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|

UNITED STATESSECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549

---

FORM 20-F

ANNUAL REPORT PURSUANT
      TO SECTION 13 OR 15(d)
  OF THE SECURITIES EXCHANGE ACT OF 1934
  FOR THE
  FISCAL YEAR ENDED DECEMBER 31, 2004

Commission file number33-65728/33-99188/333 -10068

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

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

CHILE (Jurisdiction
  of incorporation or organization)

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

---

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

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

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

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

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

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

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

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

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

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



|
|
|
|



|                                                                |                     | TABLE
      OF CONTENTS                                                                 |     
|--------------------------------------------------------------- | ------------------- | --------------------------------------------------------------------------------------- | ----
|                                                                |                     |                                                                                         | Page
|                                                                |                     |                                                                                         |     
|PRESENTATION
      OF INFORMATION                               | iii                
|GLOSSARY                                                        | iii                
|CAUTIONARY
      STATEMENT REGARDING FORWARD-LOOKING STATEMENTS | vi                 
|                                                                |                     |                                                                                         |     
|PART
      I                                                    |                     |                                                                                         | 1   
|                                                                | ITEM
      1.       | IDENTITY
      OF DIRECTORS, SENIOR MANAGEMENT AND ADVISERS                             | 1   
|                                                                | ITEM
      2.       | OFFER
      STATISTICS AND EXPECTED TIMETABLE                                           | 1   
|                                                                | ITEM
      3.       | KEY
      INFORMATION                                                                   | 1   
|                                                                | ITEM
      4.       | INFORMATION
      ON THE COMPANY                                                        | 10  
|                                                                | ITEM
      5.       | OPERATING
          AND  FINANCIAL REVIEW AND PROSPECTS                                 | 39  
|                                                                | ITEM
      6.       | DIRECTORS,
      SENIOR MANAGEMENT AND EMPLOYEES                                        | 57  
|                                                                | ITEM
      7.       | MAJOR
           SHAREHOLDERS AND RELATED PARTY TRANSACTIONS                            | 67  
|                                                                | ITEM
      8.       | FINANCIAL
          INFORMATION                                                         | 68  
|                                                                | ITEM
      9.       | THE
      OFFER AND LISTING                                                             | 71  
|                                                                | ITEM
      10.      | ADDITIONAL
          INFORMATION                                                        | 73  
|                                                                | ITEM
      11.      | QUANTITATIVE
      AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK                        | 82  
|                                                                | ITEM
      12.      | DESCRIPTION
           OF SECURITIES OTHER THAN EQUITY SECURITIES                       | 83  
|                                                                |                     |                                                                                         |     
|PART
      II                                                   |                     |                                                                                         | 84  
|                                                                | ITEM
      13.      | DEFAULTS,
      DIVIDEND ARREARAGES AND DELINQUENCIES                                   | 84  
|                                                                | ITEM
      14.      | MATERIAL
          MODIFICATIONS  TO THE RIGHTS OF SECURITY HOLDERS AND USE OF PROCEEDS | 84  
|                                                                | ITEM
      15.      | CONTROLS
      AND PROCEDURES                                                           | 84  
|                                                                | ITEM
      16.      | RESERVED                                                                                | 85  
|                                                                | ITEM
          16A. | AUDIT COMMITTEE FINANCIAL EXPERT                                                        | 85  
|                                                                | ITEM
          16B. | CODE OF ETHICS                                                                          | 85  
|                                                                | ITEM
          16C. | PRINCIPAL
          ACCOUNTANT FEES AND SERVICES                                        | 85  
|                                                                | ITEM
          16D. | EXEMPTIONS
          FROM THE LISTING STANDARDS FOR AUDIT COMMITEES                     | 86  
|                                                                | ITEM
          16E. | PURCHASES
    OF EQUITY SECURITIES BY THE ISSUERS AND AFFILIATED PURCHASERS             | 86  
|                                                                |                     |                                                                                         |     
|PART
      III                                                  |                     |                                                                                         | 87  
|                                                                | ITEM
      17.      | FINANCIAL
          STATEMENTS                                                          | 87  
|                                                                | ITEM
      18.      | FINANCIAL
          STATEMENTS                                                          | 87  
|                                                                | ITEM
      19.      | EXHIBITS                                                                                | 87  
|                                                                |                     |                                                                                         |     
|SIGNATURES                                                      |                     |                                                                                         | 88  
|                                                                |                    
|CONSOLIDATED
      FINANCIAL STATEMENTS                         | F-1                
|                                                                |                     |                                                                                         |     
|EXHIBIT
      1.1                                               |                     |                                                                                        
|EXHIBIT
      8.1                                               |                     |                                                                                        
|EXHIBIT
      12.1                                              |                     |                                                                                        
|EXHIBIT
      12.2                                              |                     |                                                                                        
|EXHIBIT
      13.1                                              |                     |                                                                                        
|EXHIBIT
      13.2                                              |                     |                                                                                        

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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” and “dollars”
  are to United States dollars, references to “pesos” or “Ch$”
  are to Chilean pesos, and references to “UF” are to Unidades
  de Fomento. The UF is an inflation-indexed, peso-denominated unit that is
  linked to, and adjusted daily to reflect changes in, the previous month’s Chilean
  consumer price index. As of June 15, 2005, UF 1.00 was equivalent to US$ 29.63
  and Ch$ 17,463.


The Republic of Chile is
  governed by a democratic government, organized in twelve regions plus the Metropolitan
  Region (surrounding and including Santiago, the capital of Chile). Our production
  operations are concentrated in northern Chile, specifically in the First Region,
  also named Tarapacá Region, and in the Second Region, also named 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 effectiveness
  (defined below), based on the quantitative relationship between (in-situ mineral
  minus exploitation losses) / in-situ mineral.


“Corfo” Corporation
  of Promotion of Production (Corporación de Fomento de la Producción),
  formed in 1939, a national organization in charge of promoting and facilitating
  Chile’s manufacturing productivity and commercial development.


“cut-off grade”
  The minimal assay value or chemical amount of some mineral component above which
  results in economical exploitability.


“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 accordanc e with exploitation
  designs.


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“fertigation” The
  processing of plant nutrients 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 pads”
  Padding or filling of rocks from which will be extracted the soluble mineral
  by irrigation with water.


“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
  in geological data and samples assays 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. “LIBOR”London
  Inter Bank Offer 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).


“old waste ore deposits”
  Ore deposits that have been previously mined but not entirely depleted because
  of the low-grade quality of the ore the mine yields.


“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. It 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. It 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.


“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. It 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.


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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”* Is that part of a Mineral Resource for which tonnage,
  grade and mineral content can be estimated with a low level of confidence. It
  is inferred from geological evidence and assumed but not verified geological
  and/or grade continuity. It is based on information gathered through appropriate
  techniques from locations such as outcrops, trenches, pits, workings and drill
  holes which 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. It 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.


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


“waste-to-ore ratio”
  Relation or ratio between waste/ore.


“weighted average age”
  In this Annual Report means 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,
  2004 divided by the total gross book value of the Company’s fixed assets at
  such fac ility as of December 31, 2004.


*
  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).


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


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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.                                                                                                            

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PART I

ITEM 1.IDENTITY OF DIRECTORS, SENIOR MANAGEMENT AND ADVISERS

Not Applicable.

ITEM 2.OFFER STATISTICS AND EXPECTED TIMETABLE

Not Applicable.

ITEM 3.KEY INFORMATION

|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 for each year in the five-year period ended December 31, 2004. The Company’s Consolidated Financial Statements are prepared in accordance with Chilean GAAP, which differs in certain material respects from U.S. GAAP.  Note 27 to the Consolidated Financial Statements for December 31, 2004 provides a description of the principal differences between Chilean GAAP and U.S. GAAP and a reconciliation to U.S. GAAP of net income and total shareholders’ equity as of and for the years ended December 31, 2004, 2003 and 2002.


|                                                      | Year ended December 31, |  
|----------------------------------------------------- | ----------------------- | -
|                                                      |                         |  
|                                                      | 2004                    |  
|                                                      |                         |  
|Income Statement Data                                 | (in millions of US$)(1) |  
|Chilean GAAP                                          |                         |  
|Total Revenues                                        | 788.5                   |  
|Operating Income                                      | 124.1                   |  
|Non-operating results, net                            | (17.6                   | )
|Net income                                            | 74.2                    |  
|Net earnings per share(2)                             | 0.28                    |  
|Net earnings per ADS(2)                               | 2.82                    |  
|Dividend per share(3)(4)                              | 0.09                    |  
|                                                      |                         |  
|Weighted
    average shares Outstanding(000s)
    (2) | 263,197                 |  
|                                                      |                         |  
|U.S. GAAP(4)                                          |                         |  
|Total Revenues                                        | 788.5                   |  
|Operating Income                                      | 117.1                   |  
|Non-operating results, net                            | (2.3                    | )
|Effect of
    change in accounting principles         | —                       |  
|Net income                                            | 86.8                    |  
|Basic and diluted earnings per share                  | 0.33                    |  
|Basic and diluted earnings per ADS                    | 3.30                    |  
|                                                      |                         |  
|Weighted
    average shares Outstanding (000s)        | 263,197                 |  
|                                                      |                         |  

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|                           | Year ended December 31, | 
|-------------------------- | ----------------------- | 
|                           |                         | 
|                           | 2004                    | 
|                           |                         | 
|Balance Sheet Data:        | (In millions of US$)(1) | 
|Chilean GAAP:              |                         | 
|Total assets               | 1,361.4                 | 
|Long-term debt             | 200.0                   | 
|Total shareholders’ equity | 948.6                   | 
|Capital Stock              | 477.4                   | 
|                           |                         | 
|U.S. GAAP                  |                         | 
|Total assets               | 1,318.5                 | 
|Long-term debt             | 200.0                   | 
|Total shareholders’ equity | 856.9                   | 
|Capital Stock              | 479.3                   | 

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

EXCHANGE RATES

Prior to 1989, Chilean law authorized the purchase and sale of foreign exchange only in those cases explicitly authorized by the Central Bank of Chile (the “Central Bank”).  The Ley Orgánica Constitucional del Banco Central de Chile No. 18,840, the “Central Bank Law,” enacted in 1989, liberalized the rules that govern the ability to buy and sell foreign exchange.


The Central Bank Law now provides that the Central Bank may determine that certain purchases and sales of foreign exchange specified by law must be carried out exclusively in the Formal Exchange Market. The Formal Exchange Market is formed by the banks and other entities authorized by the Central Bank. All payments and distributions with respect to the New ADSs described herein must be transacted exclusively in the Formal Exchange Market.


For the purposes of the operation of the Formal Exchange Market, the Central Bank sets a reference exchange rate (dólar
acuerdo) (the “Reference Exchange Rate”). The Reference Exchange
Rate is determined daily by the Central Bank, taking into account internal and
external inflation
and is adjusted daily to reflect variation in parities between the Chilean peso
and each of the U.S. dollar, the Japanese yen and the Euro. The purpose of the
Reference Exchange Rate is to establish the range of spot market exchange rates
at which transactions may occur, while the Observed Exchange Rate is the average
exchange rate at which transactions are actually carried out in the Formal Exchange
Market on a particular day. Authorized transactions by banks are generally conducted
within a certain band above or below the Reference Exchange Rate. In January
1992, the Central Bank reduced the Reference Exchange Rate by 5% and widened
the band for transactions in the Formal Exchange Market from 5% to 10%. In November
1994, the Central Bank reduced the Reference Exchange Rate by approximately 10%.
In November 1995, the Central Bank reduced the Reference Exchange Rate by approximately
2%. In January 1997, the Central Bank widened the band for transactions in the
Formal Exchange Market to 12.5%. In June 1998, the Central Bank narrowed the
band for transactions in the Formal Exchange Market to 3.5% in the case of purchases
and 2% in the case of sales. In September 1998, the Central Bank widened the
band for transactions in the Formal Exchange Market to 3.5% in the case of sales
and introduced a formula on which the band increases daily by a fixed amount.
In December 1998, the Central Bank widened the band for transactions in the Formal
Exchange Market to 8% and maintained the formula for the expansion of the band
introduced in September 1998. In January 1999, the Central Bank replaced the German mark with the Euro in its formula to determine the Reference Exchange Rate. In September 1999, the Central Bank decided to suspend its formal commitment to the band, but agreed to intervene in the market by buying or selling foreign exchange on the Formal Exchange Market only in exceptional cases.


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The Central Bank is authorized to carry out its transactions at the Reference Exchange Rate and at the spot market rate. It generally carries out its transactions at the spot market rate. However, when commercial banks request to buy dollars from the Central Bank or request to sell dollars to the Central Bank, the Central Bank is authorized to apply an increase in the rate with respect to the Reference Exchange Rate for its sales or a decrease in the rate with respect to the Reference Exchange Rate. Authorized transactions by banks are generally transacted at the spot market rate.


Purchases and sales of foreign exchange that may be carried out outside the Formal Exchange Market can be carried out in the Informal Exchange Market, which is a recognized currency market in Chile. The Informal Exchange Market and its predecessor, the “Unofficial Market,” reflect the supply and demand for foreign currency. There are no limits imposed on the extent to which the rate of exchange in the Informal Exchange Market can fluctuate above or below the Observed Exchange Rate. Since 1992, the difference between the Formal Exchange Market and the Informal Exchange Market has narrowed, particularly as a result of measures taken to liberalize the Formal Exchange Market during 1996 and 1997.


The following table sets forth, for the periods and dates indicated, certain information concerning the Observed Exchange Rate reported by the Central Bank. No representation is made that the Chilean peso or U.S. dollar amounts referred to in this prospectus could have been or could be converted into U.S. dollars or Chilean pesos, as the case may be, at the rates indicated or at any other rate.  The Federal Reserve Bank of New York does not report a noon buying rate for Chilean pesos.


On June 15, 2005, the Observed Exchange Rate was Ch$589.38 = US$1.00.


|              |  |        |  | Observed Exchange Rate (1) Ch$ per US$ |               |  |               
|------------- |  | ------ |  | -------------------------------------- | ------------- |  | --------------
|              |  |        | 
|Year/Month    |  | Low(1) |  | High(1)                                | Average(2)(3) |  | Year/Month End
|              |  |        |  |                                        |               |  |               
|1995          |  | 368.75 |  | 418.98                                 | 397.83        |  | 406.91        
|1996          |  | 402.25 |  | 424.97                                 | 413.84        |  | 424.87        
|1997          |  | 411.85 |  | 439.81                                 | 420.64        |  | 439.18        
|1998          |  | 439.18 |  | 475.41                                 | 462.20        |  | 472.41        
|1999          |  | 468.69 |  | 550.93                                 | 512.85        |  | 530.07        
|2000          |  | 501.04 |  | 580.37                                 | 542.08        |  | 573.65        
|2001          |  | 557.13 |  | 716.62                                 | 634.76        |  | 654.79        
|2002          |  | 641.75 |  | 756.56                                 | 692.32        |  | 718.61        
|2003          |  | 593.10 |  | 758.21                                 | 687.50        |  | 599.40        
|2004          |  | 559.21 |  | 649.45                                 | 612.13        |  | 559.83        
|December 2004 |  | 559.66 |  | 597.27                                 | 576.17        |  | 559.83        
|January 2005  |  | 557.40 |  | 586.18                                 | 574.12        |  | 586.18        
|February 2005 |  | 563.22 |  | 585.40                                 | 573.58        |  | 577.52        
|March 2005    |  | 573.55 |  | 591.69                                 | 586.48        |  | 586.45        
|April 2005    |  | 572.75 |  | 588.95                                 | 580.46        |  | 582.87        
|May 2005      |  | 570.83 |  | 583.59                                 | 578.31        |  | 580.20        

|                                 
|---------------------------------
|Source:
    Central Bank of Chile
|                                 
|(1)                              
|(2)                              
|(3)                              

3.B.Capitalization And Indebtedness

Not applicable.

3.C.Reasons
For The Offer And Use Of Proceeds

Not applicable.

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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 we currently believe 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 Related 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 2004, approximately 50% of our sales were made to emerging market countries in Latin America (including Chile) and Asia, and we expect to expand our sales in these and other emerging markets in the future. The results and prospects for our operations in these countries and other countries in which the Company establishes operations can be expected to be dependent, in part, on the general level of political stability and economic activity and policies in those countries.  Although certain countries in Latin America and other emerging markets have experienced substantial improvement in their economies in the past decade, which has resulted in increased political stability, overall increased economic growth, lower inflation rates and revitalized economies, during the past five years these areas have been affected by a series of global and/or regional economic
 downturns. There
can be no assurance that such progress, to the extent achieved, can be maintained or that further progress will be made.  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 or restrictions on the payment of dividends or repatriation of capital or the imposition of new environmental regulations or price controls, could have a material adverse effect on the Company’s sales or operations in those countries.


Volatility of world fertilizer and chemical prices and changes in production capacities could impact our operating margins

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.  Further, the supply of certain fertilizers or chemical products, including certain products produced by SQM, varies principally depending upon the production of the few major producers (including SQM) and their respective business strategies.


In particular, world iodine prices declined from approximately US$18.40 per kilogram for large purchases in early 1990 to less than US$8.00 per kilogram for large purchases in June 1994. The price increased to approximately US$18 in 1999, and subsequently it began to diminish, reaching approximately US$12.5 during early 2003. By late 2003 and during 2004 prices reversed the downward trend and began to increase.  The average price for 2004 reached approximately US$14.5 per kilogram and it has continued to increase during the first half of 2005.


Similarly, the Company started production of lithium carbonate from the Salar de Atacama brines in October 1996 and started selling lithium carbonate commercially in January 1997. SQM’s entrance into the market created an oversupply of lithium carbonate, resulting in a drop in prices from over US$3,000 per ton before its entrance to less than US$2,000 per ton. Currently, prices are higher than US$3,000 per ton.


We expect that prices for the products we manufacture will continue to be influenced by similar supply and demand factors and the business strategies of major producers, some of which (including SQM) have increased or have the ability to increase their production.  As a result, the prices of the Company’s 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 financial condition or results of operation.


Currency fluctuations may have a negative effect on our financial results

The Chilean peso
has been subject to large devaluations in the past and may be subject to significant
fluctuations in the future. Our Company transacts a significant portion of its
business in U.S. dollars, and the U.S. dollar is the currency of the primary
economic environment in which we operate. Nevertheless, 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. As a result, fluctuation in the exchange
rate of such local currencies to the U.S. dollar may affect SQM’s financial
condition and results of operations.


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Sustained high raw materials prices, including energy, increase our production costs and cost of goods sold

We rely on certain raw materials, including all sources of energy (diesel, electricity and others), to manufacture our products.  Purchases of raw materials that we do not produce constitute a significant part of our production costs (approximately 11.8% in 2004). To the extent we are unable to pass on increases in raw materials prices to our customers, our financial results could be reduced. See Item 4. Information on the CompanyRaw Materials. Additionally, increases in ocean freight rates raise our cost to deliver products to offshore customers that purchase our products with freight costs included.


Our reserves estimates could significantly vary

The mining reserves estimates included in Item 4.  Information on the CompanyProperty, Plants and Equipment are prepared by our own personnel using geological methods.  Estimation methods involve numerous uncertainties as to the quantity and quality of the reserves, and these could change, up or down. A downward change in the quantity and/or quality of the reserves could affect future production and therefore impact the Company’s financial condition or results of operations.


Pending lawsuits could adversely impact us

We are currently
    involved in pending lawsuits and arbitrations involving commercial matters.
    Although we intend to defend our position vigorously, our defense of these
    actions may not be successful. Any judgment in or settlement of these lawsuits
    may have a material adverse effect on our financial condition or results
    of operations. See Item 8.A.7. Legal Proceedings and Note 21 to the Consolidated
    Financial Statements.


Furthermore, our strategy of being a world leader includes carrying out 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, may have a significant impact in the Company’s financial condition or results of operations.


Our business is subject to many operational and other risks for which we may not be fully covered in the 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 maintained by prudent and experienced persons engaged in a business or businesses similar to those of SQM.  Nonetheless, we may be subject to certain catastrophic events, including fires, major equipment failures, natural disasters, accidents, terrorist acts, war, etc., that may not be fully included in the insurance policies, and that could affect our financial condition or results of operations.


The continuity of our natural gas supply is dependent on Argentinean authorities policy

As part of a cost reduction effort, our Company interconnected its 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 purposes at our industrial facilities. Due to energy shortages in Argentina, local authorities decided 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 increased taxes to gas exports and there can be no assurance that they will not do it again in the future.


We suffered
    partial shortages during May and June 2004. Even though natural gas flows
    are recovering, we have adopted measures intended to mitigate the effect
    of any further decrease in the natural gas supply. Our diverse industrial
    equipment that uses natural gas may also operate on diesel and some of it — after
    certain investments — may also operate on fuel oil.  Diesel’s purchase
    price is higher than the natural gas price while fuel oil price is lower
    than that of diesel and higher than the natural gas price.


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The extent to which we incur increased costs as a result of decreases in the natural gas supply will depend on the volume of such a decrease and on the duration of the period during which natural gas supplies are restricted. Therefore, we cannot estimate the economic impact that additional natural gas supply reductions might have.  However, sustained periods of increased natural gas costs could have an adverse effect on our results of operations.  During 2004, purchases of natural gas represented approximately 1.4% of our total costs.


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

As natural gas
    supply continues to be uncertain, as discussed above, and world oil prices
    continue to increase, we are faced with potential revisions to our long-term
    electricity supply agreements. We maintain contracts with two main utilities
    in Chile, Electroandina and Gener, and both have requested revision of the
    tariffs involved. They have also informed SQM that if we do not reach an
  agreement they will demand an arbitration proceeding. Electroandina has made a formal request for arbitration relating to the contracted tariffs. Arbitration proceedings have not commenced pending ongoing discussions between Electroandina and SQM.


Although we believe tariffs should not be modified, to the extent that contracts are in fact revised and modified we will suffer increased costs, thereby negatively affecting our results of operations.  During 2004, purchases of electricity represented approximately 3.2% of our total costs.


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

Of our permanent employees in Chile, 74% are represented by 30 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 financial condition or results of operations.


Water supply from the El Salvador and El Loa rivers could be affected by regulatory changes and/or natural problems

Even though we have not experienced significant difficulties obtaining the necessary water from the rivers to conduct our operations in María Elena, Pedro de Valdivia and Coya Sur, there can be no assurance that we will not face problems in the water supply that could affect our operations, negatively affecting our financial condition and results of operations.


Risks related to regulatory actions in 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 could affect our operating costs

We conduct our
    mining (including brine extraction) operations under exploitation and exploration
    concessions granted pursuant to judicial proceedings in accordance with provisions
    of the Chilean Constitution and the Constitutional Mining Law and related
    statutes. Exploitation concessions, which account for the majority of the
    mining rights held by SQM, including those applicable to all of our properties
    which are currently being mined, essentially grant a perpetual right to conduct
    mining operations in the areas covered by the concessions, provided that
    we pay annual concession fees. 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 Authority for a
    supply of water from rivers and wells near our production facilities which
    is sufficient to meet current and anticipated operational requirements. We
    operate port facilities at Tocopilla, Chile, for the shipment of our products
    and 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.


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The Chilean Congress
recently approved a proposal that modifies Chilean laws relating to water rights
(the “Water Code”). On the basis of the proposal alone, the changes to the Water
Code include establishing annual fee payments for owners of water rights who
do not use the water associated with them. The fee contemplated by the proposal,
does not affect the holders right to the respective aquifers. The criteria
used to determine what rights or what part of such rights would be subject to
this annual fee relate to whether the resource is consumed or re-injected into
the stream after its use (defined as the water right’s consumptive condition”),
whether the use of the resource is sporadic or permanent (frequency of use) and
the geographical location of the intake points relative to an areas overall
water supply.


On May 18, 2005, the Chilean Congress approved Law N°20.026, also known as the “Royalty II Law,” which established a royalty to be applied to mining companies operating in Chile with revenues higher than or equal to the equivalent of 50,000 metric tons of copper. This new mining royalty, which will be applicable as of 2006, consists in 5% of the taxable operating income, excluding revenues and costs related to activities not directly related to the resource exploited, such as our trading activity.


The total amount
    to be paid for 2006 will depend on the taxable operating income (related
    to the resource exploited) which differs from the consolidated operating
    income. A detailed interpretation from the Chilean Internal Revenue Service
    is expected in order to better assess the impact of this royalty.


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 and its related rules and regulations. Except for particulate matter levels exceeding permissible levels in María Elena facilities (see Item 4. Information on the CompanyEnvironmental Regulations) we are currently in compliance in all material respects with applicable environmental regulations in Chile.


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. We anticipate that additional laws and regulations will be enacted over time with respect to environmental matters.  While we believe that our company will continue to be in compliance with all applicable environmental regulations of which we are aware, there is a risk that future legislative or regulatory developments will impose material restrictions on SQM.


Our worldwide operations are 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 ones, will not materially impact SQM’s financial condition or results of operations.


In connection with our current investments at the Atacama Salar we have submitted an Environmental Impact Assessment study. The success of these investments is dependent on the approval of said submission by the pertinent governmental authorities.  Failure to obtain approval of this submission could seriously impair our ability to maintain our current production levels or increase production capacities in the near future, thus having a material adverse effect in our financial condition or results of operations.


Additionally, in connection with our current investments in the nitrate and iodine operations in María Elena, we have submitted several Environmental Impact Assessment studies.  The success of these investments is dependent on the approval of said submissions by the pertinent governmental authorities. Failure to obtain approval for one or more of these submissions could seriously impair our ability to maintain our current production levels or increase production capacities in the near future, thus having a material adverse effect on our financial condition or results of operations.


Furthermore, the future development of our company depends on our ability to sustain future production levels, which require additional investments and the submission of the corresponding Environmental Impact Assessment studies. Again, if we fail to obtain approval, we will be seriously impaired to maintain production at specified levels, thus having a material adverse effect on our financial condition or results of operations.


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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. Even though this risk is limited, as of May 31, 2005, we had 33% of our long-term financial debt priced at Libor, and therefore significant increases in the rate could impact our financial condition.


Risks related to our shares and to our ADSs

The price of our ADSs 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 ADSs 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 ADSs.  If the value of the peso falls relative to the U.S. dollar, the value of the ADSs and any distributions to be received from the depositary will decrease.


Developments in other emerging markets could materially affect our ADSs value

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 ADSs.


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

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 ADSs and may impair the ability of a holder to sell our ADSs into the Chilean market in the amount and at the price and time he or she wishes to do so.


Our share price may react negatively to future acquisitions and investments

As part of our strategy as world leaders in our core businesses, we are constantly looking 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 in any of the businesses in which we are.  Depending on our then current capital structure, 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 in our share price.


You may be unable to exercise preemptive rights.

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 on 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 ADSs, 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 against them in United States courts
    judgments obtained in United States courts based upon the civil liability
  provisions of the federal securities laws of the United States.


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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 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 Un ited States federal securities laws.


As preemptive rights may be unavailable for our ADS holders, they have the risk of 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.


If we issue preemptive rights, United States holders of ADSs 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 ADSs 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 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 ADSs would not realize any value from
 them. In either
case, ADS holders’ equity interest in SQM would be diluted in proportion to the increase in SQM’s capital stock.


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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 Public Notary of Santiago, Mr. Sergio Rodríguez Garcés. Its existence was approved by Decree No. 1.164 of June 22, 1968 of the Ministry of Finance, and it was registered on June 29, 1968 in the Business Registry of Santiago, on page 4.537 No. 1.992. SQM’s headquarters are located at El Trovador 4285, Piso 6, Santiago, Chile. The Company’s telephone number is 562-425-2000.


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 manufacture of explosives and fertilizers.    By the end of the nineteenth century, nitrate production had become the leading industry in Chile and the country was the world’s leading supplier of nitrates. The accelerated commercial development of synthetic nitrates in the 1920s and the global economic depression in the 1930s caused a serious contraction of the Chilean nitrate business, which did not recover significantly until shortly before the Second World War. After the war, the widespread commercial production of synthetic nitrates resulted in a further contraction of the natural nitrate industry in Chile, which continued to operate at depressed levels into the 1960s.


SQM was formed in 1968 through a joint venture between Compañía Salitrera Anglo Lautaro S.A. (”Anglo Lautaro”), and Corporación de Fomento de la Producción (”Corfo”). At the time, Anglo Lautaro was the largest privately owned Chilean company engaged in nitrate mining and Corfo was a Chilean state-owned development corporation. The combination of the two companies came about, in part, as a result of the government’s plan to reorganize the Chilean nitrate industry. Properties contributed by Anglo Lautoro and Corfo constituted the principal properties of the company.  Three years following its formation in 1971, Anglo Lautaro sold all of its shares of SQM to Corfo and SQM remained wholly owned by the Chilean Government until 1983.


In 1983, Corfo began a process of privatizing SQM by selling the Company’s shares to the public and subsequently listing such shares on the Bolsa de Comercio de Santiago Bolsa de Valores S.A., the “Santiago Stock Exchange.” In the years that followed, Corfo sold additional shares of SQM and, by 1988, all of the Company’s shares were privately owned. In September 1993, we established our American Depositary Receipt (ADR) program and, in connection with an international offering leading to a capital increase of approximately US$170 million, SQM American Depositary Receipts were listed on the New York Stock Exchange (the“NYSE”).


Between the years 1994 to 1999, we participated in the biggest non-metallic mining project ever carried out in Chile, the development of the Atacama Salar project in northern Chile.  During this period, the project required an investment of approximately US$300 million, which was used in the construction of a 500,000-ton capacity potassium chloride plant, a 22,000-ton capacity lithium carbonate plant, a close to 200,000-ton capacity potassium sulfate plant and a close to 10,000-ton capacity boric acid plant.  The potassium chloride, lithium carbonate, potassium sulfate and boric acid plants are currently in operation.


