos and other currencies have
been translated to US dollars at the observed exchange rates determined by the
Central Bank of Chile as of each year-end. The observed exchange rates of
Chilean pesos were Ch$ 636.45 per US$1 at December 31, 2008 and Ch$ 496.89 per
US$1 at December 31, 2007.





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 US dollars are
translated from the respective local currencies to U.S. dollars in accordance
with Technical Bulletin No. 64 and No. 72 of the Chilean Association of
Accountants (“BT 64 and BT 72”) as follows:





·
            Domestic
      subsidiaries





For those
subsidiaries and affiliates located in Chile which keep their accounting records
in price-level adjusted Chilean pesos:





-
            Balance
      sheet accounts are translated to US dollars at the year-end exchange rate
      without eliminating the effects of price-level restatement. The assets and
      liabilities were translated into US dollars at the exchange rates as of
      the respective balance sheet dates of Ch$ 636.45  and Ch$
      496.89  per US$ 1 as of December 31, 2008 and 2007,
      respectively.





-
            Income
      statement accounts are translated to US dollars at the average exchange
      rate each month.  The monetary correction account on the income
      statement, which is generated by the inclusion of price-level restatement
      on the non-monetary assets and liabilities and shareholders’ equity, is
      translated to US dollars at the average exchange rate for each
      month.





-
            Translation
      gains and losses, as well as effects of the price-level restatement are
      included as an adjustment in shareholders’ equity, in conformity with
      Circular No. 1697 of the SVS.


F-13


Sociedad
Química y Minera de Chile S.A. and Subsidiaries


Notes
to the Audited Consolidated Financial Statements


(Expressed
in thousands of US dollars, except as stated)





Note
2 - Summary of Significant Accounting Policies (continued)





d)
            Foreign
      currency (continued)





·
            Foreign
      subsidiaries





The
financial statements of those foreign subsidiaries that keep their accounting
records in currencies other than the US dollar have been translated as
follows:





-
            Monetary
      assets and liabilities are translated at year-end exchange rates between
      the US dollar and the local
currency.





-
            All
      non-monetary assets and liabilities and shareholders’ equity are
      translated at historical exchange rates between the US dollar and the
      local currency.





-
            Income
      and expense accounts, except for such accounts that are calculated using
      historical rates (e.g. depreciation and amortization) are translated at
      average exchange rates between the US dollar and the local currency each
      month.





-
            Any
      exchange differences are included in the results of operations for the
      period.





Foreign
exchange differences for the years ended December 31, 2008, 2007 and 2006
generated net gains (losses) of ThUS$ (15,897) , ThUS$ 2,212 and ThUS$ (2,263)
respectively, which have been recorded in the consolidated statements of income
in each respective period.





The
monetary assets and liabilities of foreign subsidiaries were translated into US
dollars at the exchange rates per US dollar prevailing at December 31, as
follows:





As of December 31,2008
                  
                  
                  2007
                  
                  
                  2006US$
                  
                  
                  US$
                  
                  
                  US$Brazilian
      Real
                  
                  
                  2.34
                  
                  
                  
                  1.77
                  
                  
                  
                  2.14New
      Peruvian Sol
                  
                  
                  3.14
                  
                  
                  
                  2.99
                  
                  
                  
                  3.19Argentine
      Peso
                  
                  
                  3.47
                  
                  
                  
                  3.15
                  
                  
                  
                  3.06Japanese
      Yen
                  
                  
                  91.03
                  
                  
                  
                  114.15
                  
                  
                  
                  119.11Euro
                  
                  
                  0.72
                  
                  
                  
                  0.68
                  
                  
                  
                  0.76Mexican
      Peso
                  
                  
                  13.77
                  
                  
                  
                  10.90
                  
                  
                  
                  10.88Australian
      Dollar
                  
                  
                  1.45
                  
                  
                  
                  1.15
                  
                  
                  
                  1.27Pound
      Sterling
                  
                  
                  0.67
                  
                  
                  
                  0.49
                  
                  
                  
                  0.51Ecuadorian
      Sucre
                  
                  
                  1.00
                  
                  
                  
                  1.00
                  
                  
                  
                  1.00South
      African Rand
                  
                  
                  9.28
                  
                  
                  
                  6.81
                  
                  
                  
                  6.99





The
Company uses the “observed exchange rate”, which is the rate determined daily by
the Chilean Central Bank based on the average exchange rates at which bankers
conduct authorized transactions.


F-14


Sociedad
Química y Minera de Chile S.A. and Subsidiaries


Notes
to the Audited Consolidated Financial Statements


(Expressed
in thousands of US dollars, except as stated)





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 31,2008
                  
                  
                  2007
                  
                  
                  2006ThUS$
                  
                  
                  ThUS$
                  
                  
                  ThUS$Cash
                  
                  
                  21,618
                  
                  
                  
                  18,236
                  
                  
                  
                  20,915Time
      deposits
                  
                  
                  116,492
                  
                  
                  
                  85,523
                  
                  
                  
                  32,707Mutual
      funds
                  
                  
                  165,689
                  
                  
                  
                  60,453
                  
                  
                  
                  130,321Total
                  
                  
                  303,799
                  
                  
                  
                  164,212
                  
                  
                  
                  183,943





f)
            Time
      deposits





Time
deposits are recorded at cost plus accrued interest and UF indexation
adjustments, as applicable.





g)
            Allowance
      for doubtful accounts





The
Company records an allowance for doubtful accounts based on estimated
probability of unrecoverability of accounts receivable determined on the basis
of a case-by-case analysis of the situations of customers.





This
allowance is presented as a deduction from Trade accounts receivable, Notes
receivable and Other accounts receivable.





h)
            Inventories
      and materials





Inventories
of finished products and work in process are valued at average production
cost.  Raw materials and goods for resale acquired from third parties
are stated at average acquisition cost and materials-in-transit are valued at
cost.  These 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 for which the Company estimates a turnover period in
excess of one year, which are classified as other long-term assets.





Inventories
are stated net of allowances for obsolete and unsaleable items determined based
on technical studies of inventory conditions and usefulness.


F-15


Sociedad
Química y Minera de Chile S.A. and Subsidiaries
 Notes
to the Audited Consolidated Financial Statements
 (Expressed
in thousands of US dollars, except as stated)




Note
2 - Summary of Significant Accounting Policies (continued)





i)          Income
taxes and deferred income taxes





Current
income tax provisions are recognized on the basis of respective enacted tax laws
and regulations in each jurisdiction where the Company operates.





The
Company records deferred income taxes in accordance with Technical Bulletin No.
60 (“BT 60”) and complementary technical bulletins thereto issued by the Chilean
Association of Accountants, and with SVS Circulars No. 1466 and No. 1560,
recognizing, using the liability method, the deferred tax effects of temporary
differences between the financial and tax values of assets and
liabilities.  As a transitional provision at the date of adoption of
BT 60, 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 asset or liability 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 calculated
using the tax rates that will be in effect at the time of reversal.





Deferred
tax assets are further reduced by a valuation allowance, if based on the weight
of available evidence it is more-likely-than-not that some portion of the
deferred tax assets will not be realized.





j)
            Property,
      plant and equipment





Property,
plant, equipment and property rights are recorded at acquisition cost,
considering in general an average residual value of 5%, except for certain
assets that were restated in accordance with a technical appraisal in
1988.  The depreciation of property, plant and equipment has been
calculated using a straight-line method, based on the estimated useful lives of
the assets that for major classes of the property, plant and equipment are as
follows:





EstimatedYearsof
                useful
      lifeMining
      concessions
              
              7 –
      13Building
      and infrastructure
              
              3 –
      80Machinery
      and equipment
              
              3 –
      35Other
              
              2 –
      30


F-16


Sociedad
Química y Minera de Chile S.A. and Subsidiaries
 Notes
to the Audited Consolidated Financial Statements
 (Expressed
in thousands of US dollars, except as stated)


Note
2 - Summary of Significant Accounting Policies (continued)





j)
            Property,
      plant and equipment (continued)





Property,
plant and equipment acquired through financial 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 Technical Bulletin No. 31 and 33 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 are charged to expenses as incurred.





The
Company obtains property rights and mining concessions from the Chilean
state.  The property rights are usually obtained without initial cost
(other than minor filing fees) and once obtained, are retained by the Company as
long as the annual fees are paid.  Such fees, which are paid
annually in March, are recorded as prepaid expenses and are amortized on a
straight-line basis over the following twelve months. Values attributable to
mining concessions acquired from parties other than the Chilean state are
recorded at acquisition cost in property, plant and equipment.





k)
            Investments
      in related companies





Investments
in related companies over which the Company has significant influence, are
included in other assets and are recorded using the equity method of accounting,
in accordance with SVS Circulars No. 368 and 1697 and Technical Bulletins No. 64
and 72 issued by the Chilean Association of Accountants. Accordingly, the
Company’s proportional equity share in the net income or net loss of each
investee is recognized in non-operating income and expenses in the
consolidated statements of income on an accrual basis, after eliminating any
unrealized profits from transactions with related companies.





The
translation adjustment resulting from conversions of investments in domestic
subsidiaries that maintain their accounting records and are controlled in
Chilean pesos to US dollars is recognized in other reserves within shareholders’
equity (other comprehensive income).  Direct and indirect investments
in foreign subsidiaries or affiliates are controlled in US dollars.





Investments
in which the Company has less than 20% participation, and the capacity to exert
significant influence over the investment, because SQM has appointed a member of
its Board of Directors, have been recorded using the equity
method.


F-17




Sociedad
Química y Minera de Chile S.A. and Subsidiaries
 Notes
to the Audited Consolidated Financial Statements
 (Expressed
in thousands of US dollars, except as stated)





Note
2 - Summary of Significant Accounting Policies (continued)





l)
            Goodwill
      and negative goodwill





Until
December 31, 2003, goodwill was calculated as the excess of the purchase price
of acquired companies over book value of their net assets, whereas negative
goodwill arose when the net assets acquired exceeded the purchase price.
Beginning January 1, 2004, the Company adopted Technical Bulletin No. 72 of the
Chilean Association of Accountants that changed the basis for accounting for
goodwill and negative goodwill, introducing the fair value of the acquired net
assets as the basis to be compared with purchase price in a business combination
in order to determine goodwill or negative goodwill.





Goodwill
and negative goodwill resulting from acquisitions of equity method investments
are controlled in the same currency in which the investment to which it relates
is measured.





Both
goodwill and negative goodwill are amortized based on the estimated period of
investment return, which is generally 20 and 10 years for goodwill and negative
goodwill, respectively. Negative goodwill recognized on the acquisition of
Minera Nueva Victoria S.A. in 2006 relates to the mining concessions held by
this company. This negative goodwill will be amortized in the same period as the
underlying concessions once the Company starts to extract minerals from the
Minera Nueva Victoria’s deposits.





m)
            Intangible
      assets





Intangible
assets are stated at cost plus acquisition expenses and are amortized over a
maximum period of 40 years, in accordance with Technical Bulletin No. 55 of the
Chilean Association of Accountants.





n)
            Mining
      development cost





Mine
exploration costs and stripping costs to maintain production of mineral
resources extracted from operating mines are considered variable production
costs and are included in the cost of inventory produced during the period. Mine
development costs at new mines, and major development costs at operating mines
outside existing areas under extraction that are expected to benefit future
production are capitalized under Other long-term assets and amortized using a
units-of-production method over the associated proven and probable reserves
estimations. The Company determines its proven and probable reserves
based on drilling, brine sampling and geo-statistic reservoir modeling in
order to estimate mineral volumes and composition.





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





o)
            Staff
      severance indemnities





The
Company calculates the liability for staff severance indemnities based on the
present value of the accrued benefits for the actual years of service based on
average employee tenure of 24 years and a real annual discount rate of
8%.


F-18




Sociedad
Química y Minera de Chile S.A. and Subsidiaries


Notes
to the Audited Consolidated Financial Statements


(Expressed
in thousands of US dollars, except as stated)





Note
2 - Summary of Significant Accounting Policies (continued)


p)
            Vacations





The cost
of employee vacations is recognized in the consolidated financial statements on
an accrual basis.





q)
            Reverse
      repurchase agreements





These
operations are registered in Other current assets at the amount of the purchase.
Interest is recognized on an accrual basis in accordance with SVS Circular No.
768.





r)
            Dividends





Dividends
are generally declared in US 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 of the Chilean Association of Accountants. Such contracts are generally
recorded at fair value with net gains or losses recognized in
results.





t)
            Revenue
      recognition





Revenue
is recognized on the date goods are physically delivered or when they are
considered delivered to the customers according to the terms of the contracts.
Sales invoices issued for goods not delivered to the customers prior to balance
sheet date are recorded in deferred income.





Income
from sales by installments is determined discounting the cash nominal value,
using the interest rate implicit for this type of sale.  In this
manner, interest not accrued at financial statement closing date is presented as
a decrease in the value of the respective documents and as it accrues during the
course of time, it recognized as interest income





u)
            Computer
      software





Cost
related to computational systems developed internally using the Company’s
personnel and materials are charged to income during the year in which the
expenses are incurred. In accordance with Circular No. 1819 issued by the SVS,
computer systems acquired by the Company are recorded at cost and amortized over
their estimated useful lives.





v)
            Research
      and development expenses





Research
and development costs are charged to the income statement in the period in which
they are incurred. Property, plant and equipment that are acquired for use in
research and development activities and determined to provide additional
benefits to the Company are recorded in property, plant and
equipment.


F-19


Sociedad
Química y Minera de Chile S.A. and Subsidiaries
 Notes
to the Audited Consolidated Financial Statements
 (Expressed
in thousands of US dollars, except as stated)


Note
2 - Summary of Significant Accounting Policies (continued)





w)
            Bonds
      payable





Bonds are
stated at the principal amount plus interest accrued.  The difference
between the carrying value and the placement value is capitalized and amortized
over the period up to maturity of the bonds. Expenses incurred in the issuance
and placement of the bonds as well as discounts and premiums are deferred and
amortized using the straight-line method over the period of the bond. The
deferred expenses are classified to Other long-term assets, while a portion to
be amortized within one year is presented within Other current assets. The
amortization charge is presented as interest expense.




x)         Provisions
for mine closure costs





The
Company recognizes provisions to cover costs associated with closure of mining
facilities and mitigation of environmental damage according to the best
estimation of the required expenses.  The amount determined is
presented under Accrued expenses in Long-term liabilities.





y)         Deferred
income





Deferred
income relates to the recognition of documented sales, the delivery of which
occurs subsequent to the balance sheet date.





z)         Employee
Benefits





Benefits
agreed other than staff severance indemnities which the Company and its
subsidiaries will have to pay to its employees by virtue of agreements entered
recognized on an accrual basis.





Note
3 - Changes in Accounting





Beginning
January 1, 2008, the Company recognized the change in the functional currency
(from Chilean pesos to US dollars) in which the consolidated subsidiary
Soquimich Comercial S.A. was controlled for the purpose of reflecting the
currency which represents better underlying transactions in the subsidiary and
the control of the value of the investment by its Parent Company.





During
the period ended December 31, 2008, there were no other changes in the
application of Chilean GAAP compared to the prior year, which could
significantly affect the interpretation of these consolidated financial
statements.


F-20


Sociedad
Química y Minera de Chile S.A. and Subsidiaries
 Notes
to the Audited Consolidated Financial Statements
 (Expressed
in thousands of US dollars, except as stated)


Note
4 - Short-Term and Long-Term Accounts Receivable





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





Between
      90 days
                      
                      
                      TotalUp
      to 90 days
                      
                      
                      And
      1 year
                      
                      
                      Short-term
      (net)2008
                      
                      
                      2007
                      
                      
                      2008
                      
                      
                      2007
                      
                      
                      2008
                      
                      
                      2007ThUS$
                      
                      
                      ThUS$
                      
                      
                      ThUS$
                      
                      
                      ThUS$
                      
                      
                      ThUS$
                      
                      
                      ThUS$Short-term  receivablesTrade
      accounts receivable
                      
                      
                      190,398
                      
                      
                      
                      143,503
                      
                      
                      
                      88,698
                      
                      
                      
                      52,444
                      
                      
                      
                      279,096
                      
                      
                      
                      195,947Allowance
      for doubtful accounts
                      
                      
                      
                      
                      
                      
                      
                      
                      
                      
                      
                      
                      
                      
                      
                      
                      
                      
                      (8,935
                      )
                      
                      
                      (6,203
                      )Notes
      receivable
                      
                      
                      43,060
                      
                      
                      
                      43,784
                      
                      
                      
                      17,773
                      
                      
                      
                      19,459
                      
                      
                      
                      60,833
                      
                      
                      
                      63,243Allowance
      for doubtful accounts
                      
                      
                      
                      
                      
                      
                      
                      
                      
                      
                      
                      
                      
                      
                      
                      
                      
                      
                      (2,953
                      )
                      
                      
                      (3,269
                      )Total
      trade accounts receivable and notes receivable, net
                      
                      
                      
                      
                      
                      
                      
                      
                      
                      
                      
                      
                      
                      
                      
                      
                      
                      
                      328,041
                      
                      
                      
                      249,718Other
      accounts receivable
                      
                      
                      7,822
                      
                      
                      
                      7,355
                      
                      
                      
                      312
                      
                      
                      
                      71
                      
                      
                      
                      8,134
                      
                      
                      
                      7,426Allowance
      for doubtful accounts
                      
                      
                      
                      
                      
                      
                      
                      
                      
                      
                      
                      
                      
                      
                      
                      
                      
                      
                      (1,391
                      )
                      
                      
                      (1,177
                      )Other
      accounts receivable, net
                      
                      
                      
                      
                      
                      
                      
                      
                      
                      
                      
                      
                      
                      
                      
                      
                      
                      
                      6,743
                      
                      
                      
                      6,249Long-term
      receivables
                      
                      
                      
                      
                      
                      
                      
                      
                      
                      
                      
                      
                      
                      
                      
                      
                      
                      
                      767
                      
                      
                      
                      604





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





2008
                  
                  
                  2007
                  
                  
                  2006ThUS$
                  
                  
                  ThUS$
                  
                  
                  ThUS$At
      January 1,
                  
                  
                  10,649
                  
                  
                  
                  11,793
                  
                  
                  
                  11,912Charged
      to expenses
                  
                  
                  4,700
                  
                  
                  
                  466
                  
                  
                  
                  1,598Deductions
      (release)
                  
                  
                  (1,042
                  )
                  
                  
                  (2,235
                  )
                  
                  
                  (542
                  )Exchange
      rate differences
                  
                  
                  (855
                  )
                  
                  
                  512
                  
                  
                  
                  (177
                  )Business
      disposals and other
                  
                  
                  (173
                  )
                  
                  
                  113
                  
                  
                  
                  (998
                  )At
      December 31,
                  
                  
                  13,279
                  
                  
                  
                  10,649
                  
                  
                  
                  11,793


F-21




Sociedad
Química y Minera de Chile S.A. and Subsidiaries


Notes
to the Audited Consolidated Financial Statements


(Expressed
in thousands of US dollars, except as stated)




Note
4 - Short-Term and Long-Term Accounts Receivable (continued)





c)
            Consolidated
      short-term and long-term receivables by geographic location of customer
      are as follows:





Chile
                
                
                Europe
                
                
                Asia
      and
                  Oceania
      and Other
                
                
                North
      America, Mexico
                  and
      Canada
                
                
                Latin
      America
                  and
      the Caribbean
                
                
                Total2008
                
                
                2007
                
                
                2008
                
                
                2007
                
                
                2008
                
                
                2007
                
                
                2008
                
                
                2007
                
                
                2008
                
                
                2007
                
                
                2008
                
                
                2007ThUS$
                
                
                ThUS$
                
                
                ThUS$
                
                
                ThUS$
                
                
                ThUS$
                
                
                ThUS$
                
                
                ThUS$
                
                
                ThUS$
                
                
                ThUS$
                
                
                ThUS$
                
                
                ThUS$
                
                
                ThUS$Net
      short-term trade accounts receivableBalance
                
                
                48,848
                
                
                
                69,421
                
                
                
                84,375
                
                
                
                66,599
                
                
                
                23,602
                
                
                
                9,832
                
                
                
                37,683
                
                
                
                28,296
                
                
                
                75,653
                
                
                
                15,596
                
                
                
                270,161
                
                
                
                189,744% of
      total
                
                
                18.08
                %
                
                
                36.59
                %
                
                
                31.23
                %
                
                
                35.10
                %
                
                
                8.74
                %
                
                
                5.18
                %
                
                
                13.95
                %
                
                
                14.91
                %
                
                
                28.00
                %
                
                
                8.22
                %
                
                
                100.00
                %
                
                
                100.00
                %Net
      short-term notes receivableBalance
                
                
                56,174
                
                
                
                53,713
                
                
                
                -
                
                
                
                429
                
                
                
                -
                
                
                
                490
                
                
                
                -
                
                
                
                392
                
                
                
                1,706
                
                
                
                4,950
                
                
                
                57,880
                
                
                
                59,974% of
      total
                
                
                97.05
                %
                
                
                89.56
                %
                
                
                -
                
                
                
                0.72
                %
                
                
                -
                
                
                
                0.82
                %
                
                
                -
                
                
                
                0.65
                %
                
                
                2.95
                %
                
                
                8.25
                %
                
                
                100.00
                %
                
                
                100.00
                %Net
      short-term other accounts receivableBalance
                
                
                2,627
                
                
                
                3,376
                
                
                
                262
                
                
                
                1,609
                
                
                
                149
                
                
                
                159
                
                
                
                3,534
                
                
                
                457
                
                
                
                171
                
                
                
                648
                
                
                
                6,743
                
                
                
                6,249% of
      total
                
                
                38.96
                %
                
                
                54.03
                %
                
                
                3,89
                %
                
                
                25.75
                %
                
                
                2.21
                %
                
                
                2.54
                %
                
                
                52.41
                %
                
                
                7.31
                %
                
                
                2.53
                %
                
                
                10.37
                %
                
                
                100.00
                %
                
                
                100.00
                %Subtotal
      short-term accounts receivable, netBalance
                
                
                107,649
                
                
                
                126,510
                
                
                
                84,637
                
                
                
                68,637
                
                
                
                23,751
                
                
                
                10,481
                
                
                
                41,217
                
                
                
                29,145
                
                
                
                77,530
                
                
                
                21,194
                
                
                
                334,784
                
                
                
                255,967% of
      total
                
                
                32.15
                %
                
                
                49.42
                %
                
                
                25.28
                %
                
                
                26.82
                %
                
                
                7.09
                %
                
                
                4.09
                %
                
                
                12.32
                %
                
                
                11.39
                %
                
                
                23.16
                %
                
                
                8.28
                %
                
                
                100.00
                %
                
                
                100.00
                %Long-term
      accounts receivable, netBalance
                
                
                767
                
                
                
                604
                
                
                
                -
                
                
                
                -
                
                
                
                -
                
                
                
                -
                
                
                
                -
                
                
                
                -
                
                
                
                -
                
                
                
                -
                
                
                
                767
                
                
                
                604% of
      total
                
                
                100.00
                %
                
                
                100.00
                %
                
                
                -
                
                
                
                -
                
                
                
                -
                
                
                
                -
                
                
                
                -
                
                
                
                -
                
                
                
                -
                
                
                
                -
                
                
                
                100.00
                %
                
                
                100.00
                %Total
      short and long-term accounts receivable, netBalance
                
                
                108,416
                
                
                
                127,114
                
                
                
                84,637
                
                
                
                68,637
                
                
                
                23,751
                
                
                
                10,481
                
                
                
                41,217
                
                
                
                29,145
                
                
                
                77,530
                
                
                
                21,194
                
                
                
                335,551
                
                
                
                256,571% of
      total
                
                
                32.31
                %
                
                
                49.54
                %
                
                
                25.22
                %
                
                
                26.75
                %
                
                
                7.08
                %
                
                
                4.09
                %
                
                
                12.28
                %
                
                
                11.36
                %
                
                
                23.11
                %
                
                
                8.26
                %
                
                
                100.00
                %
                
                
                100.00
                %


F-22


Sociedad
Química y Minera de Chile S.A. and Subsidiaries
 Notes
to the Audited Consolidated Financial Statements
 (Expressed
in thousands of US dollars, except as stated)


Note
5 - 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 that are similar to those offered to
unrelated third parties.





On April
21, 2008, Inversiones SQ S.A. and SQH S.A. the entities which indirectly hold
significant interest in the Company have acquired from Yara Netherland B.V.
remaining 49% of shares of Inversiones SQYA S.A., which they did not posses
prior to that transaction. Effective since that date Yara Group entities do not
hold any interest in the Company and as such they are not related
parties.





a)
            Amounts
      included in balances with related parties as of December 31, 2008 and 2007
      are as follows:





Short-term
                  
                  
                  Long-term2008
                  
                  
                  2007
                  
                  
                  2008
                  
                  
                  2007ThUS$
                  
                  
                  ThUS$
                  
                  
                  ThUS$
                  
                  
                  ThUS$Accounts
      receivableDoktor
      Tarsa
                  
                  
                  13,641
                  
                  
                  
                  4,349
                  
                  
                  
                  -
                  
                  
                  
                  -Nutrisi
      Holding N.V.
                  
                  
                  1,702
                  
                  
                  
                  1,800
                  
                  
                  
                  -
                  
                  
                  
                  -Ajay
      Europe S.A.R.L.
                  
                  
                  4,061
                  
                  
                  
                  6,838
                  
                  
                  
                  -
                  
                  
                  
                  -Ajay
      North America LLC
                  
                  
                  2,520
                  
                  
                  
                  2,706
                  
                  
                  
                  -
                  
                  
                  
                  -Abu
      Dhabi Fertilizer Ind. WLL
                  
                  
                  6,579
                  
                  
                  
                  3,622
                  
                  
                  
                  2,000
                  
                  
                  
                  2,000NU3
      B.V.
                  
                  
                  772
                  
                  
                  
                  720
                  
                  
                  
                  -
                  
                  
                  
                  -Sales
      de Magnesio Ltda.
                  
                  
                  143
                  
                  
                  
                  103
                  
                  
                  
                  -
                  
                  
                  
                  -SQM
      Agro India
                  
                  
                  595
                  
                  
                  
                  363
                  
                  
                  
                  -
                  
                  
                  
                  -Misr
      Specialty Fertilizers
                  
                  
                  632
                  
                  
                  
                  616
                  
                  
                  
                  -
                  
                  
                  
                  -Sociedad
      de Inversiones Pampa Calichera S.A.
                  
                  
                  8
                  
                  
                  
                  8
                  
                  
                  
                  -
                  
                  
                  
                  -Inversiones
      PCS Chile S.A.
                  
                  
                  -
                  
                  
                  
                  17
                  
                  
                  
                  -
                  
                  
                  
                  -Kowa
      Company Ltd.
                  
                  
                  18,170
                  
                  
                  
                  14,465
                  
                  
                  
                  -
                  
                  
                  
                  -SQM
      East Med Turkey
                  
                  
                  1,075
                  
                  
                  
                  160
                  
                  
                  
                  -
                  
                  
                  
                  -NU3
      N.V.
                  
                  
                  1,129
                  
                  
                  
                  -
                  
                  
                  
                  -
                  
                  
                  
                  -Total
                  
                  
                  51,027
                  
                  
                  
                  35,767
                  
                  
                  
                  2,000
                  
                  
                  
                  2,000





Short-term2008
                  
                  
                  2007ThUS$
                  
                  
                  ThUS$Accounts
      payableNU3
      N.V
                  
                  
                  -
                  
                  
                  
                  1,877SQM
      Thailand Co. Ltd.
                  
                  
                  178
                  
                  
                  
                  110Total.
                  