To help finance the above projects, we accessed the international capital markets by issuing more ADRs on the New York Stock Exchange in 1995 and 1999.


The period from 2000 through 2003 were years of consolidation of the investments carried out in the preceding five years. We focused on reducing costs and improving efficiencies throughout the organization.


During 2004, we invested in the start-up of the construction of a new water soluble fertilizer plant in Egypt, the acquisition of a nitrate operation in Chile and the construction of a lithium hydroxide plant in Chile, adjacent to our current lithium carbonate plant. SQM signed agreements to produce and distribute plant nutrients in Thailand and Turkey during 2005.


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Capital Expenditure Program

We are constantly reviewing different opportunities for improving our production methods, increasing production capacity of current products and developing new products and markets.  Additionally, significant maintenance of 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 and products that can be derived as part of our existing production. 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. The highest concentration of capital expenditures was in the development of the Atacama Salar project, which, with an original investment of approximately US$300 million, enabled SQM to reduce its costs significantly by supplying its own needs of potassium chloride for the production of potassium
 nitrate, and to
introduce new products such as potassium chloride, lithium carbonate, boric acid and potassium sulfate.  Other projects included ongoing renewal of our mining equipment, revamping of our iodine and nitrate production facilities, construction of new solar evaporation ponds, installation of new drilling equipment at our mines, acquisition of new mining trucks, construction of potassium nitrate facilities at Coya Sur, increasing nitrate production capacity with the start-up of the Pampa Blanca project, construction of a butyl lithium plant in the U.S.A., increase in lithium carbonate production capacity, refurbishing of Nueva Victoria production facilities and construction of several soluble/NPK mixing plants.


During 2004, we invested approximately US$91 million, the most important projects being the start-up of the construction of a new water soluble fertilizer plant in Egypt, the acquisition of PCS Yumbes’ nitrate operation in Chile from PotashCorp, and the construction of a lithium hydroxide plant in the Salar del Carmen (Antofagasta), adjacent to the current lithium carbonate plant.


SQM’s capital expenditures in the 2000-2004 period were the following:


|                        | 2004(4)              |  | 2003(3) |  | 2002(2) |  | 2001(2) |  | 2000(2) | 
|----------------------- | -------------------- |  | ------- |  | ------- |  | ------- |  | ------- | 
|                        |                      |  |         |  |         |  |         |  |         | 
|                        | (in millions of US$) | 
|Expenditures
       (1) | 91.4                 |  | 57.4    |  | 58.4    |  | 47.1    |  | 59.8    | 

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

We have developed a Capital Expenditure Program calling for investments totaling approximately US$450 million between 2005-2007 which will go toward maintaining and refurbishing existing fac ilities, reducing production costs, increasing production capacity and efficiency at existing facilities and developing new products.


The main projects considered during this period are:


| | • | Development
        of a project to increase iodine production at our Nueva Victoria facility
        and the related development of a new potassium nitrate production facility
        that will use the nitrate salts obtained as a consequence of the increased
    iodine production.
| | - | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |   |                                                                                                                                                                                                                                                                                           
| | • | Development
        of a new mining sector at María Elena to replace the area currently
    being mined.                                                                                                                                                                                  
| |   |                                                                                                                                                                                                                                                                                           
| | • | Construction
        of a new potassium nitrate granular facility that will complement current
        prilling plants. The new facility will allow SQM to increase its production
    capacity and to develop new specialty fertilizer blends.                                           

We believe that our capital expenditure program for the years 2005-2007 will be mainly financed with cash and, as necessary, loans.


We continuously review our capital expenditure program and revisions are made as appropriate. The capital expenditure program is subject to change from time to time due to changes in market conditions affecting the Company’s products, general economic conditions in Chile and elsewhere, interest and inflation rates, competitive conditions and other factors.


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We evaluate from time to time other opportunities to expand our business both within and outside of Chile and 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.


As a consequence of the above, current capital expenditures for the period 2005-2007 could significantly vary from the projected US$450 million stated above.


|4.B. | Business
    Overview
|---- | ---------------------

The Company

Today, we are the world ’s largest integrated producer of potassium nitrate, iodine, lithium carbonate. We also produce other specialty plant nutrients and certain industrial chemicals, including industrial nitrates. Our products are sold in over 100 countries through our worldwide distribution network and we generate approximately 80% of our revenues from exports to countries outside Chile. Our products are derived from mineral deposits found in the first and second regions of northern Chile, 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 Atacama Salar, a salt encrusted depression within the Atacama Desert in northern Chile, contain high concentrations of lithium and potassium in the world as well as
 significant concentrations

of
sulfate and boron.


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


Our products are divided into five main categories: specialty plant nutrition, iodine, lithium, industrial chemicals and other products.  Specialty plant nutrition is comprised of specialty plant nutrients which are fertilizers that have certain characteristics that enable farmers to improve yields and quality of certain crops. Iodine, lithium and their derivatives are used in human nutrition, pharmaceuticals, polymers, and in the production of ceramics, aluminum, batteries and other industrial applications. Industrial chemicals have a wide range of applications in certain chemical processes such as the manufacturing of glass, explosives and ceramics.  Other products include potassium chloride and other commodity fertilizers that are bought from third parties, and sold mostly in Chile.  We have become the largest importer and distributor of commodity fertilizers in Chile with respect to commodity fertilizers, largely due to
 the support of
our own distribution network.


During 2004, specialty plant nutrition accounted for approximately 54% of our revenues, iodine and iodine derivatives accounted for 14%, lithium carbonate and lithium derivatives accounted for 8%, industrial chemicals (industrial grade nitrates, sodium sulfate and boric acid) accounted for 9%, and other products (mainly imported fertilizers distributed in Chile and Mexico, and potassium chloride sold to third parties) accounted for 15%.


Specialty
Plant Nutrition:
We produce five principal types of specialty plant nutrients: sodium nitrate,
potassium nitrate, sodium potassium nitrate, potassium sulfate and specialty
blends. All of these specialty plant nutrients are used in either solid or liquid
form mainly in high value crops such as fruits, vegetables, industrial crops
(mainly tobacco and coffee), cereals and cotton, and 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: Ultrasol (fertigation), Qrop (field
application), Speedfol (foliar application), Allganic (organic farming)
and Nutrilake (acquaculture). 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 and the technical service provided by us, may be considered
as plant nutrients solutions adding value to the crops through higher yields
and better quality production. Because our products are natural or derived from
natural nitrate compounds or natural potassium brines (in the case of potassium
sulfate), they have certain advantages over synthetically produced fertilizers,
such as the presence of certain beneficial trace elements and their organic nature,
which makes them more attractive to customers who prefer products of natural
origin. As a result, our specialty plant nutrients enable our customers to achieve
higher yields and better quality crops. Accordingly, specialty plant nutrients
are sold at a premium price compared to commodity fertilizers.


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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, antiseptics, biocides and disinfectants, human and animal nutritional supplements, 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 the world’s leading supplier of lithium hydroxide, which is used primarily as a raw material in the lubricating grease industry.  We recently commenced production of butyl lithium, a product used as a catalyst in the synthetic rubber and pharmaceutical industries.


Industrial Chemicals: We produce five industrial chemicals: sodium nitrate, potassium nitrate, sodium sulfate, boric acid and potassium chloride.  Sodium nitrate is used primarily in the production of glass, explosives, charcoal briquettes and metal treatment.  However, other uses, such as adhesives and wastewater treatment also account for important sales volumes. Potassium nitrate, while also used in the manufacture of specialty glass, is consumed primarily in cathode ray tubes (TV and computer monitors). In addition, potassium nitrate is an important raw material for the production of frits for the ceramics and enamel industries. Sodium sulfate is used primarily as a raw material in the production of detergents and for the bleaching of paper pulp. Boric acid is used in the manufacture of frits for the ceramics and enamel
 industries, glass, and
fiberglass. Potassium chloride is used as an additive in oil drilling as well as in the production of carragenine.


Other Products:  We produce and market granular potassium chloride, which is distributed through our subsidiary Soquimich Comercial S.A. in Chile. We have 100% of the market share for this product in Chile. In addition, we import fertilizers that are distributed through Soquimich Comercial S.A. in Chile and Fertilizantes Olmeca S.A. de C.V. in Mexico, offering a complete fertilizing service to our customers.


The following table sets forth the percentage breakdown of our revenues in the 2000-2004 period according to our product lines:


|                              | 2004 |   | 2003 |   | 2002 |   | 2001 |   | 2000 |  
|----------------------------- | ---- | - | ---- | - | ---- | - | ---- | - | ---- | -
|                              |      |   |      |   |      |   |      |   |      |  
|Specialty
    Plant Nutrition | 54   | % | 52   | % | 51   | % | 49   | % | 46   | %
|Iodine
    and derivatives    | 14   | % | 12   | % | 15   | % | 16   | % | 17   | %
|Lithium
    and derivatives   | 8    | % | 7    | % | 7    | % | 7    | % | 7    | %
|Industrial
    Chemicals      | 9    | % | 11   | % | 13   | % | 13   | % | 14   | %
|Other Products                | 15   | % | 18   | % | 14   | % | 15   | % | 16   | %
|                              | 100  | % | 100  | % | 100  | % | 100  | % | 100  | %

Business Strategy

Our general business strategy is to:


| | (1) | participate
        in businesses where we are or will be a cost leader supported by strong
    fundamentals;                                                                                                
| | --- | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |     |                                                                                                                                                                                                              
| | (2) | differentiate
        ourselves from commodity producers by manufacturing, marketing and distributing
    specialty products that sell at high value;                                                        
| |     |                                                                                                                                                                                                              
| | (3) | continually
        increase the efficiency of our production processes and reduce costs
        in order to increase
our productivity;                                                                      
| |     |                                                                                                                                                                                                              
| | (4) | maintain
        leadership
in our principal business areas  specialty plant nutrients, iodine and
lithium  in terms of installed capacity, costs, production, pricing and
development of new products; and
| |     |                                                                                                                                                                                                              
| | (5) | vertically
        integrate
towards more value added markets.                                                                                                                                               

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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

We expect to (i) continue expanding our sales of natural nitrates by continuing to exploit the advantages of our products over commodity nitrates and ammonia-based nitrogen and potassium chloride fertilizers; (ii) increase our sales of higher-margin specialty plant nutrients based on natural nitrate, particularly potassium nitrate; (iii) pursue investment opportunities in complementary businesses to increase production, reduc e costs and add value to and improve the marketing of our products; (iv) emphasize development of locally produced new specialty nutrient blends and customized products intended to meet local specific customer needs in all of our principal markets; (v) focus more on the soluble and foliar plant nutrient market in order to establish a leadership position; and (vi) further develop our global distribution and marketing system directly and through strategic alliances with other producers and global or
 local distributors.


Iodine

We expect to (i) maintain our leadership in the iodine market encouraging demand growth and expanding our production capacity in line with the demand growth; (ii) develop new iodine derivatives and participate in the iodine recycling projects; and (iii) continue reducing our production costs through improved processes and higher labor productivity so as to compete more effectively.


Lithium

We expect to (i)
maintain our leadership in the lithium industry as the largest producer and distributor
of litium carbonate and lithium hydroxide and (ii) selectively pursue forward
integration
of the
lithium derivatives business.


Industrial Chemicals

We expect to (i) maintain our leadership position in sodium nitrate and potassium nitrate; (ii) develop new industrial markets for our current products; and (iii) focus our sales of boric acid and sodium sulfate in industrial niche markets.


From time to time we evaluate opportunities to expand our business, both within and outside Chile, and 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. There can be no assurance that we will decide to pursue any such transaction.


Production Process

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


| | • | Caliche
    ore deposits: contain nitrates, iodine and sodium sulfate.   
| | - | -------------------------------------------------------------------------
| |   |                                                                          
| | • | Atacama
    Salar brines: contain potassium, lithium, sulfates and boron.
| |   |                                                                          
| | • | Ulexite
    deposits: contain ulexite, a soft mineral.                   

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, there being a number of different geological formation theories. The most agreed upon is that a volcanic formation of deposits was followed by water runoff, leaching and depositing in existing sediments.


Caliche deposits are located in northern Chile, where we currently operate four mines: Pedro de Valdivia, María Elena, Pampa Blanca and Nueva Victoria. Our four mining areas cover in excess of 300,000 hectares.


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


Before proper mining begins, a full exploration stage is accomplished, including full geological reconnaissance and dust recovery drill holes to determine the features of each deposit and its quality. Drill hole samples properly identified are 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.  Following the production of drill holes, 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 plant. In the María Elena mine, trucks haul the ore and dump it directly to a primary crushing installation, after which a 14-kilometer long overland conveyor belt system delivers the ore to the processing plant.


The ore in Pedro de Valdivia and María Elena plants is crushed and leached to produce concentrated solutions carrying the nitrate, iodine and sodium sulfate. The crushing of the ore delivers two products, 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 concentrated in nitrate and iodine are sent to processing.


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, sodium sulfate and iodine.


Sodium Nitrate

Sodium nitrate for both agricultural and industrial applications is produced at the María Elena and Pedro de Valdivia facilities using the Guggenheim method, which was originally patented in 1921.  This closed circuit method involves adding a heated leaching solution to the crushed caliche in the vats to selectively dissolve the valuable contents.  The concentrated solution is then cooled, causing the sodium nitrate to crystallize.  Part of the unloaded solution is then recycled to the leaching vats. The other part of the solution is stripped of its iodine content at the proper treatment plants. The crystallized sodium nitrate is separated from the remaining solution by centrifuging.  The residue resulting from the crushing of the calic he ore is leached at ambient temperature with water, producing a weak solution that is pumped to solar evaporation ponds at our Coya Sur facilities, nearby 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 material out of 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 recycled for further leaching and for the extraction of iodine.


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


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Potassium Nitrate

Potassium nitrate is produced at our Coya Sur facility using production methods developed by us. The solutions from the leaching of the fine fraction of the ore, once the iodine is extracted, is pumped to the Coya Sur plant.  These solutions loaded with nitrate are concentrated in solar evaporation ponds. Once an adequate level of concentration is reached, the solution is combined with potassium chloride to produce potassium nitrate and discard sodium chloride. The resulting rich potassium nitrate in solution is crystallized 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.


We also produce potassium nitrate at our recently acquired facility in Yumbes, Taltal, formerly owned by Potash Corporation of Saskatchewan. This facility is currently processing concentrated nitrate salts from Pampa Blanca and potassium chloride from Atacama Salar which are sent by truck. After production the product is sent by truck to Coya Sur for final processing. Our intention is to relocate this plant in the future closer to our caliche mines.


Concentrated nitrate salts are produced at Pampa Blanca by leaching caliche ore in leach pads from we extract rich iodine and nitrate solutions that are sent to iodine plants for iodine extraction. After iodine has been extracted, the solutions are sent to solar evaporation ponds where solutions are evaporated, where rich nitrate salt is produced. These concentrated nitrate salts are sent to Coya Sur or other 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 more than 650,000 metric tons per year, including 260,000 metric tons per year of technical grade potassium nitrate at Coya Sur.


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


Sodium Potassium Nitrate

Sodium potassium nitrate is a mixture of approximately two parts sodium nitrate per one part potassium nitrate.  We produce sodium potassium nitrate at our María Elena facilities using standard, non-patented production methods developed by us.  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 installed prilling capacity is approximately 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 in prilled form.


Sodium Sulfate

We produce sodium sulfate at our Coya Sur facilities. Crystallized sodium sulfate decahydrate (Glauber salt) is extracted from the leaching solutions after the iodine production process at Pedro de Valdivia and María Elena.  The salt is transported to Coya Sur, where it reacts with sodium chloride salt harvested from the solar evaporation ponds to produce anhydrous sodium sulfate.  The sodium sulfate is shipped in bulk directly to customers and distributors, principally in Chile. The remaining solution is recycled back to the solar evaporation pond system.


Iodine and Iodine Derivatives

We produce iodine
at our Pedro de Valdivia and Nueva Victoria production facilities, 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 nitrate, 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 knowhow
to manage the process effectively and efficiently.


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


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


Our total iodine production in 2004 was approximately 7.2 thousand metric tons: approximately 2.3 thousand metric tons from Pedro de Valdivia, 1.5 thousand metric tons from María Elena, 1.4 thousand metric tons from Pampa Blanca and 1.9 thousand metric tons from Nueva Victoria.  The Nueva Victoria facility is also used for tolling iodine delivered from Pampa Blanca and María Elena. We have the flexibility to adjust our production according to market conditions.


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 had in the past primarily marketed our iodine derivative products in South America, Africa and Asia, while Ajay and its affiliates had primarily sold their iodine derivative products in North America and Europe.


Atacama Salar Brine Deposits

The Atacama Salar, located approximately 250 kilometers east of Antofagasta, is a salt encrusted depression within the Atacama Desert, 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 2,900 square kilometers and contain commercially exploitable deposits of potassium, lithium, sulfates and boron. Concentrations vary at different locations throughout the salar.


Brines are pumped from depths between 1.5 and 40 meters below surface, through a field of wells that are located in areas of the salar that contain relatively high concentrations of potassium, lithium, sulfate, boron and other minerals.


We process these brines to produce potassium chloride, lithium carbonate, potassium sulfate, boric acid and bischofite (magnesium chloride). The first stage in the Atacama Salar development project was to produce potassium chloride, an important raw material used in the manufacture of potassium nitrate, which has allowed us to reduce our potassium nitrate production costs. The second stage involved the production of lithium carbonate using a portion of the remaining solutions after the production of potassium chloride, a project that began its operations in late 1996 at a production facility near Antofagasta. The third stage, which has operated at the Atacama Salar since the second half of 1998, broadens the product portfolio of specialty plant nutrition and industrial chemicals by introducing two new products, potassium sulfate a non chlorine potassium fertilizer and boric acid respectively.


Potassium Chloride

We began production of potassium chloride in late 1995. We use potassium chloride in the production of potassium nitrate and, before 1995, we used to purchase our potassium chloride requirements from external sources. Production of our own supplies of potassium chloride provided us with substantial raw material cost savings.


In order to produce potassium chloride, brines from the Atacama Salar are pumped to solar evaporation ponds. Evaporation of the brines results in a complex crystalized mixture of salts of potassium chloride and sodium chloride, of which one portion is harvested and stored and the other portion of which is reprocessed and the remaining salts are transferred by truck to a proc essing facility where the potassium chloride is separated by a grinding, flotation, and filtering process.  Potassium chloride is trucked approximately 300 kilometers our Coya Sur facilities, where it is used in the production of potassium nitrate. We sell potassium chloride produced at the Atacama Salar and in excess of its needs to third parties. During the year 2000, we successfully finished the construction of a plant to compact potassium chloride with a capacity of 100,000 metric tons per year. It is currently operating at a production capacity up
 to 650,000 metric
tons per year.


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


Lithium Carbonate

Our operation of lithium carbonate from the Atacama Salar brines began in October 1996.  A portion of the brines remaining after the production of potassium chloride is sent to additional solar concentration ponds adjacent to the potassium chloride production facility.  Following additional evaporation, the remaining lithium chloride concentrated solution is transported by truck to a production facility located near Antofagasta, approximately 250 kilometers from the Atacama Salar.  At the production facility, the solution is purified and treated with sodium carbonate to produce lithium carbonate, which is dried then, if necessary, compacted and finally packaged for shipment. Our lithium carbonate facility production capacity is approximately 28,000 metric tons per year. Future production will depend on the actual volumes and quality of the lithium solutions sent by the Salar Operations.


Potassium Sulfate and Boric Acid

Approximately 12 kilometers northeast of the potassium chloride facilities at the Atacama Salar, we produce potassium sulfate and boric acid from the salar brines. The plant stands on an area of the salar where higher sulfate and potassium concentrations are found in the brine.  Brines are pumped to pre-concentration solar evaporation ponds where waste sodium chloride salts are removed by precipitation. After further evaporation, the sulfate and potassium salts are harvested and sent for treatment at the potassium sulfate plant. Potassium sulfate is produced using a flotation, concentration and reaction processes, after which it is crystallized, dried and packaged for shipment. Boric acid is produced in crystallized form by acidulation of the final concentrated brines, dried and packaged for shipment at the same facility.


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


Ulexite Deposits

At the Ascotán
Salar, located approximately 400 kilometers northeast of Antofagasta, approximately
3,900 meters above sea level, we have a 25,000 to 30,000 tons per year
operation of ulexite extraction. Backholes first remove the overburden, normally
 ranging in depth from 30 to 100
centimeters.
After that the mineral is extracted manually  or using
the same equipment. The extracted material is placed in solar drying fields,
where the products humidity is lowered to between 20 to 30%. The mineral,
containing between 30% to 33% B2O3 on
dry basis, is then transported by truck to our Boron facility located at the
Salar del Carmen, outside of Antofagasta, where specialty plant nutrients
products are processed
and sent to final customers.


Specialty Plant Nutrition

We are the world’s largest producer of potassium nitrate. We also produce the following specialty plant nutrients: sodium nitrate, potassium nitrate, sodium potassium nitrate, potassium sulfate, natural boron (ulexite) and specialty blends (containing various combinations of nitrogen, phosphate and potassium and generally known as “NPK blends”). These specialty plant nutrients have particular 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), which in turn translate into products and crops with higher yields and added
 quality.  Our specialty plant

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


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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 like
    ammonia based fertilizers;                           
| |   |                                                                                                                                                     
| | • | are free
    of chlorine content, reducing the risk of scorching roots;                                                                             
| |   |                                                                                                                                                     
| | • | do not
    release hydrogen after application, avoiding increased soil acidity;                                                                     
| |   |                                                                                                                                                     
| | • | possess
        trace elements, which promote disease resistance in plants and have other
    beneficial effects;                                   
| |   |                                                                                                                                                     
| | • | are more
    attractive to customers who prefer products of natural origin; and                                                                     
| |   |                                                                                                                                                     
| | • | are more
        efficient than commodity fertilizers because they deliver more plant
    nutrients per unit of nutrient applied.                   

In the year 2004, our revenues from specialty plant nutrients were approximately US$428.2 million, representing approximately 54% of our total revenues for that year.


Specialty Plant Nutrition: Market

The target market for our specialty plant nutrients are high value crops such as fruits, vegetables, and crops raised using modern agricultural techniques.  Since 1990, the international market for specialty plant nutrients has grown at a substantially faster rate than the international market for commodity-type fertilizers.  This is mostly due to (i) the application of new agricultural technologies such as fertigation and hydroponics and increasing use of greenhousing; (ii) the increase in the cost of land which has forced farmers to improve their yields; (iii) the scarcity of water; (iv) the increase of consumption of vegetables per capita, and (v) the increasing demand for higher quality crops.


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


Increasing land costs near urban centers also force farmers to maximize their yields 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, as opposed to in ammonium form as urea provides, they are absorbed faster by the crop.  Crops absorb nitrogen in nitric form; thus nitrogen in ammonium form has to be first converted to nitric form in the soil.  This process is not immediate and 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, which translate into lower yield and quality.


The principal agricultural applications of sodium nitrate, potassium nitrate, potassium sulfate and sodium potassium nitrate plant nutrients are: tobacco, coffee, vegetables, fruits, horticulture, sugar beet, cotton and other high value crops.


Specialty Plant Nutrition: The Company’s Products

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


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The following table sets forth our sales volume of specialty plant nutrient fertilizer products and the revenues during the 2000-2004 period.


|Sales Volume                                          |         |  |         |  |         |  |         |  |         | 
|----------------------------------------------------- | ------- |  | ------- |  | ------- |  | ------- |  | ------- | 
|(in
    metric tons)                                  | 2004    |  | 2003    |  | 2002    |  | 2001    |  | 2000    | 
|                                                      |         |  |         |  |         |  |         |  |         | 
|Sodium nitrate                                        | 59,500  |  | 62,500  |  | 59,500  |  | 63,100  |  | 71,200  | 
|Potassium
    nitrate and sodium potassium nitrate(1) | 706,800 |  | 696,500 |  | 558,600 |  | 544,800 |  | 472,200 | 
|Potassium Sulfate                                     | 157,700 |  | 143,200 |  | 161,000 |  | 156,600 |  | 151,600 | 
|Blended
    and other specialty plant nutrients (2)   | 383,400 |  | 377,100 |  | 276,600 |  | 241,800 |  | 200,200 | 
|Revenues (in US$ millions)                            | 428.2   |  | 362.8   |  | 281.4   |  | 259.1   |  | 229.9   | 

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

Specialty Plant Nutrition: Marketing and Customers

In 2004, we sold our specialty plant nutrients to more than 100 countries. During the same year, approximately 90% of the Company’s specialty plant nutrients sales was exported: approximately 29% was sold to customers in Central and South America, 22% to customers in North America, 19% to customers in Europe and 20% to customers in other regions. Not considering sales to related parties, no single customer accounted for more than 4.5% of SQM’s specialty plant nutrients sales in 2004, and our 10 largest customers accounted in the aggregate, during the same year, for less than 25% of such sales.


|Sales Breakdown           | 2004 |  | 2003 |  | 2002 |  | 2001 |  | 2000 | 
|------------------------- | ---- |  | ---- |  | ---- |  | ---- |  | ---- | 
|                          |      |  |      |  |      |  |      |  |      | 
|Central and South America | 29%  |  | 26%  |  | 30%  |  | 24%  |  | 26%  | 
|North America             | 22%  |  | 18%  |  | 17%  |  | 18%  |  | 20%  | 
|Europe                    | 19%  |  | 20%  |  | 15%  |  | 14%  |  | 15%  | 
|Others                    | 20%  |  | 27%  |  | 27%  |  | 31%  |  | 22%  | 
|Chile                     | 10%  |  | 9%   |  | 11%  |  | 13%  |  | 17%  | 

We sell our specialty plant nutrition products outside Chile principally through our own worldwide network of representative offices and through our sales, technical support and distribution affiliates.


In November of 2001 we signed an agreement with Yara International ASA (ex Norsk Hydro ASA), which started to be implemented during 2002. In 2003 we finalized its implementation and we began to reap its benefits until today.  This agreement allows us to make use of Yara International ASA’s distribution network in countries in which its presence and commercial infrastructure are  larger than ours.  Similarly, in those markets where our presence is larger, our specialty plant nutrients and Yara International ASA’s are marketed through our offices. Both parties, however, maintain an active control in the marketing of their own products.


In the same way, in 2004 we continued receiving the full benefits of the joint venture agreement (JVA) we signed with Yara International and Israel Chemicals Limited at the end of 2001. Under the JVA, SQM, Yara International ASA, and Israel Chemicals Limited are developing the liquid and soluble plant nutrient blends market through their participation in a company called NU3 N.V. to which SQM and Israel Chemicals Limited contributed their blending facility in Belgium, and Yara International ASA contributed its blending facility in Holland. With the joint venture agreement, important synergies have been achieved, particularly in production costs, administration and marketing of soluble blends, strengthening the development of new products and improving costumer service.


We maintain stocks of our specialty plant nutrients in the principal markets of the Americas, Europe, Middle East and Africa to facilitate prompt deliveries to customers. In addition, we sell specialty plant nutrients directly to certain 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 agronomic 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 higher value-added crops that allow our customers to increase yield and command a premium price.


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Our customers are located in the northern and southern hemispheres. Accordingly, there are no seasonal or cyclical factors that can substantially affect the sales of our specialty fertilizer 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, principally urea, triple super phosphate (TSP) and diammonium phosphate (DAP). Soquimich Comercial sells imported fertilizers to farmers in Chile principally 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 of 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 that it will be able to continue to do so in the future.


We estimate that Soquimich Comercial’s aggregate sales of fertilizers in the year 2004 accounted for approximately 40% of total fertilizer sales in Chile in that period. No single customer accounted for more than 6% of Soquimich Comercial’s total revenues from sales of fertilizers in 2004, and the 10 largest customers accounted in the aggregate, for less than 20% of revenues.


Revenues generated
by Soquimich Comercial and its subsidiary Comercial Hydro S.A.— formerly known
as Norsk Hydro Chile S.A.—accounted for 17.7% of the Company’s 2004 consolidated revenues.  Soquimich Comercial’s consolidated revenues were approximately US$140 million, US$121 million and US$86 million in 2004, 2003 and 2002, respectively.


On April 29, 2003, Soquimich Comercial announced the acquisition of 100% of the shares of Norsk Hydro Chile S.A., a Chilean subsidiary of Yara International ASA, in the approximate amount of US$3.2 million. Due to the similar nature of Norsk Hydro Chile S.A. commercial operations to those carried out by Soquimich Comercial, this acquisition allowed the latter to improve its fertilizer distribution business in Chile.  Soquimich Comercial will continue with the distribution in Chile of the fertilizers produced by Yara International ASA and its affiliates, allowing the former to improve its fertilizer distribution business in Chile.


Specialty Plant Nutrition: Competition

We are currently the world’s largest producer of sodium and potassium nitrate for agricultural use. S.C.M. Virginia, a Chilean nitrate and iodine company controlled by Inverraz S.A., produces sodium nitrate as raw material for potassium nitrate. S.C.M. Virginia is currently producing small amounts of sodium 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 we have one significant competitor: Trans Resources International Inc., with its subsidiary Haifa Chemicals Ltd. in Israel. During the first quarter of 2002, the potassium nitrate facility owned by Trans Resources International in the United States called Cedar Chemicals shut down its operations.  We estimate that sales of potassium nitrate by Trans Resources International and Haifa Chemicals accounted for approximately 33% of total world sales during the year 2004. The principal means of competition in the sale of potassium nitrate are product quality, customer service, location, logistic and agronomic expertise and price.


S.C.M. Virginia has begun to produce potassium nitrate from caliche ore at a facility in northern Chile. We believe that we have certain advantages over S.C.M. Virginia due to, among other factors, our greater experience with the processing of caliche ore, our proven processes, the size and nature of our caliche ore reserves, our experience in marketing fertilizers, our efficient and proven logistics, which are very important, especially when the freight rates are volatile as they were in 2004, and our own production of potassium chloride in the north of Chile, which is an essential raw material in the production of potassium nitrate.


Kemira, a Finnish producer, announced the shut down of its potassium nitrate and NPK fertilizers facilities at Denmark, aiming to keep the site as a warehouse and distribution center for its Danish customers. Additionally, they started the
selling process
of the new 150 thousand metric tons potassium nitrate facility they jointly own
with Arab Potash, through the company Kemapco at Jordan


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In December 2004, we acquired the potassium nitrate facilities of PCS in Chile.


In the potassium sulfate market, we have several competitors of which the most important are Kali und Salz GmbH, Tessenderlo Chimie and Great Salt Lake Minerals Corp., from Germany, Holland and the United States, respectively. We believe that those three producers account for a majority of the world production of potassium sulfate. We estimate that once we reach full production of potassium sulfate, we will account for approximately 6% of total world sales.


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 are the largest Chilean producer of bulk specialty blends and with the start-up of potassium sulfate production we have broadened our variety of specialty blends to reach a wider range of clients.  In Chile, our products compete principally 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.


Iodine

We are the world’s largest producer of iodine. In 2004, our revenues from iodine and iodine derivatives amounted to approximately US$110.5 million, representing approxim ately 14% of our total revenues in that year. We estimate that our sales accounted for approximately 29% of world iodine sales by volume in 2004.


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 a 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 (LCD), chemicals, herbicides, organic compounds, pigment and ink dyes. Iodine is added in the form of potassium iodate or potassium iodide to edible salt to prevent iodine deficiency disorders.


Iodine: The Company’s Products

We produce iodine and, through a joint venture with Ajay, organic and inorganic iodine derivatives. Through our joint venture with Ajay, we are also actively participating in the iodine recycling business using iodinated side-streams from a variety of chemical processes in Europe and the United States.


Ajay-SQM Group (ASG) was formed in mid 90s, as a 50-50 joint venture between SQM and Ajay Chemical, a U.S.-based company. ASG has currently production plants in USA, Chile and France and is the world’s leading inorganic and organic iodine derivatives. In 2004, approximately 25% of SQM’s iodine sales were made to ASG.


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.


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The following table sets forth our total sales and revenues from iodine and iodine derivatives in the 2000-2004 period:


|Sales Volume                      |       |  |       |  |       |  |       |  |       | 
|--------------------------------- | ----- |  | ----- |  | ----- |  | ----- |  | ----- | 
|(in metric
    tons)              | 2004  |  | 2003  |  | 2002  |  | 2001  |  | 2000  | 
|                                  |       |  |       |  |       |  |       |  |       | 
|Iodine and
    iodine derivatives | 7,700 |  | 6,600 |  | 6,400 |  | 5,600 |  | 5,700 | 
|Revenues (in US$ millions)        | 110.5 |  | 84.6  |  | 84.1  |  | 81.4  |  | 87.1  | 

Iodine: Marketing and Customers

In 2004, we sold our iodine products to more than 300 customers in more than 80 countries. During the same year, most of our iodine production was exported: approximately 27% was sold to customers in Europe, 38% to customers in North America, 13% to customers in Central and South America and 22% to customers in Asia, Oceania and other regions. Not considering sales to related parties, no single customer accounted for more than 9% of the Company’s iodine sales in 2004, and our ten largest cus tomers accounted in the aggregate for less than 51% of sales.


|Sales Breakdown           | 2004 |   | 2003 |   | 2002 |   | 2001 |   | 2000 |  
|------------------------- | ---- | - | ---- | - | ---- | - | ---- | - | ---- | -
|                          |      |   |      |   |      |   |      |   |      |  
|Europe                    | 27   | % | 34   | % | 36   | % | 37   | % | 40   | %
|North America             | 38   | % | 40   | % | 41   | % | 45   | % | 40   | %
|Central and South America | 13   | % | 6    | % | 13   | % | 9    | % | 7    | %
|Others                    | 22   | % | 20   | % | 10   | % | 9    | % | 13   | %

We sell iodine through our own worldwide network of representative offices and through our sales, support and distribution affiliates. We maintain stocks 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. Long-term contracts generally specify annual minimum and maximum purchase commitments, and prices which vary according to prevailing market prices and in some cases with price caps.


Iodine: Competition

SQM and several producers in Chile, Japan and the USA are the world’s main iodine producers.


Japanese producers extract iodine from underground brines, which are mainly obtained as together with the extraction of natural gas.


We estimate that eight Japanese iodine producers accounted for approximately 32% of world iodine sales in the year 2004. We estimate that the largest Japanese producer, Ise Chemicals Ltd., accounted for approximately 8% of such world’s iodine sales.


We estimate that iodine producers in the United States (one of which is owned by Ise Chemicals) accounted for approximately 6% of world iodine sales in the year 2004, while five Chilean companies, including SQM, accounted for approximately 58% of such sales (29% by SQM and 29% by the other Chilean producers).


The prices of our iodine and iodine derivative products are determined by world iodine prices, which are subject to substantial volatility. World iodine prices vary depending upon the relationship between supply and demand at any given time. The supply of iodine varies principally depending upon the production of the few major iodine producers (including the Company) and their respective business strategies. World iodine prices declined sharply, from a high of US$18.40 per kilogram for large purchases in early 1990, to less than US$8 per kilogram for large purchases as of June 1994.  The decline in world iodine prices from 1990 to 1994 was in part the result of SQM’s and certain other producers’ business strategies to take advantage of their relatively lower production costs and increase production at a rate greater than the increase in total demand so as to increase their market shares. From 1994 to 1999,
 iodine price recovered to lev

els
close to US$18 per kilogram, beginning then a downward trend due to oversupply.  At the end of 2003 iodine prices started to recover, continuing throughout 2004. Average price for 2004 reached approximately US$14.5 per kilogram,  and it has continued to increase during the first half of 2005.


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, some of whom either have or can acquire additional production capacity.


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The main means 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, the installed capacity and relatively lower production costs as most part of our iodine is produced as part of a process that also produces other products (mainly sodium nitrate and potassium nitrate for agricultural and industrial purposes), allowing some production costs to be shared by several product lines. 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 relationship we have established with our larger customers. While there are substitutes for iodine available for certain applications, such as
 coloring processes
and for use as antiseptics and disinfectants, there are no cost-effective substitutes currently available for the main nutritional, pharmaceutical, animal feed, and main chemical uses of iodine, which together account for most iodine sales.


Lithium

We are the world’s largest producer of lithium carbonate and the world’s largest supplier of lithium hydroxide. In 2004, our revenues from lithium sales amounted to approximately US$62.6 million, representing approximately 8% of the Company’s total revenues.  We estimate that our sales accounted for approximately 41% of world’s lithium units used in production of lithium chemicals. Lithium is also used in production of lithium minerals. However, there is virtually no overlapping among the markets demanding lithium minerals and 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. Butyl lithium is used as a catalyst in the synthetic rubber and pharmaceutical industries.


Lithium: The Company’s Products

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


We currently produce lithium hydroxide through tolling operations in USA and Russia. During the second half of 2005, SQM expects to complete a lithium hydroxide plant in Chile which will be integrated with its existing lithium carbonate plant.


Consistent with our policy of vertical integration to develop value added products and markets, we have started up a butyl lithium plant in Houston, Texas.  The main applications for this product are in the production of synthetic rubbers and pharmaceuticals. We expect our new butyl lithium plant will commence operations on industrial scale during the second half of 2005.


The following table sets forth our total sales and revenues from lithium carbonate and derivatives in the 2000-2004 period:


|Sales Volume                          |        |  |        |  |        |  |        |  |        | 
|------------------------------------- | ------ |  | ------ |  | ------ |  | ------ |  | ------ | 
|(in metric
    tons)                  | 2004   |  | 2003   |  | 2002   |  | 2001   |  | 2000   | 
|                                      |        |  |        |  |        |  |        |  |        | 
|Lithium
    carbonate and derivatives | 32,600 |  | 27,400 |  | 22,300 |  | 21,700 |  | 20,600 | 
|Revenues (in US$ millions)            | 62.6   |  | 49.7   |  | 37.3   |  | 37.0   |  | 33.0   | 

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Lithium: Marketing and Customers

In 2004, we sold our lithium products to approximately 240 customers in approximately 50 countries. Virtually all of our lithium products were sold overseas: approximately 32% to customers in Europe, 26% to customers in North America, 37% to customers in Asia and Oceania and 5% to customers in other regions. No single customer accounted for more than 12% of the Company’s sales in 2004, and our ten largest customers accounted in the aggregate for approximately 52% of sales.


|Sales Breakdown           |  | 2004 |   | 2003 |   | 2002 |   | 2001 |   | 2000 |  
|------------------------- |  | ---- | - | ---- | - | ---- | - | ---- | - | ---- | -
|                          |  |      |   |      |   |      |   |      |   |      |  
|Europe                    |  | 32   | % | 31   | % | 40   | % | 31   | % | 32   | %
|North America             |  | 26   | % | 29   | % | 37   | % | 43   | % | 43   | %
|Central and South America |  | 37   | % | 37   | % | 21   | % | 25   | % | 23   | %
|Others                    |  | 5    | % | 3    | % | 2    | % | 1    | % | 2    | %

Lithium: Competition

Our main competitors in the lithium carbonate and lithium hydroxide  businesses are Chemetall GmbH, a subsidiary of Rockwood Specialties Group Inc., and FMC Corporation.  We estimate that they together sold approximately 45% of lithium in the lithium chemicals market (excluding lithium minerals) in 2004. Chemetall produces lithium carbonate in its operations located in Chile (Sociedad Chilena del Litio) 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), where they produce lithium chloride and lithium carbonate. Production of its downstream lithium products is mostly performed in USA and UK.


We estimate that world-wide sales of lithium chemicals expressed as lithium carbonate equivalent (excluding lithium minerals) amounted to approximately 71,000 metric tons in 2004.  Our sales of lithium carbonate  (including lithium hydroxide) reached over 32,600 metric tons in 2004.


Industrial Chemicals

In addition to producing sodium nitrate for agricultural applications, we produce three grades of sodium nitrate for industrial applications: industrial, refined and technical 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 sodium 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 sodium sulfate and boric acid. Sodium sulfate and boric acid are by-products of the production of sodium nitrate and
 potassium
sulfate, respectively. In 2004, our revenues from industrial chemicals were approximately US$71.7 million, representing approximately 9% 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 and charcoal briquettes and various chemical processes and metal treatments.  Sodium sulfate is mainly used for bleaching in the cellulose industry, as a filler in detergents and in the chemical industries. Boric acid is mainly used in the glass, ceramics, fiberglass, enamels and chemical industries.


We estimate that our sales of industrial sodium nitrate (excluding production in China and India, which is consumed internally), potassium nitrate and sodium sulfate in 2004 accounted for 63%, 35% and less than 1%, respectively, of worldwide sales in that period.


Industrial Chemicals: The Company’s Products

We produce technical potassium nitrate and three grades of industrial sodium nitrate in crystallized and prilled form. We market our refined grade sodium nitrate under the brand name Niterox.” We produce sodium sulfate and boric acid in crystalline form.


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The following table sets forth our sales volumes of industrial chemicals and total revenues in the 2000-2004 period:


|Sales Volume               | 2004    |  | 2003    |  | 2002    |  | 2001    |  | 2000    | 
|-------------------------- | ------- |  | ------- |  | ------- |  | ------- |  | ------- | 
|(in metric
    tons)       |         |  |         |  |         |  |         |  |         | 
|Industrial nitrates        | 183,300 |  | 193,200 |  | 187,300 |  | 186,999 |  | 191,277 | 
|Sodium sulfate             | 29,900  |  | 54,200  |  | 63,200  |  | 66,742  |  | 43,400  | 
|Boric Acid                 | 7,000   |  | 10,700  |  | 11,300  |  | 12,822  |  | 8,600   | 
|Revenues (in US$ millions) | 71.7    |  | 73.7    |  | 70.8    |  | 69.6    |  | 69.8    | 

Our aggregate current sodium nitrate 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, approximately 75,000 metric tons per year of sodium sulfate and 10,000 metric tons per year of boric acid.


Industrial Chemicals: Marketing and Customers

We sold our industrial nitrate products in approximately 60 countries in the year 2004. Approximately 38% of our sales of industrial chemicals was to customers in North America, 23% to customers in Europe, 24% to customers in Central and South America and 15% 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 2004, and our ten largest customers accounted in the aggregate for less than 35% of such sales.


|Sales Breakdown           |  | 2004 |   | 2003 |   | 2002 |   | 2001 |   | 2000 |  
|------------------------- |  | ---- | - | ---- | - | ---- | - | ---- | - | ---- | -
|                          |  |      |   |      |   |      |   |      |   |      |  
|North America             |  | 38   | % | 39   | % | 31   | % | 37   | % | 38   | %
|Europe                    |  | 23   | % | 25   | % | 17   | % | 20   | % | 22   | %
|Central and South America |  | 24   | % | 12   | % | 24   | % | 27   | % | 20   | %
|Others                    |  | 15   | % | 24   | % | 28   | % | 16   | % | 20   | %

We sold approximately 95% of our 2004 sodium sulfate production to customers in the domestic market.  Our main customers for this product are the Chilean producers of detergents and paper pulp.


In 2004, we sold approximately 88% of our boric acid production to the North American market.


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 and South America to achieve prompt deliveries to customers. Industrial sodium nitrate and technical potassium nitrate sales are made pursuant to spot purchase orders and sodium sulfate sales pursuant to renewable medium term contracts.


Our Research and Development department, together with our foreign affiliates, provide technical support to our customers and work with them to develop new products or applications for the Company’s products.


Industrial Chemicals: Competition

We are the world’s largest producer of industrial sodium nitrate. We estimate that we accounted for approximately 63% of world production of industrial sodium nitrate in 2004 (excluding China and India, for which reliable estimates are not available). Our competitors are mainly in Europe and Asia. These producers together represent 37% of total production and produce sodium nitrate as a by-product of other production processes. In the refined grade sodium nitrate market, Bayerische Anilinen und Soda Fabrik AG (BASF), a German corporation, and several producers in Japan (the largest of which is Mitsubishi & Co. Ltd.), are highly competitive in the European and Asian markets. Our industrial sodium nitrate products also compete indirectly with substitute chemicals, including sodium carbonate, sodium hydroxide, sodium sulfate, calcium nitrate and ammonium nitrate, which may be used in certain applications instead
 of sodium nitrate and
are available from a large number of producers worldwide.


Our main competitor in the technical potassium nitrate market is Haifa Chemicals Ltd., which we estimate has a 30% market share. We estimate our market share at approximately 35% for 2004.


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We have no significant domestic competitors for sodium sulfate in Chile. Limited amounts of imported sodium sulfate products are currently available in the market.


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.


Raw Materials

The principal raw material we require for the production of nitrate, sulfate and iodine products is caliche ore, which is obtained from surface mines.  The principal raw material for the production of potassium chloride, lithium carbonate, potassium sulfate and boric acid is the brine extracted from the Atacama Salar.


We require water (for the leaching process and general purposes), potassium chloride (in the manufacture of potassium nitrate), sodium carbonate (soda ash, in lithium carbonate production and for neutralization of iodine solutions), anti-caking, sulfur (in iodine production), ammonium nitrate (in the preparation of the anfo that is used in explosives for mining operations), diesel (mainly in mining equipment), natural gas (in heat generation and fusion processes) and electricity acquired from electric utilities (to supply the power needs at Pedro de Valdivia, María Elena, Coya Sur, Pampa Blanca, Nueva Victoria, Atacama Salar and the lithium carbonate plant in Salar del Carmen). Our raw material costs (excluding caliche ore and salar brines) represented approximately 11.8% of our cost of sales in 2004.


Most of our raw materials, especially energy-related raw materials, have experienced significant price increases in the last year.


The main sources of water for our nitrate, sulfate 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 Atacama Salar facilities is obtained from wells near the production facilities. 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.


During 1999, we entered into a long-term (ten years) electricity supply agreement with a major Chilean electricity producer, Electroandina S.A. Since April 2000, the Company has been connected to the Sistema Interconectado del Norte Grande, (SING), which is our current electricity supplier and is the supplier for most cities and industrial facilities in northern Chile. For a discussion of risks related to electricity supply, see Item 3. Key InformationRisk Factors.


During 2001, we connected our facilities to natural gas pipelines for heat generation and fusion processes. The facilities at Pedro de Valdivia, María Elena and Coya Sur gradually switched over to natural gas during the second half of 2001. During the second half of 2002, the lithium carbonate facility was also connected.  Our industrial equipment has a dual system that allows operation either with natural gas or with diesel. After certain minor investments, most of our industrial equipment could also operate with fuel oil.


In May 2001, we entered into a 10-year gas supply contract. We have estimated that covers approximately 3,850,000 million Btu per year. This gas supply is sufficient to satisfy the requirements for the installations that are connected to a gas supply. Nonetheless, we currently have a restriction that limits our supply to approximately 3,200,000 million Btu per year. Right now this restriction is not affecting us, but if we were to use 100% of the equipment connected to the gas supply we would have to replace part of the natural gas consumption with higher cost diesel or fuel oil. For a discussion of risks related to natural gas supply see Item 3. Key InformationRisk Factors.


We obtain ammonium nitrate, sulfur and soda ash from several large suppliers, principally in Chile, Canada and the United States, respectively, under long-term contracts or general agreements, some of which contain provisions for annual revisions of prices, quantities and deliveries. Prior to beginning production of potassium chloride at our Atacama Salar facility in late 1995, we obtained potassium chloride requirements principally from suppliers in Chile (under a long-term contract), and in Canada and Israel (under spot contracts). As a result of the commencement of production of potassium chloride, we have decreased our purchases of potassium chloride. Currently we acquire potassium chloride from Sociedad Chilena del Litio Limitada, a local Chilean supplier, pursuant to a contract that expires in 2009. Diesel fuel is obtained under contracts terminable upon specified notice by either party and which generally provide
 for sales of fuel
at international market prices.


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We believe that all of the contracts and agreements between SQM and third-party suppliers with respect to our principal raw materials contain standard and customary commercial terms and conditions.  During the past ten years, we have experienced no significant difficulties in obtaining adequate supplies of necessary raw materials at market prices, and do not expect to experience any such difficulties in the future.


Government Regulations

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


We conduct our mining operations pursuant to exploration concessions and exploitation concessions granted pursuant to applicable Chilean law. Exploitation concessions, which account for the majority of the mining rights we hold, including all of our concessions relating to land which is currently being mined, essentially grant a perpetual right to conduct mining operations in the areas covered by the concessions, provided that annual concession fees are paid.  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 operational 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.


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


Environmental Regulations

Our operations in Chile are subject to both national and local regulations related to the environment’s protection.  The fundamental environmental laws in Chile are the Health Code and Law No19,300 and their Rules and Regulations. We believe that we are currently in compliance in all material respects with applicable environmental regulations in Chile.


Law No19,300 created the National Environment Comission, (Environment Commission), and requires that the Environment Commission drafts and publishes regulations to mandate that companies should conduct environmental impact studies of any future mining or production projects or other activities that are likely to have an environmental impact. Law No19,300 also created regional commissions to supervise any required environmental impact studies for all new projects, including those of SQM.


On August 10, 1993, the Ministry of Health published in the Official Gazette a determination pursuant to the Health Code stating that atmospheric particulate levels at our production facilities in María Elena and Pedro de Valdivia exceeded quality standards for breathable air affecting the nearby towns. The high particulate matter levels are principally from dust produced during the processing of caliche ore, particularly the crushing of the ore before leaching. Subsequently, 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.  A plan to reduce the atmospheric particulate levels below permissible levels by July 2000 was approved, with certain amendments, by Decree No164/2000. Although we followed the plan and reduced substantially the atmospheric particulate levels at
 our principal
production facilities, as a result of the investments and processes implemented, we were not able to fully comply with the July 2000 timetable.  Resolution No384, published in the Official Gazette on May 16, 2000, initiated the revision and reformulation of the plan. The new plan was published by Decree N°37/2004 on March 2004.  The new timetable requires a reduction by  80% of  the emissions for atmospheric particulate material by April 1, 2006.  We are working on the basic engineering and environmental impact evaluation for a project that modifies the milling and screening systems used in the processing of the caliche ore at María Elena facilities that should allow for the necessary reduction of particulate material emissions.


There can be no assurance that we will not be subject in the interim to warnings, fines and possible temporary closures of our referred production facilities in María Elena.


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We continuously monitor the impact of our operations on the environment and have, from time to time, made modifications to our facilities trying to eliminate any adverse impact. 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 material restrictions on our operations. We are both committed to 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.


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. For a list of
    all affiliates see Note 2(a) to the Consolidated Financial Statements.


|SQM’s main Subsidiaries                                                                                                                                                 |  | Activity                                                                                                                                                                                                                                                                            |  | Country of    |  | SQM Beneficial     |  
|----------------------------------------------------------------------------------------------------------------------------------------------------------------------- |  | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------- |  | ------------- |  | ------------------ | -
|                                                                                                                                                                        |  |                                                                                                                                                                                                                                                                                     |  | Incorporation |  | Ownership Interest |  
|                                                                                                                                                                        |  |                                                                                                                                                                                                                                                                                     |  |               |  |                    |  
|SQM Nitratos S.A.                                                                                                                                                       |  | Produces
    and markets the Company’s nitrate,iodine
    and sulfate products directly and throughits
    principal subsidiaries and affiliates                                                                                                                                    |  | Chile         |  | 100                | %
|                                                                                                                                                                        |  |                                                                                                                                                                                                                                                                                     |  |               |  |                    |  
|Ajay SQM Chile S.A.                                                                                                                                                     |  | Produces
    and markets the Company’s iodine andiodine
    derivatives                                                                                                                                                                                                             |  | Chile         |  | 51                 | %
|                                                                                                                                                                        |  |                                                                                                                                                                                                                                                                                     |  |               |  |                    |  
|SQM Salar S.A.                                                                                                                                                          |  | Exploits
    the Atacama Salar brines to producelithium
    carbonate, potassium chloride,potassium
    sulfate and boric acid                                                                                                                                                      |  | Chile         |  | 100                | %
|                                                                                                                                                                        |  |                                                                                                                                                                                                                                                                                     |  |               |  |                    |  
|Foreign affiliates in Japan andin
    other locations                                                                                                                   |  | Market the
    Company’s products throughout the world                                                                                                                                                                                                                              |  | Various       |  |                    |  
|                                                                                                                                                                        |  |                                                                                                                                                                                                                                                                                     |  |               |  |                    |  
|                                                                                                                                                                        |  |                                                                                                                                                                                                                                                                                     |  |               |  |                    |  
|                                                                                                                                                                        |  |                                                                                                                                                                                                                                                                                     |  |               |  |                    |  
|SQM
    Nitratos S.A. main                                                                                                                                              |  | Activity                                                                                                                                                                                                                                                                            |  | Country of    |  | SQM Beneficial     |  
|Subsidiaries                                                                                                                                                            |  |                                                                                                                                                                                                                                                                                     |  | Incorporation |  | Ownership Interest |  
|                                                                                                                                                                        |  |                                                                                                                                                                                                                                                                                     |  |               |  |                    |  
|Soquimich Comercial S.A.                                                                                                                                                |  | Markets
    domestically the Company’s specialtyfertilizers
    and imports fertilizers for resale inChile                                                                                                                                                                          |  | Chile         |  | 61                 | %
|                                                                                                                                                                        |  |                                                                                                                                                                                                                                                                                     |  |               |  |                    |  
|Servicios Integrales deTránsitos
    y TransferenciasS.A.(SIT)                                                                                                          |  | Owns and
    operates a rail transport system that provides rail transport at the Company’s
    mines and processing plants and between theCompany’s
    production facilities and its portfacilities
    at Tocopilla. SIT also owns andoperates
    the Tocopilla port facilities |  | Chile         |  | 100                | %
|                                                                                                                                                                        |  |                                                                                                                                                                                                                                                                                     |  |               |  |                    |  
|Sales and distribution affiliatesin
    the United States, Belgium,Brazil,
    Venezuela, Ecuador, 
    Peru, Argentina, Mexico, 
    South Africa and other locations. |  | Market the
    Company’s products throughout the world                                                                                                                                                                                                                              |  | Various       |  |                    |  

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|4.D. | Property,
    Plants And Equipment
|---- | ----------------------------------
|     |                                   

Discussion of
    our mining rights is organized below according to the geographic location
    of our mining operations. First are SQM’s mining interests located throughout
    the valley of the Tarapacá and Antofagasta regions of northern Chile (el Norte Grande), referred to collectively as the “Caliche Ore Mines.” Second are the company’s mining interests within the Atacama Desert in the eastern region of el Norte Grande (the “Atacama Salar Brines”).


DESCRIPTION OF THE CALICHE ORE MINES

We hold exploration rights or exploitation rights to mineral resources representing more than 2,145,000 hectares. We have six mines covering an area of 384,000 hectares. Of these six mines, four are being exploited and two are without current operations. We have also submitted applications for exploration and exploitation rights for more than 444,000 additional hectares.


Pedro de Valdivia

The mine and facilities that we operate at Pedro de Valdivia are located 170 kilometers northeast of Antofagasta and are accessible by highway. These facilities have been in operation for approximately 75 years and were previously owned and operated by Anglo Lautaro. The area currently being mined is located approximately 30 kilometers west of the Pedro de Valdivia production facilities.    Our mining facilities at Pedro de Valdivia have a Weighted Average Age of 12.2 years. Electricity, diesel and natural gas, and fuel oil are the primary source power for this operation.


María Elena

The mine and facilities that we operate at María Elena are located 220 kilometers northeast of Antofagasta and are accessible by highway. These facilities have been in operation for approximately 80 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 source utilized is mainly electricity, diesel, natural gas and fuel oil. The Weighted Average Age of the Company’s mining facilities at María Elena is approximately 12.8 years.


Pampa Blanca

We currently conduct caliche ore operations at Pampa Blanca, which is located 100 kilometers northeast of Antofagasta and is accessible by highway. Beginning in 1987, the output from Pampa Blanca was derived from old waste ore deposits. In 1997 we began mining new caliche ore deposits at Pampa Blanca. Ore from this mine is transported by truc k to nearby heap leaching pads where it is used to produce iodine and nitrate salts. Various companies conducted mining operations at the site in the late 1920s. The Weighted Average Age of the ore recovery facilities at Pampa Blanca is approximately 10.5 years. The power source utilized is mostly electricity, produced by diesel mobile generators.


Nueva Victoria

At the end of 2002, we restarted our caliche ore operations at Nueva Victoria. This site is located 180 kilometers north of María Elena and is accessible by highway. Ore from Nueva Victoria is transported by truck to heap leaching pads where it is then used to produce iodine. The Weighted Average Age of the ore recovery facilities at Nueva Victoria is approximately 6.8 years. The power source utilized is mostly electricity, obtained from the SING.


Mapocho Inactive

The Mapocho mine is located 67 kilometers northeast of Iquique in the First Region and is accessible by highway. During its years of operation, Mapocho was mined for caliche ore. Production started in 1996 from old waste deposits and then shifted to new caliche ore deposits in 1997. The ore in Mapocho was transported by truck to heap leaching pads and then used to produce iodine. We shut down the plant and dismantled it in 1999.


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SoronalStand By

We have proven and probable reserves at Soronal, which is located 35 kilometers to the north of Nueva Victoria and is accessible by highway. This area has not been exploited yet, but represents a future extension of Nueva Victoria mining operations.


Description of the Atacama Salar Brines

Atacama Salar Brines

We hold rights to exploit the mineral resources in an area covering approximately 196,000 hectares of land in the Atacama Salar in northern Chile, and have applied for additional rights to exploit and explore approximately 26,000 hectares and 145,000 hectares, respectively. The Weighted Average Age of our mining facilities at Atacama Salar is approximately 6.8 years. The main source of power used by the operation is electricity.


Additional Mining Operations Leased in the Atacama Salar Region

SQM Salar S.A. holds exclusive rights to exploit the mineral resources in an area covering approximately 196,000 hectares of land in the Atacama Salar in northern Chile. These rights include 147,000 hectares that are owned by Corfo and leased to SQM Salar S.A. pursuant to a lease agreement between Corfo and SQM Salar S.A., (the Lease Agreement). Corfo may not unilaterally amend the Lease Agreement and the rights to exploit the resources cannot be transferred. The Lease Agreement provides that SQM Salar S.A. is responsible for the maintenance of Corfo ́s exploitation rights and for annual payments to the Chilean government and 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 Atacama Salar brines.  In the years 2004, 2003 and 2002, royalty payments amounted to approximately US$4.9
 million, US$4.0
million and US$3.4 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 58,000 additional hectares in the Atacama Salar. Under the terms of the Atacama Salar 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 58,000 hectares of the Atacama Salar.  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 concession 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 concession 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.


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Concessions for the Caliche Ore Mines and Salar Brines

Approximately 68% of our total mining concessions are held pursuant to Exploitation Concessions and 32% pursuant to Exploration Concessions, not including areas within the Atacama Salar Mines. 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$4.09 million in the year 2004.