                  
                  178
                  
                  
                  
                  1,987





There
were no outstanding long-term accounts payable with related parties as of
December 31, 2008 and 2007.


F-23


Sociedad
Química y Minera de Chile S.A. and Subsidiaries
 Notes
to the Audited Consolidated Financial Statements
 (Expressed
in thousands of US dollars, except as stated)


Note
5 - Balances and Transactions with Related Parties (continued)





b)
            During
      the years ended December 31, 2008, 2007 and 2006 principal commercial
      transactions with related parties were as follows
  (1):





Amount
      of
                    
                    
                    Impact
      in incomeTransaction
                    
                    
                    (charge)
      creditCompany
                    
                    Relationship
                    
                    Type
      of  Transaction
                    
                    2008
                    
                    
                    2007
                    
                    
                    2006
                    
                    
                    2008
                    
                    
                    2007
                    
                    
                    2006ThUS$
                    
                    
                    ThUS$
                    
                    
                    ThUS$
                    
                    
                    ThUS$
                    
                    
                    ThUS$
                    
                    
                    ThUS$NU3
      N.V.
                    
                    Investee
                    
                    Sales
      of products
                    
                    
                    18,166
                    
                    
                    
                    6,545
                    
                    
                    
                    6,079
                    
                    
                    
                    5,716
                    
                    
                    
                    2,026
                    
                    
                    
                    2,008Doktor
      Tarsa Tarim Sanayi AS
                    
                    Investee
                    
                    Sales
      of products
                    
                    
                    15,590
                    
                    
                    
                    7,577
                    
                    
                    
                    8,868
                    
                    
                    
                    6,492
                    
                    
                    
                    2,159
                    
                    
                    
                    2,409Abu
      Dhabi Fertilizer WLL
                    
                    Investee
                    
                    Sales
      of products
                    
                    
                    9,302
                    
                    
                    
                    2,849
                    
                    
                    
                    3,551
                    
                    
                    
                    5,434
                    
                    
                    
                    1,123
                    
                    
                    
                    992Financial
      income
                    
                    
                    127
                    
                    
                    
                    117
                    
                    
                    
                    -
                    
                    
                    
                    127
                    
                    
                    
                    117
                    
                    
                    
                    -Impronta
      SRL
                    
                    Investee
                    
                    Sales
      of products
                    
                    
                    -
                    
                    
                    
                    -
                    
                    
                    
                    4,887
                    
                    
                    
                    -
                    
                    
                    
                    -
                    
                    
                    
                    1,566Ajay
      Europe S.A.R.L.
                    
                    Investee
                    
                    Sales
      of products
                    
                    
                    19,561
                    
                    
                    
                    24,965
                    
                    
                    
                    16,931
                    
                    
                    
                    2,667
                    
                    
                    
                    9,250
                    
                    
                    
                    6,424Financial
      income
                    
                    
                    10
                    
                    
                    
                    10
                    
                    
                    
                    -
                    
                    
                    
                    10
                    
                    
                    
                    10
                    
                    
                    
                    -Dividends
                    
                    
                    118
                    
                    
                    
                    -
                    
                    
                    
                    -
                    
                    
                    
                    -
                    
                    
                    
                    -
                    
                    
                    
                    -NU3
      B.V.
                    
                    Investee
                    
                    Sales
      of products
                    
                    
                    14,384
                    
                    
                    
                    9,025
                    
                    
                    
                    7,212
                    
                    
                    
                    2,425
                    
                    
                    
                    2,791
                    
                    
                    
                    2,488Services
                    
                    
                    109
                    
                    
                    
                    -
                    
                    
                    
                    -
                    
                    
                    
                    109
                    
                    
                    
                    -
                    
                    
                    
                    -SQM
      Agro India PVT LTD
                    
                    Investee
                    
                    Sales
      of products
                    
                    
                    598
                    
                    
                    
                    -
                    
                    
                    
                    -
                    
                    
                    
                    210
                    
                    
                    
                    -
                    
                    
                    
                    -Ajay
      North America  LLC
                    
                    Investee
                    
                    Sales
      of products
                    
                    
                    28,676
                    
                    
                    
                    17,281
                    
                    
                    
                    16,215
                    
                    
                    
                    9,970
                    
                    
                    
                    8,060
                    
                    
                    
                    7,605Dividends
                    
                    
                    760
                    
                    
                    
                    -
                    
                    
                    
                    -
                    
                    
                    
                    -
                    
                    
                    
                    -
                    
                    
                    
                    -Kowa
      Company Ltd.(Japan)
                    
                    Shareholder
                    
                    Sales
      of products
                    
                    
                    100,633
                    
                    
                    
                    84,701
                    
                    
                    
                    8,019
                    
                    
                    
                    41,066
                    
                    
                    
                    50,770
                    
                    
                    
                    3,671Misr
      Specialty
                    
                    Investee
                    
                    Sales
      of products
                    
                    
                    733
                    
                    
                    
                    -
                    
                    
                    
                    -
                    
                    
                    
                    320
                    
                    
                    
                    -
                    
                    
                    
                    -Financial
      income
                    
                    
                    8
                    
                    
                    
                    -
                    
                    
                    
                    -
                    
                    
                    
                    8
                    
                    
                    
                    -
                    
                    
                    
                    -Nutrisi
                    
                    Investee
                    
                    Financial
      income
                    
                    
                    104
                    
                    
                    
                    -
                    
                    
                    
                    -
                    
                    
                    
                    104
                    
                    
                    
                    -
                    
                    
                    
                    -Sales
      de Magnesio Ltda.
                    
                    Investee
                    
                    Sales
      of products
                    
                    
                    920
                    
                    
                    
                    -
                    
                    
                    
                    -
                    
                    
                    
                    334
                    
                    
                    
                    -
                    
                    
                    
                    -Dividends
                    
                    
                    491
                    
                    
                    
                    -
                    
                    
                    
                    -
                    
                    
                    
                    -
                    
                    
                    
                    -
                    
                    
                    
                    -SQM
      Eastmed Turkey
                    
                    Investee
                    
                    Sales
      of products
                    
                    
                    397
                    
                    
                    
                    -
                    
                    
                    
                    -
                    
                    
                    
                    240
                    
                    
                    
                    -
                    
                    
                    
                    -SQM
      Thailand Co. Ltd.
                    
                    Investee
                    
                    Sales
      of products
                    
                    
                    83
                    
                    
                    
                    -
                    
                    
                    
                    -
                    
                    
                    
                    69
                    
                    
                    
                    -
                    
                    
                    
                    -





(1)
            Transactions
      with related parties involving acquisitions and disposals of
      participations in other entities are discussed in Note
  8.


F-24




Sociedad
Química y Minera de Chile S.A. and Subsidiaries


Notes
to the Audited Consolidated Financial Statements


(Expressed
in thousands of US dollars, except as stated)





Note
6 - Inventories





Net
inventories as of December 31, 2008 and 2007 are summarized as
follows:





2008
                  
                  
                  2007ThUS$
                  
                  
                  ThUS$Finished
      products
                  
                  
                  320,489
                  
                  
                  
                  218,073Work
      in process
                  
                  
                  188,069
                  
                  
                  
                  145,209Supplies
                  
                  
                  32,169
                  
                  
                  
                  24,486Total
                  
                  
                  540,727
                  
                  
                  
                  387,768


F-25


Sociedad
Química y Minera de Chile S.A. and Subsidiaries
 Notes
to the Audited Consolidated Financial Statements
 (Expressed
in thousands of US dollars, except as stated)


Note
7 - Property, Plant and Equipment





Property,
plant and equipment are summarized as follows:





As
      of December 31,2008
                      
                      
                      2007ThUS$
                      
                      
                      ThUS$LandLand
                      
                      
                      80,529
                      
                      
                      
                      82,727Mining
      concessions
                      
                      
                      30,086
                      
                      
                      
                      30,086Subtotal
                      
                      
                      110,615
                      
                      
                      
                      112,813Buildings
      and InfrastructureBuildings
                      
                      
                      176,136
                      
                      
                      
                      163,412Installations
                      
                      
                      311,147
                      
                      
                      
                      240,965Ponds
                      
                      
                      198,163
                      
                      
                      
                      189,682Railroad
                      
                      
                      36,411
                      
                      
                      
                      23,166Construction-in-progress
                      
                      
                      181,730
                      
                      
                      
                      165,648Other
                      
                      
                      73,958
                      
                      
                      
                      58,954Subtotal
                      
                      
                      977,545
                      
                      
                      
                      841,827Machinery
      and EquipmentMachinery
                      
                      
                      602,490
                      
                      
                      
                      556,466Equipment
                      
                      
                      149,907
                      
                      
                      
                      131,898Project-in-progress
                      
                      
                      30,682
                      
                      
                      
                      23,060Other
                      
                      
                      41,030
                      
                      
                      
                      19,729Subtotal
                      
                      
                      824,109
                      
                      
                      
                      731,153Other
      Fixed AssetsTools
                      
                      
                      10,808
                      
                      
                      
                      9,390Furniture
      and office equipment
                      
                      
                      16,009
                      
                      
                      
                      15,100Project-in-progress
                      
                      
                      22,345
                      
                      
                      
                      11,275Other
                      
                      
                      12,673
                      
                      
                      
                      14,264Subtotal
                      
                      
                      61,835
                      
                      
                      
                      50,029Amounts
      related to technical appraisalLand
                      
                      
                      7,839
                      
                      
                      
                      7,839Buildings
      and infrastructure
                      
                      
                      41,439
                      
                      
                      
                      41,439Machinery
      and equipment
                      
                      
                      12,048
                      
                      
                      
                      12,048Other
      assets
                      
                      
                      53
                      
                      
                      
                      53Subtotal
                      
                      
                      61,379
                      
                      
                      
                      61,379Total
      property, plant and equipment (cost)
                      
                      
                      2,035,483
                      
                      
                      
                      1,797,201Less:
      Accumulated depreciationBuildings
      and infrastructure
                      
                      
                      (391,487
                      )
                      
                      
                      (339,623
                      )Machinery
      and equipment
                      
                      
                      (449,558
                      )
                      
                      
                      (404,573
                      )Other
      fixed assets
                      
                      
                      (35,264
                      )
                      
                      
                      (31,441
                      )Technical
      appraisal
                      
                      
                      (39,254
                      )
                      
                      
                      (38,115
                      )Total
      accumulated depreciation
                      
                      
                      (915,563
                      )
                      
                      
                      (813,752
                      )Net
      property, plant and equipment
                      
                      
                      1,119,920
                      
                      
                      
                      983,449


F-26


Sociedad
Química y Minera de Chile S.A. and Subsidiaries
 Notes
to the Audited Consolidated Financial Statements
 (Expressed
in thousands of US dollars, except as stated)


Note
7 - Property, Plant and Equipment (continued)





Depreciation
expense for the years ended December 31, 2008, 2007 and 2006 was as
follows:





For
      the year ended December 31,2008
                  
                  
                  2007
                  
                  
                  2006ThUS$
                  
                  
                  ThUS$
                  
                  
                  ThUS$Buildings
      and infrastructure
                  
                  
                  (53,152
                  )
                  
                  
                  (44,135
                  )
                  
                  
                  (41,259
                  )Machinery
      and equipment
                  
                  
                  (53,104
                  )
                  
                  
                  (46,210
                  )
                  
                  
                  (43,290
                  )Other
      property, plant and equipment
                  
                  
                  (3,180
                  )
                  
                  
                  (6,342
                  )
                  
                  
                  (4,328
                  )Technical
      appraisal
                  
                  
                  (1,139
                  )
                  
                  
                  (1,139
                  )
                  
                  
                  (1,477
                  )Total
      depreciation
                  
                  
                  (110,575
                  )
                  
                  
                  (97,826
                  )
                  
                  
                  (90,354
                  )





The
Company has capitalized assets obtained through leasing, which are included in
other fixed assets and are as follows:







As
      of December 31,2008
                  
                  
                  2007ThUS$
                  
                  
                  ThUS$Administrative
      office buildings
                  
                  
                  1,988
                  
                  
                  
                  1,988Accumulated
      depreciation
                  
                  
                  (552
                  )
                  
                  
                  (521
                  )Total
      assets in leasing
                  
                  
                  1,436
                  
                  
                  
                  1,467





The
administrative office buildings were acquired for 230 installments of UF 663.75
each and an annual, contractually established interest rate of
8.5%.





Note
8 - Investments in Related Companies





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 any instruments as net investment hedges of its
foreign investments.





b)       Significant
events and transactions involving related parties and investments in the years
2006-2008




·
            On
      April 24, 2008, the Mexican subsidiary Agricolima S.A. de C.V. was sold to
      Mr. Carlos Federico Valenzuela Cadena, Mr. Diego Valenzuela Cadena and Mr.
      Jesús Angel Morelos Montfort. The Company recorded a gain on sale of this
      investment of ThUS$ 1,387.





·
            On
      December 7, 2007, SQM North America Corp. sold to Nautilus International
      Holding Corporation all the rights which SQM North America Corp had in
      Cape Fear Bulk LLC. for ThUS$ 1,478, recording a gain from the sale of the
      investments of ThUS$ 1,316.


F-27


Sociedad
Química y Minera de Chile S.A. and Subsidiaries
 Notes
to the Audited Consolidated Financial Statements
 (Expressed
in thousands of US dollars, except as stated)


Note
8 - Investments in Related Companies (continued)




b)       Significant
events and transactions involving related parties and investments in the years
2006-2008 (continued)





·
            On
      January 12, 2007, the subsidiary PTM SQM Ibérica S.A. was liquidated and
      extinguished. This operation gave rise to a loss of ThUS$ 41 in the
      subsidiary Soquimich European Holding
B.V.





·
            On
      October 27, 2006, SQM Comercial de México S.A. de C.V. and SQM Industrial
      S.A. sold all the shares (100%) they had in Fertilizantes Olmeca y SQM
      S.A. de C.V. to Yara Nederland B.V. and Yara Holdings Netherlands B.V.
      (both being part of Yara Group, party related to SQM prior to the
      transaction mentioned in Note 5) for a sum of ThUS$ 4,888. The sale
      generated gain of ThUS$ 1,040.




·
            On
      September 14, 2006, Soquimich European Holding B.V. (SEH) sold to Yara
      Italia SPA (being part of Yara Group) its entire participation (50% of
      rights) in Impronta SRL for a sum of ThUS$ 902. The transaction generated
      loss of ThUS$ 308.




·
            On
      May 9, 2006, SQM Industrial S.A. and SQM Potasio S.A. provided funding to
      Prestadora de Servicios de Salud Cruz del Norte S.A. The entity’s paid-in
      capital amounts to ThCh$ 50,000 (approx. ThUS$ 97 when the entity was
      formed) divided into 5,000 shares with no par value, no privileges or
      preferences, which are paid in full upon
  subscription.




·
            On
      January 24, 2006, Soquimich European Holding B.V. and Nutrisi Holding N.V.
      acquired 334 and 666 shares, respectively of Fertilizantes Naturales S.A.
      (“Fenasa”) for ThEuro 75,100 (approx. ThUS$ 91 in the moment of the
      transaction) thereby increasing total SQM Group ownership of Fenasa to
      66.67%.




·
            On
      January 19, 2006 Sociedad Química y Minera de Chile S.A. and some of its
      subsidiaries have acquired from DSM Group based in the Netherlands (third
      party), the total amount of shares of three companies that participate in
      the markets of the production and commercialization of iodine and iodine
      derivatives in Chile (DSM Minera S.A. and Exploraciones Mineras S.A.) and
      abroad (DSM Minera B.V. based in Netherlands). The purchase price paid in
      cash for Chilean operations was ThUS$ 100,067 and for DSM Minera B.V. was
      ThUS$ 13,840 in cash.


F-28


Sociedad
Química y Minera de Chile S.A. and Subsidiaries
 Notes
to the Audited Consolidated Financial Statements
 (Expressed
in thousands of US dollars, except as stated)


Note
8 - Investments in Related Companies (continued)




b)       Significant
events and transactions involving related parties and investments in the years
2005-2007 (continued)




The
Company accounted for the investment applying the purchase method in accordance
with Technical Bulletin No. 72 issued by the Chilean Association of Accountants
and rules established in Circular No. 1697 issued by the SVS. Accordingly the
Company recorded acquired assets and assumed liabilities at their fair
values. The transactions generated negative goodwill of ThUS$ 1,291 related to
Chilean entities acquired and goodwill amounting to ThUS$ 11,373 related to
acquisition of operations in Netherlands. Goodwill is amortized over a period of
20 years, while negative goodwill is going to be amortized over the estimated
period of returns generated by mining concessions acquired since the moment in
which the Company will begin exploitation of the respective mineral
reserves.





After the
acquisition DSM Minera S.A. changed its name to Minera Nueva Victoria S.A. and
DSM Minera B.V. changed its name to Iodine Minera B.V.





·
            At
      the First General Extraordinary Shareholders’ Meeting of SQM Industrial
      S.A. held on January 9, 2006, its shareholders approved the merger of SQM
      Procesos S.A. into SQM Industrial S.A. through the dissolution of SQM
      Procesos S.A. and its incorporation into SQM Industrial S.A., which in
      effect acquires all assets and liabilities of SQM Procesos
      S.A.





c)       Investments
with less than 20% participation





Investments
in which the Company has less than 20% participation and the capacity to exert
significant influence or control over the investment, because SQM has appointed
a member of its Board of Directors, have been valued using the equity
method.


F-29


Sociedad
Química y Minera de Chile S.A. and Subsidiaries
 Notes
to the Audited Consolidated Financial Statements
 (Expressed
in thousands of US dollars, except as stated)


Note
8 - Investments in Related Companies (continued)





d)       Detail
of investments in related companies




Equity
      of
                    
                    
                    
                    
                    
                    
                    
                    
                    Equity
      participationCompany
                    
                    
                    
                    Currency
                    
                    Ownership
      interest
                      as
      of December 31,
                    
                    
                    investment
      as
                      of
      December 31,
                    
                    
                    Net
      income (loss)
                      for
      the year ended
                    
                    
                    Carrying
      value as
                      of
      December 31,
                    
                    
                    in
      net income (loss) for
                      the
      year December 31,of
      origin
                    
                    2008
                    
                    
                    2007
                    
                    
                    2006
                    
                    
                    2008
                    
                    
                    2007
                    
                    
                    2008
                    
                    
                    2007
                    
                    
                    2006
                    
                    
                    2008
                    
                    
                    2007
                    
                    
                    2008
                    
                    
                    2007
                    
                    
                    2006%
                    
                    
                    %
                    
                    
                    %
                    
                    
                    ThUS$
                    
                    
                    ThUS$
                    
                    
                    ThUS$
                    
                    
                    ThUS$
                    
                    
                    ThUS$
                    
                    
                    ThUS$
                    
                    
                    ThUS$
                    
                    
                    ThUS$
                    
                    
                    ThUS$
                    
                    
                    ThUS$Ajay
      North America LLC
                    
                    USA
                    
                    US$
                    
                    
                    49.00
                    
                    
                    
                    49.00
                    
                    
                    
                    49.00
                    
                    
                    
                    12,482
                    
                    
                    
                    11,966
                    
                    
                    
                    2,067
                    
                    
                    
                    1,284
                    
                    
                    
                    291
                    
                    
                    
                    4,892
                    
                    
                    
                    4,657
                    
                    
                    
                    1,013
                    
                    
                    
                    629
                    
                    
                    
                    142Nutrisi
      Holding N.V.
                    
                    Belgium
                    
                    Euros
                    
                    
                    50.00
                    
                    
                    
                    50.00
                    
                    
                    
                    50.00
                    
                    
                    
                    14,494
                    
                    
                    
                    10,429
                    
                    
                    
                    4,634
                    
                    
                    
                    1,163
                    
                    
                    
                    846
                    
                    
                    
                    6,823
                    
                    
                    
                    5,092
                    
                    
                    
                    2,017
                    
                    
                    
                    581
                    
                    
                    
                    425Doktor
      Tarsa Tarim Sanayi AS
                    
                    Turkey
                    
                    Euros
                    
                    
                    50.00
                    
                    
                    
                    50.00
                    
                    
                    
                    50.00
                    
                    
                    
                    22,424
                    
                    
                    
                    8,472
                    
                    
                    
                    12,669
                    
                    
                    
                    2,027
                    
                    
                    
                    1,291
                    
                    
                    
                    11,212
                    
                    
                    
                    4,236
                    
                    
                    
                    6,335
                    
                    
                    
                    1,014
                    
                    
                    
                    645Ajay
      Europe S.A.R.L.
                    
                    France
                    
                    Euros
                    
                    
                    50.00
                    
                    
                    
                    50.00
                    
                    
                    
                    50.00
                    
                    
                    
                    10,033
                    
                    
                    
                    9,467
                    
                    
                    
                    1,625
                    
                    
                    
                    1,474
                    
                    
                    
                    993
                    
                    
                    
                    4,282
                    
                    
                    
                    3,703
                    
                    
                    
                    813
                    
                    
                    
                    737
                    
                    
                    
                    497Misr
      Specialty Fertilizers
                    
                    Egypt
                    
                    US$
                    
                    
                    47.49
                    
                    
                    
                    47.49
                    
                    
                    
                    47.49
                    
                    
                    
                    4,733
                    
                    
                    
                    4,529
                    
                    
                    
                    622
                    
                    
                    
                    (140
                    )
                    
                    
                    (446
                    )
                    
                    
                    2,247
                    
                    
                    
                    2,151
                    
                    
                    
                    295
                    
                    
                    
                    (67
                    )
                    
                    
                    (212
                    )Abu
      Dhabi Fertilizer Industries WLL
                    
                    UAE
                    
                    US$
                    
                    
                    50.00
                    
                    
                    
                    50.00
                    
                    
                    
                    50.00
                    
                    
                    
                    10,555
                    
                    
                    
                    4,713
                    
                    
                    
                    5,842
                    
                    
                    
                    794
                    
                    
                    
                    366
                    
                    
                    
                    5,277
                    
                    
                    
                    2,356
                    
                    
                    
                    2,921
                    
                    
                    
                    397
                    
                    
                    
                    183Impronta
      SRL
                    
                    Italia
                    
                    Euros
                    
                    
                    -
                    
                    
                    
                    -
                    
                    
                    
                    -
                    
                    
                    
                    
                    
                    
                    
                    -
                    
                    
                    
                    
                    
                    
                    
                    -
                    
                    
                    
                    -
                    
                    
                    
                    
                    
                    
                    
                    -
                    
                    
                    
                    -
                    
                    
                    
                    -
                    
                    
                    
                    141Sales
      de Magnesio Ltda.
                    
                    Chile
                    
                    Ch$
                    
                    
                    50.00
                    
                    
                    
                    50.00
                    
                    
                    
                    50.00
                    
                    
                    
                    946
                    
                    
                    
                    1,290
                    
                    
                    
                    697
                    
                    
                    
                    509
                    
                    
                    
                    428
                    
                    
                    
                    473
                    
                    
                    
                    645
                    
                    
                    
                    349
                    
                    
                    
                    254
                    
                    
                    
                    214SQM
      Eastmed Turkey
                    
                    Turkey
                    
                    Euros
                    
                    
                    50.00
                    
                    
                    
                    50.00
                    
                    
                    
                    50.00
                    
                    
                    
                    437
                    
                    
                    
                    196
                    
                    
                    
                    270
                    
                    
                    
                    (7
                    )
                    
                    
                    (210
                    )
                    
                    
                    219
                    
                    
                    
                    98
                    
                    
                    
                    135
                    
                    
                    
                    (4
                    )
                    
                    
                    (105
                    )Asociación
      Garantizadora de Pensiones
                    
                    Chile
                    
                    Ch$
                    
                    
                    3.31
                    
                    
                    
                    3.31
                    
                    
                    
                    3.31
                    
                    
                    
                    536
                    
                    
                    
                    728
                    
                    
                    
                    (5
                    )
                    
                    
                    -
                    
                    
                    
                    -
                    
                    
                    
                    18
                    
                    
                    
                    24
                    
                    
                    
                    -
                    
                    
                    
                    -
                    
                    
                    
                    -Charlee
      SQM Thailand Co. Ltd.
                    
                    Thailand
                    
                    US$
                    
                    
                    40.00
                    
                    
                    
                    40.00
                    
                    
                    
                    40.00
                    
                    
                    
                    3,535
                    
                    
                    
                    2,401
                    
                    
                    
                    1,016
                    
                    
                    
                    77
                    
                    
                    
                    167
                    
                    
                    
                    1,414
                    
                    
                    
                    960
                    
                    
                    
                    407
                    
                    
                    
                    31
                    
                    
                    
                    67Agro
      India Ltda.
                    
                    India
                    
                    US$
                    
                    
                    49.00
                    
                    
                    
                    49.00
                    
                    
                    
                    49.00
                    
                    
                    
                    191
                    
                    
                    
                    27
                    
                    
                    
                    153
                    
                    
                    
                    (13
                    )
                    
                    
                    (94
                    )
                    
                    
                    94
                    
                    
                    
                    13
                    
                    
                    
                    75
                    
                    
                    
                    (6
                    )
                    
                    
                    (45
                    )Total
                    
                    
                    
                    
                    
                    
                    
                    
                    
                    
                    
                    
                    
                    
                    
                    
                    
                    
                    
                    
                    
                    
                    
                    
                    
                    
                    
                    
                    
                    
                    
                    
                    
                    
                    
                    
                    
                    
                    36,951
                    
                    
                    
                    23,935
                    
                    
                    
                    14,360
                    
                    
                    
                    3,566
                    
                    
                    
                    1,952




F-30


Sociedad
Química y Minera de Chile S.A. and Subsidiaries
 Notes
to the Audited Consolidated Financial Statements
 (Expressed
in thousands of US dollars, except as stated)


Note
9 - Goodwill and Negative Goodwill





Goodwill,
negative goodwill and the related amortization is summarized as
follows:





a)       Goodwill





Amortization for the year ended
                  December 31,
                
                
                Net Balance as of
                  December 31,Company
                
                2008
                
                
                2007
                
                
                2006
                
                
                2008
                
                
                2007ThUS$
                
                
                ThUS$
                
                
                ThUS$
                
                
                ThUS$
                
                
                ThUS$SQM
      Potassium S.A.
                
                
                145
                
                
                
                145
                
                
                
                144
                
                
                
                1,157
                
                
                
                1,302Comercial
      Hydro S.A.
                
                
                208
                
                
                
                245
                
                
                
                174
                
                
                
                737
                
                
                
                1,065SQM
      Industrial S.A.
                
                
                1,113
                
                
                
                1,113
                
                
                
                1,154
                
                
                
                17,803
                
                
                
                18,916SQM
      México S.A. de C.V.
                
                
                56
                
                
                
                56
                
                
                
                56
                
                
                
                723
                
                
                
                779Comercial
      Caiman Internacional S.A.
                
                
                23
                
                
                
                23
                
                
                
                23
                
                
                
                85
                
                
                
                108Fertilizantes
      Olmeca S.A. de C.V.
                
                
                -
                
                
                
                -
                
                
                
                56
                
                
                
                -
                
                
                
                -SQM
      Dubai – FZCO
                
                
                101
                
                
                
                101
                
                
                
                101
                
                
                
                1,682
                
                
                
                1,783Iodine
      Minera B.V.
                
                
                569
                
                
                
                569
                
                
                
                521
                
                
                
                9,714
                
                
                
                10,283Total
                
                
                2,215
                
                
                
                2,252
                
                
                
                2,229
                
                
                
                31,901
                
                
                
                34,236





b)       Negative
Goodwill





Amortization for the year ended
                  December 31,
                
                
                Net Balance as of
                  December 31,Company
                
                2008
                
                
                2007
                
                
                2006
                
                
                2008
                
                
                2007ThUS$
                
                
                ThUS$
                
                
                ThUS$
                
                
                ThUS$
                
                
                ThUS$Minera
      Mapocho S.A.
                
                
                -
                
                
                
                -
                
                
                
                68
                
                
                
                -
                
                
                
                -Minera
      Nueva Victoria S.A.
                
                
                -
                
                
                
                -
                
                
                
                -
                
                
                
                1,279
                
                
                
                1,291Total
                
                
                -
                
                
                
                -
                
                
                
                68
                
                
                
                1,279
                
                
                
                1,291


F-31


Sociedad
Química y Minera de Chile S.A. and Subsidiaries
 Notes
to the Audited Consolidated Financial Statements
 (Expressed
in thousands of US dollars, except as stated)


Note
10 - Other Long-Term Assets





Other
long-term assets are summarized as follows:





As
      of December 31,2008
                  
                  
                  2007ThUS$
                  
                  
                  ThUS$Engine
      and equipment spare-parts, net
                  
                  
                  2,306
                  
                  
                  
                  2,987Mine
      development costs
                  
                  
                  24,892
                  
                  
                  
                  23,944Construction
      of Salar-Baquedano road
                  
                  
                  1,050
                  
                  
                  
                  1,170Deferred
      debt issuance costs
                  
                  
                  320
                  
                  
                  
                  342Cost
      of issuance and placement of bonds
                  
                  
                  4,278
                  
                  
                  
                  4,864Other
                  
                  
                  1,580
                  
                  
                  
                  2,311Total
                  
                  
                  34,426
                  
                  
                  
                  35,618





Note
11 - Bank Debt





a)       Short-term
bank debt is detailed as follows:





As
      of December 31,2008
                  
                  
                  2007ThUS$
                  
                  
                  ThUS$Bank
      or financial institutionBanco
      de Credito e Inversiones
                  
                  
                  35,518
                  
                  
                  
                  -JP
      Morgan Chase Bank
                  
                  
                  20,317
                  
                  
                  
                  -BBVA
      Banco Bilbao Vizcaya Argentaria
                  
                  
                  40,524
                  
                  
                  
                  180Fortis
      Bank
                  
                  
                  641
                  
                  
                  
                  685Banco
      Santander
                  
                  
                  20,075
                  
                  
                  
                  -Banesto
                  
                  
                  390
                  
                  
                  
                  432HSBC
      Bank Chile
                  
                  
                  15,266
                  
                  
                  
                  -Deutsche
      Bank España S.A.
                  
                  
                  408
                  
                  
                  
                  345Caixa
      Penedes de España
                  
                  
                  194
                  
                  
                  
                  131HSBC
      Bank Middle East Ltd
                  
                  
                  22
                  
                  
                  
                  34Total
                  
                  
                  133,355
                  
                  
                  
                  1,807Annual
      average interest rate
                  
                  
                  7.16
                  %
                  
                  
                  4.31
                  %


F-32


Sociedad
Química y Minera de Chile S.A. and Subsidiaries
 Notes
to the Audited Consolidated Financial Statements
 (Expressed
in thousands of US dollars, except as stated)


Note
11 - Bank Debt (continued)





b)       Long-term
bank debt is detailed as follows:





As
      of December 31,2008
                          
                          
                          2007Bank
      or financial institution
                          
                          ThUS$
                          
                          
                          ThUS$BBVA
      Banco Bilbao Vizcaya Argentaria (1)
                          
                          
                          100,204
                          
                          
                          
                          100,433Export
      Development Canada (2)
                          
                          
                          50,032
                          
                          
                          
                          -ING
      Bank (3)
                          
                          
                          80,215
                          
                          
                          
                          -80,368Total
                          
                          
                          230,451
                          
                          
                          
                          180,801Less:
      Current portion
                          
                          
                          (451
                          )
                          
                          
                          (801
                          )Long-term
      debt
                          
                          
                          230,000
                          
                          
                          
                          180,000





(1)
            U.S.
      dollar-denominated loan without guarantee, interest rate of Libor + 0.375%
      per annum, quarterly payment. The principal is due on March 3,
      2010.


(2)
            U.S.
      dollar denominated loan without guarantee, interest rate of Libor + 1.5%
      per-annum, quarterly payment. The principal is due on November 30,
      2010.


(3)
            U.S.
      dollar-denominated loan without guarantee, interest rate of Libor + 0.30%
      per annum, semi-annually payment. The principal is due on November 28,
      2011.





c)       Maturity
of the long-term bank debt is as follows:





As
      of December 31,2008
                  
                  
                  2007Years
      to maturity
                  
                  ThUS$
                  
                  
                  ThUS$Current
      portion
                  
                  
                  451
                  
                  
                  
                  8011
      to 2 years
                  
                  
                  150,000
                  
                  
                  
                  -2
      to 3 years
                  
                  
                  80,000
                  
                  
                  
                  100,0003
      to 5 years
                  
                  
                  -
                  
                  
                  
                  80,000Total
                  
                  
                  230,451
                  
                  
                  
                  180,801


F-33


Sociedad
Química y Minera de Chile S.A. and Subsidiaries
 Notes
to the Audited Consolidated Financial Statements
 (Expressed
in thousands of US dollars, except as stated)


Note
12 - Bonds Payable




On
January 25, 2006, the Company made a placement of Series C bonds for an amount
of UF 3,000,000 at an annual rate of 4.00%. This placement achieved collection
equivalent to 100% of par value.




On April
5, 2006, the Company made a placement of single-series bonds for an amount of
ThUS$ 200,000 at an annual rate of 6.125%, under the regulations contained in
"Rule 144 and regulation S of the U.S. Securities Act of 1933".





During
each of the years ended December 31, 2008 and 2007 the Company repaid
corresponding installments of the Series C bonds of UF 150,000 each plus
respective interest.





As of
December 31, 2008 and 2007, the short-term portion includes ThUS$ 7,929 and
ThUS$ 8,868, respectively, related to short-term principal plus accrued interest
at those dates. The long-term portion includes ThUS$ 285,940 as of December 31,
2008 and ThUS$ 306,651 as of December 31, 2007, related to principal
installments for Series C bonds and Single Series bonds.





Detail of
the bonds payable is presented in the table below:





Number of
                Registration of
                the instrument
              
              Series
              
              Nominal
                Amount
              
              Currency
                or
                indexation unit
              
              Interest
                Rate
              
              Matures on
              
              Payment of
                interest
              
              Repayment
                of principal
              
              Balance
                as of Dec
                31, 2008
              
              
              Balance
                as of Dec
                31, 2007ThUS$
              
              
              ThUS$Current
      portion of long-term bonds payable:446
              
              C
              
              
              150,000
              
              UF
              
              
              4.00
              %
              Dec
      12, 2009
              
              Semi-annual
              
              Semi-annual
              
              
              5,352
              
              
              
              6,291184
              
              Single
              
              
              -
              
              ThUS$
              
              
              6.125
              %
              Oct
      15, 2009
              
              Semi-annual
              
              Bullet
              
              
              2,577
              
              
              
              2,577Total
              
              
              7,929
              
              
              
              8,868Long-term
      bonds payable:446
              
              C
              
              
              2,550,000
              
              UF
              
              
              4.00
              %
              Dec
      1, 2026
              
              Semi-annual
              
              Semi-annual
              
              
              85,940
              
              
              
              106,651184
              
              Single
              
              
              200,000
              
              ThUS$
              
              
              6.125
              %
              Apr
      15, 2016
              
              Semi-annual
              
              Bullet
              
              
              200,000
              
              
              
              200,000Total
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              285,940
              
              
              
              306,651


F-34





Sociedad
Química y Minera de Chile S.A. and Subsidiaries


Notes
to the Audited Consolidated Financial Statements


(Expressed
in thousands of US dollars, except as stated)





Note
13 - Accrued Liabilities





As of
December 31, 2008 and 2007, current accrued liabilities are summarized as
follows:





As of December 31,2008
                      
                      
                      2007ThUS$
                      
                      
                      ThUS$Accrued
      royalty payments to CORFO
                      
                      
                      5,256
                      
                      
                      
                      3,643Provision
      for employee compensation and legal costs
                      
                      
                      715
                      
                      
                      
                      925Taxes
      and monthly income tax installment payments
                      
                      
                      11,659
                      
                      
                      
                      3,496Vacation
      accrual
                      
                      
                      10,518
                      
                      
                      
                      11,919Marketing
      expenses
                      
                      
                      107
                      
                      
                      
                      107Audit
      fees
                      
                      
                      477
                      
                      
                      
                      400Other
      accruals
                      
                      
                      1,682
                      
                      
                      
                      1,824Total
                      
                      
                      30,414
                      
                      
                      
                      22,314





Note
14 - Current and Deferred Income Taxes





a)       Refundable
dividend tax credits




At
December 31, 2008 and 2007 the Company has the following consolidated balances
for retained tax earnings, income not subject to taxes, tax loss carry-forwards
and credit for shareholders:





As of December 31,2008
                  
                  
                  2007ThUS$
                  
                  
                  ThUS$Accumulated
      tax basis retained earnings with tax credit
                  
                  
                  813,716
                  
                  
                  
                  381,272Accumulated
      tax basis retained earnings without tax credit
                  
                  
                  132,773
                  
                  
                  
                  56,332Tax
      loss carry-forwards (1)
                  
                  
                  16,949
                  
                  
                  
                  142,236Credit
      for shareholders (2)
                  
                  
                  166,554
                  
                  
                  
                  77,904





(1)
              Tax
      losses in Chile can be carried forward
  indefinitely.


(2)
            Corresponds
      to credit to income taxes that shareholders have in relation to
      distribution of dividends.





The
Company has recognized deferred income tax assets for tax loss carry-forwards
and the related valuation allowance, where applicable, in accordance with
Technical Bulletin No. 60 issued by the Chilean Association of
Accountants.


F-35


Sociedad
Química y Minera de Chile S.A. and Subsidiaries


Notes
to the Audited Consolidated Financial Statements


(Expressed
in thousands of US dollars, except as stated)





Note
14 - Current and Deferred Income Taxes (continued)





b)       Deferred
taxes





The
detail of the deferred taxes as of December 31, 2008 and 2007 that represented a
net liability of ThUS$ 22,683 and ThUS$ 61,623, respectively, are presented in
the following tables:





As of December 31, 2008
                
                Deferred tax asset
                
                
                Deferred tax liabilityShort-term
                
                
                Long-term
                
                
                Short-term
                
                
                Long-termThUS$
                
                
                ThUS$
                
                
                ThUS$
                
                
                ThUS$Temporary
      differencesAllowance
      for doubtful accounts
                
                
                1,029
                
                
                
                897
                
                
                
                -
                
                
                
                -Vacation
      accrual
                
                
                1,734
                
                
                
                -
                
                
                
                -
                
                
                
                -Unrealized
      gain on sale of products
                
                
                76,633
                
                
                
                -
                
                
                
                -
                
                
                
                -Provision
      for obsolescence of non-current assets
                
                
                -
                
                
                
                3,940
                
                
                
                -
                
                
                
                -Production
      expenses
                
                
                -
                
                
                
                -
                
                
                
                29,774
                
                
                
                -Accelerated
      depreciation of PP&E
                
                
                -
                
                
                
                -
                
                
                
                -
                
                
                
                72,192Exploration
      expenses
                
                
                -
                
                
                
                -
                
                
                
                -
                
                
                
                4,702Capitalized
      interest
                
                
                -
                
                
                
                -
                
                
                
                -
                
                
                
                9,252Staff
      severance indemnities
                
                
                -
                
                
                
                -
                
                
                
                -
                
                
                
                1,935Fair
      value of fixed assets
                
                
                -
                
                
                
                3,153
                
                
                
                -
                
                
                
                -Provision
      for employee benefits
                
                
                11
                
                
                
                2,904
                
                
                
                -
                
                
                
                -Capitalized
      expenses
                
                
                -
                
                
                
                -
                
                
                
                -
                
                
                
                826Tax
      loss carry-forwards
                
                
                -
                
                
                
                4,362
                
                
                
                -
                
                
                
                -Accrued
      loss on derivatives
                
                
                629
                
                
                
                -
                
                
                
                -
                
                
                
                -Accrued
      interest
                
                
                504
                
                
                
                -
                
                
                
                -
                
                
                
                -Deferred
      mining activity royalty taxes
                
                
                971
                
                
                
                494
                
                
                
                2,625
                
                
                
                4,384Write-downs of inventory
                
                
                -
                
                
                
                10,362
                
                
                
                -
                
                
                
                -Other
                
                
                6,496
                
                
                
                1,242
                
                
                
                -
                
                
                
                370Total
      gross deferred taxes
                
                
                88,007
                
                
                
                27,354
                
                
                
                32,399
                
                
                
                93,661Total
      complementary accounts
                
                
                -
                
                
                
                -
                
                
                
                -
                
                
                
                (13,515
                )Valuation
      allowance
                
                
                (20,806
                )
                
                
                (4,693
                )
                
                
                -
                
                
                
                -Total
      deferred taxes
                
                
                67,201
                
                
                
                22,661
                
                
                
                32,399
                
                
                
                80,146Deferred
      tax asset/liability, net
                
                
                34,802
                
                
                
                -
                
                
                
                -
                
                
                
                57,485


F-36


Sociedad
Química y Minera de Chile S.A. and Subsidiaries


Notes
to the Audited Consolidated Financial Statements


(Expressed
in thousands of US dollars, except as stated)





Note
14 - Current and Deferred Income Taxes (continued)





b) Deferred
taxes (continued)





As of December 31, 2007
                
                Deferred tax asset
                
                
                Deferred tax liabilityShort-term
                
                
                Long-term
                
                
                Short-term
                
                
                Long-termThUS$
                
                
                ThUS$
                
                
                ThUS$
                
                
                ThUS$Temporary
      differencesAllowance
      for doubtful accounts
                
                
                1,335
                
                
                
                605
                
                
                
                -
                
                
                
                -Vacation
      accrual
                
                
                1,872
                
                
                
                -
                
                
                
                -
                
                
                
                -Unrealized
      gain on sale of products
                
                
                17,521
                
                
                
                -
                
                
                
                -
                
                
                
                -Provision
      for obsolescence of non-current assets
                
                
                -
                
                
                
                3,779
                
                
                
                -
                
                
                
                -Production
      expenses
                
                
                -
                
                
                
                -
                
                
                
                20,535
                
                
                
                -Accelerated
      depreciation of PP&E
                
                
                -
                
                
                
                -
                
                
                
                -
                
                
                
                62,190Exploration
      expenses
                
                
                -
                
                
                
                -
                
                
                
                -
                
                
                
                4,327Capitalized
      interest
                
                
                -
                
                
                
                -
                
                
                
                -
                
                
                
                8,384Staff
      severance indemnities
                
                
                -
                
                
                
                -
                
                
                
                -
                
                
                
                1,733Fair
      value of fixed assets
                
                
                -
                
                
                
                2,119
                
                
                
                -
                
                
                
                -Leased
      assets
                
                
                -
                
                
                
                -
                
                
                
                -
                
                
                
                12Capitalized
      expenses
                
                
                -
                
                
                
                -
                
                
                
                -
                
                
                
                929Tax
      loss carry-forwards
                
                
                -
                
                
                
                25,883
                
                
                
                -
                
                
                
                -Accrued
      gain from swap contract
                
                
                -
                
                
                
                -
                
                
                
                2,545
                
                
                
                -Deferred
      revenue
                
                
                188
                
                
                
                -
                
                
                
                -
                
                
                
                -Provision
      for energy tariff difference
                
                
                2,175
                
                
                
                -
                
                
                
                -
                
                
                
                -Accrued
      interest
                
                
                233
                
                
                
                -
                
                
                
                -
                
                
                
                -Allowances
      for obsolete inventories
                
                
                -
                
                
                
                5,382
                
                
                
                -
                
                
                
                -Other
                
                
                1,215
                
                
                
                45
                
                
                
                140
                
                
                
                596Total
      gross deferred taxes
                
                
                24,539
                
                
                
                37,813
                
                
                
                23,220
                
                
                
                78,171Total
      complementary accounts
                
                
                -
                
                
                
                -
                
                
                
                -
                
                
                
                (15,633
                )Valuation
      allowance
                
                
                (7,533
                )
                
                
                (30,684
                )
                
                
                -
                
                
                
                -Total
      deferred taxes
                
                
                17,006
                
                
                
                7,129
                
                
                
                23,220
                
                
                
                62,538Deferred
      tax asset/liability, net
                
                
                -
                
                
                
                -
                
                
                
                6,214
                
                
                
                55,409





c) Income
tax expense is summarized as follows:





2008
                  
                  
                  2007
                  
                  
                  2006ThUS$
                  
                  
                  ThUS$
                  
                  
                  ThUS$Provision
      for current income taxes
                  
                  
                  (147,694
                  )
                  
                  
                  (38,218
                  )
                  
                  
                  (24,797
                  )Effect
      of deferred tax assets and liabilities
                  
                  
                  25,134
                  
                  
                  
                  (2,833
                  )
                  
                  
                  (13,447
                  )Adjustment
      for tax expense (previous year)
                  
                  
                  576
                  
                  
                  
                  132
                  
                  
                  
                  238Effect
      of amortization of complementary accounts
                  
                  
                  (2,111
                  )
                  
                  
                  (5,508
                  )
                  
                  
                  (4,021
                  )Effect
      on deferred tax assets and liabilities due to changes in valuation
      allowance
                  
                  
                  13,230
                  
                  
                  
                  (2,182
                  )
                  
                  
                  4,420Other
      tax charges and credits
                  
                  
                  2,914
                  
                  
                  
                  17
                  
                  
                  
                  (309
                  )Total
      income tax expense
                  
                  
                  (107,951
                  )
                  
                  
                  (48,592
                  )
                  
                  
                  (37,916
                  )


F-37


Sociedad
Química y Minera de Chile S.A. and Subsidiaries


Notes
to the Audited Consolidated Financial Statements


(Expressed
in thousands of US dollars, except as stated)





Note
15 – Long-Term Accrued Liabilities





a)       Long-term
accrued liabilities are composed as follows:





As of December 31,2008
                  
                  
                  2007ThUS$
                  
                  
                  ThUS$Staff
      severance indemnities
                  
                  
                  22,129
                  
                  
                  
                  20,679Incentive
      bonus provision(1)
                  
                  
                  12,000
                  
                  
                  
                  -Closure
      of mining sites and environmental expenses
                  
                  
                  3,181
                  
                  
                  
                  1,992Total
                  
                  
                  37,310
                  
                  
                  
                  22,671





(1) These
provisions correspond to stay bonuses for the Company’s executives. The value of
these bonuses is linked to the price of the Company’s stock and is to be paid in
cash between 2010 and 2011. In accordance with note 2 z), these benefits have
been recognized on an accrual basis.





b)       Staff
severance indemnities





Changes
in the balance of staff severance indemnities for the years ended December 31,
2008, 2007 and 2006 are summarized as follows:





2008
                    
                    
                    2007
                    
                    
                    2006ThUS$
                    
                    
                    ThUS$
                    
                    
                    ThUS$Opening
      balance
                    
                    
                    20,679
                    
                    
                    
                    17,472
                    
                    
                    
                    16,415Increases
      in obligation
                    
                    
                    8,332
                    
                    
                    
                    4,190
                    
                    
                    
                    3,253Benefits
      paid
                    
                    
                    (2,227
                    )
                    
                    
                    (2,245
                    )
                    
                    
                    (1,546
                    )Foreign
      currency translation
                    
                    
                    (4,796
                    )
                    
                    
                    1,336
                    
                    
                    
                    (640
                    )Other
      changes
                    
                    
                    141
                    
                    
                    
                    (74
                    )
                    
                    
                    (10
                    )Total
                    
                    
                    22,129
                    
                    
                    
                    20,679
                    
                    
                    
                    17,472


F-38


Sociedad
Química y Minera de Chile S.A. and Subsidiaries


Notes
to the Audited Consolidated Financial Statements


(Expressed
in thousands of US dollars, except as stated)





Note
16 - Minority Interest





Minority
shareholders’ participation in the Shareholders’ equity and results of the
Company’s subsidiaries as of each year-end and in each year presented is as
follows:





Participation in equity as
                  of December 31,
                
                
                Participation in (income) loss for
                  the years ended December 31,2008
                
                
                2007
                
                
                2008
                
                
                2007
                
                
                2006ThUS$
                
                
                ThUS$
                
                
                ThUS$
                
                
                ThUS$
                
                
                ThUS$Soquimich
      Comercial S.A.
                
                
                42,498
                
                
                
                42,347
                
                
                
                (2,669
                )
                
                
                (3,886
                )
                
                
                (3,500
                )Ajay
      SQM Chile S.A.
                
                
                4,159
                
                
                
                3,541
                
                
                
                (532
                )
                
                
                166
                
                
                
                (912
                )Cape
      Fear Bulk LLC
                
                
                -
                
                
                
                -
                
                
                
                -
                
                
                
                (99
                )
                
                
                (248
                )SQM
      Italia S.R.L
                
                
                -
                
                
                
                -
                
                
                
                -
                
                
                
                -
                
                
                
                -SQM
      Nitratos México S.A. de C.V.
                
                
                10
                
                
                
                13
                
                
                
                3
                
                
                
                31
                
                
                
                (84
                )Fertilizantes
      Naturales S.A.
                
                
                423
                
                
                
                123
                
                
                
                (300
                )
                
                
                -
                
                
                
                2SQM
      Indonesia S.A.
                
                
                (30
                )
                
                
                (30
                )
                
                
                13
                
                
                
                (1
                )
                
                
                29SQM
      Potasio S.A.
                
                
                9
                
                
                
                5
                
                
                
                (7
                )
                
                
                (3
                )
                
                
                (2
                )Total
                
                
                47,069
                
                
                
                45,999
                
                
                
                (3,492
                )
                
                
                (3,792
                )
                
                
                (4,715
                )


F-39


Sociedad
Química y Minera de Chile S.A. and Subsidiaries


Notes
to the Audited Consolidated Financial Statements


(Expressed
in thousands of US dollars, except as stated)





Note
17 - Shareholders’ Equity





a)
            Changes
      in shareholders’ equity in the years ended December 31, 2008, 2007 and
      2006 were as follows:




Other
                  
                  
                  
                  
                  
                  Accumulated
                    deficit ofaccumulated
                  
                  
                  
                  
                  
                  Subsidiaries inNumber
                  
                  
                  Paid-in
                  
                  
                  comprehensive
                  
                  
                  Interim
                  
                  
                  development
                  
                  
                  Retained
                  
                  
                  Netofshares
                  
                  
                  capital
                  
                  
                  income
                  
                  
                  dividends
                  
                  
                  stage
                  
                  
                  earnings
                  
                  
                  income
                  
                  
                  TotalThUS$
                  
                  
                  ThUS$
                  
                  
                  ThUS$
                  
                  
                  ThUS$
                  
                  
                  ThUS$
                  
                  
                  ThUS$
                  
                  
                  ThUS$Balance
      as of January 1, 2006
                  
                  
                  263,196,524
                  
                  
                  
                  477,386
                  
                  
                  
                  157,287
                  
                  
                  
                  -
                  
                  
                  
                  (8,370
                  )
                  
                  
                  280,607
                  
                  
                  
                  113,506
                  
                  
                  
                  1,020,416Transfer
      of the 2005 net income to retained earnings
                  
                  
                  -
                  
                  
                  
                  -
                  
                  
                  
                  -
                  
                  
                  
                  -
                  
                  
                  
                  -
                  
                  
                  
                  113,506
                  
                  
                  
                  (113,506
                  )
                  
                  
                  -Transfer
      of the accumulated deficit from subsidiaries in development stage to
      retained earnings
                  
                  
                  -
                  
                  
                  
                  -
                  
                  
                  
                  -
                  
                  
                  
                  -
                  
                  
                  
                  8,370
                  
                  
                  
                  (8,370
                  )
                  
                  
                  -Declared
      dividends 2006
                  
                  
                  -
                  
                  
                  
                  -
                  
                  
                  
                  -
                  
                  
                  
                  -
                  
                  
                  
                  -
                  
                  
                  
                  (73,647
                  )
                  
                  
                  -
                  
                  
                  
                  (73,647
                  )Other
      comprehensive loss
                  
                  
                  -
                  
                  
                  
                  -
                  
                  
                  
                  (2,097
                  )
                  
                  
                  -
                  
                  
                  
                  -
                  
                  
                  
                  -
                  
                  
                  
                  -
                  
                  
                  
                  (2,097
                  )Net
      income for the year
                  
                  
                  -
                  
                  
                  
                  -
                  
                  
                  
                  -
                  
                  
                  
                  -
                  
                  
                  
                  -
                  
                  
                  
                  -
                  
                  
                  
                  141,277
                  
                  
                  
                  141,277Balance
      as of  December  31, 2006
                  
                  
                  263,196,524
                  
                  
                  
                  477,386
                  
                  
                  
                  155,190
                  
                  
                  
                  -
                  
                  
                  
                  -
                  
                  
                  
                  312,096
                  
                  
                  
                  141,277
                  
                  
                  
                  1,085,949Balance
      as of January 1, 2007
                  
                  
                  263,196,524
                  
                  
                  
                  477,386
                  
                  
                  
                  155,190
                  
                  
                  
                  -
                  
                  
                  
                  -
                  
                  
                  
                  312,096
                  
                  
                  
                  141,277
                  
                  
                  
                  1,085,949Transfer
      of the 2006 net income to retained earnings
                  
                  
                  -
                  
                  
                  
                  -
                  
                  
                  
                  -
                  
                  
                  
                  -
                  
                  
                  
                  -
                  
                  
                  
                  141,277
                  
                  
                  
                  (141,277
                  )
                  
                  
                  -Transfer
      of the accumulated deficit from subsidiaries in development stage to
      retained earnings
                  
                  
                  -
                  
                  
                  
                  -
                  
                  
                  
                  -
                  
                  
                  
                  -
                  
                  
                  
                  -
                  
                  
                  
                  -
                  
                  
                  
                  -
                  
                  
                  
                  -Declared
      dividends 2007
                  
                  
                  -
                  
                  
                  
                  -
                  
                  
                  
                  -
                  
                  
                  
                  -
                  
                  
                  
                  -
                  
                  
                  
                  (91,786
                  )
                  
                  
                  -
                  
                  
                  
                  (91,786
                  )Other
      comprehensive income
                  
                  
                  -
                  
                  
                  
                  -
                  
                  
                  
                  8,252
                  
                  
                  
                  -
                  
                  
                  
                  -
                  
                  
                  
                  -
                  
                  
                  
                  -
                  
                  
                  
                  8,252Net
      income for the year
                  
                  
                  -
                  
                  
                  
                  -
                  
                  
                  
                  -
                  
                  
                  
                  -
                  
                  
                  
                  -
                  
                  
                  
                  -
                  
                  
                  
                  180,021
                  
                  
                  
                  180,021Balance
      as of December 31, 2007
                  
                  
                  263,196,524
                  
                  
                  
                  477,386
                  
                  
                  
                  163,442
                  
                  
                  
                  -
                  
                  
                  
                  -
                  
                  
                  
                  361,587
                  
                  
                  
                  180,021
                  
                  
                  
                  1,182,436Balance
      January 1,2008
                  
                  
                  263,196,524
                  
                  
                  
                  477,386
                  
                  
                  
                  163,442
                  
                  
                  
                  -
                  
                  
                  
                  -
                  
                  
                  
                  361,587
                  
                  
                  
                  180,021
                  
                  
                  
                  1,182,436Transfer
      of the 2007 net income to retained earnings
                  
                  
                  -
                  
                  
                  
                  -
                  
                  
                  
                  -
                  
                  
                  
                  -
                  
                  
                  
                  -
                  
                  
                  
                  180,021
                  
                  
                  
                  (180,021
                  )
                  
                  
                  -Declared
      dividends 2008
                  
                  
                  -
                  
                  
                  
                  -
                  
                  
                  
                  -
                  
                  
                  
                  -
                  
                  
                  
                  -
                  
                  
                  
                  (117,014
                  )
                  
                  
                  -
                  
                  
                  
                  (117,014
                  )Other
      comprehensive loss
                  
                  
                  -
                  
                  
                  
                  -
                  
                  
                  
                  (3,721
                  )
                  
                  
                  -
                  
                  
                  
                  -
                  
                  
                  
                  -
                  
                  
                  
                  -
                  
                  
                  
                  (3,721
                  )Interim
      dividends
                  
                  
                  -
                  
                  
                  
                  -
                  
                  
                  
                  -
                  
                  
                  
                  (100,000
                  )
                  
                  
                  -
                  
                  
                  
                  -
                  
                  
                  
                  -
                  
                  
                  
                  (100,000
                  )Net
      income for the year
                  
                  
                  -
                  
                  
                  
                  -
                  
                  
                  
                  -
                  
                  
                  
                  -
                  
                  
                  
                  -
                  
                  
                  
                  -
                  
                  
                  
                  501,407
                  
                  
                  
                  501,407Balance
      as of  December 31, 2008
                  
                  
                  263,196,524
                  
                  
                  
                  477,386
                  
                  
                  
                  159,721
                  
                  
                  
                  (100,000
                  )
                  
                  
                  -
                  
                  
                  
                  424,594
                  
                  
                  
                  501,407
                  
                  
                  
                  1,463,108


F-40


Sociedad
Química y Minera de Chile S.A. and Subsidiaries


Notes
to the Audited Consolidated Financial Statements


(Expressed
in thousands of US dollars, except as stated)





Note
17 - Shareholders’ Equity (continued)





b)       The
composition of other comprehensive income (loss) and accumulated other
comprehensive income is as follows:





Other comprehensive income (loss)
                  For the year ended December 31,
                
                
                Accumulated other
                  comprehensive income
                  As of December 31,Description
                
                2008
                
                
                2007
                
                
                2006
                
                
                2008
                
                
                2007ThUS$
                
                
                ThUS$
                
                
                ThUS$
                
                
                ThUS$
                
                
                ThUS$Technical
      appraisal
                
                
                -
                
                
                
                -
                
                
                
                -
                
                
                
                151,345
                
                
                
                151,345Changes
      in other comprehensive income related to investments:Soquimich
      Comercial S.A. (1)
                
                
                -
                
                
                
                7,888
                
                
                
                (871
                )
                
                
                13,286
                
                
                
                13,286Comercial
      Hydro S.A.
                