The following table sets forth our exploitation and exploration concessions:


|                       | Exploitation Concessions |  | Exploitation Concessions |  |        |  |          | 
|---------------------- | ------------------------ |  | ------------------------ |  | ------ |  | -------- | 
|                       |                          |  |                          |  |        |  |          | 
|                       | Total                    |  |                          |  | Total  |  |          | 
|Mines                  | number                   |  | hectares                 |  | number |  | hectares | 
|                       |                          |  |                          |  |        |  |          | 
|Pedro de Valdivia      | 687                      |  | 94,879                   |  | 19     |  | 1,310    | 
|Maria Elena            | 636                      |  | 125,446                  |  | 41     |  | 3,111    | 
|Pampa Blanca           | 500                      |  | 96,368                   |  | 10     |  | 861      | 
|Nueva Victoria         | 18                       |  | 7,930                    |  | 7      |  | 1,369    | 
|Mapocho                | 56                       |  | 8,042                    |  | 10     |  | 348      | 
|Soronal                | 296                      |  | 42,602                   |  | 20     |  | 1,926    | 
|Atacama Salar          | 228                      |  | 221,823                  |  | 504    |  | 145,100  | 
|Sub total mines        | 2,421                    |  | 597,090                  |  | 611    |  | 154,025  | 
|                       |                          |  |                          |  |        |  |          | 
|Other caliche areas    | 4,913                    |  | 1,322,712                |  | 2,885  |  | 747,135  | 
|Salars and other areas | 260                      |  | 66,048                   |  | 56     |  | 45,040   | 
|Sub total other areas  | 5,173                    |  | 1,388,760                |  | 2,941  |  | 792,175  | 
|                       |                          |  |                          |  |        |  |          | 
|Total                  | 7,594                    |  | 1,985,850                |  | 3,552  |  | 946,200  | 

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Extraction Yields

The following table sets forth certain operating data relating to each of our mines (1):


(Values in thousands unless otherwise stated)

|                                                 | 2004   |  | 2003   |  | 2002   | 
|------------------------------------------------ | ------ |  | ------ |  | ------ | 
|                                                 |        |  |        |  |        | 
|Pedro de Valdivia                                |        |  |        |  |        | 
|Metric tons of ore mined                         | 12,029 |  | 11,583 |  | 11,926 | 
|Average grade Nitrate (% by weight)              | 7.2    |  | 6.9    |  | 7.3    | 
|Iodine (parts per million (ppm))                 | 378    |  | 391    |  | 398    | 
|Metric tons of Crystallized Nitrate Produced     | 458    |  | 430    |  | 464    | 
|Metric tons of Iodine Produced                   | 2.3    |  | 2.0    |  | 2.1    | 
|                                                 |        |  |        |  |        | 
|María
    Elena(2)                               |        |  |        |  |        | 
|Metric tons of ore mined                         | 5,835  |  | 5,783  |  | 5,744  | 
|Average grade Nitrate (% by weight)              | 8.6    |  | 8.5    |  | 8.5    | 
|Iodine (ppm)                                     | 485    |  | 468    |  | 475    | 
|Metric tons of Crystallized Nitrate Produced (3) | 480    |  | 440    |  | 429    | 
|Metric tons of Iodine Produced (Eq. 97%)         | 1.5    |  | 1.4    |  | 1.5    | 
|                                                 |        |  |        |  |        | 
|Pampa Blanca                                     |        |  |        |  |        | 
|Metric tons of ore recovered                     | 4,976  |  | 4,838  |  | 5,416  | 
|Iodine (ppm)                                     | 560    |  | 560    |  | 461    | 
|Metric tons of Iodine Produced                   | 1.4    |  | 1.3    |  | 1.1    | 
|                                                 |        |  |        |  |        | 
|Nueva Victoria                                   |        |  |        |  |        | 
|Metric tons of ore recovered                     | 6,776  |  | 5,010  |  | 608    | 
|Iodine (ppm)                                     | 505    |  | 549    |  | 566    | 
|Metric tons of Iodine Produced                   | 2.0    |  | 1.6    |  | 0.1    | 
|                                                 |        |  |        |  |        | 
|SQM Salar                                        |        |  |        |  |        | 
|Metric tons of Lithium Carbonate Produced        | 27     |  | 24     |  | 21     | 
|Metric tons of Potassium Chloride Produced       | 638    |  | 651    |  | 679    | 
|Metric tons of Potassium Sulfate Produced        | 178    |  | 157    |  | 173    | 
|Metric tons of Boric Acid Produced               | 9      |  | 9      |  | 9      | 

|    |                                                                                                                                                             
|--- | ------------------------------------------------------------------------------------------------------------------------------------------------------------
|(1) | Note that
        because the Mapocho and Soronal mines are not currently being mined,
    there is no data to report with respect to extraction Yields.    
|(2) | Includes
        production at Coya Sur from treatment of fines and nitrates from pile
        treatment at Pampa
Blanca, María Elena and Pedro de Valdivia.
|(3) | Does not
        include
product losses.                                                                                                                    

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Reserves

Caliche ore

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. Several drill-hole spacing have been used for recognizing min ing resources. Normally, we start with 400 x 400 meters and then we reduce spacing to 200x200 meters and 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 to 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 economic and legal aspects, as proven reserves. Similarly, the information obtained from detailed geologic work and samples taken from grid pattern drill-holes with spacing equal to or less than 400 meters can be considered indicated resources and then, adjusting for economic and legal aspects, as probable reserves.  The degree of certainty of probable reserves, although lower than that of proven reserves, is high enough to assume continuity between points of observation.


The updated estimates of our proven reserves of caliche ore at each of our mines, as of December 2004, are the following:


|Mine              | Proven Reserves           |  | Nitrate Average Grade  |   | Iodine Average Grade | 
|----------------- | ------------------------- |  | ---------------------- | - | -------------------- | 
|                  |                           |  |                        |   |                      | 
|                  | (millions of metric tons) |  | (percentage by weight) |   | (parts per million)  | 
|Pedro de Valdivia | 142.4                     |  | 7.2                    | % | 386                  | 
|María Elena       | 154.0                     |  | 7.3                    | % | 421                  | 
|Pampa Blanca      | 65.3                      |  | 6.6                    | % | 539                  | 
|Nueva Victoria    | 37.4                      |  | 3.5                    | % | 475                  | 
|Mapocho           | 4.6                       |  | 5.3                    | % | 436                  | 
|Soronal           | 158.9                     |  | 7.1                    | % | 405                  | 

In addition, the updated estimates of our probable reserves of caliche ore at each of our principal mines as of December 2004, are the following:


|Mine              | Probable Reserves         |  | Nitrate Average Grade  |   | Iodine Average Grade | 
|----------------- | ------------------------- |  | ---------------------- | - | -------------------- | 
|                  |                           |  |                        |   |                      | 
|                  | (millions of metric tons) |  | (percentage by weight) |   | (parts per million)  | 
|Pedro de Valdivia | 160.5                     |  | 6.9                    | % | 440                  | 
|María Elena       | 187.4                     |  | 7.1                    | % | 345                  | 
|Pampa Blanca      | 482.2                     |  | 8.0                    | % | 540                  | 
|Nueva Victoria    | 112.2                     |  | 4.2                    | % | 451                  | 
|Mapocho           | 234.3                     |  | 6.9                    | % | 524                  | 
|Soronal           | 59.1                      |  | 7.6                    | % | 362                  | 

The proven and probable reserves shown above are the result of exploration and evaluation in approximately 15% 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 85% of this area has not been explored yet or has limited reconnaissance as inferred or hypothetical resources.


Proven and probable reserves are determined using extensive drilling, sampling and mine modeling which attempts to account for restrictions for cut-off grades, ore type, dilution, waste-to-ore-ratio and ore depth from which economic feasibility has been determined.  Nonetheless, metric tons of nitrates and iodine contained in the proven and probable caliche ore reserves are shown before exploitation losses and prior to any losses from metallurgical treatment.


Considering the
normal lower degree of certainty in probable reserves compared to proven reserves,
and in accordance with caliche ore continuity, sampling and reserves calculations,
it is possible to transform the values calculated as probable reserves in order
to show them at similar basis of proven reserves. The transforming factors depend
on the different geologic conditions and continuity recognized mine by mine,
but on average are higher than 60%.


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Additionally, proven and probable reserves could be affected by mining exploitation methods which result in differences between reserves estimates that are available for exploitation in the mining plan and 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%. Additionally, the average global metallurgical recoveries of processes for nitrate and iodine contained in the recovered material varies between 55% to 65%.


Exploration
      Program.
      We maintain a permanent program of exploration and resource evaluation
      on the land surrounding the mines at Pedro de Valdivia and María
      Elena and at other sites for which we have the appropriate concessions.
      In 2004, we continued a basic reconnaissance program on the new mining
      properties including a geological mapping of the surface and spaced drill-holes
      campaign covering approximately 75,000 hectares. Additionally, we conducted
      general explorations based on a closer grid pattern drill-holes in a total
      area of approximately 2,603 hectares and, in addition, carried out in-depth
      sampling of approximately 1,843 hectares (281 hectares at Pedro de Valdivia,
      593 hectares at María Elena, 28 hectares at Pampa Blanca and 941
      hectares at Nueva Victoria). The exploration and development program in
      2005 calls for a basic  reconnaissance program over a total area of 100,000
      hectares, general exploration over a total area of about 5,584 hectares
      and, in addition, in-depth sampling of approximately 1,902 hectares.


Reserves and Concessions for the Atacama Salar Brines

Reserves for the Atacama Salar Brines

Our in-house staff of geologists and mining engineers prepares our estimates of potassium, sulfate, lithium and boron reserves at the Atacama Salar. We have explored 52% of the land (to a depth between 40 and 100 meters) to which we hold exploitation rights in the Atacama Salar mines and 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, are as follows:


|          | Proven Reserves           |  | Probable Reserves         | 
|--------- | ------------------------- |  | ------------------------- | 
|          |                           |  |                           | 
|          | (millions of metric tons) |  | (millions of metric tons) | 
|Potassium | 40.3                      |  | 6.2                       | 
|Sulfate   | 36.6                      |  | 1.2                       | 
|Lithium   | 1.9                       |  | 1.5                       | 
|Boron     | 0.7                       |  | 0.7                       | 

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.  This procedure considers process restrictions from which economic feasibility has been determined to produce commercial products like potassium chloride, potassium sulfate, lithium carbonate and boric acid. Nonetheless, 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 brine composition, which changes in time, and the process applied to produce the desired commercial products.  The overall recovery for potassium varies from 72% to 40% while for sulfate varies from 50% to 19%. The recoveries for lithium and boron are estimated to vary between 26% and 30%.


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.  We also hold water rights for a supply of water from rivers and wells near our production facilities sufficient to meet our current and anticipated operational requirements.


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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:


|Location                      |  | Type
    of Facility                                           |  | Approximate Size(1)(Hectares) | 
|----------------------------- |  | -------------------------------------------------------------- |  | ----------------------------- | 
|                              |  |                                                                |  |                               | 
|Pedro de Valdivia             |  | Nitrate,
    sulfate and iodine production                     |  | 126                           | 
|María Elena                   |  | Nitrate,
    sulfate and iodine production                     |  | 110                           | 
|Coya Sur                      |  | Nitrate,
    sulfate and iodine production                     |  | 232                           | 
|Pampa Blanca                  |  | Concentrated
    nitrate salts and iodineproduction            |  | 86                            | 
|Nueva Victoria                |  | Iodine
    production                                          |  | 11                            | 
|Atacama Salar(2)              |  | KCl,
    lithium chloride, potassium sulfateand
    boric acid |  | 2,288                         | 
|Salar del Carmen, Antofagasta |  | Lithium
    carbonate production                               |  | 28                            | 
|Salar del Carmen, Antofagasta |  | Boron
    production                                           |  | 4                             | 
|Tocopilla                     |  | Port
    facilities                                            |  | 24                            | 

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

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, 2004, the gross book value of the property and associated plant and equipment at the Pedro de Valdivia, María Elena, Coya Sur, Pampa Blanca, Nueva Victoria, Atacama Salar, Salar del Carmen and Tocopilla was approximately US$155.3 million, US$265.6 million, US$116.6 million, US$16.5 million, US$62 million, US$368.3 million, US$61.8 million and US$59.2 million, respectively.


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.


The Weighted Average Age of our production facilities at Pedro de Valdivia, María Elena, Coya Sur, Nueva Victoria, Atacama Salar and Salar del Carmen is approximately 12.3 years, 11.5 years, 11 years, 8.5 years, 6.8 years and 7.7 years, respectively.  The Weighted Average Age of our iodine facilities at Pampa Blanca is approximately 10.5 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 11.6 years. We consider the condition of our principal plants and equipment to be good.


TRANSPORTATION AND STORAGE FACILITIES

Through our subsidiary SIT, 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 material is the hub composed by 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, the Yumbes Nitrate Plant, and the finished products plants of Boron and Lithium Carbonate in the Salar del Carmen, near Antofagasta. The Tocopilla Port Terminal, which we own, is the main facility for storage and shipment of our products.


Nitrates and sodium sulfate raw materials are produced and first stored at our Pampa Blanca and Yumbes mines. They are transported by rail (Pedro de Valdivia), conveyor (María Elena) and truck (others) to the plants described in the next paragraph, to continue the production process.


Nitrates and sodium sulfate 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 finally shipped, either bagged or as
    bulk. Sodium sulfate is bagged in Coya Sur and shipped by truck directly
    to Chilean customers in Santiago and southern regions.


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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 going to Coya Sur is used as 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, already bagged at the Salar de Atacama, by contracted truck company.


Lithium solutions, produced at our facilities in the Salar de Atacama, are transported to the lithium facility in the Salar del Carmen area near Antofagasta, where finished lithium carbonate is produced, bagged and stored. These products are then transported by truck to Tocopilla Port Terminal or to the Antofagasta Terminal for shipment in charter vessel and container vessel, respectively.


Boron raw material (ulexite) is produced in the Salar de Ascotán near Ollague and then transported to the boron facility 15 km north of the lithium plant in Salar del Carmen.  In this plant our boron products are produced and then handled the same way as the lithium products.


Iodine raw material, obtained in the same mines as 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 container vessel 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 Atacama Salar. SIT operates the facilities under maritime concessions granted pursuant to applicable Chilean laws. 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 180,000 metric tons. A bagging station capable of bagging both small and maxi bags, is also connected to the conveyor system.


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 another port, mainly Antofagasta, San Antonio and Iquique.


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


SIT also owns fuel oil storage facilities at Tocopilla where these products are held on a consignment basis, purchased from suppliers as needed and shipped to processing plants.


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ITEM 5.OPERATING AND FINANCIAL REVIEW AND PROSPECTS

CRITICAL ACCOUNTING POLICIES

Critical accounting policies are defined as those that are reflective of significant judgments and uncertainties, which would potentially result in materially different results under different assumptions and conditions.


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 at Note 27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.


Allowance for Doubtful Accounts

We maintain allowances for doubtful accounts for estimated losses resulting from the assessed inability of our customers 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 collectibility.


Income and Deferred Taxes

Our Company and each of its subsidiaries compute and pay tax on a separate basis, except for the U.S. subsidiary. We estimate our tax exposure and assess temporary differences resulting from differing treatment of items, such as depreciation, for tax and accounting purposes.  These differences result in deferred tax assets and liabilities, which are reflected in our consolidated balance sheet.


We then assess the likelihood that our deferred tax assets will be recovered from future taxable income. To the extent we believe that recovery is unlikely, we establish a valuation allowance.  Revisions to the estimated realizable value of deferred tax assets or estimated average reversal periods of contra assets or liabilities could cause the provision for income taxes to vary significantly from period to period.


Inventories

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


Staff severance indemnities

We have significant benefit plan liabilities, which are developed from accrual valuations. Inherent in these valuations are key assumptions, including discount rates and expected returns on plan assets. 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.


Units of production amortization

We amortize mine development costs using units-of-production method based on the total proven and probable reserves. Determining the amount of proven and probable reserves requires us to make significant estimates based on geological studies.  If our estimates of proven and probable reserves were to change, this would directly impact the amount of amortization of the mine development costs.


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Goodwill

We have intangible assets related to goodwill. 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 goodwill is calculated and compared to the
 carrying amount of
goodwill recorded in the Companys financial records. If the carrying value of reporting unit 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.  Impairment is recognized earlier whenever warranted.


Accounting changes

Until June 30,
    2004 the financial statements of the subsidiary SQM Lithium Specialties LLP
    were not consolidated because this subsidiary was in development stage. Starting
    July 1, 2004, SQM Lithium Specialties LLP began operating, therefore,
    we have consolidated this subsidiary in the financial statements as of December
    31,
    2004.


Beginning January 1, 2004, we adopted Technical Bulletin 72 of the Chilean Association of Accountants, which changes the basis for determining accounting for goodwill and negative goodwill generated in transactions after January 1, 2004, based on an allocation of the purchase price based on the fair value of the identifiable assets acquired and identifiable liabilities assumed.


Both goodwill and negative goodwill are normally amortized over the maximum period of twenty years considering the expected period of return of the investments.


This Bulletin has resulted in greater international comparability in the accounting for business combinations. Differences are no longer significant with U.S. GAAP, except for the amortization of goodwill which is not recorded for U.S. GAAP purposes and the annual impairment test of goodwill.


See note 3 to the consolidated Financial Statements for further discussion on accounting changes.


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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. Consolidated Financial
    Statements. 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 27  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, 2004, 2003 and  2002 and of total shareholders’ equity as of December 31, 2004, 2003 and 2002. 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 and are not a “controlled corporation”,
    as that term is defined under Chilean law.


Discussion of
    segment and geographical financial information is provided at Note 27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 four product lines:


| | • | Specialty
        plant nutrition: production and commercialization of fertilizers with
    unique qualities.            
| | - | -------------------------------------------------------------------------------------------------------------------------
| |   |                                                                                                                          
| | • | Iodine
    and derivatives: production and commercialization of iodine and derivatives.                                  
| |   |                                                                                                                          
| | • | Lithium
    and derivates: production and commercialization of lithium and derivatives.                                  
| |   |                                                                                                                          
| | • | Industrial
        chemicals: production and commercialization of industrial nitrates, sodium
    sulfate and boric acid.

Additionally we sell other products, including imported commodity fertilizers that we distribute mainly in Chile and Mexico and potassium chloride, which complement our product portfolio.


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 our products. See Item 5.D. Trend Information;                                                                       
| | - | ----------------------------------------------------------------------------------------------------------------------------------------------
| |   |                                                                                                                                               
| | • | Our efficiency
        in operating our facilities as they are generally running 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;

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| | • | Trends
        in the exchange rate between the US dollar and Chilean peso, as most
    of our assets and liabilities are valued in U.S. dollars;
| | - | -------------------------------------------------------------------------------------------------------------------------------------------------
| |   |                                                                                                                                                  
| | • | Logistics
        costs, which have been increasing due to low world-wide shipping capacity
    and higher oil prices; and                       
| |   |                                                                                                                                                  
| | • | Energy
        costs, which have increased due to interruptions of natural gas supply,
    resulting in our reliance on higher cost diesel fuel. 

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, | 
|------------------------- | --------------------------- | 
|                          |                             | 
|                          | 2004                        | 
|                          |                             | 
|                          | US$                         | 
|Specialty plant Nutrition | 428.2                       | 
|Iodine and derivatives    | 110.5                       | 
|Lithium and derivatives   | 62.6                        | 
|Industrial chemicals      | 71.7                        | 
|Other Products (1)        | 115.5                       | 
|                          |                             | 
|Total                     | 788.5                       | 
|                          |                             | 

|   
|---
|(1)

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


|                                            | Years
          ended December 31, |  
|------------------------------------------- | ---------------------------------- | -
|                                            |                                    |  
|                                            | 2004                               |  
|                                            |                                    |  
|                                            | US$                                |  
|Total revenues                              | 788.5                              |  
|Cost of
        goods sold                  | (608.7                             | )
|                                            |                                    |  
|Gross margin                                | 179.8                              |  
|Selling
        and administrative expenses | (55.7                              | )
|                                            |                                    |  
|Operating
        income                    | 124.1                              |  
|Non-operating
        income                | 20.8                               |  
|Non-operating
        expenses              | (38.4                              | )
|                                            |                                    |  
|Income
        before income taxes          | 106.5                              |  
|Income
        tax                          | (27.3                              | )
|Minority
        interest                   | (5.1                               | )
|Amortization
        of negative goodwill   | 0.2                                |  
|Extraordinary
        items                 | 0.0                                |  
|                                            |                                    |  
|Net
    income                              | 74.2                               |  
|                                            |                                    |  

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Results of Operations - 2004 compared to 2003

During 2004, we generated total revenues of US$788.5 million, which is approximately 14% higher than the US$691.8 million recorded for the year 2003.


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 increased 18% to US$428.2 million in 2004 from US$362.8 million in 2003. Set forth below are sales volume data by product category.


|                                                   |             |  | Year 2004 |  | Year 2003 (1) |  | % Change |   
|-------------------------------------------------- | ----------- |  | --------- |  | ------------- |  | -------- | --
|                                                   |             |  |           |  |               |  |          |   
|Sodium nitrate                                     | Th.
    Ton |  | 59.5      |  | 62.5          |  | (5       | )%
|Potassium
    nitrate and sodium potassium nitrate | Th.
    Ton |  | 706.8     |  | 696.5         |  | 1        | % 
|Blended
    and other specialty fertilizers        | Th.
    Ton |  | 253.1     |  | 252.1         |  | 0        | % 
|Other
    non- SQM specialty plant nutrients(2)    | Th.
    Ton |  | 130.3     |  | 125.0         |  | 4        | % 
|Potassium
    sulfate                              | Th.
    Ton |  | 157.7     |  | 143.2         |  | 10       | % 
|                                                   |             |  |           |  |               |  |          |   

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

The increase in specialty plant nutrition revenues was mainly driven by a different product mix, our strategy to increase our sales volume in markets that offer higher returns, and generally improved pricing conditions in the market.


The increase in prices responds mainly to two factors: the strong demand, which for the last five years has experienced annual growth of approximately 7%, and the tight conditions on the supply side. Considering this, we are actively carrying out the necessary investments to increase our production capacity. We expect that the positive market and price trends will continue during 2005.


Changes in sales volume were due to the following:


| | • | The decrease
        in sodium nitrate sales only reflects the availability of this product
        to be sold as agricultural sodium nitrate, as we have the alternative
        of using it to produce potassium nitrate or industrial sodium nitrate.
    During 2004 more of this product was destined to produce potassium nitrate.                                                             
| | - | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |   |                                                                                                                                                                                                                                                                                                                                                                                                      
| | • | The increase
        in potassium-related plant nutrients reflects an increase in shipments
        to Europe, North America and Latin America, especially to Brazil, which
        was partially offset by lower volumes delivered to China. The decrease
        in shipments to China is the result of our decision, facing a tight supply
    situation, to focus on markets with higher returns.
| |   |                                                                                                                                                                                                                                                                                                                                                                                                      
| | • | The increase
    in non-SQM product sales reflects an overall increase in market demand.                                                                                                                                                                                                                                                                                                             
| |   |                                                                                                                                                                                                                                                                                                                                                                                                      
| | • | The increase
    in potassium sulfate shipments was due to our ability to produce greater quantities and thereby keep pace with growing market demand.                                                                                                                                                                                                                                               

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Iodine and derivatives

Revenues from sales of iodine and derivatives increased 30.7% to $110.5 million in 2004 from US$84.6 million in 2003. Set forth below are sales volume data.


|                       |             |  | Year 2004 |  | Year 2003 |  | % Change |  
|---------------------- | ----------- |  | --------- |  | --------- |  | -------- | -
|                       |             |  |          
|Iodine and derivatives | Th.
    Ton |  | 7.7       |  | 6.6       |  | 17       | %
|                       |             |  |           |  |           |  |          |  

The increase both in revenues and sales volume was mainly due to the following:


| | • | Sales of
        iodine to the x-ray contrast media, biocides and pharmaceutical markets
    on average experienced growth of approximately 7%.                                                                                                                                                                                                                                                                                                                                         
| | - | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                         
| | • | We
        increased sales to the Chinese markets, mainly to the pharmaceutical
    and disinfectant industries.                                                                                                                                                                                                                                                                                                                                                                        
| |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                         
| | • | We
        increased our sales of iodine for use in LCD screens, a relatively new
        development in iodine applications. Iodine destined to this market increased
        by approximately 50% in 2004. Though iodine sales to this market constituted
        only approximately 3% of iodine sales volume in 2004, we expect that
        the demand for iodine for use in LCD screens may contribute significantly
    to the worldwide demand for iodine in the next few years.

During 2004, we slightly increased our market share of iodine and derivatives. We are currently expanding our iodine production capacity.


Full year average prices for iodine, excluding iodine salts that react somewhat slower to iodine pricing, increased by approximately US$1.9 per kilogram, or approximately 14%. Considering the strength of the fundamentals that are driving demand, which we expect to keep growing at the present rate in the short to medium term, together with the supply situation, we believe volume and pricing trends observed to date will continue for the next year.


Lithium and derivatives

Revenues from sales of lithium and derivatives increased 26.0% to US$62.6 million in 2004 from US$49.7 in 2003.Set forth below are sales volume data.


|                                  |             |  | Year 2004 |  | Year 2003 |  | % Change |  
|--------------------------------- | ----------- |  | --------- |  | --------- |  | -------- | -
|                                  |             |  |           |  |           | 
|Lithium carbonate and derivatives | Th.
    Ton |  | 32.6      |  | 27.4      |  | 19       | %
|                                  |             |  |           |  |           |  |          |  

The increase both in revenues and sales volume was mainly due to the following:


| | • | The increase
        in revenues in 2004 was mainly due to a strong increase in sales to the
        lithium ion battery market, continuing the trend of the previous two
        years. Lithium carbonate sales destined to this market accounted for
    approximately 20% of volume sales.                                                                                                                                                                          
| | - | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                        
| | • | Other
        important lithium carbonate markets were the Asia-Pacific markets, where
        uses related to infrastructure growth, such as glass, frits and air conditioning,
    have been growing at higher rates than the world economy growth.                                                                                                                                                                                                                  
| |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                        
| | • | Our
        lithium hydroxide sales grew in volume by approximately 20% during 2004,
        as a consequence of the increased global demand for lithium-based lubricating
    greases. During the second half of 2005, our new
      lithium
          hydroxide plant is expected to begin industrial production runs. This
          will allow the transition between the depletion of the stockpile we
    acquired in 2002 and our production of the new product.
| |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                        
| | • | Pricing
        conditions also improved in 2004. The average increase in lithium carbonate
        sales prices was approximately 8% during 2004. Similarly, lithium hydroxide
    sales prices increased by approximately 10% during the year 2004.                                                                                                                                                                                                                  

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Considering present supply-demand dynamics and the expected continued increase in demand, we expect this trend in prices to continue during the next year.


Industrial Chemicals

Revenues from sales of industrial chemicals decreased by 2.8% to US$71.7 million in 2004 from US$73.7 million in 2003. Set forth below are sales volume data by product category.


|                    |             |  | Year 2004 |  | Year 2003 |  | % Change |   
|------------------- | ----------- |  | --------- |  | --------- |  | -------- | --
|                    |             |  |           |  |           | 
|Industrial nitrates | Th.
    Ton |  | 183.3     |  | 193.2     |  | (5       | )%
|Sodium sulfate      | Th.
    Ton |  | 29.9      |  | 54.2      |  | (45      | )%
|Boric acid          | Th.
    Ton |  | 7         |  | 10.7      |  | (35      | )%
|                    |             |  |           |  |           |  |          |   

The decrease in revenues from sales of industrial chemicals in 2004 was mainly due to the following:


| | • | Industrial
        nitrates have seen a reduction in sales volumes, mainly in Asia,
        due to high log istical costs and low prices. Despite a 5% decrease in
        volumes of industrial nitrates, an increase by approximately 10% in industrial
    nitrates prices allowed us to obtain higher revenues for this product.
| | - | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |   |                                                                                                                                                                                                                                                                                                                                     
| | • | The
        significant decrease in sodium sulfate and boric acid sales was due to
        lower production. Prices for these two product lines have increased on
        average by approximately 7% due to increased demand for raw materials
    in the pulp and paper and detergent industries.                                 
| |   |                                                                                                                                                                                                                                                                                                                                     
| | • | World
        demand for industrial chemicals is growing at a moderate pace of 2%,
    mainly driven by increased mining activity and infrastructure development.                                                                                                                                                                   



Other Products

Revenues from other products were US$115.5 million, including US$37.2 million from potassium chloride and US$78.3 million from commodity fertilizers.


Total revenues from other products decreased 4.6% from US$121.0 million in 2003.


Potassium Chloride
    revenues decreased by 7.1% to US$37.2 million in 2004 from US$40.0 million
    in 2003.


|                   |             |  | Year 2004 |  | Year 2003 |  | % Change |   
|------------------ | ----------- |  | --------- |  | --------- |  | -------- | --
|                   |             |  |           |  |           |  |          |   
|Potassium Chloride | Th.
    Ton |  | 212.0     |  | 284.1     |  | (25      | )%
|                   |             |  |           |  |           |  |          |   

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The decrease in Potassium Chloride sales volume was mainly due to the following:


| | • | As sales
        of potassium chloride are directly related to its consumption as raw
        material in the production of potassium nitrate, the 25% decrease in
        third party sales volumes was mainly due to the increase in its use in
        potassium nitrate production. The significant increase in prices partially
    offset this decrease.
| | - | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |   |                                                                                                                                                                                                                                                                                                                                                               
| | • | Market
        conditions suggest that potassium chloride prices should continue with
    the upward trend in 2005.                                                                                                                                                                                                                                           

Sales of commodity
    fertilizers remained relatively constant during the year, reaching US$78.3
    million compared to the US$81.0 million in 2003.