                
                (725
                )
                
                
                -
                
                
                
                -
                
                
                
                (725
                )
                
                
                -SQMC
      Internacional Ltda
                
                
                (35
                )
                
                
                -
                
                
                
                -
                
                
                
                (35
                )
                
                
                -Proinsa
      Ltda
                
                
                (26
                )
                
                
                -
                
                
                
                -
                
                
                
                (26
                )
                
                
                -Isapre
      Norte Grande Limitada (1)
                
                
                (1
                )
                
                
                39
                
                
                
                -
                
                
                
                (45
                )
                
                
                (44
                )Inversiones
      Augusta S.A. (1)
                
                
                -
                
                
                
                -
                
                
                
                -
                
                
                
                (761
                )
                
                
                (761
                )SQM
      Ecuador S.A. (2)
                
                
                -
                
                
                
                -
                
                
                
                -
                
                
                
                (271
                )
                
                
                (271
                )Almacenes
      y Depósitos Limitada (1)
                
                
                -
                
                
                
                66
                
                
                
                -
                
                
                
                88
                
                
                
                88Asociación
      Garantizadora de Pensiones (1)
                
                
                (6
                )
                
                
                (5
                )
                
                
                (1
                )
                
                
                (23
                )
                
                
                (17
                )Sales
      de Magnesio Ltda. (1)
                
                
                (101
                )
                
                
                59
                
                
                
                (7
                )
                
                
                10
                
                
                
                111Sociedad
      de Servicios de Salud
                
                
                -
                
                
                
                14
                
                
                
                -
                
                
                
                14
                
                
                
                14SQM
      North America Corp. (3)
                
                
                (2,827
                )
                
                
                (141
                )
                
                
                (1,218
                )
                
                
                (4,186
                )
                
                
                (1,359
                )SQM
      Dubai Fzco. (1)
                
                
                -
                
                
                
                (11
                )
                
                
                -
                
                
                
                (11
                )
                
                
                (11
                )Ajay
      Europe SARL (1)
                
                
                -
                
                
                
                343
                
                
                
                -
                
                
                
                343
                
                
                
                343Other
      entities (1)
                
                
                -
                
                
                
                -
                
                
                
                -
                
                
                
                718
                
                
                
                718Total
                
                
                (3,721
                )
                
                
                8,252
                
                
                
                (2,097
                )
                
                
                159,721
                
                
                
                163,442





(1)
            Corresponds
      to translation adjustments and price-level
  restatements.


(2)
            Corresponds
      to the translation adjustment produced by the application of a law enacted
      by the Ecuadorian Government


(3)
            Relates
      to valuation differences generated in the pension plan of the subsidiary
      SQM North America Corp.


F-41


Sociedad
Química y Minera de Chile S.A. and Subsidiaries


Notes
to the Audited Consolidated Financial Statements


(Expressed
in thousands of US dollars, except as stated)





Note
17 - Shareholders’ Equity (continued)





c)
            Paid-in
      capital





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 the
      director elected by Series B
shareholders.


F-42


Sociedad
Química y Minera de Chile S.A. and Subsidiaries


Notes
to the Audited Consolidated Financial Statements


(Expressed
in thousands of US dollars, except as stated)




Note
18 – Derivative Instruments





Derivative
instruments are recorded at their fair value at year-end.  Changes in
fair value are recognized in income with the corresponding asset or liability
recorded in Other current assets or liabilities.  Losses from options
relate to fees paid by the Company to enter into such contracts. As of December
31, 2008 and 2007 the Company’s derivative instruments are as
follows:





2008
                          
                          Notional orcovered
                          
                          
                          
                          
                          
                          Position
                          
                          
                          (Liability)Asset
                          
                          
                          IncomeType of
                          
                          amount
                          
                          
                          
                          
                          
                          Purchase/Sale
                          
                          
                          amount
                          
                          
                          (loss) effectderivative
                          
                          ThUS$
                          
                          Expiration
                          
                          Risk type
                          
                          
                          (P/S)
                          
                          
                          ThUS$
                          
                          
                          ThUS$US
      dollar fwd.
                          
                          
                          42,000
                          
                          1st  quarter
      of 2009
                          
                          Exchange
      rate
                          
                          
                          P
                          
                          
                          
                          (1,273
                          )
                          
                          
                          (1,273
                          )Swap
                          
                          
                          113,025
                          
                          4th  quarter
      of 2026
                          
                          Interest
      rate
                          
                          
                          P
                          
                          
                          
                          (11,031
                          )
                          
                          
                          (1,524
                          )US
      dollar option
                          
                          
                          8,478
                          
                          1st
      quarter of 2009
                          
                          Exchange
      rate
                          
                          
                          S
                          
                          
                          
                          (843
                          )
                          
                          
                          (843
                          )US
      dollar option
                          
                          
                          11,316
                          
                          2st
      quarter of 2009
                          
                          Exchange
      rate
                          
                          
                          S
                          
                          
                          
                          (1,125
                          )
                          
                          
                          (1,125
                          )US
      dollar option
                          
                          
                          1,617
                          
                          3st
      quarter of 2009
                          
                          Exchange
      rate
                          
                          
                          S
                          
                          
                          
                          (161
                          )
                          
                          
                          (161
                          )US
      dollar fwd.
                          
                          
                          1,489
                          
                          1st
      quarter of 2009
                          
                          Exchange
      rate
                          
                          
                          P
                          
                          
                          
                          (86
                          )
                          
                          
                          (86
                          )US
      dollar fwd.
                          
                          
                          24,154
                          
                          1st
      quarter of 2009
                          
                          Exchange
      rate
                          
                          
                          P
                          
                          
                          
                          (2,390
                          )
                          
                          
                          (2,390
                          )US
      dollar option
                          
                          
                          40,378
                          
                          1st  quarter
      of 2009
                          
                          Exchange
      rate
                          
                          
                          P
                          
                          
                          
                          1,225
                          
                          
                          
                          1,225US
      dollar fwd.
                          
                          
                          298
                          
                          1st  quarter
      of 2009
                          
                          Exchange
      rate
                          
                          
                          S
                          
                          
                          
                          (90
                          )
                          
                          
                          (90
                          )US
      dollar fwd.
                          
                          
                          1,289
                          
                          1st  quarter
      of 2009
                          
                          Exchange
      rate
                          
                          
                          P
                          
                          
                          
                          357
                          
                          
                          
                          357US
      dollar fwd.
                          
                          
                          4,311
                          
                          2st  quarter
      of 2009
                          
                          Exchange
      rate
                          
                          
                          S
                          
                          
                          
                          (1,169
                          )
                          
                          
                          (1,169
                          )US
      dollar fwd.
                          
                          
                          77
                          
                          2st  quarter
      of 2009
                          
                          Exchange
      rate
                          
                          
                          P
                          
                          
                          
                          17
                          
                          
                          
                          17US
      dollar fwd.
                          
                          
                          112
                          
                          3st  quarter
      of 2009
                          
                          Exchange
      rate
                          
                          
                          S
                          
                          
                          
                          (21
                          )
                          
                          
                          (21
                          )US
      dollar option
                          
                          
                          27,818
                          
                          1st  quarter
      of 2009
                          
                          Exchange
      rate
                          
                          
                          P
                          
                          
                          
                          124
                          
                          
                          
                          -US
      dollar fwd.
                          
                          
                          30,000
                          
                          1st  quarter
      of 2009
                          
                          Exchange
      rate
                          
                          
                          S
                          
                          
                          
                          -
                          
                          
                          
                          -306,362
                          
                          
                          
                          
                          
                          
                          
                          
                          
                          
                          (16,466
                          )
                          
                          
                          (7,083
                          )





2007
                            Type of
                            derivative
                          
                          Notional or
                            covered
                            amount
                          
                          Expiration
                          
                          Risktype
                          
                          Position
                            Purchase/Sale
                            (P/S)
                          
                          
                          (Liability)Asset
                            amount
                          
                          
                          Income
                            (loss)effectThUS$
                          
                          
                          
                          
                          
                          
                          
                          
                          ThUS$
                          
                          
                          ThUS$US
      dollar option
                          
                          
                          13,916
                          
                          1st  quarter
      of 2008
                          
                          Exchange
      rate
                          
                          
                          P
                          
                          
                          
                          (130
                          )
                          
                          
                          (130
                          )US
      dollar fwd.
                          
                          
                          4,696
                          
                          1st
      quarter of 2008
                          
                          Exchange
      rate
                          
                          
                          P
                          
                          
                          
                          (1
                          )
                          
                          
                          (1
                          )Swap
                          
                          
                          102,630
                          
                          1st  quarter
      of 2026
                          
                          Interest
      rate
                          
                          
                          P
                          
                          
                          
                          14,968
                          
                          
                          
                          14,968US
      dollar PUT
                          
                          
                          368
                          
                          1st  quarter
      of 2028
                          
                          Exchange
      rate
                          
                          
                          P
                          
                          
                          
                          (368
                          )
                          
                          
                          (368
                          )121,610
                          
                          
                          
                          
                          
                          
                          
                          
                          
                          
                          14,469
                          
                          
                          
                          14,469


F-43


Sociedad
Química y Minera de Chile S.A. and Subsidiaries


Notes
to the Audited Consolidated Financial Statements


(Expressed
in thousands of US dollars, except as stated)




Note
19- Non-Operating Income and Expenses





Amounts
included in non-operating income and expenses are summarized as
follows:




a)       Non-operating
income





For
      the year ended December 31,2008
                
                
                2007
                
                
                2006ThUS$
                
                
                ThUS$
                
                
                ThUS$Interest
      income
                
                
                13,858
                
                
                
                9,347
                
                
                
                11,410Equity
      participation in net income of unconsolidated investees
                
                
                14,360
                
                
                
                3,643
                
                
                
                2,314Insurance
      recoveries
                
                
                581
                
                
                
                275
                
                
                
                307Gain
      from sale of assets of SQM Lithium
                
                
                2,342
                
                
                
                -
                
                
                
                -Reversal
      of allowance for doubtful accounts
                
                
                2,623
                
                
                
                229
                
                
                
                238Sale
      of mining concessions
                
                
                721
                
                
                
                399
                
                
                
                499Sale
      of  service
                
                
                156
                
                
                
                369
                
                
                
                75Sale
      of fixed asset, materials and spare parts
                
                
                1,064
                
                
                
                -
                
                
                
                753Gain
      on sale of investments in related companies
                
                
                1,387
                
                
                
                1,316
                
                
                
                732Rental
      of property, plant and equipment
                
                
                1,092
                
                
                
                958
                
                
                
                1,023Indemnities
      received
                
                
                146
                
                
                
                523
                
                
                
                -Sale
      of cross currency swap
                
                
                -
                
                
                
                4,000
                
                
                
                -Net
      foreign currency exchange gains and price-level
restatement
                
                
                -
                
                
                
                2,212
                
                
                
                -Recovery
      of doubtful accounts
                
                
                424
                
                
                
                861
                
                
                
                -Payment
      discounts obtained from suppliers
                
                
                815
                
                
                
                458
                
                
                
                690Fines
      collected from third parties
                
                
                77
                
                
                
                192
                
                
                
                159Other
      income
                
                
                944
                
                
                
                1,166
                
                
                
                1,093Total
                
                
                40,590
                
                
                
                25,948
                
                
                
                19,293




b)       Non-operating
expenses


For the year ended December 31,2008
                
                
                2007
                
                
                2006ThUS$
                
                
                ThUS$
                
                
                ThUS$Interest
      expense
                
                
                (19,957
                )
                
                
                (19,949
                )
                
                
                (27,593
                )Net
      foreign exchange losses
                
                
                (15,897
                )
                
                
                -
                
                
                
                (2,263
                )Non-capitalized
      exploration project expenses and provisions for damages and liquidation of
      assets
                
                
                (8,961
                )
                
                
                (16,528
                )
                
                
                (11,387
                )Equity
      participation in net losses of unconsolidated investees
                
                
                -
                
                
                
                (77
                )
                
                
                (362
                )Amortization
      of goodwill
                
                
                (2,215
                )
                
                
                (2,252
                )
                
                
                (2,229
                )Work
      disruption expenses
                
                
                (1,256
                )
                
                
                (844
                )
                
                
                (2,534
                )Amortization
      of intangibles
                
                
                (403
                )
                
                
                (413
                )
                
                
                -Site
      closure provision
                
                
                (1,189
                )
                
                
                -
                
                
                
                -Allowance
      for materials, spare parts, and supplies
                
                
                (4,500
                )
                
                
                (4,925
                )
                
                
                (2,685
                )Allowance
      for doubtful accounts
                
                
                -
                
                
                
                -
                
                
                
                (129
                )Non-recoverable
      taxes
                
                
                (424
                )
                
                
                (669
                )
                
                
                (508
                )Suppliers’
      compensations services
                
                
                (237
                )
                
                
                (1,575
                )
                
                
                -Training
      and donations
                
                
                (2,152
                )
                
                
                (520
                )
                
                
                -Provision
      for legal expenses and litigations
                
                
                (975
                )
                
                
                (523
                )
                
                
                (1,010
                )Expenses
      related to energy tariff adjustments
                
                
                -
                
                
                
                (2,066
                )
                
                
                (2,500
                )Other
      expenses
                
                
                (1,730
                )
                
                
                (2,691
                )
                
                
                (2,141
                )Total
                
                
                (59,896
                )
                
                
                (53,032
                )
                
                
                (55,341
                )


F-44





Sociedad
Química y Minera de Chile S.A. and Subsidiaries


Notes
to the Audited Consolidated Financial Statements


(Expressed
in thousands of US dollars, except as stated)





Note
20 – Price-Level Restatement





Amounts
charged or credited to income relating to price-level restatement are summarized
as follows:




(Charge) to income for the year ended
                          December 31,2008
                        
                        
                        2007
                        
                        
                        2006ThUS$
                        
                        
                        ThUS$
                        
                        
                        ThUS$Inventories
                        
                        
                        -
                        
                        
                        
                        1,450
                        
                        
                        
                        (40
                        )Property,
      plant and equipment
                        
                        
                        44
                        
                        
                        
                        517
                        
                        
                        
                        142Other
      assets
                        
                        
                        707
                        
                        
                        
                        558
                        
                        
                        
                        184Other
      liabilities
                        
                        
                        -
                        
                        
                        
                        119
                        
                        
                        
                        -Shareholders’
      equity
                        
                        
                        (602
                        )
                        
                        
                        (7,016
                        )
                        
                        
                        (1,734
                        )Subtotal
      price-level restatement
                        
                        
                        149
                        
                        
                        
                        (4,372
                        )
                        
                        
                        (1,448
                        )Net
      adjustment of assets and liabilities denominated in UF
                        
                        
                        -
                        
                        
                        
                        (484
                        )
                        
                        
                        141Net
      price-level restatement
                        
                        
                        149
                        
                        
                        
                        (4,856
                        )
                        
                        
                        (1,307
                        )





Note
21 – Assets and Liabilities Denominated in Foreign Currency





As of December 31,2008
                        
                        
                        2007Assets
                        
                        ThUS$
                        
                        
                        ThUS$Chilean
      pesos
                        
                        
                        105,280
                        
                        
                        
                        198,254US
      dollars
                        
                        
                        2,307,684
                        
                        
                        
                        1,637,379Euros
                        
                        
                        76,679
                        
                        
                        
                        44,809Japanese
      Yen
                        
                        
                        1,404
                        
                        
                        
                        971Brazilian
      Real
                        
                        
                        195
                        
                        
                        
                        400Mexican
      pesos
                        
                        
                        3,525
                        
                        
                        
                        1,705UF
                        
                        
                        27,586
                        
                        
                        
                        73,354South
      African Rand
                        
                        
                        12,298
                        
                        
                        
                        9,366Dirhams
                        
                        
                        15,744
                        
                        
                        
                        10,942Other
      currencies
                        
                        
                        16,820
                        
                        
                        
                        9,139Current
      liabilitiesChilean
      pesos
                        
                        
                        121,664
                        
                        
                        
                        98,456US
      dollars
                        
                        
                        295,843
                        
                        
                        
                        63,415Euros
                        
                        
                        12,052
                        
                        
                        
                        13,079Japanese
      Yen
                        
                        
                        77
                        
                        
                        
                        92Brazilian
      Real
                        
                        
                        1,562
                        
                        
                        
                        1,681Mexican
      pesos
                        
                        
                        934
                        
                        
                        
                        4,605UF
                        
                        
                        10,830
                        
                        
                        
                        8,599South
      African Rand
                        
                        
                        714
                        
                        
                        
                        1,020Dirhams
                        
                        
                        391
                        
                        
                        
                        930Other
      currencies
                        
                        
                        1,839
                        
                        
                        
                        545Long-term
      liabilitiesChilean
      pesos
                        
                        
                        18,640
                        
                        
                        
                        20,196US
      dollars
                        
                        
                        505,448
                        
                        
                        
                        437,687Japanese
      Yen
                        
                        
                        294
                        
                        
                        
                        187UF
                        
                        
                        86,337
                        
                        
                        
                        107,382Other
      currencies
                        
                        
                        10
                        
                        
                        
                        10Mexican
      Pesos
                        
                        
                        403
                        
                        
                        
                        -


F-45


Sociedad
Química y Minera de Chile S.A. and Subsidiaries


Notes
to the Audited Consolidated Financial Statements


(Expressed
in thousands of US dollars, except as stated)





Note
22 - Cash Flow Statement





a)       Amounts
included in other credits to income not representing cash flows are as
follows:




For the year ended December 31,2008
                      
                      
                      2007
                      
                      
                      2006Description
                      
                      ThUS$
                      
                      
                      ThUS$
                      
                      
                      ThUS$Adjustment
      of provision included in other financial income
                      
                      
                      (2,656
                      )
                      
                      
                      (229
                      )
                      
                      
                      (238
                      )Discounts
      obtained from suppliers
                      
                      
                      (815
                      )
                      
                      
                      (458
                      )
                      
                      
                      (690
                      )Reversal
      of the provision for damages caused by heavy rains
                      
                      
                      -
                      
                      
                      
                      -
                      
                      
                      
                      (1,000
                      )Other
      minor credits to income not representing cash flows
                      
                      
                      (1,508
                      )
                      
                      
                      (1,058
                      )
                      
                      
                      (834
                      )Total
                      
                      
                      (4,979
                      )
                      
                      
                      (1,745
                      )
                      
                      
                      (2,762
                      )




b)       Amounts
included in other charges to income not representing cash flows are as
follows:





For the year ended December 31,2008
                
                
                2007
                
                
                2006Description
                
                ThUS$
                
                
                ThUS$
                
                
                ThUS$Provision
      for Corfo royalty payments
                
                
                5,256
                
                
                
                3,643
                
                
                
                2,358Deferred
      income taxes benefit for tax loss
                
                
                (39,493
                )
                
                
                10,174
                
                
                
                8,500Provision
      for marketing expenses
                
                
                4,584
                
                
                
                4,317
                
                
                
                4,364Provision
      for employee incentive plans
                
                
                28,208
                
                
                
                13,495
                
                
                
                3,160Adjustment
      of provision for severance indemnities
                
                
                9,234
                
                
                
                4,736
                
                
                
                3,882Provision
      for income taxes
                
                
                147,694
                
                
                
                38,218
                
                
                
                28,204Adjustment
      of provision for vacation
                
                
                6,975
                
                
                
                8,300
                
                
                
                5,333Non-capitalizable
      exploration project expense and provisions for damages and liquidation
      assets
                
                
                13,158
                
                
                
                8,806
                
                
                
                11,825Accrued
      expenses related to energy tariff adjustments
                
                
                -
                
                
                
                4,023
                
                
                
                4,500Amortization
      of prepaid insurance expenses
                
                
                9,313
                
                
                
                7,553
                
                
                
                3,189Remuneration
      of Board of Directors
                
                
                5,000
                
                
                
                1,820
                
                
                
                1,800Provision
      for mine closure
                
                
                1,190
                
                
                
                -
                
                
                
                1,000Adjustment
      and other expenses of inventories
                
                
                3,545
                
                
                
                -
                
                
                
                1,297Other
      charges to income not representing cash flows
                
                
                11,322
                
                
                
                2,990
                
                
                
                2,921Total
                
                
                205,986
                
                
                
                108,075
                
                
                
                82,333




F-46





Sociedad
Química y Minera de Chile S.A. and Subsidiaries


Notes
to the Audited Consolidated Financial Statements


(Expressed
in thousands of US dollars, except as stated)





Note
23 – Commitments and Contingencies





a)       Material
lawsuits or other legal actions of which the Company is party to





1.
                  
                  Plaintiff
                  
                  :
      Compañía de Salitre y Yodo Soledad S.A.Defendant
                  
                  :
      Sociedad Química y Minera de Chile S.A.Date
      of lawsuit
                  
                  :
      December 1994Court
                  
                  :
      Civil Court of Pozo AlmonteCause
                  
                  :
      Partial annulment of mining property, Cesard 1 to 29Instance
                  
                  :
      Evidence providedNominal
      amount
                  
                  :
      ThUS$ 2112.
                  
                  Plaintiff
                  
                  :
      Compañía Productora de Yodo y Sales S.A.Defendant
                  
                  :
      SQM S.A.Date
      of lawsuit
                  
                  :
      November 1999Court
                  
                  :
      Civil Court of Pozo AlmonteCause
                  
                  :
      Partial annulment of mining property, Paz II 1 to 25Instance
                  
                  :
      Evidence providedNominal
      amount
                  
                  :
      ThUS$ 1623.
                  
                  Plaintiff
                  
                  :
      Compañía Productora de Yodo y Sales S.A.Defendant
                  
                  :
      SQM S.A.Date
      of lawsuit
                  
                  :
      November 1999Court
                  
                  :
      Civil Court of Pozo AlmonteCause
                  
                  :
      Partial annulment of mining property, Paz III 1 to 25Instance
                  
                  :
      Evidence providedNominal
      amount
                  
                  :
      ThUS$ 2044.
                  
                  Plaintiff
                  
                  :
      Marina Arnéz ValenciaDefendant
                  
                  :
      SQM S.A. and its insurance companiesDate
      of lawsuit
                  
                  :
      May 2006Court
                  
                  :
      2nd
      Civil Court of SantiagoCause
                  
                  :
      Work accidentInstance
                  
                  :
      Conciliation audienceNominal
      amount
                  
                  :
      ThUS$ 5005.
                  
                  Plaintiff
                  
                  :
      Angélica Allende and their sons Iván Molina and
  CristóbalMolinaDefendant
                  
                  :
      Ingeniería, Construcción y Servicios SMR Limitada and
    jointlyand severally SQM Nitratos S.A. and its insurance
  companiesDate
      of lawsuit
                  
                  :
      May 2008Court
                  
                  :
      Arbitration Court of AntofagastaCause
                  
                  :
      Work accidentInstance
                  
                  :
      EvidenceNominal
      amount
                  
                  :
      ThUS$ 670


F-47


Sociedad
Química y Minera de Chile S.A. and Subsidiaries


Notes
to the Audited Consolidated Financial Statements


(Expressed
in thousands of US dollars, except as stated)





Note
23 – Commitments and Contingencies (continued)





a)       Material
lawsuits or other legal actions of which the Company is party to
(continued)





6.
                
                Plaintiff
                
                :
      Nancy Erika Urra MuñozDefendant
                
                :
      Fresia Flores Zamorano, Duratec-Vinilit S.A. and SQM S.A.
    andits insurance companiesDate
      of lawsuit
                
                :
      December 2008Court
                
                :
      1stCivil Court of SantiagoCause
                
                :
      Work accidentInstance
                
                :
      Response providedNominal
      amount
                
                :
      ThUS$ 550





b)       Other
lawsuits





The
Company and its subsidiaries are involved in various litigation in the ordinary
course of business, including those described in a) above. Based on the advice
of counsel, the Company concluded that there is no need to accrue any provisions
as of December 31, 2008 to cover risk of losses as management believes the
litigations will not result in material losses for the Company.





c)       Commitments





Subsidiary
SQM Salar S.A. has signed a rental contract with CORFO which establishes that it
will pay to CORFO, for the exploitation of certain mining properties owned by
CORFO and for the products resulting from such exploitation, the annual rent
(royalty), the amount of which is calculated on the basis of the sales of each
type of product. The contract is in force until 2030 and the Company began to
pay the rents in 1996. For the years ended December 31, 2008 and 2007 rental
payments charged to income amounted to ThUS$ 17,712 and ThUS$ 13,865,
respectively.





d)       Debt
covenants





Bank debt
of SQM S.A. and its subsidiaries has no restrictions or terms other than those
that might usually be found in similar debt instruments existing in the
financial markets, such as maximum indebtedness and minimum equity among others.
Specifically, the loan covenants in force are the following: (i) shareholders’
equity of SQM S.A. should not be lower than ThUS$ 984,522, (ii) the net
financial debt to EBITDA ratio should not be greater than 3:1, and (iii) the
ratio between financial debt of operating subsidiaries and the consolidated
current assets should not be greater than 0.3:1. As of December 31, 2008 the
Company was in compliance with all of the debt covenants.


F-48


Sociedad
Química y Minera de Chile S.A. and Subsidiaries


Notes
to the Audited Consolidated Financial Statements


(Expressed
in thousands of US dollars, except as stated)





Note
24 – Guarantees





a)       Guarantees
given





As of
December 31, 2008 and 2007 SQM S.A., the Parent Company in the Group has the
following indirect guarantees outstanding:





Debtor
                      
                      BalancesoutstandingBeneficiary
                      
                      Name
                      
                      Relationship
                      
                      2008
                      
                      
                      2007ThUS$
                      
                      
                      ThUS$BBVA
      Banco Bilbao Vizcaya Argentaria
                      
                      Royal
      Seed Trading Corp.  A.V.V.
                      
                      Subsidiary
                      
                      
                      100,204
                      
                      
                      
                      100,433ING
      Capital LLC
                      
                      Royal
      Seed Trading Corp.  A.V.V.
                      
                      Subsidiary
                      
                      
                      80,215
                      
                      
                      
                      80,368Export
      Development Canada
                      
                      SQM
      Investment Corporation N.V.
                      
                      Subsidiary
                      
                      
                      50,032
                      
                      
                      
                      -





b)       Guarantees
obtained form third parties





The main
pledges provided to guarantee to Soquimich Comercial S.A. fulfillment of the
obligations in the commercial mandate agreements for distribution and sale of
fertilizers are as follows:




Company Name
                  
                  ThUS$Llanos
      y Wammes Soc. Com. Ltda.
                  
                  
                  1,571Fertglobal
      Chile Ltda. y Bramelli
                  
                  
                  786Tattersall
      S.A.
                  
                  
                  904


F-49


Sociedad
Química y Minera de Chile S.A. and Subsidiaries


Notes
to the Audited Consolidated Financial Statements


(Expressed
in thousands of US dollars, except as stated)





Note
25 - Sanctions





During
the years ended December 31, 2008, 2007 and 2006, the SVS did not apply
sanctions to the Company, its directors or managers.





Note
26 – Environmental Projects





The
Company is continuously concerned with protecting the environment both in its
production processes and with respect to products manufactured. This commitment
is supported by the principles indicated in the Company’s Sustainable
Development Policy.





SQM is
currently operating under an Environmental Management System (EMS) based on the
ISO 14000 standard, which has allowed strengthening its environmental
performance through the effective application of the Company’s Sustainable
Development Policy.





Disbursements
made by the Company and its subsidiaries as of December 31, 2008 related to
investments in production processes, verification and control of compliance with
ordinances and laws relative to industrial processes and facilities amount to
ThUS$ 10,035 and are detailed as follows:




2008
                  
                  
                  2007
                  
                  
                  2006ThUS$
                  
                  
                  ThUS$
                  
                  
                  ThUS$ProjectEnvironmental
      department
                  
                  
                  1,022
                  
                  
                  
                  1,040
                  
                  
                  
                  748Improvements
      in María Elena Camp – streets
                  
                  
                  435
                  
                  
                  
                  436
                  
                  
                  
                  296Dust
      emission control
                  
                  
                  -
                  
                  
                  
                  76
                  
                  
                  
                  823Light
      normalization
                  
                  
                  -
                  
                  
                  
                  921
                  
                  
                  
                  919Environmental
      studies – Region I of Chile project
                  
                  
                  -
                  
                  
                  
                  -
                  
                  
                  
                  605María
      Elena environmental studies
                  
                  
                  -
                  
                  
                  
                  1,007
                  
                  
                  
                  870Normalization
      of lighting at FFCC yard, PV Mill
                  
                  
                  -
                  
                  
                  
                  164
                  
                  
                  
                  123Equipment
      washing system
                  
                  
                  -
                  
                  
                  
                  -
                  
                  
                  
                  184The
      Environment MOP/SOP 2
                  
                  
                  -
                  
                  
                  
                  294
                  
                  
                  
                  142Construction
      of facilities for workers
                  
                  
                  168
                  
                  
                  
                  292
                  
                  
                  
                  279Atacama
      salt deposit hydrological model
                  
                  
                  -
                  
                  
                  
                  -
                  
                  
                  
                  176Environmental
      commitments in Region I of Chile
                  
                  
                  -
                  
                  
                  
                  169
                  
                  
                  
                  152Waste
      pools R&R Lithium C. Plant
                  
                  
                  -
                  
                  
                  
                  2,073
                  
                  
                  
                  -Salar
      (Salt deposit) environmental follow-up plan
                  
                  
                  -
                  
                  
                  
                  2,272
                  
                  
                  
                  -Handling
      of household and industrial waste
                  
                  
                  736
                  
                  
                  
                  917
                  
                  
                  
                  25Environmental
      evaluation
                  
                  
                  1,251
                  
                  
                  
                  194
                  
                  
                  
                  21Elimination
      of PCB equipment
                  
                  
                  -
                  
                  
                  
                  -
                  
                  
                  
                  304Handling
      of dangerous substances
                  
                  
                  579
                  
                  
                  
                  -
                  
                  
                  
                  -Salar
      (salt deposit) environmental follow-up plan
                  
                  
                  3,045
                  
                  
                  
                  -
                  
                  
                  
                  -PV
      environmental improvements
                  
                  
                  555
                  
                  
                  
                  -
                  
                  
                  
                  -Waste
      pools R&R lithium plant
                  
                  
                  2,150
                  
                  
                  
                  -
                  
                  
                  
                  -Others
                  
                  
                  94
                  
                  
                  
                  325
                  
                  
                  
                  1,175Total
                  
                  
                  10,035
                  
                  
                  
                  10,180
                  
                  
                  
                  6,842


F-50


Sociedad
Química y Minera de Chile S.A. and Subsidiaries


Notes
to the Audited Consolidated Financial Statements


(Expressed
in thousands of US dollars, except as stated)





Note
26 – Environmental Projects (continued)





The
Company’s operations in which it uses caliche as a raw material are carried out
in desert areas with climatic conditions that are favorable for drying solids
and evaporating liquids using solar energy. Operations involving the open-pit
extraction of minerals, due to their low waste-to-mineral ratio, generate
remaining deposits that slightly alter the environment. During the extraction
process and subsequent crushing of ore, particle emissions occur, which is
normal for this type of operation.





On August
10, 1993, the Ministry of Health published a resolution under the Sanitary Code
that established that the levels of breathable particles present at the María
Elena facility exceeded the level allowed for air quality and, consequently,
affected the nearby city of María Elena. These particles mainly come from the
dust that results from caliche processing, particularly during the crushing
processes prior to leaching. Within the framework of a decontamination plan for
this city and in accordance with its Sustainable Development Policy, the Company
has implemented a series of measures that have shown notable improvement in air
quality at María Elena. In October 2005, the company obtained approval from the
environmental authorities for a project titled “Technological Change at María
Elena”. The operation of this project will facilitate the reduction of particle
emissions, as required by the new environmental standard, started during the
second half of 2008. The new María Elena crushing plant was finally put out of
service as of July 5, 2008, with the consequent improvement in air quality,
which will be able to be evaluated after three years of operation as required by
the regulation for MP10





In
addition, for all its operations, the Company carries out environmental
follow-up and monitoring plans based on specialized scientific studies, and it
also provides an annual training program in environmental matters to both its
direct employees and its contractors’ employees. Within this context, SQM
entered into a contract with the National Forestry Corporation (CONAF)
aimed at researching the activities of flamingo groups that live in the
Salar de Atacama lagoons. Such research includes a population count of the
birds, as well as breeding research. Environmental monitoring activities carried
out by the Company at the Salar de Atacama and other systems in which it
operates are supported by a number of studies that have integrated diverse
scientific efforts from prestigious research centers, including Dictuc from
Pontificia Universidad Católica and the School of Agricultural Science of
Universidad de Chile.





Furthermore,
the Company is performing significant activities in relation to the recording of
Pre-Columbian and historical cultural heritage, as well as the protection of
heritage sites, in accordance with current Chilean laws. These activities have
been especially performed in the areas surrounding María Elena and the Nueva
Victoria plants. This effort is being accompanied by cultural initiatives within
the community and the organization of exhibits in local and regional
museums.





As
emphasized in its Sustainable Development Policy, the Company strives to
maintain positive relationships with the communities surrounding the locations
in which it carries out its operations, as well as to participate in
communities’ development by supporting joint projects and activities which help
to improve the quality of life for residents. For this purpose, the Company has
focused its efforts on activities involving the rescue of historical heritage,
education and culture, as well as development, and in order to do so, it acts
both individually and in conjunction with private and public
entities.


F-51


Sociedad
Química y Minera de Chile S.A. and Subsidiaries


Notes
to the Audited Consolidated Financial Statements


(Expressed
in thousands of US dollars, except as stated)





Note
27 – Deferred income




As of
December 31, 2008 and 2007, the amounts of the deferred income recognized on the
balance sheet and related to billed deliveries of goods which were not received
by customers prior to those dates amounted to ThUS$ 31,722 and ThUS$ 10,858,
respectively. :




Note
28 – Significant Events





1. On
March 18, 2008, the Company informed the SVS that the Board of Directors
unanimously agreed at its meeting held on that date, to propose the payment of a
final dividend for a sum of US$ 0.44459 per share to those shareholders of SQM
who were registered with the Shareholders’ Registry during the fifth business
day prior to the date of payment of this dividend.





Upon
approval of this proposal by the shareholders at the General Ordinary
Shareholders’ Meeting held on April 30, 2008, the Company effectively
distributed dividend in conformity with its respective dividend policy in the
equivalent of 65% of distributable net income obtained during 2007.




2. On
October 28, 2008, SQM informed the SVS that at its meeting held on October 28,
2008 the Board of Directors unanimously agreed to partially modify the current
“SQM’s Dividends Policy for Commercial Year 2008”, which was announced at the
Annual Ordinary General Shareholders’ Meeting of SQM held on April 30,
2008.  This modification was made in order to enable SQM to distribute
an interim dividend from the income for the year 2008 of US$ 0.37994 per share
as of November 21, 2008, which was lower than the 30% of distributable net
income for commercial year 2008 accrued as of September 30, 2008.  The
interim dividend was payable to the shareholders of SQM registered in the
respective registry on the fifth business day prior to November 21,
2008.





In
addition it was unanimously agreed that the Board of Directors of SQM will also
include or contemplate payment of a single interim dividend in the SQM’s
Dividends Policy for Commercial Year 2009, which will be proposed to the Annual
Ordinary General Shareholders’ Meeting to be held in April 2009.  That
interim dividend will be paid in November 2009 and will not exceed 30% of
distributable net income for commercial year 2009 accrued as of September 30, of
the same year.


F-52


Sociedad
Química y Minera de Chile S.A. and Subsidiaries


Notes
to the Audited Consolidated Financial Statements


(Expressed
in thousands of US dollars, except as stated)





Note
28 – Significant Events (continued)





3. On
October 30, 2008 the Company informed the SVS that at the ordinary Meeting of
the Board of Directors of SQM held on October 28, 2008, the directors
unanimously agreed to authorize SQM to issue and register with the SVS two
series of bonds.  Both lines will be for an amount of up to UF
5,000,000, and will  have maturities within 10 years and 30 years, for
the first and second series respectively.





The
amounts to be obtained through those projected issuances will be used to pay
and/or prepay the short-term liabilities of SQM and/or its subsidiaries and/or
to finance the investments of SQM and/or
its  subsidiaries.





4. On
November 27, 2008 the Company informed the SVS that its subsidiary SQM
Industrial S.A. (“SQI”) and Yara International ASA (“YARA”) have recently and in
advance modified and renewed the term of the determined commercialization
agreements agreed upon in 2001.





The
original contracts should expire in 2011.  However, that renewal has
extended the term of those contracts until 2016. It was also unanimously
approved by the Directors of SQM present at the corresponding Board Meeting that
SQI and YARA will continue their fertilizers commercialization cooperation
processes in various global markets.  This will imply among other
aspects that SQI will use YARA’s distribution chain in the territories in which
the presence and commercialization infrastructure of YARA is greater than that
of SQI and that YARA will use SQI’s distribution chain in territories where the
presence and commercialization infrastructure of SQI is greater than that of
YARA.  However, both companies will continue to maintain active
control in the commercialization process of their own products.





Note
29 – Subsequent Events




On
January 13, 2009 the Company informed the SVS that SQM has successfully placed
two series of bonds in the domestic market.  The first series for UF
4,000,000 was issued for a term of 21 years, with amortization of principal
starting in 2019 and at an annual interest rate of UF plus 5.05%.  The
second series, for Ch$ 21 billion was issued for a term of 5 years, with a
single amortization upon expiry of that term and an annual nominal interest rate
of 7.5% in Chilean pesos.





The funds
obtained through the issuances totaling to approx. ThUS$ 173,000, will be used
by SQM to finance their investment plan and refinance certain
liabilities.





On April
6, 2009, the Company informed the Superintendency of Securities and Insurance
that the Board of Directors of Sociedad Química y Minera de Chile (SQM), in
their meeting on April 6, 2009, unanimously agreed to propose a final dividend
of US$1.23829 per share at the next Ordinary General Shareholders’ Meeting,
given the Company’s net distributable income from fiscal year
2008.  However, US$0.37994 should be subtracted from each dividend for
the interim dividend paid previously, leaving a dividend of US$0.85835 per
share, which shall be paid and distributed to all SQM shareholders registered in
the shareholders’ registry on the fifth business day before
payment.


F-53


Sociedad
Química y Minera de Chile S.A. and Subsidiaries


Notes
to the Audited Consolidated Financial Statements


(Expressed
in thousands of US dollars, except as stated)





Note
29 – Subsequent Events (continued)





This
proposal was approved by shareholders at the Ordinary General Shareholders’
Meeting held April 29, 2009, allowing payment and distribution of, in conformity
with the respective dividend policy, an annual dividend equivalent to 65% of the
net distributable income obtained in fiscal year 2008.





On April
28, 2009, the Board of Directors of Sociedad Química y Minera de Chile S.A.
agreed to authorize signing of a Supply Agreement by which SQM Salar S.A., a
subsidiary of SQM, will sell between 150 and 250 thousand tons of potassium
chloride each year to PCS Sales (USA) Inc. (PCS), a subsidiary of Potash
Corporation of Saskatchewan Inc., SQM’s majority shareholder, to be sold by PCS
in Japan, India and China. This agreement will be in force from May 1, 2009 to
May 1, 2012, and sales shall take place at fair terms and conditions similar to
current market conditions at the exact moment of each sale.





On May 8,
2009, Sociedad Química y Minera de Chile S.A. placed two series of bonds on the
Chilean market.  The I-series was for UF 1.5 million, maturing in 5
years, with one principal payment upon maturity and a placement rate of 3.67%
per annum.  The J-series was for Ch$52 billion, maturing in 5 years,
with one principal payment upon maturity and a rate set in nominal pesos of
6.14% per annum. SQM will use funds raised, of approximately US$148 million, to
refinance its short and long-term liabilities and finance its
investment plan.




Management
is not aware of any other significant subsequent events that have occurred after
December 31, 2008 and that may affect the Company’s financial position or the
interpretation of these consolidated financial statements.


F-54




Sociedad
Química y Minera de Chile S.A. and Subsidiaries


Notes
to the Audited Consolidated Financial Statements


(Expressed
in thousands of US dollars, except as stated)





Note
30 – Differences between Chilean and United States Generally Accepted Accounting
Principles





Accounting
principles generally accepted in Chile vary in certain important respects from
accounting principles generally accepted in the United States.  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 methods used in the
determination of the adjustments that affect net income, total comprehensive
income and total shareholders’ equity. References below to “SFAS” are to
Statements of Financial Accounting Standards issued by the Financial Accounting
Standards Board of the United States of America.





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 methods





The
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 equipment





As
described in Note 2j), 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 l) below.


F-55


Sociedad
Química y Minera de Chile S.A. and Subsidiaries


Notes
to the Audited Consolidated Financial Statements


(Expressed
in thousands of US dollars, except as stated)





Note
30 – Differences between Chilean and United States Generally Accepted Accounting
Principles (continued)





b)
            Deferred
      income taxes





On
January 1, 2000 the Company began applying Technical Bulletin No. 60 (“BT 60”),
and related amendments issued by the Chilean Association of Accountants
concerning deferred income taxes.  These regulations require the
recognition of deferred income taxes for all temporary differences arising after
January 1, 2000, using the liability method.  Prior to implementation
of BT 60 and related amendments, 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.  In order to mitigate the effects of not recording deferred
income taxes under the prior deferred income tax accounting standard, BT 60
provided for a period of transition whereby a transitional provision, a contra
asset or liability (referred to as “complementary”) was recorded, offsetting the
effects of the deferred tax assets and liabilities not recorded prior to January
1, 2000. Such contra-assets or liabilities are amortized to income over the
estimated average reversal periods corresponding to the underlying temporary
differences to which the deferred tax asset or liability relates.





For US
GAAP purposes, the Company applies SFAS 109, Accounting for Income Taxes,
which requires income taxes to be recognized using 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  assets and liabilities and determined based on enacted tax
rates.





The
primary differences between Chilean GAAP and US GAAP relate to the reversal of
complementary accounts and their amortization recorded in accordance with the
transition provisions of BT 60 as well as to the recognition of the deferred
income tax effect of US GAAP adjustments, the effect of which is set-forth under
paragraph I l) below. Additional disclosures required under SFAS 109 are set
forth under paragraph II b) below.





c)
            Translation
      of foreign currency financial statements and price-level
      restatement





In
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 2d).





For the
purposes of reconciling to US GAAP, the Company applies SFAS 52, Foreign Currency Translation
(“SFAS 52”), which requires a functional currency translation approach. Under
SFAS 52 the Company has determined that 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:





(i)
            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-56





Sociedad
Química y Minera de Chile S.A. and Subsidiaries


Notes
to the Audited Consolidated Financial Statements


(Expressed
in thousands of US dollars, except as stated)





Note
30 – Differences between Chilean and United States Generally Accepted Accounting
Principles (continued)




c)
            Translation
      of foreign currency financial statements and price-level restatement
      (continued)




(ii)
            Income
      statement accounts:


·
            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.





As
described in the Note 2c) under Chilean GAAP financial statements of domestic
subsidiaries that maintain their records in Chilean pesos include effects of the
inflation (price-level restatement) in Chile. Under US GAAP Chile does not meet
definition of highly inflationary economy and consequently effects of inflation
accounting needs to be reversed.





The
effect of eliminating price-level restatement and the effects of translation of
financial statements of subsidiaries that maintain their records in currencies
other than US dollar are included in paragraph I l) below.





d)
            Minimum
      dividend





As
required by the Chilean Companies Act, unless otherwise decided by the unanimous
vote of the holders of 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 before amortization of negative goodwill for each year as
determined in accordance with Chilean GAAP, unless and except to the extent the
Company has unabsorbed prior year losses. Since the payment of the 30% dividend
out of each year’s income is a legal requirement in Chile, a provision has been
made in the accompanying US GAAP reconciliation in paragraph I l) 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.


F-57


Sociedad
Química y Minera de Chile S.A. and Subsidiaries


Notes
to the Audited Consolidated Financial Statements


(Expressed
in thousands of US dollars, except as stated)





Note
30 – Differences between Chilean and United States Generally Accepted Accounting
Principles (continued)





e)
            Loans
      to employees





During
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$  116  and ThUS$ 127 at December 31, 2008
and 2007, respectively, has been treated as a reduction of shareholders' equity
under paragraph I l) below.




f)
            Staff
      severance indemnities





The
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.





Under US
GAAP, termination indemnity employee benefits are accounted for in accordance
with SFAS 87 and SFAS 158 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 US GAAP is set forth under paragraph I l)
below.





g)
            Derivatives
      and hedging





In June
1998, the Financial Accounting Standards Board issued SFAS 133, Accounting for Derivative
Instruments and Hedging Activities (“SFAS 133”).  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 enters into forward exchange and currency option 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 effects of changes in fair value
of forward contracts and options are recorded both under Chilean GAAP and US
GAAP in income.


F-58


Sociedad
Química y Minera de Chile S.A. and Subsidiaries


Notes
to the Audited Consolidated Financial Statements


(Expressed
in thousands of US dollars, except as stated)





Note
30 – Differences between Chilean and United States Generally Accepted Accounting
Principles (continued)





g)
            Derivatives
      and hedging (continued)





The
Company periodically uses interest rate and currency swap agreements to manage
interest rate risk on its floating rate debt as well as foreign currency risk
exposure. The Company entered into such contracts during 2006, and 2007 in order
to hedge its risk exposure related to bonds denominated in UF. Under Chilean
GAAP the swaps were designated as hedging instruments. Under US GAAP the Company
did not meet the strict documentation and effectiveness testing requirements to
qualify for hedge accounting. Consequently, changes in the fair value of the
swap contracts were recorded in income under US GAAP. The effect of this
difference on the net income and shareholders’ equity of the Company is included
in paragraph I l) below.





In
addition the Company entered during 2006, 2007 and 2008 into some forward
contracts to hedge its exposure to fluctuations between US dollars and Chilean
pesos associated with purchases of certain property, plant and equipment on the
Chilean market. Under Chilean GAAP, the Company recorded this forward contract
at fair value and the related unrealized losses were capitalized as additional
cost of property, plant and equipment. For US GAAP purposes, the Company did not
apply hedge accounting and in consequence, the unrealized loss on the
forward contract has been recorded in current earnings.  The effect of
this difference is included in paragraph I l) below.





h)
            Business
      combinations and goodwill





Under
Chilean GAAP, goodwill is amortized over the estimated period of return of the
investment made. Impairment tests are only performed if there are indicators of
impairment. No impairment has been recognized for any of the periods presented
under Chilean GAAP.





For US
GAAP purposes, the Company adopted SFAS 142, Goodwill and Other Intangible
Assets (“SFAS 142”), as of January 1, 2002, and did not amortize goodwill
related to acquisitions made after June 30, 2001.





The
Company has performed the annual impairment test required by SFAS 142, which did
not result in any impairment.





The
effect of reversing the amortization of goodwill under Chilean GAAP is set forth
under paragraph I l) below.


F-59


Sociedad
Química y Minera de Chile S.A. and Subsidiaries


Notes
to the Audited Consolidated Financial Statements


(Expressed
in thousands of US dollars, except as stated)





Note
30 – Differences between Chilean and United States Generally Accepted Accounting
Principles (continued)





i)
            Negative
      goodwill





Under
Chilean GAAP until December 31, 2003, negative goodwill was calculated as the
excess of the net assets acquired in a business combination over the respective
acquisition cost. Beginning January 1, 2004, the Company adopted Technical
Bulletin No. 72 of the Chilean Association of Accountants that changes the basis
for accounting for negative goodwill, introducing the fair value of the acquired
net assets as the basis to be compared with purchase price in order to determine
goodwill or negative goodwill.





Negative
goodwill recognized under Chilean GAAP was generated on the acquisitions of SQM
Salar S.A., Minera Mapocho S.A. and Minera Nueva Victoria 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 or over the period in which
related mining concessions are amortized.





Under US
GAAP, prior to the adoption of SFAS 142, negative goodwill was considered as a
reduction of the long-term non-monetary 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.  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 l) below as follows:





i-1:
            The
      reversal of negative goodwill amortization recorded under Chilean
      GAAP;


i-2:
              The
      effects of reducing depreciation expense, due to the allocation of the
      excess purchase price to property, plant and
  equipment.





j)
            Capitalized
      interest





In
accordance with Chilean GAAP, only those legal entities that have financial
expenses may capitalize interests on debt related to property, plant, equipment
under construction and other projects. Prior to 2003 the Company did not
capitalize interest to acquisition cost of property, plant and
equipment.





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
capitalization of interest costs prior to 2003 and the related depreciation
expense are included in the reconciliation to US GAAP under paragraph I l)
below.




k)
            Minority
      interest





The
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 l) below.