Cost of Sales

Cost of sales during 2004 was approximately US$608.7 million, an increase of 9.9% compared to the US$554.0 million recorded during 2003. Cost of sales consists primarily of production related expenses, depreciation, raw material costs, logistics expenses and the cost of imported fertilizers and blends used both for resale and in the production of other products. As a percentage of revenues, cost of sales were 77.2% in the year 2004 compared to 80.1% in 2003.


The higher costs of sales in 2004 reflect the increased trading of commodity and specialty fertilizers as well as the trading of lithium hydroxide. We expect to replace the trading of certain specialty fertilizers and lithium hydroxide with our own production within the next few years, increasing the gross margin derived from those operations.


The main factors affecting our costs of sales were the following:


| | • | Logistics
        costs increased by approximately 15% due to a worldwide low shipping
    capacity in the world and higher oil prices;                                                                                                                                                                                                                          
| | - | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |   |                                                                                                                                                                                                                                                                                                                                                                  
| | • | The Chilean
        peso strengthened against the U.S. dollar by approximately 13% on average
        (calculated as the percentage change between the average exchange rates
        for the years 2004 and 2003), thereby increasing the U.S. dollar amount
        of our costs denominated in Chilean pesos, mainly salaries and certain
    local contracts;
| |   |                                                                                                                                                                                                                                                                                                                                                                  
| | • | Natural
        gas shortages, extending through a period of approximately six weeks
        in 2004, increased our operation costs because we had to replace the
    natural gas with higher cost diesel.                                                                                                                                                       

Gross Profit

As a result of the factors described above, gross profit increased 30.4% to US$179.8 million in 2004 from US$137.8 million in 2003.


Selling and Administrative Expenses

Selling and administrative expenses (SG&A) were US$55.7 million (7.1% of revenues) in 2004 compared to US$50.6 million (7.3% of revenues) in 2003. The decrease of SG&A as a percentage of sales responds to our efforts to optimize the use of our sales affiliates, especially those acquired during 2003, SQM Mexico and Mineag.


Operating Income

As a result of the factors described above, operating income increased 42.3% to US$124.1 million in 2004 from US$87.2 million in 2003.


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Non-Operating Results (net)

The principal components of our non-operating results were as follows:


|                                   | Year ended December 31, |     
|---------------------------------- | ----------------------- | ----
|                                  
|2004                               |                         | 2003
|                                   |                         |     
|                                   |                         |     
|Net Financial income (expense) (1) | (15.1                   | )   
|Exchange gain (loss)               | (0.5                    | )   
|Others                             | (1.9                    | )   
|                                   |                         |     
|Total Non-Operating                | (17.6                   | )   
|                                   |                         |     

|   
|---
|(1)

During 2004, we had non-operating expenses of US$17.6 million, 17% lower than the US$21.2 million of expenses in 2003. The main reasons for this reduction in non-operating expenses were:


| | • | On August
        18, 2004, we sold our 14.05% stake in Empresas Melón at a public
        auction carried out on the Santiago Stock Exchange. We recorded an after-tax
        profit of approximately US$6 million. This non-core asset had been held
        by us since 1998 when we sold our cement project to Empresas Melón.
        The sale of our investment in Empresas Melón is consistent with
    our strategy to focus on our core businesses.
| | - | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                              
| | • | Net financial
        expenses decreased from US$(21.0) million in 2003 to US$(16.8) million
        in 2004. The Company reduc ed its net financial debt by approximately
        US$106.7 million, partly as a result of the sale of our stake in Empresas
    Melón S.A.                                                                                                                                                                                  
| |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                              
| | • | Partially
        offsetting the positive effects of the foregoing, during 2003 we recorded
        exchange gains of approximately US$6.6 million, whereas during 2004 we
    recorded exchange losses of approximately US$0.5 million.                                                                                                                                                                                                                     

Income Taxes

In 2004 income taxes were US$27.3 million, resulting in an effective consolidated tax rate of 25.6%, compared to income taxes of US$16.0 million and an effective consolidated tax rate of 24.3% in 2003. In accordance with Chilean law, SQM and each of its subsidiaries compute and pay taxes on an individual basis, not on a consolidated basis. We had tax loss carry-forwards of US$198.2 million at December 31, 2004, the majority of which have no expiration dates and are expected to be utilized in the future.


The corporate income tax rates in Chile were 17 % and 16.5% for 2004 and 2003 respectively.


The 71% increase in income taxes is mainly due to the increase in our net profits. Most of the 2004 tax provision relates to a deferred tax provision, which is determined in accordance with Chilean GAAP.


For a more detailed
    analysis of the company’s
    income and deferred taxes see Note 13 to the Consolidated Financial Statements.


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Results of Operations: 2003 compared to 2002

During 2003
    we generated total revenues of US$691.8 million, which were 24.9% higher
    than the US$553.8 million recorded for 2002.


The main factors that explain the increase in revenues and the operational variations in the different product lines are discussed separately below.


Specialty Plant Nutrition

Revenues from sale of specialty plant nutrition increased to US $362.8 in 2003 from US$281.4 million in 2002.


|                                               |             |  | Year 2003 |  | Year 2002 |  | %change |   
|---------------------------------------------- | ----------- |  | --------- |  | --------- |  | ------- | --
|                                               |             |  |           |  |           |  |        
|Sodium nitrate                                 | Th.
    Ton |  | 62.5      |  | 59.5      |  | 5       | % 
|Potassium nitrate and sodium potassium nitrate | Th.
    Ton |  | 696.5     |  | 558.6     |  | 25      | % 
|Blended and other specialty fertilizers(1)     | Th.
    Ton |  | 377.1     |  | 276.6     |  | 36      | % 
|Potassium sulfate                              | Th.
    Ton |  | 143.2     |  | 161.0     |  | (11     | )%
|                                               |             |  |           |  |           |  |         |   

|   
|---
|(1)

The significant increase in sales volumes for 2003 is mainly explained by:


| | • | The higher
    sales in sodium nitrate due to better market conditions;                                                                                                                                                                                                                
| | - | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |   |                                                                                                                                                                                                                                                                                        
| | • | Increase
        in sales volume of potassium nitrate and sodium potassium nitrate to
    the Latin American markets, especially Brazil;                                                                                                                                               
| |   |                                                                                                                                                                                                                                                                                        
| | • | Increase
        in sales volume (approximately 125 thousand tons) of potassium nitrate
    produced by PCS Yumbes SCM pursuant to the supply agreement with SQM;                                                                                                                      
| |   |                                                                                                                                                                                                                                                                                        
| | • | Increase
    in sales volume of potassium nitrate to China;                                                                                                                                                                                                                            
| |   |                                                                                                                                                                                                                                                                                        
| | • | Increase
        in sales volume of specialty blends and other specialty plant nutrients
        containing mostly non-SQM products due to the consolidation in 2003 of
        the subsidiaries in Mexico and in South Africa and the acquisition of
    Norsk Hydro Chile operations;
| |   |                                                                                                                                                                                                                                                                                        
| | • | Lower sales
        volumes for potassium sulfate were due to maintenance carried out on
        the potassium sulfate plant, affecting total production levels and full
        year production costs, with the corresponding negative effects in gross
    margin.                   

In addition to the increase in sales volumes, average price level for our specialty fertilizers business increased during 2003 compared to the year 2002, mainly due to the strengthening of demand and the fact that producers are operating close to their nominal capacities.


Iodine and derivatives

Revenues for iodine and iodine derivatives in 2003 reached US$84.6 million, similar to the US$84.1 million of the previous year.


|                       |             |  | Year 2003 |  | Year 2002 |  | %
    change |  
|---------------------- | ----------- |  | --------- |  | --------- |  | ------------ | -
|                       |             |  |           |  |          
|Iodine and derivatives | Th.
    Ton |  | 6.6       |  | 6.4       |  | 3            | %
|                       |             |  |           |  |           |  |              |  

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The slightly
      higher sales volumes during 2003 compared to 2002 are primarily explained
      by the following:


| | • | We increased
        iodine sales to the x-ray contrast media market, which experienced growth
    rates of approximately 6% during 2003;
| | - | -----------------------------------------------------------------------------------------------------------------------------------------
| |   |                                                                                                                                          
| | • | We increased
        our iodine sales to the sanitation market, which experienced growth rates
    of 3-5% during 2003; and              
| |   |                                                                                                                                          
| | • | We increased
        our sales to the Chinese markets, mainly to the pharmaceutical and disinfectant
    (iodophors) industries.         

Lithium and derivatives

Revenues
      from sales of lithium and lithium derivatives in 2003 reached US$49.7 million,
      compared to US$37.3 million in 2002.


|                                      |         | Year 2003 |  | Year 2002 |  | % change |  
|------------------------------------- | ------- | --------- |  | --------- |  | -------- | -
|                                      |         |           |  |           |  |          |  
|Lithium
    carbonate and derivatives | Th. Ton | 27.4      |  | 22.3      |  | 23       | %
|                                      |         |           |  |           |  |          |  

The increase
      in revenues in 2003 compared to 2002 is mainly due to the following:


| | • | We increased
        sales of lithium hydroxide. This increase is related to higher product
        availability due to our acquisition of a lithium hydroxide stockpile
    in the United States at the end of 2002;
| | - | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |   |                                                                                                                                                                                                                      
| | • | We increased
        sales of lithium carbonate to China as a result of increased demand;
    and                                                                                                                    
| |   |                                                                                                                                                                                                                      
| | • | We increased
        sales of lithium carbonate in other Asia-Pacific markets, especially
        in Japan, as we continued to penetrate the rechargeable lithium battery
    markets.                               

Sales prices during 2003 were approximately 8% higher than sales prices in 2002.


Industrial Chemicals

Revenues
      from industrial chemicals sales in 2003 reached US$73.7 million,comparedto
      US$70.8 million in 2002.


|                        |             | Year 2003 |  | Year 2002 |  | % change |   
|----------------------- | ----------- | --------- |  | --------- |  | -------- | --
|                        |             |           |  |           |  |          |   
|Industrial
    nitrates | Th.
    Ton | 193.2     |  | 187.3     |  | 3        | % 
|Sodium
    sulfate      | Th.
    Ton | 54.2      |  | 63.2      |  | (14      | )%
|Boric
    acid          | Th.
    Ton | 10.7      |  | 11.3      |  | (5       | )%
|                        |             |           |  |           |  |          |   

The increase in 2003 compared to 2002 is mainly explained by the following:


| | • | Sales of
        industrial nitrates products increased in 2003 and prices for industrial
        nitrate products were higher in 2003 than in 2002.
| | - | ----------------------------------------------------------------------------------------------------------------------------------------------------
| |   |                                                                                                                                                     
| | • | Sodium sulfate and boric acid sales volumes were lower due to lower production.                                                                     

Other Products

Revenues from other products were US$121.0 million, including US$40.0 million
        from potassium chloride and US$81.0 million from commodity fertilizers.


Total revenues from other products increased 51.1% from US$80.1 million in 2002.


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Revenues
      for potassium chloride for 2003 reached US$40.0 million, compared to US$38.2
      million in 2002.


|                       |             | Year 2003 |  | Year 2002 |  | % change |   
|---------------------- | ----------- | --------- |  | --------- |  | -------- | --
|                       |             |           |  |           |  |          |   
|Potassium
    Chloride | Th.
    Ton | 284.1     |  | 286.0     |  | (1       | )%
|                       |             |           |  |           |  |          |   

| |   |                                                                                                                                         
| | - | ----------------------------------------------------------------------------------------------------------------------------------------
| | • | Sales of
        potassium chloride were directly related to its consumption as raw material
    in the production of potassium nitrate.
| |   |                                                                                                                                         

Our revenues
      for commodity fertilizers in 2003 reached US$81.0 million, higher than
      the US$41.9 million of the previous year. The main reason for this significant
      increase was the consolidation during 2003 of our subsidiaries in Mexico
      and in South Africa, and the acquisition of Norsk Hydro Chile operations,
      all of which increased our sales of other products, mainly in the form
      of trading of other fertilizers.


Cost of Sales

Cost of sales
      during 2003 was US$554.0 million, which represented a 30.4% increase compared
      to US$424.8 million recorded during 2002. Cost of sales consists primarily
      of production related expenses, depreciation, raw material costs, logistics
      expenses and the cost of imported fertilizers and blends used both for
      resale and in the production of other products. As a percentage of revenues,
      cost of sales were 80.1% in 2003, higher than the 76.7% observed in 2002.


The higher
      costs of sales in 2003 reflect the increased trading of commodity and specialty
      fertilizers as well as the trading of lithium hydroxide. We expect to replace
      the trading of certain specialty fertilizers and lithium hydroxide with
      our own production within the next few years, increasing the gross margin
      derived from those operations. Additionally, the appreciation of the Chilean
      peso against the U.S. dollar during 2003 has negatively affected the portion
      of the costs incurred in Chilean currency, mainly salaries and certain
      local contracts.


Gross Profit

As a result
      of the factors described above, gross profit increased 6.8% to US$137.8
      million in 2003 from US$129.0 million in 2002.


Selling and Administrative Expenses

Selling and
      Administrative Expenses reached US$50.6 million (7.3% of revenues) in 2003
      compared to US$46.3 million (8.4% of revenues) in 2002.


The total
      increase in selling and administrative expenses is mainly explained by
      the consolidation of subsidiaries in South Africa and in Mexico, and of
      the operations of Norsk Hydro Chile during 2003. The additional selling
      and administrative expenses related to these three subsidiaries is approximately
      US$4.9 million.


Operating Income

As a result
      of the factors described above, operating income increased 5.5% to US$87.2
      million in 2003 from US$82.7 million in 2002.


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Non-Operating Results (net)

The principal
      components of our non-operating results were as follows:


|                                   | Year ended December 31, |  
|---------------------------------- | ----------------------- | -
|(in millions of US$)               | 2003                    |  
|                                   |                         |  
|Net financial income (expense) (1) | (18.8                   | )
|                                   |                         |  
|Exchange gain (loss)               | 6.6                     |  
|                                   |                         |  
|Others                             | (8.9                    | )
|                                   |                         |  
|Total Non-Operating                | (21.2                   | )
|                                   |                         |  

|   
|---
|(1)

During 2003,
      total net non-operating expenses were US$21.2 million, US$8.8 million decrease
      compared to US$30.0 million expended in 2002. The primary reasons were
      the following:


| | • | Net financial
        expenses decreased from US$25.5 million in the year 2002 to US$18.8 million
        in the year 2003. Our consolidation strategy based on a moderate capital
        expenditure program and focused on increasing the cash flow, has allowed
        us to reduce our net financial debt by approximately US$29.1 million
        in the last twelve months. The latter, along with lower interest rates,
        has translated in a significant reduction in financial expenses. See
    also Item 11. Quantitative and Qualitative Disclosures About Market Risk
        for an analysis of the Company’s debt which is subject to variable interest
    rates.
| | - | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                          
| | • | Exchange
        gains of US$6.6 million during 2003 as compared to net exchange losses
        of US$3.5 million during 2002. This was mainly due to the 21% appreciation
    of the Euro against the U.S. dollar.                                                                                                                                                                                                                                                                                                                                                                                                                                                                      
| |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                          
| | • | The
        item Others increased from a net loss of US$1.0 million in the year 2002
        to
        a net loss of US$8.9 million in the year 2003. This item includes expenses
    related to the write off certain capital expenditure projects.                                                                                                                                                                                                                                                                                                                                                                                                                                    

Income Taxes

Income
        taxes reached US$16.0 million in 2003, resulting in an effective consolidated
        tax rate of 24.3% compared to income taxes of US$10.6 million in 2002,
        which resulted in an effective consolidated tax rate of 20.0%. In accordance
        with Chilean law, SQM and each of its subsidiaries compute and pay taxes
        on an individual basis and not on a consolidated basis. We had tax loss
        carry-forwards of US$62.6 million on December 31, 2003, the majority
        of which had no expiration dates and were expected to be utilized in
        the future.


| | • | The 51%
        increase in income taxes is mainly due to the increase in our net profits.
        Most of the 2003 tax provision relates to deferred tax provision, which
    is determined in accordance with Chilean GAAP.
| | - | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

Income taxes
      applied to companies in Chile were 16.5 % during 2003. Income tax will
      be raised during 2004 to a new tax rate of 17 %.


For a more
      detailed analysis of income and deferred taxes see Note 13 to the Consolidated
      Financial Statements.


Foreign Exchange Rates - Inflation

As noted
      above, the U.S. dollar is the primary currency in which we operate. Nevertheless,
      as an international company operating in Chile and several other countries,
      we transact a portion of our business and have assets and liabilities in
      other non-dollar currencies. During 2004, we had net foreign exchange loss
      caused mainly by appreciation in the Chilean peso.


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

The exposure
      to currency fluctuation is mainly originated by assets and liabilities
      in Euro, Chilean Peso, Mexican Peso and South African Rand. 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,
      2004 and 2003:


|                   | 2004       |   | 2003       | 
|------------------ | ---------- | - | ---------- | 
|                   | Th
    US$ |   | Th
    US$ | 
|                   |            |   |            | 
|Chilean pesos      | 66,980     |   | 130,046    | 
|Brazilian real     | (448       | ) | 1,605      | 
|Euro               | 20,069     |   | 54,474     | 
|Japanese yen       | 3,693      |   | 2,314      | 
|Mexican pesos      | (2,770     | ) | 17,688     | 
|South African rand | 7,074      |   | 6,380      | 
|Other currencies   | 2,224      |   | 548        | 

The main
      reason for the decrease in net monetary assets and liabilities in Chilean
      pesos is due to the sale on August 18, 2004, of our 14.05% stake in Empresas
      Melón. See Note 8 to the Consolidated Financial Statements included
      in Item 18 of this Form 20-F. Partly offsetting this decrease, the Chilean
      peso appreciated 7.1% against the U.S. dollar, which at the close of 2003
      was 599.40 Ch$/US$ and at the close of 2004 was 559.83 Ch$/US$.


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, 2004, for this purpose we had
      open forward exchange contracts and options to buy U.S. dollars and sell
      foreign currency for approximately US$58.1 million in Euros, US$9 million
      in Chilean Pesos, US$1.6 million in South African rands and US$3.5 million
      in Mexican pesos.


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

The principal
      differences between Chilean GAAP and U.S. GAAP as they relate to our Company
      are (i) the elimination of the effects of a reappraisal of fixed assets
      undertaken in 1988, (ii) the effect of monetary correction and the treatment
      of foreign currency translation gains and losses, (iii) the accounting
      for derivative contracts, (iv) the treatment of the investment in Empresas
      Melón S.A., (v) the treatment of companies in development stage,
      (vi) the accounting for staff severance indemnities, and (vii) the elimination
      of complementary accounts in deferred taxes. For further details of these
      differences between Chilean GAAP and U.S. GAAP, see Note 27 to the Consolidated
      Financial Statements.


Net income
      under U.S. GAAP for 2004, 2003 and 2002 was US$86.8 million, US$57.8 million
      and US$46.9 million, respectively, compared to that reported under Chilean
      GAAP of US$74.2 million, US$46.8 million and US$40.2 million, respectively.


Total shareholders’
      equity under U.S. GAAP at December 31, 2004 and 2003 was US$856.9 million
      and US$794.7 million, respectively, compared to that reported under Chilean
      GAAP of US$948.6 million and US$890.0 million, respectively.


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5.B.Liquidity and Capital Resources

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


The current
      ratio increased from 3.62:1 as of December 31, 2003 to 4.38:1 as of December
      31, 2004 due to a decrease in short term borrowings, and increases in accounts
      receivable and intermediate product inventories.


As of December
      31, 2004, we had total debt (short-term borrowings, current portion of
      long-term bank debt, long term bank debt and sundry creditors) of US$213.6
      million, as compared to total debt of US$324.1 million as of December 31,
      2003. Of the total debt of US$213.6 million at December 31, 2004, US$12.5
      million was short-term debt plus the current portion of long-term bank
      debt. Of the total debt of US$324.1 million at December 31, 2003, US$62.0
      million was short-term debt plus the current portion of long-term bank
      debt. All of our long-term bank debt (including the current portion) as
      of December 31, 2004 was denominated in U.S. dollars. The following table
      sets forth the maturities of our long-term bank debt as of June 25, 2005:


|Years   | Amount           
|------- | -----------------
|        | (millions of US$)
|        |                  
|2006(1) | 200.0            
|2010(2) | 100.0            

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

On December
      2002, we renegotiated an older syndicated loan into another of US$60 million
      at an interest rate of LIBOR + 1.00% (2.226% at December 31, 2003). During
      2003, we prepaid in full the US$80 million syndicated loan. Under the terms
      of that facility, we were required to comply with certain financial ratios.
      In particular, we had to maintain a ratio of debt to total capitalization
      (measured as interest indebtedness to interest indebtedness plus shareholder’s
      equity) of less than 0.45:1 and a maximum level of short term-debt interest
      indebtedness (for this purpose only short-term interest indebtedness of
      SQM and certain subsidiaries is considered) to current assets of 0.30:1.
      As of December 31, 2003, we were in compliance with these ratios. In addition,
      we borrowed US$200 million in September 1996, which is due in 2006 and
      bears interest at a fixed rate of 7.7%.


Recently,
      at the end of February 2005, SQM subscribed a loan agreement oriented to
      refinance future debt maturities and part of the Capex program. The 5-year
      loan is for US$100 million and bears interest at an initial rate of Libor
      + 0.325%.


Several proposals
      for the refinancing of our long-term debt are being reviewed from public
      and private debt markets as well as from the equity markets, all of which
      are being currently evaluated by our management. We believe we face no
      significant refinancing risk considering our current financial structure.


We believe
      that the terms and conditions of our debt agreements are standard and customary
      and that we are in compliance in all material respects with such terms
      and conditions.


As of December
      31, 2004, we had US$66.8 million of cash and cash equivalents, including
      marketable securities. See Note 2 to the Consolidated Financial Statements.
      In addition, as of December 31, 2004, we had unused credit lines amounting
      to approximately US$435 million. For information on the level of borrowings
      as of December 31, 2004, see Item 18. Consolidated Financial Statements.


Shareholders’
      equity increased from US$890.0 million in 2003 to US$948.6 million in 2004.
      Our ratio of total liabilities to equity (including minority interest)
      decreased from 0.53:1 to 0.48:1 due to both the slight reduction of our
      consolidated debt and the mentioned increase in equity.


Our capital
      expenditures in 2004 amounted to US$91.4 million, of which US$35 million
      corresponded to the acquisition of PCS Yumbes.


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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.


We evaluate
      from time to time our cash requirements to fund capital expenditures 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 to fund future capital expenditures, 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
      use to finance part of our capital expenditures program, 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 services requirements for 2005, 2006 and 2007.


Pension Plan

Our wholly
      owned 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. Assumptions used in determining the
      actuarial present value of the projected benefit obligation as of December
      31 are as follows:


|                                        | 2004 |   | 2003 |  
|--------------------------------------- | ---- | - | ---- | -
|                                        |      |   |      |  
|Weighted-average discount rate          | 7.5  | % | 7.5  | %
|Rate of increase in compensation levels | 0.0  | % | 0.0  | %
|Long-term rate of return on plan assets | 8.5  | % | 8.5  | %

For further
      discussion see Note 27 Differences between Chilean and United States Generally
      Accepted Accounting Principles II.m) Post retirement obligations
      and staff severance indemnities.


Environmental Commitments

Regarding
      the María Elena Project, see Item 4. Information on the CompanyEnvironmental
      Regulation. We have committed to future disbursements in the amount of
      US$53.0 million. The most important of these investments is the engineering
      and building of the María Elena piles that represent US$52 million.
      For further discussion see Note 24. to the Consolidated Financial Statements.


|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. This unit, which depends
      on the GIDMA (Research, Development and Environmental Department), provides
      technical advice to production, quality and commercial areas.


Our research
      and development activities are conducted principally at the Antofagasta
      Research and Development Center. The center has a total staff of 28 people,
      including seven Ph.D, three MSc, and seven professionals in the fields
      of engineering and chemistry conducting research on various projects. 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, (iii) development of new products, and
      (iv) improvement of technical customer service.


For the years
      ended December 31, 2004, 2003, 2002 and 2001, we spent approximately US$1.8
      million, US$1.4 million, US$2.2 million and US$2.2 million respectively,
      on research and development activities.


Our research
      and development activities have been instrumental in improving our production
      processes and developing new products. As a result of research and development
      activities new methods of extraction and finishing have been developed,
      including methods for heap leaching nitrates and a method to produce mono-granular
      blends of fertilizers that permit the incorporation of different nutrients
      (including micro-nutrients) into one grain. In recent years, we have also
      been focusing on the development of processes for lithium compounds coming
      out of the brines from the Atacama Salar.


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


|5.D. | Trend
    Information
|---- | ---------------------

In 2004,
      iodine prices continued to increase, following a trend initiated during
      the last quarter 2003. We expect this trend to continue during 2005 due
      to sustained growth in demand accompanied by only marginal increases in
      production, as most of the producers are operating close to their full
      capacities


We expect
      the increased demand for lithium carbonate observed in the past years to
      continue. Demand is mostly driven by lithium batteries, x-ray contrast
      media and biocides producers. Further price recovery is forecasted in the
      short run.


Potassium
      nitrate and sodium potassium nitrate sales volumes slightly increased during
      2004 compared with 2003. Additionally, prices increased during 2004, and
      we expect this trend to continue during 2005.


Sodium nitrate
      third party sales for 2005 are expected to continue to decrease subsequent
      to the past ten years’ trend. This trend is related to the use of sodium
      nitrate as raw material for some specialty plant nutrients such as potassium
      nitrate and other specialty fertilizer blends, whose sales are expected
      to increase in the years to come. Additionally, and similar to potassiu
      m nitrate, prices are expected to continue increasing during 2005.