F-60


Sociedad
Química y Minera de Chile S.A. and Subsidiaries


Notes
to the Audited Consolidated Financial Statements


(Expressed
in thousands of US dollars, except as stated)





Note
30 – Differences between Chilean and United States Generally Accepted Accounting
Principles (continued)





l)
            Effects
      of conforming to US GAAP





The
adjustments to reported net income required to conform to US GAAP are as
follows:





For the years ended December 31,2008
                              
                              
                              2007
                              
                              
                              2006ThUS$
                              
                              
                              ThUS$
                              
                              
                              ThUS$Net
      income in accordance with Chilean GAAP
                              
                              
                              501,407
                              
                              
                              
                              180,021
                              
                              
                              
                              141,277Revaluation
      of property, plant and equipment (paragraph a)
                              
                              
                              2,298
                              
                              
                              
                              4,288
                              
                              
                              
                              4,174Deferred
      income taxes (paragraph b)
                              
                              
                              2,118
                              
                              
                              
                              5,483
                              
                              
                              
                              4,021Translation
      of foreign currency financial statements (paragraph c)
                              
                              
                              5,457
                              
                              
                              
                              9,507
                              
                              
                              
                              (576
                              )Staff
      severance indemnities (paragraph  f)
                              
                              
                              408
                              
                              
                              
                              (1,406
                              )
                              
                              
                              (484
                              )Derivatives
      (paragraph g)
                              
                              
                              (11,600
                              )
                              
                              
                              (4,821
                              )
                              
                              
                              4,432Goodwill
      (paragraph h)
                              
                              
                              2,215
                              
                              
                              
                              2,252
                              
                              
                              
                              1,950Negative
      goodwill (paragraph i)i-1:
      Reversal of negative goodwill amortization
                              
                              
                              -
                              
                              
                              
                              -
                              
                              
                              
                              (68
                              )i-2:
      Depreciation of property, plant and equipment
                              
                              
                              113
                              
                              
                              
                              113
                              
                              
                              
                              113Capitalized
      interest (paragraph j)
                              
                              
                              (1,278
                              )
                              
                              
                              (91
                              )
                              
                              
                              (91
                              )Minority
      interest  (paragraph k)
                              
                              
                              (2,346
                              )
                              
                              
                              (3,752
                              )
                              
                              
                              172Deferred
      income tax effect of the above US GAAP adjustments (paragraph
      b)
                              
                              
                              2,120
                              
                              
                              
                              1,074
                              
                              
                              
                              (656
                              )Net
      income under US GAAP
                              
                              
                              500,912
                              
                              
                              
                              192,668
                              
                              
                              
                              154,264Other
      comprehensive income (loss), net of tax:Minimum
      pension liability adjustment
                              
                              
                              (2,827
                              )
                              
                              
                              (141
                              )
                              
                              
                              -Translation
      adjustment
                              
                              
                              (786
                              )
                              
                              
                              356
                              
                              
                              
                              (24
                              )Total
      comprehensive income under US GAAP
                              
                              
                              497,299
                              
                              
                              
                              192,883
                              
                              
                              
                              154,240


F-61


Sociedad
Química y Minera de Chile S.A. and Subsidiaries


Notes
to the Audited Consolidated Financial Statements


(Expressed
in thousands of US dollars, except as stated)





Note
30 – Differences between Chilean and United States Generally Accepted Accounting
Principles (continued)





l)
            Effects
      of conforming to US GAAP
(continued)





The
adjustments required to conform shareholders' equity amounts under Chilean GAAP
to US GAAP are as follows:





As of December 31,2008
                    
                    
                    2007ThUS$
                    
                    
                    ThUS$Shareholders’
      equity in accordance with Chilean GAAP
                    
                    
                    1,463,108
                    
                    
                    
                    1,182,436Revaluation
      of property, plant and equipment:  (paragraph a)a-1:
      Property, plant and equipment
                    
                    
                    (133,309
                    )
                    
                    
                    (133,309
                    )a-2:
      Accumulated depreciation
                    
                    
                    110,029
                    
                    
                    
                    107,731Deferred
      income taxes (paragraph b)
                    
                    
                    (15,026
                    )
                    
                    
                    (17,144
                    )Translation
      of foreign currency financial statements (paragraph c)c-1:
      Property, plant and equipment
                    
                    
                    391
                    
                    
                    
                    (3,745
                    )c-2:
      Accumulated depreciation
                    
                    
                    -
                    
                    
                    
                    1,797c-3:
      Inventory
                    
                    
                    -
                    
                    
                    
                    (3,035
                    )c-4:
      Goodwill, net
                    
                    
                    (182
                    )
                    
                    
                    (302
                    )c-5:
      Other assets
                    
                    
                    (103
                    )
                    
                    
                    (103
                    )Minimum
      dividend  (paragraph d)
                    
                    
                    (50,422
                    )
                    
                    
                    (54,006
                    )Employer
      loans used to purchase shares (paragraph e)
                    
                    
                    (116
                    )
                    
                    
                    (127
                    )Staff
      severance indemnities (paragraph f)
                    
                    
                    (6,407
                    )
                    
                    
                    (6,816
                    )Derivatives
      (paragraph g)
                    
                    
                    (11,989
                    )
                    
                    
                    (389
                    )Goodwill
      (paragraph h)
                    
                    
                    10,230
                    
                    
                    
                    8,015Negative
      goodwill: (paragraph i)i-1:
      Property, plant and equipment
                    
                    
                    (4,435
                    )
                    
                    
                    (4,447
                    )i-1:
      Accumulated depreciation of property, plant and equipment
                    
                    
                    2,136
                    
                    
                    
                    2,023i-2:
      Negative goodwill
                    
                    
                    4,435
                    
                    
                    
                    4,447i-2:
      Accumulated amortization of negative goodwill
                    
                    
                    (3,156
                    )
                    
                    
                    (3,156
                    )Capitalized
      interest (paragraph j)j-1:
      Property, plant and equipment
                    
                    
                    -
                    
                    
                    
                    1,643j-2:
      Amortization of capitalized interest
                    
                    
                    -
                    
                    
                    
                    (365
                    )Effect
      of minority interest on US GAAP adjustments (paragraph k)
                    
                    
                    (310
                    )
                    
                    
                    1,966Deferred
      income tax effect of the above US GAAP adjustments (paragraph
      b)
                    
                    
                    3,128
                    
                    
                    
                    1,007Shareholders'
      equity in accordance with US GAAP
                    
                    
                    1,368,002
                    
                    
                    
                    1,084,121


F-62


Sociedad
Química y Minera de Chile S.A. and Subsidiaries


Notes
to the Audited Consolidated Financial Statements


(Expressed
in thousands of US dollars, except as stated)





Note
30 – Differences between Chilean and United States Generally Accepted Accounting
Principles (continued)





l)
            Effects
      of conforming to US GAAP, continued





The
changes in the Shareholders’ equity accounts determined under US GAAP are
summarized as follows:





ThUS$Balance
      at January 1, 2006
                  
                  
                  923,442Reversal
      of accrued minimum dividend at December 31, 2005
                  
                  
                  34,053Distribution
      of final 2005 dividend
                  
                  
                  (73,647
                  )Accrued
      minimum dividend at December 31, 2006
                  
                  
                  (42,383
                  )Employer
      loans used to purchase shares
                  
                  
                  35Other
      comprehensive income
                  
                  
                  (1,242
                  )Net
      income for the year
                  
                  
                  154,264Balance
      at December 31, 2006
                  
                  
                  994,522Reversal
      of accrued minimum dividend at December 31, 2006
                  
                  
                  42,383Distribution
      of final 2006 dividend
                  
                  
                  (91,787
                  )Accrued
      minimum dividend at December 31, 2007
                  
                  
                  (54,006
                  )Employer
      loans used to purchase shares
                  
                  
                  126Other
      comprehensive income
                  
                  
                  215Net
      income for the year
                  
                  
                  192,668Balance
      at December 31, 2007
                  
                  
                  1,084,121Reversal
      of accrued minimum dividend at December 31, 2007
                  
                  
                  54,006Distribution
      of final 2007 dividend
                  
                  
                  (117,014
                  )Distribution
      of 2008 interim dividend
                  
                  
                  (100,000
                  )Accrued
      minimum dividend at December 31, 2008
                  
                  
                  (50,422
                  )Employer
      loans used to purchase shares
                  
                  
                  12Other
      comprehensive loss
                  
                  
                  (3,613
                  )Net
      income for the year
                  
                  
                  500,912Balance
      at December 31, 2008
                  
                  
                  1,368,002


F-63


Sociedad
Química y Minera de Chile S.A. and Subsidiaries


Notes
to the Audited Consolidated Financial Statements


(Expressed
in thousands of US dollars, except as stated)





Note
30 – Differences between Chilean and United States Generally Accepted Accounting
Principles (continued)





II.
            Additional
      Disclosure Requirements





The
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 share





2008
                
                
                2007
                
                
                2006(Expressed in US dollars)Basic
      and diluted earnings per share under Chilean GAAP
                
                
                1.91
                
                
                
                0.68
                
                
                
                0.54Basic
      and diluted earnings per share under US GAAP
                
                
                1.90
                
                
                
                0.73
                
                
                
                0.59Dividends
      declared per share (1)
                
                
                1.24
                
                
                
                0.44
                
                
                
                0.35Weighted
      average number of common shares outstanding (thousands)
                
                
                263,197
                
                
                
                263,197
                
                
                
                263,197





(1)  Represents
dividends declared and paid 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
      taxes





The
provision for income taxes differs from the amount of income taxes determined by
applying the applicable Chilean statutory income tax rate to pretax accounting
income on a US GAAP basis as a result of the following differences:





2008
                  
                  
                  2007
                  
                  
                  2006ThUS$
                  
                  
                  ThUS$
                  
                  
                  ThUS$Consolidated
      pretax income under US GAAP
                  
                  
                  610,462
                  
                  
                  
                  242,247
                  
                  
                  
                  193,358Statutory
      tax rate
                  
                  
                  17
                  %
                  
                  
                  17
                  %
                  
                  
                  17
                  %Theoretical
      tax at statutory rate
                  
                  
                  103,779
                  
                  
                  
                  41,182
                  
                  
                  
                  32,871Non-deductible
      items
                  
                  
                  9,853
                  
                  
                  
                  (1,433
                  )
                  
                  
                  5,853Difference
      in tax rates in foreign jurisdictions
                  
                  
                  3,310
                  
                  
                  
                  105
                  
                  
                  
                  247Valuation
      allowance
                  
                  
                  (13,230
                  )
                  
                  
                  2,182
                  
                  
                  
                  (4,420
                  )Total
      income tax under US GAAP
                  
                  
                  103,712
                  
                  
                  
                  42,036
                  
                  
                  
                  34,551


F-64





Sociedad
Química y Minera de Chile S.A. and Subsidiaries


Notes
to the Audited Consolidated Financial Statements


(Expressed
in thousands of US dollars, except as stated)





Note
30 – Differences between Chilean and United States Generally Accepted Accounting
Principles (continued)





b)
              Income
      taxes (continued)





Deferred
tax assets (liabilities) are summarized as follows at December 31 under US
GAAP.:





2008
                      
                      
                      2007ThUS$
                      
                      
                      ThUS$Deferred
      Tax AssetsAllowance
      for doubtful debts
                      
                      
                      1,927
                      
                      
                      
                      1,940Vacation
      accrual
                      
                      
                      1,734
                      
                      
                      
                      1,872Unrealized
      gains on sales of products
                      
                      
                      76,633
                      
                      
                      
                      17,521Provision
      for obsolescence
                      
                      
                      3,940
                      
                      
                      
                      3,779Tax
      loss carryforwards (1)
                      
                      
                      4,362
                      
                      
                      
                      25,883Write-downs
      of inventory, net realizable value s
                      
                      
                      10,362
                      
                      
                      
                      -Fair
      value acquisition adjustments
                      
                      
                      3,153
                      
                      
                      
                      2,119Other
                      
                      
                      14,867
                      
                      
                      
                      9,238Gross
      deferred tax assets
                      
                      
                      116,978
                      
                      
                      
                      62,352Valuation
      allowance
                      
                      
                      (25,499
                      )
                      
                      
                      (38,217
                      )Total
      deferred tax assets
                      
                      
                      91,479
                      
                      
                      
                      24,135Deferred
      Tax LiabilitiesProduction
      expenses
                      
                      
                      (29,775
                      )
                      
                      
                      (20,535
                      )Accelerated
      depreciation of PP&E
                      
                      
                      (72,193
                      )
                      
                      
                      (62,190
                      )Staff
      severance indemnities
                      
                      
                      (846
                      )
                      
                      
                      (574
                      )Exploration
      expenses
                      
                      
                      (4,702
                      )
                      
                      
                      (4,327
                      )Capitalized
      interest
                      
                      
                      (9,252
                      )
                      
                      
                      (8,601
                      )Gain
      from derivative transactions
                      
                      
                      -
                      
                      
                      
                      (2,478
                      )Other
                      
                      
                      (7,781
                      )
                      
                      
                      (1,679
                      )Total
      deferred tax liabilities
                      
                      
                      (124,549
                      )
                      
                      
                      (100,384
                      )





(1)
              The
      Company’s tax loss carryforwards were primarily generated from losses
      incurred in Chile.  In accordance with current laws, in Chile
      tax losses may be carried forward indefinitely. In other countries tax
      losses usually expire.  For the years ended December 31, 2008,
      2007 and 2006 the Company realized benefits from the use of tax loss carry
      forwards amounting to ThUS$ 22,373, ThUS$ 6,477 and ThUS$ 9,037,
      respectively.





Tax loss
carryforwards relate to the following countries as of December 31:





2008
                  
                  
                  2007ThUS$
                  
                  
                  ThUS$Chile
                  
                  
                  1,558
                  
                  
                  
                  22,625Other
      countries
                  
                  
                  2,804
                  
                  
                  
                  3,258Total
                  
                  
                  4,362
                  
                  
                  
                  25,883


F-65


Sociedad
Química y Minera de Chile S.A. and Subsidiaries


Notes
to the Audited Consolidated Financial Statements


(Expressed
in thousands of US dollars, except as stated)





Note
30 – Differences between Chilean and United States Generally Accepted Accounting
Principles (continued)





b)
              Income
      taxes (continued)





The
classification of the net deferred tax assets and liabilities detailed above is
as follows:





2008
                  
                  
                  2007ThUS$
                  
                  
                  ThUS$Short-term
                  
                  
                  36,418
                  
                  
                  
                  (6,148
                  )Long-term
                  
                  
                  (69,488
                  )
                  
                  
                  (70,101
                  )Net
      deferred tax liabilities
                  
                  
                  (33,070
                  )
                  
                  
                  (76,249
                  )





The
provision for income taxes in accordance with US GAAP is as
follows:


2008
                  
                  
                  2007
                  
                  
                  2006ThUS$
                  
                  
                  ThUS$
                  
                  
                  ThUS$Income
      tax expense under Chilean GAAP
                  
                  
                  107,951
                  
                  
                  
                  48,592
                  
                  
                  
                  37,916Additional
      deferred taxes under US GAAP
                  
                  
                  (2,128
                  )
                  
                  
                  (1,048
                  )
                  
                  
                  656Reversal
      of complementary accounts
                  
                  
                  (2,111
                  )
                  
                  
                  (5,508
                  )
                  
                  
                  (4,021
                  )Total
      tax provision US GAAP
                  
                  
                  103,712
                  
                  
                  
                  42,036
                  
                  
                  
                  34,551





US GAAP
income (loss) before taxes related to Chile and foreign operations for the years
ended December 31, is as follows:





2008
                  
                  
                  2007
                  
                  
                  2006ThUS$
                  
                  
                  ThUS$
                  
                  
                  ThUS$Chile
                  
                  
                  605,491
                  
                  
                  
                  246,251
                  
                  
                  
                  215,036Foreign
                  
                  
                  4,971
                  
                  
                  
                  (4,004
                  )
                  
                  
                  (21,678
                  )Total
                  
                  
                  610,462
                  
                  
                  
                  242,247
                  
                  
                  
                  193,358





The
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:





2008
                
                
                2007
                
                
                2006Deferred
                
                
                Current
                
                
                Total
                
                
                Deferred
                
                
                Current
                
                
                Total
                
                
                Deferred
                
                
                Current
                
                
                TotalThUS$
                
                
                ThUS$
                
                
                ThUS$
                
                
                ThUS$
                
                
                ThUS$
                
                
                ThUS$
                
                
                ThUS$
                
                
                ThUS$
                
                
                ThUS$Chile
                
                
                (40,565
                )
                
                
                145,969
                
                
                
                105,404
                
                
                
                3,554
                
                
                
                36,010
                
                
                
                39,564
                
                
                
                9,469
                
                
                
                22,263
                
                
                
                31,732Foreign
                
                
                (3,416
                )
                
                
                1,724
                
                
                
                (1,692
                )
                
                
                264
                
                
                
                2,208
                
                
                
                2,472
                
                
                
                285
                
                
                
                2,534
                
                
                
                2,819Total
                
                
                (43,981
                )
                
                
                147,693
                
                
                
                103,712
                
                
                
                3,818
                
                
                
                38,218
                
                
                
                42,036
                
                
                
                9,754
                
                
                
                24,797
                
                
                
                34,551


F-66


Sociedad
Química y Minera de Chile S.A. and Subsidiaries


Notes
to the Audited Consolidated Financial Statements


(Expressed
in thousands of US dollars, except as stated)





Note
30 – Differences between Chilean and United States Generally Accepted Accounting
Principles (continued)





c)
              Other
      comprehensive income





In
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, 2006, 2007 and 2008:





Year ended December 31, 2006Before-tax
                      amount
                  
                  
                  Tax (expense)
                      or benefit
                  
                  
                  Net-of-tax
                      amountThUS$
                  
                  
                  ThUS$
                  
                  
                  ThUS$Beginning
      balance
                  
                  
                  -
                  
                  
                  
                  -
                  
                  
                  
                  -Translation
      adjustment
                  
                  
                  (24
                  )
                  
                  
                  -
                  
                  
                  
                  (24
                  )Minimum
      pension liability adjustment
                  
                  
                  (1,218
                  )
                  
                  
                  -
                  
                  
                  
                  (1,218
                  )Net
      change
                  
                  
                  (1,242
                  )
                  
                  
                  -
                  
                  
                  
                  (1,242
                  )Ending
      balance
                  
                  
                  (1,242
                  )
                  
                  
                  -
                  
                  
                  
                  (1,242
                  )





Year ended December 31, 2007Before-tax
                          amount
                      
                      
                      Tax (expense)
                          or benefit
                      
                      
                      Net-of-tax
                          amountThUS$
                      
                      
                      ThUS$
                      
                      
                      ThUS$Beginning
      balance
                      
                      
                      (1,242
                      )
                      
                      
                      -
                      
                      
                      
                      (1,242
                      )Translation
      adjustment
                      
                      
                      356
                      
                      
                      
                      -
                      
                      
                      
                      356Minimum
      pension liability adjustment
                      
                      
                      (141
                      )
                      
                      
                      -
                      
                      
                      
                      (141
                      )Net
      change
                      
                      
                      215
                      
                      
                      
                      -
                      
                      
                      
                      215Ending
      balance
                      
                      
                      (1,027
                      )
                      
                      
                      -
                      
                      
                      
                      (1,027
                      )





Year ended December 31, 2008Before-tax
                          amount
                      
                      
                      Tax
      (expense)
                          or
      benefit
                      
                      
                      Net-of-tax
                          amountThUS$
                      
                      
                      ThUS$
                      
                      
                      ThUS$Beginning
      balance
                      
                      
                      (1,027
                      )
                      
                      
                      -
                      
                      
                      
                      (1,027
                      )Translation
      adjustment
                      
                      
                      (786
                      )
                      
                      
                      -
                      
                      
                      
                      (786
                      )Minimum
      pension liability adjustment
                      
                      
                      (2,827
                      )
                      
                      
                      -
                      
                      
                      
                      (2,827
                      )Net
      change
                      
                      
                      (3,613
                      )
                      
                      
                      -
                      
                      
                      
                      (3,613
                      )Ending
      balance
                      
                      
                      (4,640
                      )
                      
                      
                      -
                      
                      
                      
                      (4,640
                      )


F-67


Sociedad
Química y Minera de Chile S.A. and Subsidiaries


Notes
to the Audited Consolidated Financial Statements


(Expressed
in thousands of US dollars, except as stated)





Note
30 – Differences between Chilean and United States Generally Accepted Accounting
Principles (continued)





d)
              Credit
      agreements





The
Company had renewable credit lines for short-term US-dollar borrowings with
various Chilean and foreign banks totaling, in the aggregate, US$ 481 million
and US$ 580 million as of December 31, 2008 and 2007, respectively. There were
US$ 481 million and US$ 580 million available as of December 31, 2008 and 2007,
respectively. Of the US$ 481 million available as of December 31, 2008, the
Company had US$ 130 million under two committed credit line agreements with
local banks, for which the Company paid commitment fees.





e)
              Lease
      commitments





The
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 the capital lease are recorded in Other accounts payable
and are as follows:





MinimumleasepaymentsYear
      ended December 31,
                      
                      ThUS$2009
                      
                      
                      2682010
                      
                      
                      2682011
                      
                      
                      157Total
      future minimum lease payments
                      
                      
                      693Interest
                      
                      
                      (70
                      )Present
      value of net minimum lease payments
                      
                      
                      623


F-68


Sociedad
Química y Minera de Chile S.A. and Subsidiaries


Notes
to the Audited Consolidated Financial Statements


(Expressed
in thousands of US dollars, except as stated)





Note
30 – Differences between Chilean and United States Generally Accepted Accounting
Principles (continued)





e)
              Lease
      commitments (continued)





SQM Salar
S.A., a consolidated subsidiary of the Company, entered into a contract with a
government agency (CORFO) for the rental of land for the purpose of exploration
and exploitation of certain minerals. Rental payments (royalties) are stated in
US dollars and are determined based on actual mineral sales through 2030 in
accordance with rates specified in the agreement.  Based on the
agreement the Company paid ThUS$ 17,712, ThUS$ 13,865 and ThUS$ 9,193 in 2008,
2007 and 2006 respectively, including the minimum annual rental, which was ThUS$
3,757, ThUS$ 4,759 and ThUS$ 4,547 for 2008, 2007 and 2006,
respectively.  Future estimated minimum annual rentals are as
follows:





MinimumannualrentalsYear
      ended December 31,
                  
                  ThUS$2009
                  
                  
                  13,3652010
                  
                  
                  13,3652011
                  
                  
                  13,3652012
                  
                  
                  13,3652013
                  
                  
                  13,365Thereafter
                  
                  
                  227,203Total
                  
                  
                  294,028





As of
December 31, 2008, SQM Salar S.A. has accrued for the rental payment of ThUS$
5,256 related to the rental agreement maintained with CORFO.





f)
              Concentration
      of credit risk





Financial
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 (such
as letters of credit, guarantee clause or others) and/or maintain credit
insurance for certain accounts as deemed necessary by the
management.


F-69


Sociedad
Química y Minera de Chile S.A. and Subsidiaries


Notes
to the Audited Consolidated Financial Statements


(Expressed
in thousands of US dollars, except as stated)





Note
30 – Differences between Chilean and United States Generally Accepted Accounting
Principles (continued)





g)
              Foreign
      exchange gains and losses





For US
GAAP presentation purposes, the net foreign exchange gains and losses on
transactions in foreign currencies and UF amounted to ThUS$ (12,735), ThUS$
10,885 and ThUS$ (2,839) in 2008, 2007 and 2006, respectively.





h)
            Advertising
      and research and development costs





Advertising  costs  are  expensed  as  incurred
and amounted  to  ThUS$ 1,818,  ThUS$
1,670  and  ThUS$ 1,699  for the years ended
December 31, 2008, 2007 and 2006, respectively.





Research
and development costs are expensed as incurred and mounted to ThUS$ 2,617, ThUS$
2,843 and ThUS$ 2,429 for the years ended December 31, 2008, 2007 and
2006.




i)
              Business
      combinations and goodwill




As
described in paragraph I 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.





Changes
in goodwill under US GAAP in the years ended December 31, 2006 and 2007 are
summarized as follows:





ThUS$Balance
      at 31, 2006
                    
                    
                    40,249Translation
      adjustment
                    
                    
                    86Balance
      at December 31, 2007
                    
                    
                    40,335Balance
      at December 31, 2008
                    
                    
                    40,335


F-70


Sociedad
Química y Minera de Chile S.A. and Subsidiaries
 Notes
to the Audited Consolidated Financial Statements
 (Expressed
in thousands of US dollars, except as stated)


Note
30 – Differences between Chilean and United States Generally Accepted Accounting
Principles (continued)





j)
            Reclassification
      differences between Chilean GAAP and US
GAAP





(i)
            Non-operating
      income and expense under US GAAP calculated in accordance with Chilean
      GAAP





The
following reclassifications are required to conform to the presentation of
Chilean GAAP income statement information to that required under US GAAP. The
reclassification amounts are determined in accordance with Chilean
GAAP.





2008
                  
                  
                  2007
                  
                  
                  2006ThUS$
                  
                  
                  ThUS$
                  
                  
                  ThUS$Non-operating
      income under Chilean GAAP
                  
                  
                  40,590
                  
                  
                  
                  25,948
                  
                  
                  
                  19,293Less:Sale
      of mining concessions
                  
                  
                  721
                  
                  
                  
                  399
                  
                  
                  
                  1,252Sale
      of material and services
                  
                  
                  156
                  
                  
                  
                  369
                  
                  
                  
                  75Insurance
      recoveries
                  
                  
                  581
                  
                  
                  
                  275
                  
                  
                  
                  307Write-off
      of liabilities
                  
                  
                  2,623
                  
                  
                  
                  335
                  
                  
                  
                  238Payment
      discount obtained from suppliers
                  
                  
                  815
                  
                  
                  
                  458
                  
                  
                  
                  690Rental
      of property, plant and equipment
                  
                  
                  1,092
                  
                  
                  
                  958
                  
                  
                  
                  1,023Compensation
      obtained from third parties
                  
                  
                  146
                  
                  
                  
                  524
                  
                  
                  
                  1Gain
      on sale of investment (Agricolima S.A. de C.V.)
                  
                  
                  1,387
                  
                  
                  
                  -
                  
                  
                  
                  -Gain
      on sale of assets of SQM Lithium
                  
                  
                  2,342
                  
                  
                  
                  -
                  
                  
                  
                  -Other
      income
                  
                  
                  1,106
                  
                  
                  
                  2,013
                  
                  
                  
                  1,251Non-operating
      income as classified under US GAAP, but calculated in accordance with
      Chilean GAAP
                  
                  
                  29,621
                  
                  
                  
                  20,617
                  
                  
                  
                  14,456Non-operating
      expenses under Chilean GAAP
                  
                  
                  59,896
                  
                  
                  
                  53,032
                  
                  
                  
                  55,341Less:Sales
      of material and services
                  
                  
                  
                  
                  
                  
                  -
                  
                  
                  
                  630Work
      disruption expenses
                  
                  
                  2,445
                  
                  
                  
                  844
                  
                  
                  
                  1,534Increase
      in allowance for doubtful debts
                  
                  
                  30
                  
                  
                  
                  -
                  
                  
                  
                  129Non-capitalizable
      exploration project expenses
                  
                  
                  8,961
                  
                  
                  
                  16,528
                  
                  
                  
                  12,087Non-recoverable
      taxes
                  
                  
                  582
                  
                  
                  
                  669
                  
                  
                  
                  542Provision
      for legal expenses and litigations
                  
                  
                  975
                  
                  
                  
                  523
                  
                  
                  
                  1,010Allowances
      for materials, spare parts and supplies
                  
                  
                  4,732
                  
                  
                  
                  4,925
                  
                  
                  
                  2,055Consulting
      services
                  
                  
                  84
                  
                  
                  
                  -
                  
                  
                  
                  281Donations
                  
                  
                  2,152
                  
                  
                  
                  -
                  
                  
                  
                  458Suppliers’
      compensations
                  
                  
                  237
                  
                  
                  
                  1,575
                  
                  
                  
                  -Accrued
      expenses related to energy tariff adjustments
                  
                  
                  -
                  
                  
                  
                  2,066
                  
                  
                  
                  2,500Other
      expenses
                  
                  
                  1,629
                  
                  
                  
                  3,624
                  
                  
                  
                  1,668Non-operating
      expense as classified under US GAAP, but calculated in accordance with
      Chilean GAAP
                  
                  
                  38,069
                  
                  
                  
                  22,278
                  
                  
                  
                  32,447


F-71


Sociedad
Química y Minera de Chile S.A. and Subsidiaries


Notes
to the Audited Consolidated Financial Statements


(Expressed
in thousands of US dollars, except as stated)





Note
30 – Differences between Chilean and United States Generally Accepted Accounting
Principles (continued)





j)
            Reclassification
      differences between Chilean GAAP and US GAAP
  (continued)





(ii)
            Condensed
      financial statements under US GAAP





The
following are summarized balance sheets of the Company using a US GAAP
presentation and amounts determined in accordance with US
GAAP:





As of December 31,b)
                                
                                2008
                                
                                
                                2007ThUS$
                                
                                
                                ThUS$AssetsCurrent
      assets
                                
                                
                                1,340,723
                                
                                
                                
                                900,593Property,
      plant and equipment
                                
                                
                                1,894,557
                                
                                
                                
                                1,655,970Accumulated
      depreciation
                                
                                
                                (802,306
                                )
                                
                                
                                (701,582
                                )Property
      plant and equipment, net
                                
                                
                                1,092,251
                                
                                
                                
                                954,388Goodwill
                                
                                
                                40,335
                                
                                
                                
                                40,335Other
      assets
                                
                                
                                75,781
                                
                                
                                
                                64,301Total
      assets
                                
                                
                                2,549,090
                                
                                
                                
                                1,959,617Liabilities
      and shareholders’ equityCurrent
      liabilities
                                
                                
                                505,644
                                
                                
                                
                                246,163Long-term
      liabilities
                                
                                
                                628,065
                                
                                
                                
                                585,300Minority
      interest
                                
                                
                                47.379
                                
                                
                                
                                44,033Shareholders’
      equity
                                
                                
                                1,368,002
                                
                                
                                
                                1,084,121Total
      liabilities and shareholders’ equity
                                
                                
                                2,549,090
                                
                                
                                
                                1,959,617


F-72


Sociedad
Química y Minera de Chile S.A. and Subsidiaries


Notes
to the Audited Consolidated Financial Statements


(Expressed
in thousands of US dollars, except as stated)





Note
30 – Differences between Chilean and United States Generally Accepted Accounting
Principles (continued)





j)
            Reclassification
      differences between Chilean GAAP and US GAAP
  (continued)





The
condensed consolidated statements of income for the years ended December 31
under US GAAP and classified in accordance with US GAAP are presented as
follows:





For the years ended December 31,2008
                            
                            
                            2007
                            
                            
                            2006ThUS$
                            
                            
                            ThUS$
                            
                            
                            ThUS$Operating
      incomeSales
                            
                            
                            1,774,119
                            
                            
                            
                            1,187,527
                            
                            
                            
                            1,042,886Cost
      of sales
                            
                            
                            (1,065,370
                            )
                            
                            
                            (880,272
                            )
                            
                            
                            (767,679
                            )Gross
      margin
                            
                            
                            708,749
                            
                            
                            
                            307,255
                            
                            
                            
                            275,207Selling
      and administrative expense
                            
                            
                            (85,709
                            )
                            
                            
                            (70,273
                            )
                            
                            
                            (69,662
                            )Operating
      income
                            
                            
                            623,040
                            
                            
                            
                            236,982
                            
                            
                            
                            205,545Non-operating
      income (expense), net
                            
                            
                            (26,936
                            )
                            
                            
                            1,699
                            
                            
                            
                            (14,139
                            )Income
      taxes
                            
                            
                            (103,712
                            )
                            
                            
                            (42,036
                            )
                            
                            
                            (34,551
                            )Minority
      interest
                            
                            
                            (5,838
                            )
                            
                            
                            (7,544
                            )
                            
                            
                            (4,543
                            )Equity
      participation in income of related companies, net
                            
                            
                            14,358
                            
                            
                            
                            3,567
                            
                            
                            
                            1,952Net
      income
                            
                            
                            500,912
                            
                            
                            
                            192,668
                            
                            
                            
                            154,264Other
      comprehensive income (loss), net of taxes:Minimum
      pension liability adjustment
                            
                            
                            (2,827
                            )
                            
                            
                            (141
                            )
                            
                            
                            -Translation
      adjustment
                            
                            
                            (786
                            )
                            
                            
                            356
                            
                            
                            
                            (24
                            )Total
      comprehensive income under US GAAP
                            
                            
                            497,299
                            
                            
                            
                            192,883
                            
                            
                            
                            154,240


F-73


Sociedad
Química y Minera de Chile S.A. and Subsidiaries


Notes
to the Audited Consolidated Financial Statements


(Expressed
in thousands of US dollars, except as stated)





Note
30 – 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 SFAS 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 America and Caribbean except Chile, Europe, USA, and Asia and
other. In addition, the Company evaluates also its performance by the following
group of products: Specialty Plant Nutrition, Iodine and Derivatives, Lithium
and Derivatives, Industrial Chemicals, Potassium Chloride and Other Commodity
Fertilizers. 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.