During 2004,
      logistics cost increased by approximately 15% due to higher oil costs and
      the recovery of the word economy that generated an increase in the shipments
      demand. We expect this trend will continue during 2005.


|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, 2004:


|                                              |         |  | Less Than |  | 1 - 3   |  | 3 - 5 |  | More Than | 
|--------------------------------------------- | ------- |  | --------- |  | ------- |  | ----- |  | --------- | 
|                                              | Total   |  | 1 year    |  | years   |  | years |  | 5 years   | 
|                                              | ThUS$   |  | ThUS$     |  | ThUS$   |  | ThUS$ |  | ThUS$     | 
|                                              |         |  |           |  |         |  |       |  |           | 
|Long- and Short-Term Debt                     | 212,532 |  | 12,532    |  | 200,00  |  |      |  |          | 
|Capital lease obligations                     | 1,285   |  | 179       |  | 532     |  | 434   |  | 140       | 
|Operating leases                              | 99,934  |  | 5,151     |  | 7,582   |  | 7,582 |  | 79,619    | 
|Purchase of permanent investments             | 1,161   |  | 1,161     |  |        |  |      |  |          | 
|Purchase commitments                          | 73,628  |  | 73,628    |  |        |  |      |  |          | 
|Staff severance indemnities                   | 11,875  |  |          |  |        |  |      |  | 11,875    | 
|Other liabilities                             |        |  |          |  |        |  |      |  |          | 
|                                              |         |  |           |  |         |  |       |  |           | 
|Total Contractual Obligations and Commitments | 400,415 |  | 92,651    |  | 208,114 |  | 8,016 |  | 91,634    | 
|                                              |         |  |           |  |         |  |       |  |           | 

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ITEM 6.   DIRECTORS,
SENIOR MANAGEMENT AND EMPLOYEES

|6.A. | Directors
    And Senior Management
|---- | -----------------------------------

We are managed
      by our executive officers under the direction of our Board, which, in accordance
      with the Company’s By -laws, consists of eight directors who are elected
      at the annual ordinary shareholders’ meeting. The Board consists of seven
      members elected by shareholders of the Series A shares, and one member
      elected by shareholders of the Series B shares. The entire Board of Directors
      is regularly elected every three years at our ordinary shareholders meeting.
      Cumulative voting is allowed for the election of directors. The current
      members of the Board of Directors were elected on April 29, 2005 and their
      terms expire in 2008. 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
      and executive officers as of June 20, 2005 are as follows:


|Directors
    Name    |  | Position                                                                                                                                                                                                                                                                                                                                                                                                                                                                 |  | Current
    position held since
|--------------------- |  | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------ |  | -------------------------------
|                      |  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                          |  |                                
|Julio Ponce
    L.(1) |  | Chairman
    of the Board and Director                                                                                                                                                                                                                                                                                                                                                                                                                                   |  | September
    1987             
|                      |  | Mr.
              Ponce is a Forestry Engineer from the Universidad de Chile. He joined
              the Company in 1981. He is also Chairman of the Board of the following
              corporations: Sociedad de Inversiones Pampa Calichera S.A., Sociedad
              de Inversiones Oro Blanco S.A., Norte Grande S.A. and Soquimich Comercial
    S.A. He is the brother of Luis Eugenio Ponce.                                                                |  |                                
|                      |  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                          |  |                                
|Wayne R.
    Brownlee |  | Vice Chairman
    of the Board and Director                                                                                                                                                                                                                                                                                                                                                                                                                              |  | May 2002                       
|                      |  | Mr.
              Brownlee is Senior Vice-President, Treasurer and Chief Financial Officer
              of Potash Corporation of Saskatchewan, Inc. Mr. Brownlee earned degrees
              in Science and Business Administration from the University of Saskatchewan.
              He is on the Board of Great Western Brewing Company as well as PhilomBios,
              an agricultural biotechnology company. He became director at SQM on
    December 2001. |  |                                
|                      |  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                          |  |                                
|Hernán
    Büchi B.   |  | Director                                                                                                                                                                                                                                                                                                                                                                                                                                                                 |  | April
1993                     
|                      |  | Mr.
              Büchi is a Civil Engineer from the Universidad de Chile. He served
              as Vice Chairman of SQM’s Board from January 2000 to April 2002. He
              is currently a Board member in Quiñenco S.A., FICAP S.A.,
    P y S S.A., Alto Pa lermo S.A. and S.A.C.I. Falabella, among others.                                                                                                                                                  |  |                                

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|José María
    Eyzaguirre B. |  | Director                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                          |  | December
    2001
|---------------------------- |  | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------- |  | -----------------
|                             |  | Mr.
              Eyzaguirre is a lawyer, partner of the Chilean law firm Claro y
            Cia. He obtained his law degree from the Universidad de Chile and
            was
              admitted to the Chilean Bar in 1985. In 1987, he obtained a Master’s
              Degree
              from New York University School of Law. 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,
    and Chairman of the Board of directors of Club de Golf Valle Escondido.                                                                                                                                                            |  |                  
|                             |  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                   |  |                  
|Daniel
    Yarur E. (2)      |  | Director                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                          |  | April 2003       
|                             |  | Mr.
              Yarur is an Information Engineer from the Universidad de Chile
            and holds an MSc in Finance at the London School of Economics and
            an AMP
              at Harvard Business School. He is a member of the Board of Banco
            de Credito e Inversiones, Antofagasta P.L.C. (based in London), Antofagasta
            Minerals and Invertec Pesquera Mar de Chiloe S.A.  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 at the Faculty
    of Economic and Administrative Sciences, Universidad de Chile. |  |                  
|                             |  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                   |  |                  
|Wolf von
    Appen           |  | Director                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                          |  | May
2005         
|                             |  | Entrepreneur.
              Mr. von Appen is Chairman of Ultramar Agencia Maritima Ltda. He is
              currently a Board member of Sociedad de Fomento Fabril and Vice president
    of Centro de Estudios Publicos.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                        |  |                  

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|José Antonio
    Silva B. |  | Director                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                    |  | December
    2001
|------------------------- |  | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------- |  | -----------------
|                          |  | Mr.
          Silva is a lawyer from the Pontificia Universidad Católica de
          Chile and holds a Master’s Degree in law at Harvard Law School. Currently,
    he is Senior Partner of the Chilean law firm Silva, Rencoret, Schultz & Lehuedé Abogados.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                              |  |                  
|                          |  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                             |  |                  
|Kendrick
    T. Wallace   |  | Director                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                    |  | December
    2001
|                          |  | Mr.
          Wallace is a lawyer who graduated from Harvard Law School. He is now
          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 for 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. Mr. Wallace
          is a member of the Board of Directors of Adubos Trevo S.A. in Brasil
          and of a number of subsidiaries of Yara International ASA in North
          and South America. 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. |  |                  

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|Executive
    Officers            |  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                             |  |                                
|--------------------------------- |  | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------- |  | -------------------------------
|Name                              |  | Position                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                    |  | Current
    position held since
|                                  |  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                             |  |                                
|Patricio
    Contesse G. (2)      |  | Chief Executive
    Officer                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                 |  | March 1990                     
|                                  |  | Mr.
                Contesse is a Forestry Engineer from the Universidad de Chile.
              He joined the Company in 1981 as CEO, a position he held until
            1982, and again
                in 1988. In the past, he was CEO of Celco Limitada, Schwager
            S.A. and Compañía de Aceros del Pacífico S.A.
            He has also served as OperationsSenior
                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. (2) |  | Chief Operating
    Officer and
        
    Executive Vice President                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                       |  | January
    2000               
|                                  |  | Mr.
              de Solminihac is a Chemical Engineer from the Pontificia Universidad
              Católica de Chile and holds a Master in Business Administration
              from the University of Chicago. He joined the Company in 1988 as
              Business Development Vice President. In 1989, he became General
              Manager and
              later on he became Vice Chairman of the Board of SQM, a position
              he held from 1989 through January 2000. Mr. de Solminihac was Country
              Manager for Raychem
              Corporation. Currently he is a member of the Board of Empresas
              Melón
              S.A. and CEM. Mr. de Solminihac is also a member of the Board of
      Soquimich Comercial. |  |                                
|                                  |  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                             |  |                                
|Matías
    Astaburuaga S.         |  | General
    Counsel                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                         |  | February
    1989              
|                                  |  | Mr.
              Astaburuaga is a lawyer 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
    1994              
|                                  |  | Mr.
              Ramos is an Industrial Engineer from the Pontificia Universidad
            Católica
              de Chile. He joined SQM
              in 1989 as an advisor in the Finance area. In 1991, he moved to the
              Sales department, where he was in charge of the coordination between
              operations and sales. In 1993, he returned to the Finance department
              and became deputy CFO. Mr. Ramos is also a member of the Board of Soquimich
      Comercial.                                                                                                                                                                                                                                                             |  |                                

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|Executive
          Officers |  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                          |  |                                      
|---------------------------- |  | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------- |  | -------------------------------------
|Name                         |  | Position                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                 |  | Current
          position held since
|                             |  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                          |  |                                      
|Jaime
    San Martín L. (2)  |  | Mine Affairs
            Senior Vice President Internal AuditorMr.
            San Martín is a Transportation Engineer from the Pontificia Universidad
            Católica de Chile. He joined the Company in 1995 as Project
            Manager. He became Metallic Mining Development Manager in 1997, and
            Development
            Manager in 1998, Business Development and Mining Property Vice President
      in 1999 and Technical Senior Vice President in 2001.                                                                                                                   |  | June 2005                            
|                             |  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                          |  |                                      
|Luis Eugenio
    Ponce L.    |  | Corporate
    Commercial Senior Vice President                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                           |  | March 1999                           
|                             |  | Mr.
              Ponce is a Mechanical Engineer 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. In
              the past he was member of the Board of IANSA. Currently he is a member
              of the board of Cerámicas Florencia S.A. Mr. Ponce is also
              a member of theBoard
      of Soquimich Comercial. He is the brother of Julio Ponce. |  |                                      
|                             |  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                          |  |                                      
|Carlos
    Nakousi S. (2)    |  | Salar-Lithium
    Operations and Technology Senior Vice
    President                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                    |  | May 2003                             
|                             |  | Mr.
              Nakousi is an Industrial Engineer from the Pontificia Universidad
              Católica
              de Chile and a Harvard Business School alumni, after completing
              the Advanced Management Program in 2002. He joined the Company
              in 1989
              as Head of Process Development. He became Deputy Development Manager
              in 1993, Development Manager of SQM Salar S.A. in 1995, Senior Vice
              President Salar Operations of SQM in 1999 and Operations Senior Vice
    President in 2003                                |  |                                      
|                             |  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                          |  |                                      
|Camila
    Merino C. (2)     |  | Human Resources
    and Administration Senior
    Vice President                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                         |  | March 2001                           
|                             |  | Mrs.
              Merino is an Industrial Engineer from the Pontificia Universidad
              Católica
              de Chile and holds a Master in Business Administration degree from
              the Sloan School of Management at MIT. She joined theCompany
              in 1991, and after a two-year period at MIT, she re-joined the Company
              in 1998 as Nitrates Operations Manager. In the same year she became
              Finance and Administration Manager of SQM Nitratos S.A. and later on,
      in 1999, Corporate Services Manager.                             |  |                                      

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|Executive
          Officers |  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                            |  |                                      
|---------------------------- |  | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------ |  | -------------------------------------
|Name                         |  | Position                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                   |  | Current
          position held since
|                             |  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                            |  |                                      
|Mauricio
    Cabello.        |  | Nitrates-Iodine
    Operations Senior Vice President                                                                                                                                                                                                                                                                                                                                                                                                                                                                                       |  | June
2005                            
|                             |  | Mr.
              Cabello is a Mechanical Engineer 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 Nitratos- Yodo
              in
              2002 and Production Manager of SQM Nitratos-Yodo 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. (2)  |  | Safety,
    Health & Environment Senior Vice President                                                                                                                                                                                                                                                                                                                                                                                                                                                                                     |  | June 2005                            
|                             |  | Mrs.
              De Vidts is an Industrial Engineer 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
              this
              operations in 1998, and later on, in 2001, she became Corporate
              R&D
      and Environmental Issues Vice President. |  |                                      

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



|6.B. | Compensation
|---- | ------------

Directors are paid a monthly fee (UF 300 to the Chairman and UF 50 to each of the remaining seven Directors), which is independent of the number of Board sessions held per month. In addition, the Directors receive additional compensation (in Chilean pesos) each year based on a profit-sharing program approved by the shareholders in an amount equal to 0.65% of the net income (after amortization of negative goodwill) for the Chairman of the Board and of 0.65% of the net income (after amortization of negative goodwill) for the remaining seven Directors, divided equally among those directors. Profit-sharing payments are paid in the year following the fiscal year in respect of which they are earned.


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During 2004, the total compensation paid to each of our directors under the foregoing was as follows:


|                       |  | Total
    per subsidiaries Ch$ |  | Annual
    Total Ch$ | 
|---------------------- |  | ------------------------------ |  | -------------------- | 
|                       |  |                                |  |                      | 
|                       |  | SQM S.A.                       |  | SQMC                 | 
|                       |  |                                |  |                      | 
|Name                   |  | Meeting                        |  | Committee            | 
|                       |  |                                |  |                      | 
|Ponce Lerou, Julio     |  | 249,753,573                    |  |                      | 
|Büchi Buc, Hernán      |  | 37,140,213                     |  |                      | 
|Brownlee, Wayne R.     |  | 37,140,213                     |  | 10,227,904           | 
|Eyzaguirre, José María |  | 37,140,213                     |  |                      | 
|Silva, José Antonio    |  | 37,140,213                     |  | 10,227,904           | 
|Wallace, Kendrick T.   |  | 37,140,213                     |  |                      | 
|Milstein, Avi (1)      |  | 37,140,213                     |  | 10,227,904           | 
|Yarur, Daniel          |  | 37,140,213                     |  |                      | 
|                       |  |                                |  |                      | 
|Total                  |  | 509,735,064                    |  | 30,683,712           | 
|                       |  |                                |  |                      | 

|   
|---
|(1)

For the year ended December 31, 2004, the aggregate compensation paid to our 66 main executives based in Chile was approximately Ch$ 4,905.4 million.  We do not disclose to our shareholders or otherwise make available public information as to the compensation of our individual executive officers.


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 Board of Directors has served in their respective office is provided
  in the discussion of each member of the Board above at Item 6.A Directors and
  Senior Managers.


The date of expiration of the term of the current Board of Directors is April 2008. 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 exist 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 Comité de Directores (Directors’ Committee)
composed of three directors, which performs many of the functions of an Audit
Committee.


The members of
our Directors’ Committee are Hernán Büchi B., José Antonio
Silva B. and Daniel Yarur Elsaca. This Committee operates in accordance with
article 50 bis of Law No 18.046, which provides that the Committee shall:


| | (a) | Examine
        and issue an opinion regarding the external auditor’s report and financial
        statements prior to its final presentation for approval at the General
    Shareholders Meeting
| | --- | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | (b) | Propose
        to the Board of Directors the external auditors and the rating agencies
        that will be
presented to the General Shareholders Meeting                                        

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| | (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 Directors’ Committee
    during 2004:
| |                                                                                                        |                                                                                                                                           
| | (a)                                                                                                    | Analysis
    of the unaudited financial statements                                                                                        
| | (b)                                                                                                    | Analysis
    the audited financial statements                                                                                             
| | (c)                                                                                                    | Analysis
    and proposal of the external auditors and credit risk rating agencies                                                        
| | (d)                                                                                                    | Analysis
    of the goals and purposes of the Internal Auditor Department                                                                 
| | (e)                                                                                                    | Analysis
    of the salary and compensation plans of the Company’s management                                                             
| | (f)                                                                                                    | Analysis
        of
research projects that will be done with the Institute for R&D Limited-
which is related to Israel Chemicals Limited
| | (g)                                                                                                    | Analysis
    of matters related to Section 404 of the “SarbanesOxley Act”                                                                
| | (h)                                                                                                    | Analysis
    of certain agreements with subsidiaries and affiliates                                                                       
| | (i)                                                                                                    | Analysis
        of future
investments                                                                                                    
| | (j)                                                                                                    | Approval of minutes of previous meeting                                                                                                   

Article 50 bis states that the Committee should consist of three directors, of which the majority must be independent from the controller, if any, and that their functions are to be remunerated. On April 29, 2005, the General Shareholders Meeting agreed to pay a remuneration of UF50 per director per month, independently of the number of meetings of the Committee for the period between May 2005 and April 2006, both included.  This remuneration is independent from their compensation as Directors of the Board. At that same meeting, an operational budget for the Committee of UF1,800 was approved.


The activities carried out by the Committee, as well as the expenses incurred by it, are to be disclosed at the General Shareholders Meeting. On June 21, 2005, the
      Board of Directors approved the establishment of an audit committee to
  comply with the requirements of the NYSE corporate governance rules. The members of the audit committee are Hermán Büchi B., José Antonio
      Silva B. and Daniel Yarur Elsaca. Each of the three members meets the NYSE
      independence
    requirements for audit committee members. 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.


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|Section        |  | NYSE
    Standards                                                                                                                                                              |  | SQM
    practices pursuant to Chilean regulations                                                                                                                                                                                                                                                                                                          
|-------------- |  | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------- |  | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|               |  |                                                                                                                                                                                 |  |                                                                                                                                                                                                                                                                                                                                                            
|303A.01        |  | The
    majority of the listed company directors must be independent                                                                                                            |  | There
          is no legal obligation to have a majority of . independent directors
    on the Board.                                                                                                                                                                                                                                                     
|               |  |                                                                                                                                                                                 |  |                                                                                                                                                                                                                                                                                                                                                            
|303A.02        |  | Independence
    Test                                                                                                                                                           |  | A
          Director is considered independent if he would have been elected without
    the vote of the controlling shareholder and related persons and entities.                                                                                                                                                                                         
|               |  |                                                                                                                                                                                 |  |                                                                                                                                                                                                                                                                                                                                                            
|303A.03        |  | Non-management
    directors must meet at regularlyscheduled
    executive sessions without management.                                                                         |  | These
          meetings are not needed given that directors do not also serve as executive
    officers.                                                                                                                                                                                                                                                  
|               |  |                                                                                                                                                                                 |  |                                                                                                                                                                                                                                                                                                                                                            
|303A.04        |  | Listed
    companies must have a nominating/corporate governance
    committee composed
    entirely of independent directors, and must have
    a written charter.             |  | This
          committee is not contemplated as such in the Chilean regulations. 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 contemplated as such in the Chilean regulations. Pursuant
          to Chilean regulations SQM has a Directors’ Committee (see Board practices
    above) that is in charge of reviewing management’s compensation.                                                                                                        
|               |  |                                                                                                                                                                                 |  |                                                                                                                                                                                                                                                                                                                                                            
|303A.06303A.07 |  | Listed
    companies must have an audit committee with a minimum
    of three members, certain requirements ofindependence
    and a written charter.                           |  | This
          committee is not contemplated as such in the Chilean regulations. Pursuant
    to Chilean regulations SQM
    has a Directors’ 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. 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.
|               |  |                                                                                                                                                                                 |  |                                                                                                                                                                                                                                                                                                                                                            
|303A.10        |  | Listed
          companies must
adopt and disclose a code of business
conduct and ethics for directors, officers
and employees.                                                 |  | Not
          contemplated 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.12        |  | Each
          listed company CEO
must certify to the NYSE each
year that he or sheis
not aware of any violation by the company of NYSE corporate
governance listing
standards. |  | Not
          contemplated in the Chilean regulations. The CEO must only comply with
          letter (b) of this section, referring to the obligation upon the CEO
          to notify if any material and relevant NON-fulfillment exists in relation
    to section 303A.                                                                               

|     |          
|---- | ---------
|6.D. | Employees

As of December 31, 2004, we had 3,418 permanent employees, of whom 280 were employed outside of Chile. The average tenure of our full time employees is approximately 9.4 years.


|                           |  | 2004  |  | 2003  |  | 2002  |  | 2001  | 
|-------------------------- |  | ----- |  | ----- |  | ----- |  | ----- | 
|                           |  |       |  |       |  |       |  |       | 
|Permanent employees        |  | 3,418 |  | 3,455 |  | 3,050 |  | 3,024 | 
|Employees in Chile         |  | 3,138 |  | 3,154 |  | 2,869 |  | 2,866 | 
|Employees outside of Chile |  | 280   |  | 301   |  | 181   |  | 158   | 

Of our permanent employees in Chile, 73,7% are represented by 30 labor unions, which represent their members in collective bargaining negotiations with the Company. Compensation for unionized personnel is established in accordance with the relevant collective bargaining agreements. The terms of most such agreements currently in effect are three years, and expiration dates of such agreements vary from contract to contract. Under these agreements, employees receive a salary according to a scale that depends upon job function, seniority and productivity. Unionized employees also receive certain benefits provided for by law and certain benefits, which vary depending upon the terms of the collective bargaining agreement, such as housing allowances and additional death and disability benefits.


In addition, the Company owns all of the equity of Institución de Salud Previsional Norte Grande Limitada, (Isapre Norte Grande), which is a health maintenance organization that provides medical services primarily to our employees. We make specified contributions to Isapre Norte Grande in accordance with Chilean laws and the provisions of our various collective bargaining agreements but is not otherwise responsible for its liabilities.


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


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.


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We have experienced no strikes or significant work stoppages in the last ten years and consider the relationship with our employees to be good.


Recent legislation to reform Chilean Labor Law has amended several articles of Employment Law N° 19.759. One of the most relevant amendments to the Company was the Article 22, which reduced the hours in a working week from 48 to 45, effective as of January 1, 2005. During 2004, we changed all our work shifts that had more than 45 working hours, in order to comply with the new requirement.  These changes did not result in significant higher costs or operational problems.


|6.E. | Share
    Ownership
|---- | -------------------

Mr. Julio Ponce L., Chairman of the Board of SQM, and related persons control Inversiones SQ Holding S.A. Inversiones SQ Holding S.A. and Yara International ASA beneficially own 51% and 49%, respectively, 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 65,702,424 Series A Shares, constituting 46% of the outstanding Series A Shares and 24.96% of the total shares of SQM. See Item 7.A. Major Shareholders.


Pursuant to the Company’s
      By-laws, as amended, as of May 25, 2005, no holder of Series A or Series
      B shares will have the right to exercise
    for itself or on behalf of other holders of Series A or Series B shares the
      right to vote more than 37.5% of the outstanding shares of each such class
      entitled
    to vote. For purposes of calculating such percentage, shares owned by persons
  related to such shareholder shall be added to shares held by such shareholder.


The following table shows the combined stakes that Mr. Julio Ponce and Yara International ASA have held in SQM as of December 31:


|         |  | % Beneficial ownership |  
|-------- |  | ---------------------- | -
|         |  |                        |  
|2005 (1) |  | 24.96                  | %
|2004     |  | 22.63                  | %
|2003     |  | 20.35                  | %
|2002     |  | 20.35                  | %

|   
|---
|(1)

No other director or executive officer owns more than 1% of each share class of the Company as of June 15, 2005. See Item 6.  Directors, Senior Management and Employeesfootnote (1).  Individual ownership has not been publicly disclosed. Directors and executive officers as a group own 0.61% of total shares


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


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ITEM 7. MAJOR
SHAREHOLDERS AND RELATED PARTY TRANSACTIONS

|7.A. | Major
    Shareholders
|---- | ----------------------

Taking into account the ownership structure of the stockholders, the Company does not have a controlling entity.  The following table sets forth certain information concerning beneficial ownership of the Series A shares and Series B shares of SQM as of June 15, 2005 with respect to each shareholder known by us to beneficially own more than 5% of the outstanding Series A shares or Series B shares and with respect to all of our directors and executives officers as a group. 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                     |  | Number
    of 
    Series A 
    Shares Beneficially 
    Owned |  | %
         
      Series 
    A Shares |   | Number
    of 
    Series B 
    Shares Beneficially 
    Owned |  | %
         
    Series 
    B Shares |   | %
         
    Total 
    Shares |  
|------------------------------- |  | --------------------------------------------------------------- |  | -------------------------------------- | - | --------------------------------------------------------------- |  | ------------------------------------ | - | --------------------------------- | -
|                                |  |                                                                 |  |                                        |   |                                                                 |  |                                      |   |                                   |  
|Sociedad de Inversiones         |  |                                                                 |  |                                        |   |                                                                 |  |                                      |   |                                   |  
|Pampa
    Calichera S.A.(1)(2)  |  | 52,434,256                                                      |  | 36.71                                  | % | —                                                               |  | 0.00                                 | % | 19.92                             | %
|Inversiones El                  |  |                                                                 |  |                                        |   |                                                                 |  |                                      |   |                                   |  
|Boldo
    Ltda. (3)             |  | 43,861,795                                                      |  | 30.71                                  | % | —                                                               |  | 0.00                                 | % | 16.67                             | %
|The
    Bank of New York        |  | 187,410                                                         |  | 0.13                                   | % | 32,135,120                                                      |  | 26.70                                | % | 12.28                             | %
|Inversiones RAC                 |  |                                                                 |  |                                        |   |                                                                 |  |                                      |   |                                   |  
|Chile
    Ltd.(3)               |  | 19,200,242                                                      |  | 13.44                                  | % | 2,699,773                                                       |  | 2.24                                 | % | 8.32                              | %
|A.F.P.
    Habitat S.A. (4)     |  | —                                                               |  | 0.00                                   | % | 8,426,384                                                       |  | 7.00                                 | % | 3.20                              | %
|A.F.P.
       Provida S.A. (4)  |  | —                                                               |  | 0.00                                   | % | 8,218,006                                                       |  | 6.83                                 | % | 3.12                              | %
|Larrain Vial S.A.               |  | 2,921,165                                                       |  | 2.05                                   | % | 4,610,656                                                       |  | 3.83                                 | % | 2.86                              | %
|Global Mining                   |  |                                                                 |  |                                        |   |                                                                 |  |                                      |   |                                   |  
|Investments
    (Chile) S.A.(1) |  | 7,123,076                                                       |  | 4.99                                   | % | —                                                               |  | 0.00                                 | % | 2.71                              | %
|A.F.P.
    Sta. María S.A.(4)   |  | —                                                               |  | 0.00                                   | % | 6,350,915                                                       |  | 5.28                                 | % | 2.41                              | %
|Inversiones
    SQYA S.A.(1)    |  | 6,145,092                                                       |  | 4.30                                   | % | —                                                               |  | 0.00                                 | % | 2.33                              | %
|                                | 

|(1) | Mr. Julio Ponce L., Chairman of the Board of SQM, and related persons control Inversiones SQ Holding S.A, which in turn, together with Yara International ASA beneficially own 51% and 49%, respectively, 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 65,702,424 Series A Shares, constituting 46% of the outstanding Series A Shares and 24.96% of the total shares of SQM. This stake resulted from successive purchases carried out in the Santiago Stock Exchange during the last part of 2004 and the first months of 2005. The stake held by Mr. Ponce and related parties as of December 31, 2003, 2002 and 2001 was, respectively, 20.35%, 20.35% and 20.1% 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. Approximately 55 of our employees are shareholders of Pampa Calichera, either directly or indirectly.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                 
|(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 65,761,810 SMQ’s shares that represent 24.99% of SQM’s total shares. This stake resultedfrom successive purchases carried out in the Santiago Stock Exchange during the last part of 2004 and the first months of 2005. The stake held by Potash Corporation of Saskatchewan as of December 31, 2003, 2002 and 2001 was respectively 20. 35%, 20.35% and 18.35% of the total shares of SQM.                                                                                                                                                                                                                                                                                                                                                                                         
|(4) | A.F.P.s are legal entities that manage pension funds and are the registered holders of Series A shares and Series B shares acquired with pension funds resources.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                 

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 Meeting without the  authorization
  of the Chairman of the Board. Maximum individual voting power per series is
  37.5 %. In addition, the Director elected by the Series B shares cannot vote
  in the election of the Chairman of the Board after a tie vote has occurred
  in the prior voting process. There are currently 142,819,552 Series A shares
  and 120,376,972 Series B shares outstanding.


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|7.B. | Related
    Party Transactions
|---- | ------------------------------

Article 89 of the Chilean Companies 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 Companies Act provides that any transaction in which a director has a personal interest or is acting on behalf of a third party may be 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 to 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 as of December 31, 2004.


|7.C. | Interests
    Of Experts And Counsel
|---- | ------------------------------------

Not applicable


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.6Export
Sales

We derive most of our revenues from sales outside of Chile. The following is the composition of the consolidated sales for the periods ending on December 31:


|Th. US$                | 2004    |  | 2003    |  | 2002    | 
|---------------------- | ------- |  | ------- |  | ------- | 
|                       |         |  |         |  |         | 
|Foreign sales          | 629,671 |  | 534,651 |  | 440,257 | 
|Total sales            | 788,516 |  | 691,806 |  | 553,809 | 
|                       |         |  |         |  |         | 
|%
    of foreign sales | 79.9    |  | 77.3    |  | 79.5    | 
|                       |         |  |         |  |         | 

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8.A.7Legal
Proceedings

We are or were during 2005 a party to the following legal proceedings:


During the first quarter of 2001, the Company filed an arbitration claim against its insurers, ACE Seguros S.A. and Chubb de Chile Compañía de Seguros Generales S.A., for payment of ThUS$36,316 in indemnifications related to the leak of brines from the pre-concentration ponds that were built by the Company in the Salar de Atacama, which caused losses to the Company of boron, lithium, potassium sulfate and other salts that were to be obtained from such ponds and used in production. The insurance companies argued that the leak was caused by a defect in the design of the ponds attributable to SQM and, therefore, have denied payment of all amounts. Recently, the Santiago Court of Appeals ruled in favor of the insurance companies. This litigation is not subject to further appeal.


During the last quarter of 2002, the French company Compagnie Du Guano de Poisson Angibaud S.A. (”Angibaud”) filed an arbitration claim under French arbitration laws (Association Francaise d’Arbitrage) against the Company requesting indemnification for the alleged early termination of a contract with Generale de Nutrition Vegetale SAS (”GNV”), a French company in which Angibaud and the Company had a 50% share ownership, that held the distribution rights to certain of the Company’s products in France. Angibaud has since filed additional claims against the Company for payment of GNV’s debts, recovery of invoiced amounts and other matters. The total amount demanded is ThEuro$ 30,295.


In October 2004, Tallepsen Services Company L.P. commenced an arbitration proceeding against SQM Lithium Specialties Limited Partnership LLP seeking an award of ThUS$900 for professional fees allegedly owed. In June 2005 its was determined that SQM was not required to make any payment to Tellepsan.


The Company is party to various other lawsuits arising in the ordinary course of business.  Management considers it 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 to the annual ordinary shareholders’ meeting for approval the declaration of the final dividend or dividends in respect of the preceding year, consistent with the then-established dividend policy. Dividends are not price-level adjusted between the end of the preceding year and the date of the declaration of the final dividend.  As required by the Chilean Companies Act, unless otherwise decided by unanimous vote of the holders of issued shares, 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.


Since 1990, our Board of Directors has followed a policy of paying a single dividend equal to approximately 50% 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. During 2005, and considering our capacity to deliver increasing cash flows, at the Annual Ordinary Shareholders’ Meeting held on April 29, 2005, the shareholders approved a single dividend with respect to 2004 of US$0.18282 per share, equal to 65% of the net income, before amortization of negative goodwill for that year, which was paid on May 12, 2005.  The Board of Directors also reaffirmed for 2005 a dividend policy that authorizes distribution of cash dividends in an amount equal to 65% of our net income before amortization of negative goodwill for the year.  The Board of Directors currently expects to recommend that such dividend be paid in
 a single distribution
in May 2006.


We generally declare dividends in U.S. dollars (but may declare dividends in Chilean Pesos), and pay such dividends in Chilean Pesos. If a dividend is declared in U.S. dollars, the exchange rate to be used to convert the dividend into Chilean Pesos is decided by the shareholders at the meeting that approves the dividend, which has usually been the Observed Exchange Rate on the date the dividend is declared.


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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 are paid to shareholders of record on the fifth business day preceding the date set for payment of the dividend. The applicable record dates for the payment of dividends to holders of ADRs will be determined by the Depositary.


Dividends

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


The following table sets forth the U.S. dollar equivalent of dividends per share and per ADS paid in each of the years indicated, based on the Observed Exchange Rate for the date on which the dividend was declared.


|Dividends            |  | Per Share   |  | Per ADS |  | Per Share |  | Per ADS  | 
|-------------------- |  | ----------- |  | ------- |  | --------- |  | -------- | 
|                     |  |             |  |         |  |           |  |          | 
|Declared
    for the |  |             |  |         |  |           |  |          | 
|business year        |  | Paid
    on |  | Ch$     |  | Ch$       |  | US
    $ | 
|                     |  |             |  |         |  |           |  |          | 
|2000                 |  | 2001        |  | 30.56   |  | 3.05      |  | 0.051    | 
|2001                 |  | 2002        |  | 37.03   |  | 3.70      |  | 0.056    | 
|2002                 |  | 2003        |  | 53.31   |  | 5.33      |  | 0.076    | 
|2003                 |  | 2004        |  | 55.05   |  | 5.50      |  | 0.088    | 
|2004                 |  | 2005        |  | 106.56  |  | 10.65     |  | 0.182    | 

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.