(i)
            Sales
      by product type and by geographic area for the years ended December 31,
      2008, 2007 and 2006





Year ended December 31, 2008
                  
                  Chile
                  
                  
                  Latin
                    Americaand
                    Caribbean(1)
                  
                  
                  Europe
                  
                  
                  North
                    America
                  
                  
                  Asia
                    andother
                  
                  
                  Eliminations
                  
                  
                  TotalThUS$
                  
                  
                  ThUS$
                  
                  
                  ThUS$
                  
                  
                  ThUS$
                  
                  
                  ThUS$
                  
                  
                  ThUS$
                  
                  
                  ThUS$Total
      revenues:Specialty
      plant nutrition
                  
                  
                  268,107
                  
                  
                  
                  256,569
                  
                  
                  
                  426,
      497
                  
                  
                  
                  341,392
                  
                  
                  
                  234,284
                  
                  
                  
                  (547,927
                  )
                  
                  
                  978,687Iodine
      and derivatives
                  
                  
                  176,107
                  
                  
                  
                  7,400
                  
                  
                  
                  150,810
                  
                  
                  
                  199,371
                  
                  
                  
                  92,051
                  
                  
                  
                  (378,832
                  )
                  
                  
                  246,904Lithium
      and derivatives
                  
                  
                  581
                  
                  
                  
                  1,982
                  
                  
                  
                  121,957
                  
                  
                  
                  62,238
                  
                  
                  
                  85,597
                  
                  
                  
                  (100,016
                  )
                  
                  
                  172,342Industrial
      chemicals
                  
                  
                  8,011
                  
                  
                  
                  35,415
                  
                  
                  
                  107,040
                  
                  
                  
                  135,658
                  
                  
                  
                  47,699
                  
                  
                  
                  (210,204
                  )
                  
                  
                  123,619Potassium
      chloride
                  
                  
                  223,901
                  
                  
                  
                  30,465
                  
                  
                  
                  5,090
                  
                  
                  
                  546
                  
                  
                  
                  33,561
                  
                  
                  
                  (153,565
                  )
                  
                  
                  139,998Other
      commodity fertilizers (2)
                  
                  
                  485,983
                  
                  
                  
                  1,032
                  
                  
                  
                  402
                  
                  
                  
                  1,442
                  
                  
                  
                  114
                  
                  
                  
                  (376,640
                  )
                  
                  
                  112,333Total
                  
                  
                  1,162,690
                  
                  
                  
                  332,863
                  
                  
                  
                  811,796
                  
                  
                  
                  740,647
                  
                  
                  
                  493,306
                  
                  
                  
                  (1,767,184
                  )
                  
                  
                  1,774,119Transfers
      between geographic areas:Specialty
      plant nutrition
                  
                  
                  81,293
                  
                  
                  
                  27,529
                  
                  
                  
                  197,416
                  
                  
                  
                  156,481
                  
                  
                  
                  85,208
                  
                  
                  
                  (547,927
                  )
                  
                  
                  -Iodine
      and derivatives
                  
                  
                  174,630
                  
                  
                  
                  43
                  
                  
                  
                  70,366
                  
                  
                  
                  100,340
                  
                  
                  
                  33,453
                  
                  
                  
                  (378,832
                  )
                  
                  
                  -Lithium
      and derivatives
                  
                  
                  -
                  
                  
                  
                  -
                  
                  
                  
                  41,067
                  
                  
                  
                  30,269
                  
                  
                  
                  28,680
                  
                  
                  
                  (100,016
                  )
                  
                  
                  -Industrial
      chemicals
                  
                  
                  2,921
                  
                  
                  
                  7,521
                  
                  
                  
                  72,942
                  
                  
                  
                  94,973
                  
                  
                  
                  31,847
                  
                  
                  
                  (210,204
                  )
                  
                  
                  -Potassium
      Chloride
                  
                  
                  148,921
                  
                  
                  
                  -
                  
                  
                  
                  -
                  
                  
                  
                  -
                  
                  
                  
                  4,644
                  
                  
                  
                  (153,565
                  )
                  
                  
                  -Others
      commodity fertilizers (2)
                  
                  
                  376,640
                  
                  
                  
                  -
                  
                  
                  
                  -
                  
                  
                  
                  -
                  
                  
                  
                  -
                  
                  
                  
                  (376,640
                  )
                  
                  
                  -Total
                  
                  
                  784,405
                  
                  
                  
                  35,093
                  
                  
                  
                  381,791
                  
                  
                  
                  382,063
                  
                  
                  
                  183,832
                  
                  
                  
                  (1,767,184
                  )
                  
                  
                  -Sales
      to unaffiliated customers:Specialty
      plant nutrition
                  
                  
                  186,814
                  
                  
                  
                  229,040
                  
                  
                  
                  228,846
                  
                  
                  
                  184,911
                  
                  
                  
                  149,076
                  
                  
                  
                  -
                  
                  
                  
                  978,687Iodine
      and derivatives
                  
                  
                  1,477
                  
                  
                  
                  7,357
                  
                  
                  
                  80,441
                  
                  
                  
                  99,031
                  
                  
                  
                  58,598
                  
                  
                  
                  -
                  
                  
                  
                  246,904Lithium
      and derivatives
                  
                  
                  581
                  
                  
                  
                  1,982
                  
                  
                  
                  80,893
                  
                  
                  
                  31,969
                  
                  
                  
                  56,917
                  
                  
                  
                  -
                  
                  
                  
                  172.342Industrial
      chemicals
                  
                  
                  5,090
                  
                  
                  
                  27,894
                  
                  
                  
                  34,098
                  
                  
                  
                  40,685
                  
                  
                  
                  15,852
                  
                  
                  
                  -
                  
                  
                  
                  123,619Potassium
      Chloride
                  
                  
                  74,980
                  
                  
                  
                  30,465
                  
                  
                  
                  5,090
                  
                  
                  
                  546
                  
                  
                  
                  28,917
                  
                  
                  
                  -
                  
                  
                  
                  139,998Others
      commodity fertilizers (2)
                  
                  
                  109,343
                  
                  
                  
                  1,032
                  
                  
                  
                  402
                  
                  
                  
                  1,442
                  
                  
                  
                  114
                  
                  
                  
                  -
                  
                  
                  
                  112,333Total
                  
                  
                  378,285
                  
                  
                  
                  297,770
                  
                  
                  
                  430,005
                  
                  
                  
                  358,584
                  
                  
                  
                  309,474
                  
                  
                  
                  -
                  
                  
                  
                  1,774,119





(1)
Excludes Chile.


(2)
Includes revenues from imported fertilizers distributed in Chile and
Mexico..


F-74


Sociedad
Química y Minera de Chile S.A. and Subsidiaries


Notes
to the Audited Consolidated Financial Statements


(Expressed
in thousands of US dollars, except as stated)





Note
30 – Differences between Chilean and United States Generally Accepted Accounting
Principles (continued)





k)        Industry
segment and geographic area information (continued)





(i)
            Sales
      by product type and by geographic area for the years ended December 31,
      2008, 2007 and 2006 (continued)





Year ended December 31,
                  2007
                
                Chile
                
                
                Latin
                  Americaand
                  Caribbean(1)
                
                
                Europe
                
                
                North
                  America
                
                
                Asia
                  andother
                
                
                Eliminations
                
                
                TotalThUS$
                
                
                ThUS$
                
                
                ThUS$
                
                
                ThUS$
                
                
                ThUS$
                
                
                ThUS$
                
                
                ThUS$Total
      revenues:Specialty
      plant nutrition
                
                
                157,148
                
                
                
                127,274
                
                
                
                240,982
                
                
                
                192,830
                
                
                
                84,509
                
                
                
                (221,982
                )
                
                
                580,761Iodine
      and derivatives
                
                
                167,189
                
                
                
                7,584
                
                
                
                144,977
                
                
                
                157,530
                
                
                
                63,353
                
                
                
                (325,530
                )
                
                
                215,103Lithium
      and derivatives
                
                
                631
                
                
                
                2,621
                
                
                
                152,993
                
                
                
                66,708
                
                
                
                72,651
                
                
                
                (115,814
                )
                
                
                179,790Industrial
      chemicals
                
                
                3,027
                
                
                
                14,695
                
                
                
                95,282
                
                
                
                88,266
                
                
                
                19,801
                
                
                
                (139,881
                )
                
                
                81,190Potassium
      chloride
                
                
                104,807
                
                
                
                12,811
                
                
                
                7,621
                
                
                
                198
                
                
                
                10,718
                
                
                
                (84,889
                )
                
                
                51,266Other
      commodity fertilizers (2)
                
                
                214,481
                
                
                
                910
                
                
                
                1,316
                
                
                
                3,447
                
                
                
                1,831
                
                
                
                (142,568
                )
                
                
                79,417Total
                
                
                647,283
                
                
                
                165,895
                
                
                
                643,171
                
                
                
                508,979
                
                
                
                252,863
                
                
                
                (1,030,664
                )
                
                
                1,187,527Transfers
      between geographic areas:Specialty
      plant nutrition
                
                
                33,102
                
                
                
                13,174
                
                
                
                95,014
                
                
                
                62,424
                
                
                
                18,268
                
                
                
                (221,982
                )
                
                
                -Iodine
      and derivatives
                
                
                166,244
                
                
                
                -
                
                
                
                59,011
                
                
                
                78,736
                
                
                
                21,539
                
                
                
                (325,530
                )
                
                
                -Lithium
      and derivatives
                
                
                260
                
                
                
                -
                
                
                
                69,409
                
                
                
                28,228
                
                
                
                17,917
                
                
                
                (115,814
                )
                
                
                -Industrial
      chemicals
                
                
                1,322
                
                
                
                2,776
                
                
                
                58,897
                
                
                
                61,298
                
                
                
                15,588
                
                
                
                (139,881
                )
                
                
                -Potassium
      chloride
                
                
                74,789
                
                
                
                2,598
                
                
                
                -
                
                
                
                30
                
                
                
                7,472
                
                
                
                (84,889
                )
                
                
                -Other
      commodity fertilizers (2)
                
                
                138,680
                
                
                
                -
                
                
                
                -
                
                
                
                2,284
                
                
                
                1,604
                
                
                
                (142,568
                )
                
                
                -Total
                
                
                414,397
                
                
                
                18,284
                
                
                
                282,331
                
                
                
                233,000
                
                
                
                82,388
                
                
                
                (1,030,664
                )
                
                
                -Sales
      to unaffiliated customers:Specialty
      plant nutrition
                
                
                124,046
                
                
                
                114,100
                
                
                
                145,968
                
                
                
                130,406
                
                
                
                66,241
                
                
                
                -
                
                
                
                580,761Iodine
      and derivatives
                
                
                945
                
                
                
                7,584
                
                
                
                85,966
                
                
                
                78,794
                
                
                
                41,814
                
                
                
                -
                
                
                
                215,103Lithium
      and derivatives
                
                
                371
                
                
                
                2,621
                
                
                
                83,584
                
                
                
                38,480
                
                
                
                54,734
                
                
                
                -
                
                
                
                179,790Industrial
      Chemicals
                
                
                1,705
                
                
                
                11,919
                
                
                
                36,385
                
                
                
                26,968
                
                
                
                4,213
                
                
                
                -
                
                
                
                81,190Potassium
      chloride
                
                
                30,018
                
                
                
                10,213
                
                
                
                7,621
                
                
                
                168
                
                
                
                3,246
                
                
                
                -
                
                
                
                51,266Other
      commodity fertilizers (2)
                
                
                75,801
                
                
                
                910
                
                
                
                1,316
                
                
                
                1,163
                
                
                
                227
                
                
                
                -
                
                
                
                79,417Total
                
                
                232,886
                
                
                
                147,347
                
                
                
                360,840
                
                
                
                275,979
                
                
                
                170,475
                
                
                
                -
                
                
                
                1,187,527





(1)
Excludes Chile.


(2)
Includes revenues from imported fertilizers distributed in Chile and
Mexico.


F-75


Sociedad
Química y Minera de Chile S.A. and Subsidiaries


Notes
to the Audited Consolidated Financial Statements


(Expressed
in thousands of US dollars, except as stated)





Note
30 – Differences between Chilean and United States Generally Accepted Accounting
Principles (continued)





k)         Industry
segment and geographic area information (continued)





(i)
            Sales
      by product type and by geographic area for the years ended December 31,
      2008, 2007 and 2006 (continued)





Year ended December 31,
                  2006
                
                Chile
                
                
                Latin America
                  and
                  Caribbean (1)
                
                
                Europe
                
                
                North
                  America
                
                
                Asia
                  and other
                
                
                Eliminations
                
                
                TotalThUS$
                
                
                ThUS$
                
                
                ThUS$
                
                
                ThUS$
                
                
                ThUS$
                
                
                ThUS$
                
                
                ThUS$Total
      revenues:Specialty
      plant nutrition
                
                
                114,144
                
                
                
                114,838
                
                
                
                203,172
                
                
                
                201,906
                
                
                
                78,545
                
                
                
                (209,762
                )
                
                
                502,843Iodine
      and derivatives
                
                
                165,814
                
                
                
                6,965
                
                
                
                159,783
                
                
                
                155,992
                
                
                
                68,651
                
                
                
                (339,468
                )
                
                
                217,737Lithium
      and derivatives
                
                
                46
                
                
                
                1,422
                
                
                
                95,342
                
                
                
                49,651
                
                
                
                83,786
                
                
                
                (101,359
                )
                
                
                128,888Industrial
      chemicals
                
                
                3,675
                
                
                
                12,795
                
                
                
                57,361
                
                
                
                83,616
                
                
                
                11,555
                
                
                
                (97,718
                )
                
                
                71,284Potassium
      chloride
                
                
                83,013
                
                
                
                8,327
                
                
                
                6,150
                
                
                
                3,252
                
                
                
                7,686
                
                
                
                (76,351
                )
                
                
                32,077Other
      commodity fertilizers (2)
                
                
                218,372
                
                
                
                1,025
                
                
                
                3,536
                
                
                
                66,207
                
                
                
                469
                
                
                
                (199,552
                )
                
                
                90,057Total
                
                
                585,064
                
                
                
                145,372
                
                
                
                525,344
                
                
                
                560,624
                
                
                
                250,692
                
                
                
                (1,024,210
                )
                
                
                1,042,886Transfers
      between geographic areas:Specialty
      plant nutrition
                
                
                25,902
                
                
                
                11,487
                
                
                
                68,784
                
                
                
                70,757
                
                
                
                32,832
                
                
                
                (209,762
                )
                
                
                -Iodine
      and derivatives
                
                
                163,943
                
                
                
                -
                
                
                
                66,927
                
                
                
                74,934
                
                
                
                33,664
                
                
                
                (339,468
                )
                
                
                -Lithium
      and derivatives
                
                
                -
                
                
                
                8
                
                
                
                39,339
                
                
                
                17,771
                
                
                
                44,241
                
                
                
                (101,359
                )
                
                
                -Industrial
      chemicals
                
                
                1,206
                
                
                
                3,144
                
                
                
                29,623
                
                
                
                52,584
                
                
                
                11,161
                
                
                
                (97,718
                )
                
                
                -Potassium
      chloride
                
                
                64,395
                
                
                
                2,192
                
                
                
                -
                
                
                
                2,078
                
                
                
                7,686
                
                
                
                (76,351
                )
                
                
                -Other
      commodity fertilizers (2)
                
                
                164,798
                
                
                
                -
                
                
                
                -
                
                
                
                34,285
                
                
                
                469
                
                
                
                (199,552
                )
                
                
                -Total
                
                
                420,244
                
                
                
                16,831
                
                
                
                204,673
                
                
                
                252,409
                
                
                
                130,053
                
                
                
                (1,024,210
                )
                
                
                -Sales
      to unaffiliated customers:Specialty
      plant nutrition
                
                
                88,242
                
                
                
                103,351
                
                
                
                134,388
                
                
                
                131,149
                
                
                
                45,713
                
                
                
                -
                
                
                
                502,843Iodine
      and derivatives
                
                
                1,871
                
                
                
                6,965
                
                
                
                92,856
                
                
                
                81,058
                
                
                
                34,987
                
                
                
                -
                
                
                
                217,737Lithium
      and derivatives
                
                
                46
                
                
                
                1,414
                
                
                
                56,003
                
                
                
                31,880
                
                
                
                39,545
                
                
                
                -
                
                
                
                128,888Industrial
      chemicals
                
                
                2,469
                
                
                
                9,651
                
                
                
                27,738
                
                
                
                31,032
                
                
                
                394
                
                
                
                -
                
                
                
                71,284Potassium
      chloride
                
                
                18,618
                
                
                
                6,135
                
                
                
                6,150
                
                
                
                1,174
                
                
                
                -
                
                
                
                -
                
                
                
                32,077Other
      commodity fertilizers (2)
                
                
                53,574
                
                
                
                1,025
                
                
                
                3,536
                
                
                
                31,922
                
                
                
                -
                
                
                
                -
                
                
                
                90,057Total
                
                
                164,820
                
                
                
                128,541
                
                
                
                320,671
                
                
                
                308,215
                
                
                
                120,639
                
                
                
                -
                
                
                
                1,042,886





(1)
Excludes Chile.


(2)
Includes revenues from imported fertilizers distributed in Chile and
Mexico.


F-76


Sociedad
Química y Minera de Chile S.A. and Subsidiaries


Notes
to the Audited Consolidated Financial Statements


(Expressed
in thousands of US dollars, except as stated)





Note
30 – Differences between Chilean and United States Generally Accepted Accounting
Principles (continued)





k)         Industry
segment and geographic area information (continued)





(ii)
            Other
      segment information as of and for the years ended December 31, 2008, 2007
      and 2006:





As of and for the year ended
                  December 31, 2008
                
                Chile
                
                
                Latin
                  America
                  and
                  Caribbean
                
                
                Europe
                
                
                North
                  America
                
                
                Asia
                  and other
                
                
                Eliminations
                
                
                TotalThUS$
                
                
                ThUS$
                
                
                ThUS$
                
                
                ThUS$
                
                
                ThUS$
                
                
                ThUS$
                
                
                ThUS$Production
      facilities (1):Pedro
      de Valdivia
                
                
                69,096
                
                
                
                -
                
                
                
                -
                
                
                
                -
                
                
                
                -
                
                
                
                -
                
                
                
                69,096María
      Elena
                
                
                177,416
                
                
                
                -
                
                
                
                -
                
                
                
                -
                
                
                
                -
                
                
                
                -
                
                
                
                177,416Coya
      Sur
                
                
                146,203
                
                
                
                -
                
                
                
                -
                
                
                
                -
                
                
                
                -
                
                
                
                -
                
                
                
                146,203Pampa
      Blanca
                
                
                7,037
                
                
                
                -
                
                
                
                -
                
                
                
                -
                
                
                
                -
                
                
                
                -
                
                
                
                7,037Nueva
      Victoria
                
                
                115,845
                
                
                
                -
                
                
                
                -
                
                
                
                -
                
                
                
                -
                
                
                
                -
                
                
                
                115,845Salar
      de Atacama
                
                
                342,458
                
                
                
                -
                
                
                
                -
                
                
                
                -
                
                
                
                -
                
                
                
                -
                
                
                
                342,458Salar
      del Carmen
                
                
                100,909
                
                
                
                -
                
                
                
                -
                
                
                
                -
                
                
                
                -
                
                
                
                -
                
                
                
                100,909Others
                
                
                2,907
                
                
                
                -
                
                
                
                -
                
                
                
                -
                
                
                
                5,529
                
                
                
                (1,480
                )
                
                
                6,956Sub-total
      production facilities
                
                
                961,871
                
                
                
                -
                
                
                
                -
                
                
                
                -
                
                
                
                5,529
                
                
                
                (1,480
                )
                
                
                965,920Port
      facility (1)
                
                
                46,188
                
                
                
                -
                
                
                
                -
                
                
                
                -
                
                
                
                -
                
                
                
                -
                
                
                
                46,188Other
      property, plant and equipment
                
                
                91,099
                
                
                
                -
                
                
                
                -
                
                
                
                -
                
                
                
                -
                
                
                
                7,839
                
                
                
                98,938Assets
      of commercial locations
                
                
                6,262
                
                
                
                1,236
                
                
                
                2,772
                
                
                
                2,557
                
                
                
                743
                
                
                
                (894
                )
                
                
                12,676Investments
      in related companies
                
                
                1,489,439
                
                
                
                31,754
                
                
                
                44,850
                
                
                
                35,491
                
                
                
                -
                
                
                
                (1,564,583
                )
                
                
                36,951Goodwill
                
                
                22,100
                
                
                
                86
                
                
                
                9,715
                
                
                
                -
                
                
                
                -
                
                
                
                -
                
                
                
                31,901Other
      non-current assets (2)
                
                
                254,635
                
                
                
                -
                
                
                
                6
                
                
                
                105
                
                
                
                -
                
                
                
                (219,519
                )
                
                
                35,227Total
      long-lived assets
                
                
                2,871,594
                
                
                
                33,076
                
                
                
                57,343
                
                
                
                38,153
                
                
                
                6,272
                
                
                
                (1,778,637
                )
                
                
                1,227,801Expenditures
      on long-lived assets
                
                
                302,915
                
                
                
                60
                
                
                
                484
                
                
                
                547
                
                
                
                84
                
                
                
                -
                
                
                
                304,090Export
      by region
                
                
                -
                
                
                
                273,152
                
                
                
                6,607
                
                
                
                5,630
                
                
                
                171,594
                
                
                
                -
                
                
                
                456,983





(1)
            The
      Company’s principal production facilities are located near its mines and
      extraction facilities in northern Chile. The following table sets forth
      the principal production facilities as of December 31, 2008, 2007 and
      2006:





Location:
                                  
                                  Products:Pedro
      de Valdivia
                                  
                                  Nitrate
      and iodine productionMaría
      Elena
                                  
                                  Nitrate
      and iodine productionCoya
      Sur
                                  
                                  Nitrate
      and iodine productionPampa
      Blanca
                                  
                                  Concentrated
      nitrate salts and iodine productionNueva
      Victoria
                                  
                                  Iodine
      productionSalar
      de Atacama
                                  
                                  Potassium
      chloride, lithium chloride, potassium sulfate and boric
    acidSalar
      del Carmen
                                  
                                  Lithium
      carbonate and lithium hydroxide productionTocopilla
                                  
                                  Port
      facilitiy





(2)
            In
      all tables in the segment disclosure this category includes principally
      assets that may not be assigned to production facilities and investments
      held by holding entities within the
group.