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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 ADSs as reported by the NYSE, as the two main Exchanges on which our shares are traded.


(a)  Last
5 years

|     |  | Santiago Stock Exchange |  | NYSE     | 
|---- |  | ----------------------- |  | -------- | 
|     |  | Per Share (2)           |  | Per ADS  | 
|     |  | Series A                |  | Series B | 
|     |  |                         |  |          | 
|     |  | High                    |  | Low      | 
|     |  | Ch$                     |  | Ch$      | 
|     |  |                         |  |          | 
|2000 |  | 1,790                   |  | 1,180    | 
|2001 |  | 1,940                   |  | 1,310    | 
|2002 |  | 3,000                   |  | 1,620    | 
|2003 |  | 3,050                   |  | 1,630    | 
|2004 |  | 3,900                   |  | 2,350    | 

(b)  Last 10 quarters

|                                      | Santiago
      Stock Exchange |  | NYSE           | 
|------------------------------------- | ----------------------------- |  | -------------- | 
|                                      | Per
      Share (2)           |  | Per
      ADS  | 
|                                      | Series
      A                |  | Series
      B | 
|                                      |                               |  |                | 
|                                      | High                          |  | Low            | 
|                                      | Ch$                           |  | Ch$            | 
|                                      |                               |  |                | 
|2003                                  |                               |  |                | 
|First
      quarter                   | 1,760                         |  | 1,630          | 
|Second
      quarter                  | 2,200                         |  | 1,750          | 
|Third
      quarter                   | 2,700                         |  | 2,000          | 
|Fourth
      quarter                  | 3,050                         |  | 2,478          | 
|                                      |                               |  |                | 
|2004                                  |                               |  |                | 
|First
      quarter                   | 2,500                         |  | 2,350          | 
|Second
      quarter                  | 2,600                         |  | 2,380          | 
|Third
      quarter                   | 3,000                         |  | 2,575          | 
|Fourth
      quarter                  | 3,900                         |  | 3,000          | 
|                                      |                               |  |                | 
|2005                                  |                               |  |                | 
|First
      quarter                   | 4,900                         |  | 3,600          | 
|Second
      quarter (through May 31) | 5,501                         |  | 4,900          | 

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c)Last 6 months

|              | Santiago Stock Exchange |  | NYSE     | 
|------------- | ----------------------- |  | -------- | 
|              | Per Share (2)           |  | Per ADS  | 
|              | Series A                |  | Series B | 
|              |                         |  |          | 
|              | High                    |  | Low      | 
|              | Ch$                     |  | Ch$      | 
|              |                         |  |          | 
|December 2004 | 3,900                   |  | 3,356    | 
|January 2005  | 4,250                   |  | 3,600    | 
|February 2005 | 4,600                   |  | 3,600    | 
|March 2005    | 4,900                   |  | 4,580    | 
|April 2005    | 5,500                   |  | 4,900    | 
|May 2005      | 5,501                   |  | 5,270    | 

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

As of June 15, 2005, there were 18,741 Series A and 3,213,512 Series B ADSs (equivalent to 187,410 Series A shares and 32,135,120 Series B shares respectively) outstanding held by 4 holders of record for Series A ADSs and 10 holders of record for the Series B ADSs. As of June 15, such ADSs represented approximately 12.28% of the total number of issued and outstanding shares of our Company.


9.BPlan 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).  Each series also is traded on the New York Stock Exchange in the form of ADSs, each representing 10 Series B and 10 Series A shares respectively. The Bank of New York (the Depositary) is the Depositary of both Series. The ADSs representing Series A shares have traded on the NYSE since April 9, 1999; the ADSs representing Series B shares have traded on the NYSE since September 21, 1993.


9.DSelling Shareholders

Not applicable

9.EDilution

Not applicable

9.FExpenses Of The Issue

Not applicable

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ITEM 10.ADDITIONAL INFORMATION

10.A.Share Capital

Not applicable

10.B.Memorandum And Articles Of Association

SQM, headquartered at El Trovador No 4285, Piso 6, 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 specific
    purposes, which appear on 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 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 facilit ies or
    installations; constitute, administer, purchase, transfer ownership, dissolve,
    liquidate, transform, modify, or form part of partnerships, institutions,
    foundations, corporations, or associations of any kind or nature; perform
    all actions, enter into all contracts, and incur in all obligations convenient
    or necessary for the foregoing; perform any business or activity related to
    its properties, assets, or patrimony, or with that of its affiliates, associated
    companies, or related companies, and render financial, commercial, technical,
    legal, auditing, administrative, advisory, and other pertinent services.


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Directors

The Company’s
    By-laws, in articles 16 and 16 bis, essentially establishes that the transactions
    in which a Director has a material interest must comply with the provisions
    set forth in articles 44 and 136 of Law 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.


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 its capital stock’s share and the preferences.
        An Ordinary  or Extraordinary Shareholders Meeting may be called when
        the shareholders
    of at least 5% of Series B issued shares request so and an Extraordinary
        Board  of Directors Meeting may be called 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.
    On May 25, 2005, in an Extraordinary General Shareholders meeting, the shareholders
         approved an amendment to article 31 of the Company’s By-laws,
         which now requires  that 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.                                          

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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.


Shareholders meetings

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


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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

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


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 a Electrical Energy Supply contract with
        Electroandina S.A. The term of this contract runs through February 12,
        2009 and the anticipated termination is subject to payment of non amortized
      investments.    
| | - | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |   |                                                                                                                                                                                                                                                                                      
| | • | On March
        21, 1997, SQM Salar S.A. entered into a Electricity Supply agreement
        with Norgener S.A. The term of this contract runs through July 31, 2017,
      and anticipated termination is subject to fines for un-received income.                                 
| |   |                                                                                                                                                                                                                                                                                      
| | • | On January
        13, 1998, SQM Nitratos S.A. entered into a Electrical Energy Supply agreement
        with Norgener S.A. The term of this contract runs through January 31,
        2013 and the anticipated termination is subject to payment of non amortized
      investments.
| |   |                                                                                                                                                                                                                                                                                      
| | • | On May
        22, 2001, SQM S.A. entered into an Natrural gas Supply agreement with
        Distrinor S.A. The term of this contract runs through is May 21, 2011
        and the anticipated termination is subject to payment of non amortized
      investments.                 

In addition, our
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. All of these contracts are standard for this type of industry
and none of them is expected to have a 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 ADSs by a Chilean company. Absent the Foreign Investment Contract, under applicable Chilean exchange controls, investors would not be granted access to the Formal Exchange Market for the purpos es of converting from Chilean Pesos to U.S. dollars
 and repatriating from Chil

e amounts received in respect
to deposited Series A or B shares or Series A or B shares withdrawn from deposit on surrender of ADRs (including amounts received as cash dividends and proceeds from the sale in Chile of the underlying Series A and Series B shares and any rights arising therefrom). The following is a summary of the material provisions contained in the Foreign Investment Contract. This
summary does not
purport to be complete and is qualified in its entirety by reference to Chapter
XXVI and the Foreign Investment Contract.


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Under Chapter XXVI and the Foreign Investment Contract, the Central Bank of Chile has agreed to grant to the Depositary, on behalf of ADR holders, and to any investor not residing or 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 ADSs or Withdrawn shares, including amounts received as (a) cash dividends, (b) proceeds from the sale in Chile of Withdrawn shares, or from shares distributed because of the liquidation, merger or consolidation of the Company, subject to receipt by the Central Bank of Chile of a certificate from the holder of such shares (or from an institution authorized by the Central Bank of Chile)
 that such holder’s

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


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


Chapter XXVI and
the Foreign Investment Contract provided that a person who brings certain types
of foreign currency into Chile, including U.S. dollars, to purchase Series A
shares and/or Series B shares with the benefit of the Foreign Investment Contract
must convert it into Chilean Pesos on the same date and has 5 banking business
days within which to invest in Series A shares and/or Series B shares in order
to receive the benefits of the Foreign Investment Contract. If such person decides
within such period not to acquire Series A shares and/or Series B shares, he
can access the Formal Exchange Market to reacquire 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 ADSs 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 required 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 theCompendio
de Normas de Cambios Internacionalesof
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.


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


The Central Bank must be informed of any incurrence of loan obligations to be paid from Chile and by a Chilean borrower to banks and certain other financial institutions outside of Chile.  As of December 31, 2004, we had one long-term loan outstanding obtained in the international markets (a Rule 144-A of US$200 million).  Additionally, in February 2005, Royal Seed Trading Corporation, a wholly owned subsidiary fully guaranteed by us, negotiated a US$100.0 million syndicated loan.


The Central Bank authorized our 144- A long-term loan, and was duly informed about the guaranty given to Royal Seed. Accordingly, all purchases of U.S. dollars in connection with payments on these loans will occur in the Formal Exchange Market. There can be no assurance, however, that restrictions applicable to payments in respect of the loans could not be imposed in the future, nor can there be any assessment of the duration or impact of such restrictions if imposed.


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 ADSs held by a U.S. holder will be subject to a 35% Chilean withholding tax, which is withheld and paid by the Company, the “Withholding Tax. If the Company has paid corporate income tax, the “First Category Tax”, on the income from which the dividend is paid, a credit for the First Category Tax effectively reduces the rate of Withholding Tax. When a credit is available, the Withholding Tax is computed by applying the 35% rate to the pre-tax amount needed to fund the dividend and then subtracting from the tentative withholding tax so determined the amount of First Category Tax actually paid on the pre-tax income. 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. From 1992 through 1997, the Company paid First Category Tax at an effective rate below the 15% statutory rate. The effective rate of
the Withholding
Tax on dividends paid from income attributable to those years therefore will
be higher. During the years 1999 and 2000, the Company distributed dividends
from income qualified under Chilean law as non-taxable, which is why the Company
did not withhold any taxes. The dividends distributed by the Company corresponding
to the business year 2004 were dividends considered taxable, and the total tax
retention rate was approximately 22%.


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


Capital Gains

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 ADSs will not be subject to any Chilean taxes.


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


Gain recognized
on a sale or exchange of shares (as distinguished from sales or exchanges of
ADSs representing such shares) will be subject to both the First Category Tax
and the Withholding Tax if either (i) the foreign holder has held the shares
for less than one year since exchanging the ADSs for the shares, (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 in 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 ADSs by a foreign holder, but such taxes generally will apply to the transfer at death or by gift of the shares by a foreign holder.  No Chilean stamp, issue, registration or similar taxes or duties apply to foreign holders of ADSs or shares.


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Withholding Tax Certificates

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


United States Tax Considerations

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


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


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


There exist
      no reciprocal tax treaties 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 ADSs. U.S. HOLDERS AND NON-U.S. HOLDERS OF SHARES OR ADSs
      SHOULD CONSULT THEIR OWN TAX ADVISORS TO DETERMINE THE CONSEQUENCES UNDER
      ANY SUCH LAW OF INVESTING IN THE SHARES OR ADSs.


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


Cash Dividends and Other Distributions

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


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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 ADSs, of
      the peso amount distributed, regardless of whether the payment is actually
      converted into U.S. dollars. Any gain or loss resulting from currency exchange
      rate fluctuations during the period from the date the dividend is includable
      in the income of the U.S. Holder to the date the pesos are converted into
      U.S. dollars will be treated as ordinary income or loss.


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


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


Capital Gains

A U.S. Holder
      will generally recognize gain or loss on the sale, redemption or other
      disposition of the shares or ADSs in an amount equal to the difference
      between the amount realized on the sale or exchange and the U.S. Holder’s
      adjusted basis in such shares or ADSs. Thus, if the U.S. Holder sells the
      shares for 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. Gain or loss upon the sale of the
      shares or ADSs will be capital gain or loss if the shares or ADSs are capital
      assets in the hands of the U.S. Holder. Capital gains on the sale of capital
      assets held for one year or less are subject to U.S. federal income tax
      at ordinary income tax rates. Net capital gains derived with respect to
      capital assets held for more than one year are eligible for reduced rates
      of taxation. Gain or loss realized by a U.S. Holder on the sale or exchange
      of shares or ADSs will be U.S.-source income. In addition, certain limitations
      exist on the deductibility of capital losses by both corporate and individual
      taxpayers. Any tax imposed by Chile directly on the gain from such a sale
      would generally be eligible for the U.S. foreign tax credit; however, because
      the gain would generally be U.S.-source, a U.S. Holder might not be able
      to use the credit otherwise available. U.S. Holders should consult their
      own tax advisors regarding the foreign tax credit implications of the sale,
      redemption or other dispos ition of a Share or ADS. A Non-U.S.
      Holder of ADSs or shares will not be subject to United States income or
      withholding
        tax on gain from the sale or other disposition of ADSs or shares unless,
        in general (i) such gain is effectively connected with the conduct of
      a trade or business within the United States or (ii) the Non-U.S. Holder
        is an individual who is present in the United States for at least 183
      days
        during the taxable year of the disposition and certain other conditions
        are met.


Information Reporting and Backup Withholding

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


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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


|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.


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, 2003, we had a total financial debt of US$ 264.6 million
        where 23% was priced at a variable rate and 77% was priced at a fixed
        rate. During 2004 we prepaid all our financial debt priced at a variable
        rate using mostly internal cash flow generation, and therefore, as of
        December 31, 2004, we had 100% of our long-term financial debt priced
        at a fixed rate and a US$ 6 million short-term financial debt priced
        at a variable rate.


|                                   | Expected Maturity Date |        |  |         |  |     
|---------------------------------- | ---------------------- | ------ |  | ------- |  | ----
|                                   |                        |        |  |         |  |     
|On Balance Sheet Financial         |                        |        |  |         |  |     
|Instruments                        |                        | 2005   |  | 2006    |  | 2007
|                                   |                        |        |  |         |  |     
|(in thousands of U.S. dollars)     |                       
|Fixed
      Rate ($US)             |                        | 4,577  |  | 200,000 |  | —   
|Average interest rate: 7.7%        |                        |        |  |         |  |     
|Variable Rate ($US)                |                        | 6,000  |  | —       |  | —   
|Average
      Interest rate: 2.48% |                        |        |  |         |  |     
|                                   |                        |        |  |         |  |     
|Total                              |                        | 10,577 |  | 200,000 |  | —   
|                                   |                        |        |  |         |  |     

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We maintain
      the majority of our short-term debt priced at Libor plus a spread for which
      we do not have any kind of derivative contract.


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
        derivatives 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 to cover 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 Euro and expenses
        in Chilean Peso and secure the exchange difference with derivatives contracts.


As of December
      31, 2004 we had the following net monetary assets and liabilities that
      are subject to foreign exchange gain or loss fluctuation:


|                         | 2004         |   | 2003         | 
|------------------------ | ------------ | - | ------------ | 
|                         |              |   |              | 
|                         | Th
      US$ |   | Th
      US$ | 
|Chilean
      pesos      | 66,980       |   | 130,046      | 
|Brazilian
      real     | (448         | ) | 1,605        | 
|Euro                     | 20,069       |   | 54,474       | 
|Japanese
      yen       | 3,693        |   | 2,314        | 
|Mexican
      pesos      | (2,770       | ) | 17,688       | 
|South African
      rand | 7,074        |   | 6,380        | 
|Other currencies         | 2,224        |   | 548          | 

As of December
      31, 2004, we had open forward exchange contracts to buy U.S. dollars and
      sell foreign currency for approximately US$58.1 million in euros, US$9
      million in Chilean pesos, US$1.6 million in South African rands and US$3.5
      million in Mexican pesos. These contracts are all short-term and a summary
      of them is shown in Note 17 to the Consolidated Financial Statements.


ITEM 12.DESCRIPTION OF SECURITIES OTHER THAN EQUITY SECURITIES

Not applicable


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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

In May of 2005, SQMs
    by-laws were amended at an extraordinary shareholders meeting in order to
    change
    the method of calculating the total percentage of
  shares held by a single individual for voting purposes. As a result of the
  amendment, shares that are held directly and shares held indirectly by related
  third parties are included in each shareholders total percentage of ownership.
  This calculation is used for determining whether a shareholders voting
  influence exceeds certain limits which are set forth in Article 31 of the
  By-laws.


ITEM 15.CONTROLS 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 or
    in other factors that could significantly affect these controls subsequent
    to the date of their evaluation. There were no significant deficiencies or
    material weaknesses in our internal controls and procedures requiring corrective
    actions.


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ITEM 16.[Reserved]

ITEM 16A.  AUDIT COMMITTEE FINANCIAL EXPERT

On June 21, 2005, the Board of Directors approved the establishment of an audit committee to comply with the requirements of the NYSE corporate governance rules. At that meeting, 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 adopted at the beginning of 2003 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 20F 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 athttp://www.sqm.com/ingles/IR_home_fr.htm


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 (Th.US$).


|                   | Year
    ended December 31, |     
|------------------ | --------------------------- | ----
|2004               |                             | 2003
|                   |                             |     
|Audit fees         | 446.9                       |     
|Audit-related fees | 11.8                        |     
|Tax fees           | 16.0                        |     
|Other fees         | —                           |     
|                   |                             |     
|Total fees         | 474.7                       |     
|                   |                             |     

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.


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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 COMMITTEES

Not applicable

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

Not applicable

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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 Auditors                                                                                                     | F-2
|-------------------------------------------------------------------------------------------------------------------------------------- | ---
|                                                                                                                                       |    
|Consolidated
    Financial Statements                                                                                                  | F-3
|                                                                                                                                       |    
|Consolidated
    Balance Sheets as of December 31, 2004 and 2003                                                                       | F-3
|                                                                                                                                       |    
|Consolidated
        Statements of Income for each of the three years in the period ended
    December 31, 2004, 2003 and 2002         | F-5
|                                                                                                                                       |    
|Consolidated
        Statements of Cash Flows for each of the three years in the period ended
        December 31, 2004,
2003 and 2002 | F-6
|                                                                                                                                       |    
|Notes to
    the Consolidated Financial Statements       .                                                                             | F-7
|                                                                                                                                       |    
|Supplementary
    Schedules*                                                                                                           |    
|                                                                                                                                       |    

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

(b) Exhibits

|Exhibit |  |                                                  
|------- |  | -------------------------------------------------
|No.     |  | Exhibit                                          
|        |  |                                                  
|1.1     |  | Company
       By-laws                           
|8.1     |  | Significant subsidiaries of the Company          
|12.1    |  | Section 302 Chief Executive Officer Certification
|12.2    |  | Section 302 Chief Financial Officer Certification
|13.1    |  | Section 906 Chief Executive Officer Certification
|13.2    |  | Section 906 Chief Financial Officer Certification

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SIGNATURES

The registrant hereby certifies that it meets all of the requirements for filing on Form 20-F and that it has 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, 2005 |                                               

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Consolidated Financial Statements

SOCIEDAD QUIMICA Y MINERA DE CHILE S.A.

Santiago, Chile

December 31, 2004 and 2003

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Consolidated Financial Statements

SOCIEDAD
  QUIMICA Y MINERA DE CHILE S.A. As of December
  31, 2004 and 2003

and for the three years in the period ended December 31, 2004





|Contents                                                      |    
|------------------------------------------------------------- | ---
|                                                              |    
|Report
      of Independent Registered Public Accounting Firm | F-2
|                                                              |    
|Consolidated
      Financial Statements                       |    
|                                                              |    
|Consolidated
      Balance Sheets                             | F-3
|Consolidated
      Statements of Income                       | F-5
|Consolidated
      Statements of Cash Flows                   | F-6
|Notes
      to the Consolidated Financial Statements          | F-7



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

F-1

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Report of Independent Registered Public Accounting Firm

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

We have audited
  the accompanying consolidated balance sheets of Sociedad Química y Minera
  de Chile S.A. and subsidiaries as of December 31, 2004 and 2003 and the related
  consolidated statements of income and cash flows for each of the three years
  in the period ended December 31, 2004. 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. We were not engaged to perform an audit of the Companys internal control over financial reporting. Our audits included consideration of internal control over financial reporting as a basis for designing audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the Companys internal control over financial reporting. Accordingly, we express no such opinion. An audit also includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and
 significant estimates
made by management, 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, 2004 and 2003 and the consolidated results of their operations and their cash flows for each of the three years in the period ended December 31, 2004, in conformity with accounting principles generally accepted in Chile and standards set forth by the Superintendency of Securities and Insurance, which differ in certain respect from U.S. generally accepted accounting principles (see Note 27 to the consolidated financial statements).


|ERNST
      & YOUNG LTDA. | 
|------------------------- | 

Santiago, Chile,
  March 4, 2005 (except for Note
  27 for which the date is June 10, 2005)

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SOCIEDAD QUIMICA Y MINERA DE CHILE S.A.

Consolidated Balance Sheets

|                                                           |      |  | As
      of December 31, |  
|---------------------------------------------------------- | ---- |  | ------------------------ | -
|                                                          
|Note                                                       | 2004 |  | 2003                    
|                                                           |      | 
|                                                           |      |  | ThUS$                    |  
|ASSETS                                                     |      |  |                          |  
|Current
      assets                                       |      |  |                          |  
|Cash
      and cash equivalents                            | 2e)  |  | 66,753                   |  
|Accounts
      receivable, net                             | 4    |  | 169,840                  |  
|Other
      accounts receivable, net                       | 4    |  | 8,343                    |  
|Accounts
      receivable from related companies           | 5    |  | 26,029                   |  
|Inventories,
      net                                     | 6    |  | 274,602                  |  
|Recoverable
      taxes                                    |      |  | 19,185                   |  
|Prepaid
      expenses                                     |      |  | 2,735                    |  
|Other
      current assets                                 |      |  | 7,963                    |  
|                                                           |      |  |                          |  
|Total
      current assets                                 |      |  | 575,450                  |  
|                                                           |      |  |                          |  
|Property,
      plant and equipment, net                   | 7    |  | 694,762                  |  
|                                                           |      |  |                          |  
|Other
      Assets                                         |      |  |                          |  
|Investments
      in related companies                     | 8    |  | 15,987                   |  
|Goodwill,
      net                                        | 9    |  | 17,470                   |  
|Negative
      goodwill, net                               | 9    |  | (271                     | )
|Intangible
      assets, net                               |      |  | 4,544                    |  
|Long-term
      accounts receivable, net                   | 4    |  | 289                      |  
|Long-term
      accounts receivable from related companies | 5    |  | —                        |  
|Other
      long-term assets                               | 10   |  | 53,141                   |  
|                                                           |      |  |                          |  
|Total
      Other Assets                                   |      |  | 91,160                   |  
|                                                           |      |  |                          |  
|Total
      assets                                         |      |  | 1,361,372                |  
|                                                           |      |  |                          |  

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

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SOCIEDAD QUIMICA Y MINERA DE CHILE S.A.

Consolidated Balance Sheets

|                                                      |      |  | As
      of December 31, | 
|----------------------------------------------------- | ---- |  | ------------------------ | 
|                                                     
|Note                                                  | 2004 |  | 2003                    
|                                                      |      | 
|                                                      |      |  | ThUS$                    | 
|LIABILITIES
      AND SHAREHOLDERS’ EQUITY            |      |  |                          | 
|Current
      liabilities                             |      |  |                          | 
|Short-term
      bank debt                            | 11   |  | 7,955                    | 
|Current
      portion of long-term bank debt          | 11   |  | 4,577                    | 
|Dividends
      payable                               |      |  | 183                      | 
|Accounts
      payable                                |      |  | 57,859                   | 
|Other
      accounts payable                          |      |  | 2,054                    | 
|Notes
      and accounts payable to related companies | 5    |  | 14,025                   | 
|Accrued
      liabilities                             | 12   |  | 12,267                   | 
|Withholdings                                          |      |  | 11,103                   | 
|Income
      taxes                                    |      |  | 11,641                   | 
|Deferred
      income taxes                           | 13   |  | 7,933                    | 
|Deferred
      income                                 |      |  | 441                      | 
|Other
      current liabilities                       |      |  | 1,206                    | 
|                                                      |      |  |                          | 
|Total
      current liabilities                       |      |  | 131,244                  | 
|                                                      |      |  |                          | 
|Long-term
      liabilities                           |      |  |                          | 
|Long-term
      bank debt                             | 11   |  | 200,000                  | 
|Other
      accounts payable                          |      |  | 1,106                    | 
|Deferred
      income taxes                           | 13   |  | 34,089                   | 
|Staff
      severance indemnities                     | 14   |  | 11,875                   | 
|                                                      |      |  |                          | 
|Total
      long-term liabilities                     |      |  | 247,070                  | 
|                                                      |      |  |                          | 
|Minority
      interest                               | 15   |  | 34,430                   | 
|                                                      |      |  |                          | 
|Commitments
      and contingencies                   | 21   |  |                          | 
|Shareholders’
      equity                            |      |  |                          | 
|Paid-in
      capital                                 | 16   |  | 477,386                  | 
|Other
      reserves                                  | 16   |  | 150,887                  | 
|Retained
      earnings                               | 16   |  | 320,355                  | 
|                                                      |      |  |                          | 
|Total
      shareholders’ equity                      |      |  | 948,628                  | 
|                                                      |      |  |                          | 
|Total
      liabilities and shareholders’ equity      |      |  | 1,361,372                | 
|                                                      |      |  |                          | 

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

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SOCIEDAD QUIMICA Y MINERA DE CHILE S.A.

Consolidated Statements of Income

|                                          |      |  | For
      the years ended |  
|----------------------------------------- | ---- |  | ------------------------- | -
|December
      31,                       
|                                         
|Note                                      | 2004 |  | 2003                      |  
|                                          |      |  |                          
|                                          |      |  | ThUS$                     |  
|Operating
      income                    |      |  |                           |  
|Sales                                     |      |  | 788,516                   |  
|Cost
      of sales                       |      |  | (608,744                  | )
|                                          |      |  |                           |  
|Gross
      margin                        |      |  | 179,772                   |  
|Selling
      and administrative expenses |      |  | (55,705                   | )
|                                          |      |  |                           |  
|Operating
      income                    |      |  | 124,067                   |  
|                                          |      |  |                           |  
|Non-operating
      income                |      |  |                           |  
|Non-operating
      income                | 18   |  | 20,829                    |  
|Non-operating
      expenses              | 18   |  | (38,420                   | )
|                                          |      |  |                           |  
|Non-operating
      loss                  |      |  | (17,591                   | )
|                                          |      |  |                           |  
|Income
      before income taxes          |      |  | 106,476                   |  
|Income
      tax expense                  | 13   |  | (27,308                   | )
|                                          |      |  |                           |  
|Income
      before minority interest     |      |  | 79,168                    |  
|Minority
      interest                   | 15   |  | (5,139                    | )
|                                          |      |  |                           |  
|Net
      income before negative goodwill |      |  | 74,029                    |  
|Amortization
      of negative goodwill   | 9    |  | 203                       |  
|                                          |      |  |                           |  
|Net
      income for the year             |      |  | 74,232                    |  
|                                          |      |  |                           |  

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

F-5

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SOCIEDAD QUIMICA Y MINERA DE CHILE S.A.

Consolidated Statements of Cash Flows

|                                                                   |      |  | For
    the years ended December 31 |  
|------------------------------------------------------------------ | ---- |  | ----------------------------------- | -
|                                                                   |      |  |                                     |  
|                                                                   | Note |  | 2004                                |  
|                                                                   |      |  |                                     |  
|                                                                   |      |  | ThUS$                               |  
|Cash flows from operating activities                               |      |  |                                     |  
|Net income                                                         |      |  | 74,232                              |  
|Charges (credits) to income not representing cash flows            |      |  |                                     |  
|Depreciation expense                                               | 7    |  | 62,690                              |  
|Amortization of intangible assets                                  |      |  | 173                                 |  
|Write-offs and accruals                                            |      |  | 23,584                              |  
|Gain on equity investments in related companies                    |      |  | (4,897                              | )
|Loss on equity investments in related companies                    |      |  | 387                                 |  
|Amortization of goodwill                                           | 9    |  | 1,073                               |  
|Amortization of negative goodwill                                  | 9    |  | (203                                | )
|(Gains) losses on sales of assets                                  |      |  | 283                                 |  
|Gain on sale of investment                                         |      |  | (8,820                              | )
|Oth er credits to income not representing cash flows               |      |  | (1,919                              | )
|Other charges to income not representing cash flows                |      |  | 59,092                              |  
|Foreign currency translation, net                                  | 18   |  | 475                                 |  
|Net changes in operating assets and liabilities:                   |      |  |                                     |  
|(Increase) decrease in trade accounts receivable                   |      |  | (9,447                              | )
|Increase in inventories                                            |      |  | (40,665                             | )
|(Increase) decrease in other assets                                |      |  | (770                                | )
|Increase (decrease) in accounts payable                            |      |  | (6,829                              | )
|Increase (decrease) in interest payable                            |      |  | (38                                 | )
|Increase (decrease) in net income taxes payable                    |      |  | 1,284                               |  
|Increase (decrease) in other accounts payable                      |      |  | (2,935                              | )
|Increase (decrease) in VAT and taxes payable                       |      |  | 137                                 |  
|Minority interest                                                  | 15   |  | 5,139                               |  
|                                                                   |      |  |                                     |  
|Net cash provided from operating activities                        |      |  | 152,026                             |  
|                                                                   |      |  |                                     |  
|Cash flows from financing activities                               |      |  |                                     |  
|Proceeds from short term bank financing                            |      |  | 83,307                              |  
|Loans to related companies                                         |      |  |                                    |  
|Payment of dividends                                               |      |  | (25,706                             | )
|Repayment of bank financing                                        |      |  | (192,696                            | )
|                                                                   |      |  |                                     |  
|Net cash used in financing activities                              |      |  | (135,095                            | )
|                                                                   |      |  |                                     |  
|Cash flows from investing activities                               |      |  |                                     |  
|Sales of property, plant and equipment                             |      |  | 741                                 |  
|Sales of investments in related companies                          |      |  | 69,337                              |  
|Sales of investments                                               |      |  | 210                                 |  
|Other investing income                                             |      |  | 877                                 |  
|Additions to property, plant and equipment                         |      |  | (51,758                             | )
|Capitalized interest                                               |      |  | (1,708                              | )
|Purchase of investments in related companies, net of cash acquired |      |  | (37,079                             | )
|Purchase of investments                                            |      |  | (13                                 | )
|Other disbursements                                                |      |  |                                    |  
|                                                                   |      |  |                                     |  
|Net cash used in investing activities                              |      |  | (19,393                             | )
|                                                                   |      |  |                                     |  
|Effect of inflation on cash and cash equivalents                   |      |  | (58                                 | )
|Net change in cash and cash equivalents                            |      |  | (2,520                              | )
|Beginning balance of cash and cash equivalents                     |      |  | 69,273                              |  
|                                                                   |      |  |                                     |  
|Ending balance of cash and cash equivalents                        |      |  | 66,753                              |  
|                                                                   |      |  |                                     |  
|Supplemental cash flow information:                                |      |  |                                     |  
|Interest paid                                                      |      |  | 18,986                              |  
|Income taxes paid                                                  |      |  | 2,466                               |  
|Capital lease obligations incurred during the year                 |      |  |                                    |  

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

F-6

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SOCIEDAD QUIMICA Y MINERA DE CHILE S.A.