F-77




Sociedad
Química y Minera de Chile S.A. and Subsidiaries


Notes
to the Audited Consolidated Financial Statements


(Expressed
in thousands of US dollars, except as stated)





Note
30 – Differences between Chilean and United States Generally Accepted
Accounting Principles (continued)





k)        Industry
segment and geographic area information (continued)





(ii)
            Other
      segment information as of and for the years ended December 31, 2008, 2007
      and 2006:





As of and for the year ended
                December 31, 2007
              
              Chile
              
              
              Latin
                America
                and
                Caribbean
              
              
              Europe
              
              
              North
                America
              
              
              Asia
                and other
              
              
              Eliminations
              
              
              TotalThUS$
              
              
              ThUS$
              
              
              ThUS$
              
              
              ThUS$
              
              
              ThUS$
              
              
              ThUS$
              
              
              ThUS$Production
      facilities (1):Pedro
      de Valdivia
              
              
              74,036
              
              
              
              -
              
              
              
              -
              
              
              
              -
              
              
              
              -
              
              
              
              -
              
              
              
              74,036María
      Elena
              
              
              156,484
              
              
              
              -
              
              
              
              -
              
              
              
              -
              
              
              
              -
              
              
              
              -
              
              
              
              156,484Coya
      Sur
              
              
              106,771
              
              
              
              -
              
              
              
              -
              
              
              
              -
              
              
              
              -
              
              
              
              -
              
              
              
              106,771Pampa
      Blanca
              
              
              4,069
              
              
              
              -
              
              
              
              -
              
              
              
              -
              
              
              
              -
              
              
              
              -
              
              
              
              4,069Nueva
      Victoria
              
              
              104,758
              
              
              
              -
              
              
              
              -
              
              
              
              -
              
              
              
              -
              
              
              
              -
              
              
              
              104,758Salar
      de Atacama
              
              
              250,577
              
              
              
              -
              
              
              
              -
              
              
              
              -
              
              
              
              -
              
              
              
              -
              
              
              
              250,577Salar
      del Carmen
              
              
              43,997
              
              
              
              -
              
              
              
              -
              
              
              
              -
              
              
              
              -
              
              
              
              -
              
              
              
              43,997Others
              
              
              6,822
              
              
              
              -
              
              
              
              -
              
              
              
              21,440
              
              
              
              5,970
              
              
              
              (4,865
              )
              
              
              29,367Sub-total
      production facilities
              
              
              747,514
              
              
              
              -
              
              
              
              -
              
              
              
              21,440
              
              
              
              5,970
              
              
              
              (4,865
              )
              
              
              770,059Port
      facility (1)
              
              
              39,038
              
              
              
              -
              
              
              
              -
              
              
              
              -
              
              
              
              -
              
              
              
              -
              
              
              
              39,038Other
      property, plant and equipment
              
              
              155,065
              
              
              
              -
              
              
              
              -
              
              
              
              -
              
              
              
              -
              
              
              
              7,839
              
              
              
              162,904Assets
      of commercial locations
              
              
              7,615
              
              
              
              1,450
              
              
              
              2,813
              
              
              
              2,867
              
              
              
              566
              
              
              
              (1,174
              )
              
              
              14,137Investments
      in related companies
              
              
              1,221,498
              
              
              
              15,659
              
              
              
              24,035
              
              
              
              36,450
              
              
              
              -
              
              
              
              (1,273,707
              )
              
              
              23,935Goodwill
              
              
              23,844
              
              
              
              108
              
              
              
              10,284
              
              
              
              -
              
              
              
              -
              
              
              
              -
              
              
              
              34,236Other
      non-current assets (2)
              
              
              353,743
              
              
              
              -
              
              
              
              6
              
              
              
              1,675
              
              
              
              -
              
              
              
              (317,369
              )
              
              
              38,055Total
      long-lived assets
              
              
              2,548,317
              
              
              
              17,217
              
              
              
              37,138
              
              
              
              62,432
              
              
              
              6,536
              
              
              
              (1,589,276
              )
              
              
              1,082,364Expenditures
      on long-lived assets
              
              
              175,910
              
              
              
              57
              
              
              
              205
              
              
              
              1,838
              
              
              
              18
              
              
              
              -
              
              
              
              178,028Export
      by region
              
              
              -
              
              
              
              139,242
              
              
              
              241,097
              
              
              
              217,116
              
              
              
              189,897
              
              
              
              -
              
              
              
              787,352




F-78


Sociedad
Química y Minera de Chile S.A. and Subsidiaries


Notes
to the Audited Consolidated Financial Statements


(Expressed
in thousands of US dollars, except as stated)





Note
30 – Differences between Chilean and United States Generally Accepted Accounting
Principles (continued)





k)        Industry
segment and geographic area information (continued)





(ii)
            Other
      segment information as of and for the years ended December 31, 2008, 2007
      and 2006:





As of and for the year ended
                    December 31, 2006
                  
                  Chile
                  
                  
                  Latin
                    America
                    and
                    Caribbean
                  
                  
                  Europe
                  
                  
                  North
                    America
                  
                  
                  Asia
                    and other
                  
                  
                  Eliminations
                  
                  
                  TotalThUS$
                  
                  
                  ThUS$
                  
                  
                  ThUS$
                  
                  
                  ThUS$
                  
                  
                  ThUS$
                  
                  
                  ThUS$
                  
                  
                  ThUS$Production
      facilities:Pedro
      de Valdivia
                  
                  
                  75,280
                  
                  
                  
                  -
                  
                  
                  
                  -
                  
                  
                  
                  -
                  
                  
                  
                  -
                  
                  
                  
                  -
                  
                  
                  
                  75,280María
      Elena
                  
                  
                  147,080
                  
                  
                  
                  -
                  
                  
                  
                  -
                  
                  
                  
                  -
                  
                  
                  
                  -
                  
                  
                  
                  -
                  
                  
                  
                  147,080Coya
      Sur
                  
                  
                  93,320
                  
                  
                  
                  -
                  
                  
                  
                  -
                  
                  
                  
                  -
                  
                  
                  
                  -
                  
                  
                  
                  -
                  
                  
                  
                  93,320Pampa
      Blanca
                  
                  
                  3,410
                  
                  
                  
                  -
                  
                  
                  
                  -
                  
                  
                  
                  -
                  
                  
                  
                  -
                  
                  
                  
                  -
                  
                  
                  
                  3,410Nueva
      Victoria
                  
                  
                  112,880
                  
                  
                  
                  -
                  
                  
                  
                  -
                  
                  
                  
                  -
                  
                  
                  
                  -
                  
                  
                  
                  -
                  
                  
                  
                  112,880Salar
      de Atacama
                  
                  
                  239,640
                  
                  
                  
                  -
                  
                  
                  
                  -
                  
                  
                  
                  -
                  
                  
                  
                  -
                  
                  
                  
                  -
                  
                  
                  
                  239,640Salar
      del Carmen
                  
                  
                  48,110
                  
                  
                  
                  -
                  
                  
                  
                  -
                  
                  
                  
                  -
                  
                  
                  
                  -
                  
                  
                  
                  -
                  
                  
                  
                  48,110Others
                  
                  
                  4,169
                  
                  
                  
                  -
                  
                  
                  
                  -
                  
                  
                  
                  23,035
                  
                  
                  
                  6,707
                  
                  
                  
                  -
                  
                  
                  
                  33,911Sub-total
      production facilities
                  
                  
                  723,889
                  
                  
                  
                  -
                  
                  
                  
                  -
                  
                  
                  
                  23,035
                  
                  
                  
                  6,707
                  
                  
                  
                  -
                  
                  
                  
                  753,631Port
      facility
                  
                  
                  21,692
                  
                  
                  
                  -
                  
                  
                  
                  -
                  
                  
                  
                  -
                  
                  
                  
                  -
                  
                  
                  
                  -
                  
                  
                  
                  21,692Other
      property, plant and equipment
                  
                  
                  130,250
                  
                  
                  
                  -
                  
                  
                  
                  -
                  
                  
                  
                  -
                  
                  
                  
                  -
                  
                  
                  
                  -
                  
                  
                  
                  130,250Assets
      of commercial locations
                  
                  
                  6,614
                  
                  
                  
                  64,282
                  
                  
                  
                  3,115
                  
                  
                  
                  2,413
                  
                  
                  
                  555
                  
                  
                  
                  (62,627
                  )
                  
                  
                  14,352Investments
      in related companies
                  
                  
                  835,915
                  
                  
                  
                  15,603
                  
                  
                  
                  18,962
                  
                  
                  
                  48,202
                  
                  
                  
                  -
                  
                  
                  
                  (900,353
                  )
                  
                  
                  18,329Goodwill
                  
                  
                  25,348
                  
                  
                  
                  131
                  
                  
                  
                  10,852
                  
                  
                  
                  -
                  
                  
                  
                  -
                  
                  
                  
                  -
                  
                  
                  
                  36,331Other
      non-current assets
                  
                  
                  876,655
                  
                  
                  
                  -
                  
                  
                  
                  53,669
                  
                  
                  
                  1,751
                  
                  
                  
                  
                  
                  
                  
                  (881,333
                  )
                  
                  
                  50,742Total
      long-lived assets
                  
                  
                  2,620,363
                  
                  
                  
                  80,016
                  
                  
                  
                  86,598
                  
                  
                  
                  75,401
                  
                  
                  
                  7,262
                  
                  
                  
                  (1,844,313
                  )
                  
                  
                  1,025,327Expenditures
      on long-lived assets
                  
                  
                  284,639
                  
                  
                  
                  90
                  
                  
                  
                  14,083
                  
                  
                  
                  802
                  
                  
                  
                  318
                  
                  
                  
                  -
                  
                  
                  
                  299,932Export
      by region
                  
                  
                  -
                  
                  
                  
                  122,394
                  
                  
                  
                  183,873
                  
                  
                  
                  187,781
                  
                  
                  
                  133,016
                  
                  
                  
                  -
                  
                  
                  
                  627,064


F-79


Sociedad
Química y Minera de Chile S.A. and Subsidiaries


Notes
to the Audited Consolidated Financial Statements


(Expressed
in thousands of US dollars, except as stated)





Note
30 – Differences between Chilean and United States Generally Accepted Accounting
Principles (continued)





l)         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 involves significant 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.




-
            Current
      liabilities that are contracted at variable interest rates are considered
      to have a fair value equal to book
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.




-
            For
      forward contracts and swap agreements, fair value is determined using
      quoted market prices of financial instruments with similar
      characteristics.




The
following is a detail of the Company’s financial instruments’ US GAAP carrying
amount and estimated fair value:





As of December 31,2008
                
                
                2007US GAAP
                  Carrying
                  Amount
                
                
                Estimated
                  Fair Value
                
                
                US GAAP
                  Carrying
                  Amount
                
                
                Estimated
                  Fair ValueThUS$
                
                
                ThUS$
                
                
                ThUS$
                
                
                ThUS$Assets:Cash
      and cash equivalents
                
                
                303,799
                
                
                
                303,799
                
                
                
                164,212
                
                
                
                164,212Short-term
      accounts receivable
                
                
                385,695
                
                
                
                385,695
                
                
                
                291,607
                
                
                
                291,607Long-term
      accounts receivable
                
                
                2,766
                
                
                
                2,766
                
                
                
                2,604
                
                
                
                2,604Derivative
      instruments
                
                
                1,723
                
                
                
                1,723
                
                
                
                14,968
                
                
                
                14,968Liabilities:Short-term
      bank debt
                
                
                133,355
                
                
                
                133,355
                
                
                
                1,807
                
                
                
                1,807Short-term
      notes and accounts payable
                
                
                110,298
                
                
                
                110,298
                
                
                
                107,730
                
                
                
                107,730Derivative
      instruments
                
                
                18,189
                
                
                
                18,189
                
                
                
                499
                
                
                
                499Current
      and long-term portions of long-term bank debt
                
                
                522,651
                
                
                
                601,662
                
                
                
                494,451
                
                
                
                493,510Long-term
      other accounts payable
                
                
                397
                
                
                
                397
                
                
                
                730
                
                
                
                730


F-80


Sociedad
Química y Minera de Chile S.A. and Subsidiaries


Notes
to the Audited Consolidated Financial Statements


(Expressed
in thousands of US dollars, except as stated)





Note
30 – Differences between Chilean and United States Generally Accepted Accounting
Principles (continued)





l)         Estimated
fair value of financial instruments and derivative financial instruments
(continued)





Fair
value hierarchy




Effective
January 1, 2008, the Company adopted SFAS No.157, Fair Value Measurements (“SFAS 157”) that
establishes a fair value hierarchy that prioritizes the inputs to valuation
techniques used to measure fair value. Although the adoption of the SFAS 157 did
not materially impact Company’s financial position, results of operations or
cash flows, additional disclosures about fair value measurements are required
and they are discussed below.





The three
levels of the fair value hierarchy are described below:





Level 1 —
Quoted prices in active markets for identical assets or
liabilities.





Level 2 —
Observable inputs other than quoted prices included in Level 1, such as quoted
prices for similar assets and liabilities in active markets; quoted prices for
identical or similar assets and liabilities in markets that are not active; or
other inputs that are observable or can be corroborated by observable market
data.





Level 3 —
Significant unobservable inputs are supported by little or no market activity
and that are significant to the fair value of the assets or liabilities. This
includes certain pricing models, discounted cash flow methodologies and similar
techniques that use significant unobservable inputs.





When
deemed appropriate, the Company manages its risk from interest and foreign
currency exchange rates through the use of derivative financial assets and
liabilities. The Company’s derivatives are primarily interest rate and cross
currency swaps related to debt and foreign exchange options and forwards used to
hedge against the currency fluctuations. The fair value of those foreign
currency forwards, swaps and options is the net amount that the Company would
receive or pay to terminate the agreements as of the balance sheet date. The
fair value of the derivative instruments was determined using internal valuation
models, most of which are based on observable market inputs including interest
rate curves and forward and spot prices for currencies. Also these estimates
consider assumptions about Company’s own credit risk and credit risk of the
counterparties. SQM derives most of its financial instruments market assumptions
from the market data sources, like Bloomberg and Netgociando. To the extent
that management can estimate the fair value of the assets and liabilities
without the use of the significant unobservable inputs, these derivatives are
included in Level 2 category.





The
estimates are not necessarily indicative of the amounts that the Company could
realize in a current market exchange. The use of different market assumptions
and/or estimation methodologies may have a material effect on the estimated fair
value


F-81


Sociedad
Química y Minera de Chile S.A. and Subsidiaries


Notes
to the Audited Consolidated Financial Statements


(Expressed
in thousands of US dollars, except as stated)





Note
30 – Differences between Chilean and United States Generally Accepted Accounting
Principles (continued)





l)         Estimated
fair value of financial instruments and derivative financial instruments
(continued)





The
following table sets forth the Company’s derivative instruments as of December
31, 2008 by type of the instrument and by level within the fair value hierarchy
in accordance with SFAS 157:





Fair
      Value Measurements at Reporting Date UsingThUS$Level 1
                  
                  
                  Level 2
                  
                  
                  Level 3AssetsSwap
                  
                  
                  -
                  
                  
                  
                  -
                  
                  
                  
                  -Forwards
                  
                  
                  -
                  
                  
                  
                  498
                  
                  
                  
                  -Options
                  
                  
                  -
                  
                  
                  
                  1,225
                  
                  
                  
                  -Total
      Assets
                  
                  
                  -
                  
                  
                  
                  1,723
                  
                  
                  
                  -LiabilitiesSwap
                  
                  
                  -
                  
                  
                  
                  11,031
                  
                  
                  
                  -Forwards
                  
                  
                  -
                  
                  
                  
                  5,029
                  
                  
                  
                  -Options
                  
                  
                  -
                  
                  
                  
                  2,129
                  
                  
                  
                  -Total
      Liabilities
                  
                  
                  -
                  
                  
                  
                  18,189
                  
                  
                  
                  -




m)         Post-retirement
obligations and staff severance indemnities





The
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 and as a result 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:




2008
                  
                  
                  2007Weighted-average
      discount rate
                  
                  
                  6.5
                  %
                  
                  
                  6.5
                  %Rate
      of increase in compensation levels
                  
                  
                  0.0
                  %
                  
                  
                  0.0
                  %Long-term
      rate of return on plan assets
                  
                  
                  7.5
                  %
                  
                  
                  8.5
                  %





The
long-term rate of return on assets was determined based upon past investment
experience and the expectation for future experience.


F-82


Sociedad
Química y Minera de Chile S.A. and Subsidiaries


Notes
to the Audited Consolidated Financial Statements


(Expressed
in thousands of US dollars, except as stated)





Note
30 – Differences between Chilean and United States Generally Accepted Accounting
Principles (continued)





m)         Post-retirement
obligations and staff severance indemnities (continued)





The
following table sets forth the plan’s funded status and amounts recognized in
the consolidated balance sheet as of December 31:





2008
                
                
                2007
                
                
                2006ThUS$
                
                
                ThUS$
                
                
                ThUS$Change
      in benefit obligation:Benefit
      obligation at beginning of year
                
                
                6,245
                
                
                
                5,696
                
                
                
                5,184Service
      cost
                
                
                1
                
                
                
                1
                
                
                
                17Interest
      cost
                
                
                398
                
                
                
                391
                
                
                
                381Actuarial
      loss
                
                
                255
                
                
                
                405
                
                
                
                359Benefits
      paid
                
                
                (268
                )
                
                
                (248
                )
                
                
                (245
                )Benefit
      obligation at end of the year
                
                
                6,631
                
                
                
                6,245
                
                
                
                5,696Change
      in plan assets:Fair
      value of plan assets at beginning of year
                
                
                6,141
                
                
                
                5,621
                
                
                
                5,223Employer
      contributions
                
                
                34
                
                
                
                69
                
                
                
                18Actual
      return (loss) on plan assets
                
                
                (2,149
                )
                
                
                699
                
                
                
                625Benefits
      paid
                
                
                (268
                )
                
                
                (248
                )
                
                
                (245
                )Fair
      value of plan assets at end of year
                
                
                3,758
                
                
                
                6,141
                
                
                
                5,621Funded
      status
                
                
                (2,873
                )
                
                
                (104
                )
                
                
                (75
                )Items
      not yet recognized as components of net periodic pension
      costs:Net
      actuarial loss at the beginning of the period
                
                
                (1,359
                )
                
                
                (1,218
                )
                
                
                (1,094
                )Amortization
      during the period
                
                
                37
                
                
                
                35
                
                
                
                44Estimated
      net gain loss occurring during the period
                
                
                (2,864
                )
                
                
                (176
                )
                
                
                (168
                )Adjustment
      to recognize minimum pension liability
                
                
                (4,186
                )
                
                
                (1,359
                )
                
                
                (1,218
                )Accrued
      pension (liability)/ prepaid pension cost
                
                
                (2,873
                )
                
                
                (104
                )
                
                
                (75
                )





Net
periodic pension expense was comprised of the following components for the years
ended December 31, 2008, 2007 and 2006:





2008
                
                
                2007
                
                
                2006ThUS$
                
                
                ThUS$
                
                
                ThUS$Service
      cost or benefits earned during the period
                
                
                1
                
                
                
                1
                
                
                
                17Interest
      cost on benefit obligation
                
                
                398
                
                
                
                391
                
                
                
                381Actual
      return on plan assets
                
                
                2,149
                
                
                
                (699
                )
                
                
                (625
                )Amortization
      of loss from prior periods
                
                
                38
                
                
                
                35
                
                
                
                44Net
      gain during the period
                
                
                (2,610
                )
                
                
                229
                
                
                
                192Net
      periodic pension expense
                
                
                (24
                )
                
                
                (43
                )
                
                
                9


F-83


Sociedad
Química y Minera de Chile S.A. and Subsidiaries


Notes
to the Audited Consolidated Financial Statements


(Expressed
in thousands of US dollars, except as stated)





Note
30 – Differences between Chilean and United States Generally Accepted Accounting
Principles (continued)





m)         Post-retirement
obligations and staff severance indemnities (continued)





The
plan’s asset allocations by asset category as of December 31 are as
follows:





2008
                
                
                2007Growth
      securities
                
                
                48
                %
                
                
                55
                %International
      securities
                
                
                25
                %
                
                
                22
                %Growth
      & income securities
                
                
                -
                
                
                
                12
                %Taxable
      bond
                
                
                20
                %
                
                
                -Treasury
      securities
                
                
                4
                %
                
                
                9
                %Money
      market funds
                
                
                3
                %
                
                
                2
                %Total
                
                
                100
                %
                
                
                100
                %





As of
December 31, 2008 the pension plan benefits expected to be paid in the future
are as follows:





ThUS$2009
                    
                    
                    3352010
                    
                    
                    3632011
                    
                    
                    3922012
                    
                    
                    4182013
                    
                    
                    453Years
      2014-2018
                    
                    
                    2,786





n)         Cash
and cash equivalents





Under
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.


F-84


Sociedad
Química y Minera de Chile S.A. and Subsidiaries


Notes
to the Audited Consolidated Financial Statements


(Expressed
in thousands of US dollars, except as stated)





Note
30 – Differences between Chilean and United States Generally Accepted Accounting
Principles (continued)





o)         Restricted
assets





The
amount of consolidated retained earnings that represents undistributed earnings
of 50% or less investees accounted for by the equity method amounts to ThUS$
6,929 as of December 31, 2008.




p)         Recent
US GAAP accounting pronouncements





SFAS
N° 157: Fair Value Measurements





In
September 2006, the FASB issued SFAS N° 157. SFAS N° 157 provides enhanced
guidance for using fair value to measure assets and liabilities, but does not
expand the application of fair value accounting to any new circumstances. The
Company adopted SFAS N° 157 on January 1, 2008.  See the Company’s
Fair Value footnote above for additional details.





FSP N°
157-1 Application of FASB Statement N° 157 to FASB Statement N° 13 and Other
Accounting Pronouncements That Address Fair Value Measurements for Purposes of
Lease Classification or Measurement under Statement 13 (“FSP N°
157”).





In
February 2008, the FASB issued FASB Staff Position (“FSP”) N° 157-1 excludes
SFAS N° 13, Accounting for Leases, (“SFAS N° 13”) and most other accounting
pronouncements that address fair value measurement of leases from the scope of
SFAS N° 157.





FSP
N° 157-2: Effective Date of FASB Statement N° 157 (“FSP N° 157-2”)





In
February 2008, the FASB issued FSP N° 157-2, which delays the effective date of
SFAS N° 157 for all nonrecurring fair value measurements of nonfinancial assets
and liabilities until fiscal years beginning after November 15, 2008, or January
1, 2009 for SQM.  SQM continues to evaluate the future impact of SFAS
N° 157 on these assets and liabilities but at this time does not believe the
impact will be material.





FSP
N° 157-3: Determining the Fair Value of a Financial Asset When the Market for
That Asset is Not Active (“FSP N° 157-3”)





In
October 2008, the FASB issued FSP N° 157-3, which clarifies the application of
SFAS N° 157 in a market that is not active and provides an example to illustrate
key considerations in determining the fair value of a financial asset when the
market for that financial asset is not active.  The guidance
emphasizes that determining fair value in an inactive market depends on the
facts and circumstances and may require the use of significant
judgments.  FSP N° 157-3 is a effective upon issuance, including prior
periods for which financial statements have not been issued.  The
adoption of FSP N° 157-3 did not have a material impact on the
Company





SFAS
N° 159: The Fair Value Option for Financial Assets and Financial
Liabilities-including an amendment of FAS N° 115 (“SFAS N°
158”)


F-85


Sociedad
Química y Minera de Chile S.A. and Subsidiaries


Notes
to the Audited Consolidated Financial Statements


(Expressed
in thousands of US dollars, except as stated)





Note
30 – Differences between Chilean and United States Generally Accepted Accounting
Principles (continued)





p) Recent
US GAAP accounting pronouncements





In
February 2007, the FASB issued SFAS N° 159, which allows entities to choose, at
specified election dates, to measure eligible financial assets and liabilities
at fair value that are not otherwise required to be measured at fair
value.  If a company elects the fair value option for an eligible
item, changes in that item’s fair value in subsequent reporting periods must be
recognized in current earnings.  The Company adopted SFAS N° 159
effective January 1, 2008.  As allowed by the standard, the
Company did not elect the fair value option for the measurement of any
eligible assets or liabilities.  Therefore, the January 1, 2008
adoption did not have an impact on the Company.





SFAS
N° 161: Disclosures about Derivative Instruments and Hedging Activities, an
amendment of FAS N° 133 (“SFAS N° 161”)





In March
2008, the FASB issued SFAS N° 161, which expands the disclosure requirements
under SFAS N° 133.  The enhanced quantitative and qualitative
disclosures will include how and why an entity uses derivative instruments, how
derivative instruments and related hedged items are accounted.  SFAS
N° 161 also amends SFAS N° 107, Disclosures about Fair Value
Instruments (“SFAS N° 107”), to clarify that derivative instruments are
subject to SFAS N° 107 disclosure requirements regarding concentration of credit
risk.  SFAS No. 161 is effective for the Company beginning January 1,
2009.





FSP
N° FAS 132(R)-1: Employers’ Disclosures about Postretirement Benefit Plan Assets
(“FSP N° 132(R)-1”)





In
December 2008, the FASB issued FSP N° FAS 132(R)-1, which provides guidance
regarding an employer’s disclosures about plan assets of a defined benefit
pension or other postretirement plan.  The FSP is effective for fiscal
years ending after December 15, 2009, or the year ending December 31, 2009 for
SQM.  The Company will incorporate the required disclosures in its
Form 20-F for the year ending December 31, 2009.





EITF
08-6 Equity Method Investment Accounting Considerations (“EITF
08-6”)





In
November 2008, EITF 08-6 was issued. This Issue clarifies the accounting for
certain transactions and impairment considerations involving equity method
investments.  EITF 08-6 makes certain amendments to APB
18.  The Company does not expect EITF 08-6 to have a significant
impact on current practice.  EITF 08-6 is effective for fiscal years
beginning on or after December 15, 2008, or January 1, 2009 for
SQM.





o)         Restricted
assets





The
amount of consolidated retained earnings that represents undistributed earnings
of 50% or less investees accounted for by the equity method amounts to ThUS$
6,929 as of December 31, 2008.


F-86


Sociedad
Química y Minera de Chile S.A. and Subsidiaries


Notes
to the Audited Consolidated Financial Statements


(Expressed
in thousands of US dollars, except as stated)




q)         Recent
US GAAP accounting pronouncements





SFAS
N° 157: Fair Value Measurements





In
September 2006, the FASB issued SFAS N° 157. SFAS N° 157 provides enhanced
guidance for using fair value to measure assets and liabilities, but does not
expand the application of fair value accounting to any new circumstances. The
Company adopted SFAS N° 157 on January 1, 2008.  See the Company’s
Fair Value policy footnote above for additional details.





FSP N°
157-1 Application of FASB Statement N° 157 to FASB Statement N° 13 and Other
Accounting Pronouncements That Address Fair Value Measurements for Purposes of
Lease Classification or Measurement under Statement 13 (“FSP N°
157”).





In
February 2008, the FASB issued FASB Staff Position (“FSP”) N° 157-1 excludes
SFAS N° 13, Accounting for Leases, (“SFAS N° 13”) and most other accounting
pronouncements that address fair value measurement of leases from the scope of
SFAS N° 157.





FSP
N° 157-2: Effective Date of FASB Statement N° 157 (“FSP N° 157-2”)





In
February 2008, the FASB issued FSP N° 157-2, which delays the effective date of
SFAS N° 157 for all nonrecurring fair value measurements of nonfinancial assets
and liabilities until fiscal years beginning after November 15, 2008, or January
1, 2009 for SQM.  SQM continues to evaluate the future impact of SFAS
N° 157 on these assets and liabilities but at this time does not believe the
impact will be material.





FSP
N° 157-3: Determining the Fair Value of a Financial Asset When the Market for
That Asset is Not Active (“FSP N° 157-3”)





In
October 2008, the FASB issued FSP N° 157-3, which clarifies the application of
SFAS N° 157 in a market that is not active and provides an example to illustrate
key considerations in determining the fair value of a financial asset when the
market for that financial asset is not active.  The guidance
emphasizes that determining fair value in an inactive market depends on the
facts and circumstances and may require the use of significant
judgments.  FSP N° 157-3 is a effective upon issuance, including prior
periods for which financial statements have not been issued, and therefore
was effective for SQM at September 30, 2008.  The adoption of FSP N°
157-3 did not have a material impact on the Company





SFAS
N° 159: The Fair Value Option for Financial Assets and Financial
Liabilities-including an amendment of FAS N° 115 (“SFAS N° 158”)





In
February 2007, the FASB issued SFAS N° 159, which allows entities to choose, at
specified election dates, to measure eligible financial assets and liabilities
at fair value that are not otherwise required to be measured at fair
value.  If a company elects the fair value option for an eligible
item, changes in that item’s fair value in subsequent reporting periods must be
recognized in current earnings.  The Company adopted SFAS N° 159
effective January 1, 2008.  As allowed by the standard, the Company
did not elect the fair value option for the measurement of any eligible assets
or liabilities.  Therefore, the January 1, 2008 adoption did not have
an impact on the Company.





SFAS
N° 161: Disclosures about Derivates Instruments and Hedging Activities, an
amendment of FAS N° 133 (“SFAS N° 161”)





In March
2008, the FASB issued SFAS N° 161, which expands the disclosure requirements
under SFAS N° 133.  The enhanced quantitative and qualitative
disclosures will include how and why an entity uses derivative instruments, how
derivative instruments and related hedged items are accounted for the Company on
January 1, 2009.  SFAS N° 161 also amends SFAS N° 107, Disclosures about Fair Value
Instruments (“SFAS N° 107”), to clarify that derivative instruments are
subject to SFAS N° 107 disclosure requirements regarding concentration of credit
risk.  The Company will incorporate the additional disclosures
beginning with its Form 10-Q for the three months ending March 31,
2009.


F-87


Sociedad
Química y Minera de Chile S.A. and Subsidiaries


Notes
to the Audited Consolidated Financial Statements


(Expressed
in thousands of US dollars, except as stated)





FSP
N° FAS 132(R)-1: Employers’ Disclosures about Postretirement Benefit Plan Assets
(“FSP N° 132(R)-1”)





In
December 2008, the FASB issued FSP N° FAS 132(R)-1, which provides guidance
regarding an employer’s disclosures about plan assets of a defined benefit
pension or other postretirement plan.  The FSP is effective for fiscal
years ending after December 15, 2009, or the year ending December 31, 2009 for
SQM.  The Company will incorporate the required disclosures in its
Form 20-F for the year ending December 31, 2009





EITF
08-6 Equity Method Investment Accounting Considerations (“EITF
08-6”)





In
November 2008, EITF 08-6 was issued. This Issue clarifies the accounting for
certain transactions and impairment considerations involving equity method
investments.  EITF 08-6 makes certain amendments to APB
18.  The Company does not expect EITF 08-6 to have a significant
impact on current practice.  EITF 08-6 is effective for fiscal years
beginning on or after December 15, 2008, and interim periods within those fiscal
years, consistent with the effective dates of Statement 141 (R) and Statement
160, or January 1, 2009 for SQM


F-88