Notes
to the Consolidated
Financial Statements

Note 1  Company Background

Sociedad
      Química y Minera de Chile S.A. (the Company) was registered
      with the Chilean Superintendency of Securities and Insurance (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
      issuing American Depositary Receipts (ADRs) in December 1995.


References
      herein to SQM S.A. or the Parent Company are to
      Sociedad Química y Minera de Chile S.A. and references herein to
      the Company 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
      interests.


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 U.S. dollars in
      accordance with accounting principles generally accepted in Chile (Chilean
      GAAP) and the regulations of the SVS.


The consolidated
      financial statements include the accounts of SQM S.A. and its majority-owned
      subsidiaries. All significant inter-company transactions and balances have
      been eliminated in the consolidation.


The preparation
      of financial statements in conformity with generally accepted accounting
      principles 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.


The majority-owned
      subsidiaries of the SQM S.A. as of December 31, 2003 and 2004 are as follows:


F-7

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SOCIEDAD QUIMICA Y MINERA DE CHILE S.A.

Notes
to the Consolidated
Financial Statements

Note 2
 Summary of Significant Accounting Policies (continued)

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

|                                                          |                              | 
|--------------------------------------------------------- | ---------------------------- | 
|                                                          | Direct or indirect ownership | 
|                                                          |                              | 
|                                                          | 2004                         | 
|                                                          |                              | 
|Foreign subsidiaries:                                     | %                            | 
|Nitrate Corp. of Chile Limited (United Kingdom)           | 100.00                       | 
|Soquimich SRL  Argentina                                 | 100.00                       | 
|Nitratos Naturais do Chile Ltda. (Brazil)                 | 100.00                       | 
|SQM Europe NV (Belgium)                                   | 100.00                       | 
|SQM North America Corp. (USA)                             | 100.00                       | 
|North American Trading Company (USA)                      | 100.00                       | 
|SQM Peru S.A                                              | 100.00                       | 
|SQM Corporation NV (Dutch Antilles)                       | 100.00                       | 
|S.Q.I. Corporation NV (Dutch Antilles)                    | 100.00                       | 
|Soquimich European Holding BV (Holland)                   | 100.00                       | 
|PTM  SQM Ibérica S.A. (Spain)                            | 100.00                       | 
|SQMC Holding Corporation LLP (USA)                        | 100.00                       | 
|SQM Ecuador S.A                                           | 100.00                       | 
|Cape Fear Bulk LLC (USA)                                  | 51.00                        | 
|SQM Investment Corporation NV (Dutch Antilles )           | 100.00                       | 
|SQM Brasil Ltda                                           | 100.00                       | 
|Royal Seed Trading Corporation AVV (Aruba)                | 100.00                       | 
|SQM Japon Co. Ltda.                                       | 100.00                       | 
|SQM Oceanía PTY Limited (Australia)                       | 100.00                       | 
|SQM France S.A                                            | 100.00                       | 
|Fertilizantes Naturales S.A. (Spain)                      | 50.00                        | 
|R.S. Agro-Chemical Trading AVV (Aruba)                    | 100.00                       | 
|SQM Comercial de México S.A. de C.V.                      | 100.00                       | 
|SQM Indonesia                                             | 80.00                        | 
|SQM Virginia LLC (USA)                                    | 100.00                       | 
|Agricolima S.A. De C.V. (Mexico)                          | 100.00                       | 
|SQM Venezuela S.A.                                        | 100.00                       | 
|SQM Italia SRL (Italy)                                    | 95.00                        | 
|Comercial Caimán Internacional S.A. (Cayman Islands)      | 100.00                       | 
|Mineag SQM Africa Limited (South Africa)                  | 100.00                       | 
|Fertilizantes Olmeca y SQM S.A.de CV (México)             | 100.00                       | 
|Administración y Servicios Santiago S.A. de C.V. (Mexico) | 100.00                       | 
|SQM Lithium Specialties LLC (USA)                         | 100.00                       | 
|SQM Nitratos México S.A. de C.V                           | 51.00                        | 

F-8

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SOCIEDAD QUIMICA Y MINERA DE CHILE S.A.

Notes
to the Consolidated
Financial Statements

Note 2
 Summary of Significant Accounting Policies (continued)

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

|                                                       |                              | 
|------------------------------------------------------ | ---------------------------- | 
|                                                       | Direct or indirect ownership | 
|                                                       |                              | 
|                                                       | 2004                         | 
|                                                       |                              | 
|                                                       | %                            | 
|Domestic subsidiaries:                                 |                              | 
|Servicios Integrales de Tránsitos y Transferencias S.A | 100.00                       | 
|Soquimich Comercial S.A.                               | 60.64                        | 
|Isapre Norte Grande Ltda.                              | 100.00                       | 
|Almacenes y Depósitos Ltda.                            | 100.00                       | 
|Ajay SQM Chile S.A                                     | 51.00                        | 
|SQM Nitratos S.A                                       | 99.99                        | 
|Proinsa Ltda                                           | 60.58                        | 
|SQM Potasio S.A                                        | 100.00                       | 
|SQMC International Limitada                            | 60.64                        | 
|SQM Salar S.A.                                         | 100.00                       | 
|PCS Yumbes SCM                                         | 100.00                       | 
|Comercial Hydro S.A                                    | 60.64                        | 

As the Company
      exerts control over the subsidiary Fertilizantes Naturales S.A., it has
      been included in the consolidation for the years ended December 31, 2004
      and 2003.


|b) | Periods
    presented                                                                                                                                                                                                                                                                                
|-- | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|   |                                                                                                                                                                                                                                                                                                      
|   | These consolidated
        financial statements have been prepared as of December 31, 2004 and 2003
    and for each of the three years in the period ended December 31, 2004.                                                                                                                       
|   |                                                                                                                                                                                                                                                                                                      
|c) | Reporting
    currency and monetary correction                                                                                                                                                                                                                                                       
|   |                                                                                                                                                                                                                                                                                                      
|   | The financial
        statements of the Company are prepared in U.S. dollars. As a significant
        portion of the Companys operations are carried out in U.S. dollars,
        the U.S. dollar is considered the currency of the primary economic environment
    in which the Company operates.
|   |                                                                                                                                                                                                                                                                                                      
|   | Under Chilean
        GAAP, the parent Company and those subsidiaries which maintain their
        accounting records in U.S. dollars are not required, or permitted, to
        restate the historical dollar amounts for the effects of inflation in
    Chile.                                    

F-9

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SOCIEDAD QUIMICA Y MINERA DE CHILE S.A.

Notes
to the Consolidated
Financial Statements

Note 2
 Summary of Significant Accounting Policies (continued)

|c) | Reporting
    currency and monetary correction (continued)                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                             
|-- | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                        
|   | The financial
        statements of domestic subsidiaries that maintain their accounting records
        in Chilean pesos have been price-level 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 (2.5% and 1.0% in 2004 and 2003,
        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-U.S. dollar denominated monetary assets and liabilities exposed to
    the effects of inflation.
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                        
|d) | Foreign
    currency                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                   
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                        
|   | i)                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                     
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                        
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                        
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                        
|   | ii)                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                    
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                        
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                        
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                        
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                        
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                        
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                        
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                        
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                        
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                        
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                        
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                        
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                        
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                        
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                        

F-10

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SOCIEDAD QUIMICA Y MINERA DE CHILE S.A.

Notes
to the Consolidated
Financial Statements

Note 2 – Summary
of Significant Accounting Policies (continued)

|d) | Foreign
    currency (continued)
|-- | --------------------------------
|   |                                 
|   |                                 
|   |                                 
|   |                                 
|   |                                 
|   |                                 
|   |                                 
|   |                                 
|   |                                 
|   |                                 
|   |                                 
|   |                                 

Foreign exchange
      differences for the period ended December 31, 2004, 2003 and 2002 generated
      net (losses) gains of ThUS$ (475), ThUS$ 6,590 and ThUS$(3,483), respectively,
      which have been charged to 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 as of December 31,
      as follows:


|                  | 2004     |  | 2003     |  | 2002     | 
|----------------- | -------- |  | -------- |  | -------- | 
|                  |          |  |          |  |          | 
|Brazilian Real    | 2.65     |  | 2.89     |  | 3.54     | 
|New Peruvian Sol  | 3.47     |  | 3.46     |  | 3.51     | 
|Argentine Peso    | 2.98     |  | 2.96     |  | 3.37     | 
|Japanese Yen      | 104.21   |  | 107.13   |  | 119.9    | 
|Euro              | 0.73     |  | 0.79     |  | 0.95     | 
|Mexican
    Peso  | 11.20    |  | 11.22    |  | 10.44    | 
|Indonesian Rupee  | 9,289.97 |  | 8,465.00 |  | 8,940.00 | 
|Australian Dollar | 1.28     |  | 1.33     |  | 1.79     | 
|Pound Sterling    | 0.52     |  | 0.58     |  | 0.62     | 
|Sudafrican Rand   | 5.80     |  | 6.59     |  | —        | 

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-11

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SOCIEDAD QUIMICA Y MINERA DE CHILE S.A.

Notes
to the Consolidated
Financial Statements

Note 2 – Summary of Significant Accounting Policies (continued)

|e) | Cash
    and cash equivalents
|-- | -----------------------------

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


|                      | At December 31, | 
|--------------------- | --------------- | 
|                      |                 | 
|                      | 2004            | 
|                      |                 | 
|                      | ThUS$           | 
|Cash                  | 18,559          | 
|Time deposits         | 15,854          | 
|Money market funds    | 30,797          | 
|Repurchase agreements | 1,543           | 
|                      |                 | 
|Total                 | 66,753          | 
|                      |                 | 
|                      |                 | 

|f) | Time
    Deposits
|-- | -----------------

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


|g) | Marketable
    securities
|-- | -------------------------

Marketable
      securities are recorded at the lower of cost plus accrued interest or market
      value.


|h) | Allowance
    for doubtful accounts
|-- | -----------------------------------

The Company
        records an allowance for doubtful accounts based on estimated probable
        losses from specific customer identification. This allowance is presented
        as a deduction from Trade accounts receivable, Notes receivable and Other
        accounts receivables.


|i) | Inventories
    and materials
|-- | -----------------------------

Inventories
          of finished products and work in process are valued at average production
          cost. Raw materials and products acquired from third parties are stated
          at average cost and materials-in-transit are valued at cost. 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.


F-12

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SOCIEDAD QUIMICA Y MINERA DE CHILE S.A.

Notes to the Consolidated
Financial Statements

Note 2 – Summary of Significant Accounting Policies (continued)

|j) | Current
    and deferred income taxes
|-- | -------------------------------------

The Company
      records income taxes in accordance with Technical Bulletin No. 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, 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. As well, the measurement of 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.


Under Chilean
      law, the Parent Company and its subsidiaries are required to file separate
      tax returns.


|k) | 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. Depreciation expense has been calculated using the straight-line
        method based on the estimated useful lives of the assets and is charged
        directly to expenses.


|                            | Estimated  
|--------------------------- | -----------
|                            | Useful life
|                            | (years)    
|                            |            
|Mining Concessions          | 7  13     
|Building and infrastructure | 3  80     
|Machinery and equipment     | 3  35     
|Other                       | 2  30     

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 during the construction period
        of assets.


Maintenance
        costs of pla nt and equipment are charged to expenses as incurred.


F-13

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SOCIEDAD QUIMICA Y MINERA DE CHILE S.A.

Notes to the Consolidated
Financial Statements

Note 2
– Summary of Significant Accounting Policies (continued)

|k) | Property,
    plant and equipment (continued)
|-- | ---------------------------------------------

The Company
      obtains property rights and mining concessions from the Chilean state.
      Other than minor filing fees, the property rights are usually obtained
      without initial cost, and once obtained, are retained by the Company as
      long as the annual fees are paid. Such fees, which are paid annually in
      March, are recorded as prepaid assets to be amortized on a straight-line
      basis over the following twelve months.


|l) | 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 Nos. 368 and 1,697 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
        the related companies.


The translation
        adjustment to U.S. dollars of investments in domestic subsidiaries that
        maintain their accounting records and are controlled in Chilean pesos
        is recognized in other reserves within shareholders equity. Direct
        and indirect investments in foreign subsidiaries or affiliates are controlled
        in U.S. dollars.


|m) | Goodwill
    and negative goodwill
|-- | ----------------------------------

Until
          December 31, 2003, goodwill was calculated as the excess of the purchase
          price of companies acquired over their net book value, whereas negative
          goodwill occurred when the net book value exceeds the purchase price
          of companies acquired. Beginning January 1, 2004, the Company adopted
          Technical Bulletin No. 72 of the Chilean Association of Accountants
          that changes 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 the existence of goodwill or negative goodwill.


Goodwill
          and negative goodwill resulting from equity method investments are
          maintained 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.


|n) | 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.


F-14

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SOCIEDAD QUIMICA Y MINERA DE CHILE S.A.

Notes
to the Consolidated
Financial Statements

Note 2
– Summary of Significant Accounting Policies (continued)

|o) | Mining
    development cost
|-- | ---------------------------

Mining
      development costs are recorded in other long-term assets and are amortized
      using the unit of production basis based on proven and probable reserves.


|p) | 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
      worked based on an average employee tenure of 24 years and a real annual
      discount rate of 9%.


|q) | Vacations
|-- | ---------

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


|r) | Dividends
|-- | ---------

Dividends
      are generally declared in U.S. dollars but are paid in Chilean pesos.


|s) | Derivative
    Contracts
|-- | ------------------------

The Company
      maintains derivative contracts to cover the risk of fluctuation 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 gain or losses recognized in results.


|t) | Reclassifications
|-- | -----------------

For comparison
      purposes, certain reclassifications have been made to the 2003 and 2002
      financial statements.


|u) | Revenue
    recognition
|-- | -----------------------

Revenue
      is recognized on the date goods are physically delivered or when they are
      considered delivered according to the terms of the contract.


|v) | Computer
    software
|-- | ---------------------

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. 981 dated December 28, 1990 of the SVS, computer systems
      acquired by the Company are recorded at cost.


F-15

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SOCIEDAD QUIMICA Y MINERA DE CHILE S.A.

Notes to the Consolidated Financial Statements

Note 2 – Summary of Significant Accounting Policies (continued)

|w) | Research
    and development expenses
|-- | -------------------------------------

–Research and development cost 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.


Note 3 – Changes in Accounting Principles

|a) | Accounting
    Changes
|-- | ----------------------

Until June 30, 2004, the financial statements of the subsidiary SQM Lithium Specialities LLP were not consolidated because this subsidiary was in development stage.  Starting July 1, 2004, SQM Lithium Specialities LLP began operating and therefore the Company has consolidated this subsidiary in the financial statements as of December 31, 2004.


Prior to January
    1, 2004, goodwill arose from the excess of the purchase price of companies
    acquired over their net book value; negative goodwill arose when net book
    value exceeded the purchase price of companies acquired. Goodwill and negative
    goodwill is also accounted for in the purchase of investments accounted for
    by the equity method. Chilean GAAP also provided that goodwill and negative
    goodwill amortization may be accelerated if the proportional net income or
    net loss of the investee exceeds the respective straight-line amortization
    amount. Beginning January 1, 2004, the Company adopted Technical Bulletin
    72 of the Chilean Association of Accountants, which changes the basis for
    determining accounting for goodwill and negative goodwill generated in transactions
    after January 1, 2004, based on an allocation of the purchase price based
    on the fair value of the identifiable assets acquired and identifiable liabilities
    assumed. Both goodwill and negative goodwill are normally amortized over
    the maximum period of twenty years considering the expected period of return
  of the investments.


F-16

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SOCIEDAD QUIMICA Y MINERA DE CHILE S.A.

Notes to
the Consolidated Financial Statements–

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 | Total  | 
|----------------------------------- | ------------- | ---------- | ---------------- | --------------- | ------ | 
|                                    | Up to 90 days | and 1 year | Short-term (net) |                
|                                    |               |            |                  |                 |        | 
|                                    | 2004          |            | 2003             |                 | 2004   | 
|                                    |               |            |                  |                 |        | 
|                                    | ThUS$         |            | ThUS$            |                 | ThUS$  | 
|Short-term                          |               |            |                  |                 |        | 
|Trade accounts receivable           | 124,724       |            | 104,651          |                 | 7,137  | 
|Allowance
    for doubtful accounts |               |            |                  |                 |        | 
|Notes receivable                    | 38,439        |            | 33,747           |                 | 10,517 | 
|Allowance
    for doubtful accounts |               |            |                  |                 |        | 
|                                    |               |            |                  |                 |        | 
|Accounts receivable, net            |               |            |                  |                 |        | 
|                                    |               |            |                  |                 |        | 
|Other accounts receivable           | 8,908         |            | 7,602            |                 | 113    | 
|Allowance
    for doubtful accounts |               |            |                  |                 |        | 
|                                    |               |            |                  |                 |        | 
|Other
    accounts receivable, net  |               |            |                  |                 |        | 
|                                    |               |            |                  |                 |        | 
|Long-term receivables               |               |            |                  |                 |        | 
|                                    |               |            |                  |                 |        | 

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

|                                      | 2004   |   | 2003   |   | 2002   |  
|------------------------------------- | ------ | - | ------ | - | ------ | -
|                                      |        |   |        |   |        |  
|                                      | ThUS$  |   | ThUS$  |   | ThUS$  |  
|At January 1,                         | 10,600 |   | 8,568  |   | 8,113  |  
|Charged to expenses                   | 3,686  |   | 2,831  |   | 2,361  |  
|Deductions                            | (2,937 | ) | (1,372 | ) | (660   | )
|Exchange rate differences             | 306    |   | 332    |   | (1,246 | )
|Companies not previously consolidated |        |   |        |   |        |  
|                                      | –      |   | 241    |   | –      |  
|                                      |        |   |        |   |        |  
|At December 31,                       | 11,655 |   | 10,600 |   | 8,568  |  
|                                      |        |   |        |   |        |  

F-17

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SOCIEDAD QUIMICA Y MINERA DE CHILE S.A.

Notes
to the Consolidated Financial Statements

Note 4 – Short-term
and Long-term Accounts Receivable (continued)

Consolidated
Short-term and Long-term Receivables  by Geographic Location

|                                                       |        |   |                 |   | Europe, Africa and |   | Asia and   |   | USA, Mexico       |   | Latin America |   |        |   |        |  
|------------------------------------------------------ | ------ | - | --------------- | - | ------------------ | - | ---------- | - | ----------------- | - | ------------- | - | ------ | - | ------ | -
|                                                       | Chile  |   | the Middle East |   | Oceania            |   | and Canada |   | and the Caribbean |   | Total         |  
|                                                       |        |   |                 |   |                    |   |            |   |                   |   |               |  
|                                                       | 2004   |   | 2003            |   | 2004               |   | 2003       |   | 2004              |   | 2003          |   | 2004   |   | 2003   |  
|                                                       |        |   |                 |   |                    |   |            |   |                   |   |               |   |        |   |        |  
|                                                       | ThUS$  |   | ThUS$           |   | ThUS$              |   | ThUS$      |   | ThUS$             |   | ThUS$         |   | ThUS$  |   | ThUS$  |  
|Net short
    -term trade accounts receivable          |        |   |                 |   |                    |   |            |   |                   |   |               |   |        |   |        |  
|Balance                                                | 31,490 |   | 37,018          |   | 40,914             |   | 38,760     |   | 3,489             |   | 2,039         |   | 36,273 |   | 29,296 |  
|% of total                                             | 25.21  | % | 32.22           | % | 32.76              | % | 33.74      | % | 2.79              | % | 1.77          | % | 29.05  | % | 25.50  | %
|                                                       |        |   |                 |   |                    |   |            |   |                   |   |               |   |        |   |        |  
|Net
    short -term notes receivable                   |        |   |                 |   |                    |   |            |   |                   |   |               |   |        |   |        |  
|Balance                                                | 39,065 |   | 32,491          |   | 2,524              |   | 1,253      |   | 515               |   | 290           |   | 120    |   | 111    |  
|% of total                                             | 86.91  | % | 90.09           | % | 5.62               | % | 3.47       | % | 1.15              | % | 0.80          | % | 0.26   | % | 0.31   | %
|                                                       |        |   |                 |   |                    |   |            |   |                   |   |               |   |        |   |        |  
|Net
    short -term other accounts receivable          |        |   |                 |   |                    |   |            |   |                   |   |               |   |        |   |        |  
|Balance                                                | 3,558  |   | 4,187           |   | 1,943              |   | 1,053      |   | 2                 |   | 5             |   | 2,591  |   | 2,018  |  
|% of total                                             | 42.65  | % | 56.03           | % | 23.29              | % | 14.09      | % | 0.02              | % | 0.07          | % | 31.06  | % | 27.00  | %
|                                                       |        |   |                 |   |                    |   |            |   |                   |   |               |   |        |   |        |  
|Subtotal
    short-term accounts receivable, net       |        |   |                 |   |                    |   |            |   |                   |   |               |   |        |   |        |  
|Balance                                                | 74,113 |   | 73,696          |   | 45,381             |   | 41,066     |   | 4,006             |   | 2,334         |   | 38,984 |   | 31,425 |  
|% of total                                             | 41.59  | % | 46.52           | % | 25.47              | % | 25.92      | % | 2.25              | % | 1.47          | % | 21.88  | % | 19.84  | %
|                                                       |        |   |                 |   |                    |   |            |   |                   |   |               |   |        |   |        |  
|Long-term
    accounts receivable, net                 |        |   |                 |   |                    |   |            |   |                   |   |               |   |        |   |        |  
|Balance                                                | 199    |   | 7,003           |   | 75                 |   | 75         |   | –                 |   | –             |   | –      |   | –      |  
|% of total                                             | 68.86  | % | 98.73           | % | 25.95              | % | 1.06       | % | –                 |   | –             |   | –      |   | –      |  
|                                                       |        |   |                 |   |                    |   |            |   |                   |   |               |   |        |   |        |  
|Total short
    and long-term accounts receivable, net |        |   |                 |   |                    |   |            |   |                   |   |               |   |        |   |        |  
|Balance                                                | 74,312 |   | 80,699          |   | 45,456             |   | 41,141     |   | 4,006             |   | 2,334         |   | 38,984 |   | 31,425 |  
|                                                       |        |   |                 |   |                    |   |            |   |                   |   |               |   |        |   |        |  
|% of total                                             | 41.64  | % | 48.75           | % | 25.47              | % | 24.85      | % | 2.24              | % | 1.41          | % | 21.84  | % | 18.99  | %
|                                                       |        |   |                 |   |                    |   |            |   |                   |   |               |   |        |   |        |  

F-18

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SOCIEDAD QUIMICA Y MINERA DE CHILE S.A.

Notes to
the Consolidated Financial Statements

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.


a) Amounts
      included in balances with related parties as of December 31, 2004 and 2003
      are as follows:


|                                        | Short-term |  | Long-term | 
|--------------------------------------- | ---------- |  | --------- | 
|                                        |            |  |           | 
|Accounts
    receivable                 | 2004       |  | 2003      | 
|                                        |            |  |           | 
|–                                       | ThUS$      |  | ThUS$     | 
|Ajay Europe S.A.R.L.                    | 3,583      |  | 4,430     | 
|Nutrisi Holding N.V.                    | 1,653      |  | 1,890     | 
|Generale de Nutrition Vegetale S.A.     | 132        |  | 175       | 
|Abu Dhabi Fertilizer Ind. WLL           | 5,284      |  | 3,900     | 
|Doktor Tarsa SQM Turkey                | 4,813      |  | 3,517     | 
|Yara North America                      | 218        |  | 63        | 
|SQM Lithium Specialties Limited         | –          |  | 665       | 
|Empresas Melón S.A.                     | –          |  | –         | 
|Sales de Magnesio Ltda.                 | 52         |  | 81        | 
|Ajay North
    America LLC              | –          |  | 259       | 
|Norsk Hydro ASA                         | –          |  | 4         | 
|Yara International Asia Trade Pte Ltd   | 1,682      |  | 1,470     | 
|Yara France BU Africa                   | 743        |  | 607       | 
|Yara Poland SP                          | 45         |  | 37        | 
|Yara Benelux B.V                        | 237        |  | 282       | 
|Yara Hellas S.A                         | 80         |  | 22        | 
|Yara Internacional
       Australia Pty | 829        |  | 764       | 
|Yara UK Ltd                             | 144        |  | 52        | 
|Yara GMBH & CO KG                       | 96         |  | 121       | 
|Yara AB                                 | –          |  | 26        | 
|Yara Colombia Ltd.                      | 355        |  | 1,181     | 
|NU3 B.V                                 | 607        |  | 384       | 
|Yara Agri Norge                         | –          |  | 11        | 
|Yara Argentina S.A                      | –          |  | 58        | 
|Adubo Trevo S.A                         | 16         |  | 16        | 
|Yara Iberian S.A                        | 1,565      |  | 1,441     | 
|PCS Sales Inc                           | 31         |  | –         | 
|Yara France BU America Latina           | 1,296      |  | –         | 
|Impronta SRL                            | 2,568      |  | 3,124     | 
|                                        |            |  |           | 
|Total                                   | 26,029     |  | 24,580    | 
|                                        |            |  |           | 

F-19

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SOCIEDAD QUIMICA Y MINERA DE CHILE S.A.

Notes
to the Consolidated Financial Statements

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

a) Amounts
      included in balanc es with related parties as of December 31, 2004 and
      2003, continued:


|                            | Short-term | 
|--------------------------- | ---------- | 
|                            |            | 
|Accounts
    payable        | 2004       | 
|                            |            | 
|                            | ThUS$      | 
|NU3 N.V                     | 1,319      | 
|Ayay North America LLC      | –          | 
|Rotem Amfert Negev Limited  | 1,424      | 
|Yara Porsgrunn              | –          | 
|Yara Fertilizantes Ltda     | –          | 
|Yara Agrícola internacional | –          | 
|Yara International ASA      | 446        | 
|Yara México de S.A de C.V   | –          | 
|Yara France                 | –          | 
|Yara France S.A             | 1,412      | 
|Inversiones PCS Chile Ltd   | 6,645      | 
|Yara Argentina S.A          | 4          | 
|Yara AB                     | 14         | 
|Yara Business Suport        | 2,761      | 
|                            |            | 
|Total                       | 14,025     | 
|                            |            | 

There were
      no outstanding long-term accounts payable with related parties as of December
      31, 2004 and 2003.


F-20

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SOCIEDAD QUIMICA Y MINERA DE CHILE S.A.

Notes to the Consolidated
Financial Statements

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

b)     During 2004 and
2003, principal transactions with related parties were as follows:


|Company                                    |  | Relationship |  | Type of transaction   |  | Amount
    of Transaction |  | Impact
    on income (charge) credit | 
|------------------------------------------ |  | ------------ |  | --------------------- |  | ------------------------- |  | ------------------------------------ | 
|                                           |  |              |  |                       |  |                           |  |                                      | 
|                                           |  |              |  |                       |  | 2004                      |  | 2003                                 | 
|                                           |  |              |  |                       |  |                           |  |                                      | 
|                                           |  |              |  |                       |  | ThUS$                     |  | ThUS$                                | 
|NU3 N.V. (Belgica)                         |  | Indirect     |  | Sales of products     |  | 5,036                     |  | 4,054                                | 
|Doctor Tarsa                               |  | Indirect     |  | Sales of products     |  | 6,718                     |  | 5,068                                | 
|Mineag SQM Africa Ltd.                     |  | Indirect     |  | Sales of products     |  | —                         |  | —                                    | 
|Yara UK Ltd.                               |  | Shareholder  |  | Sales of products     |  | 1,060                     |  | —                                    | 
|Abu Dhabi Fertilizer WLL                   |  | Indirect     |  | Sales of products     |  | 3,932                     |  | 3,463                                | 
|Yara France                                |  | Shareholder  |  | Sales of products     |  | 7,755                     |  | —                                    | 
|Nutrisi Holding N.V.                       |  | Indirect     |  | Sales of products     |  | —                         |  | —                                    | 
|Ajay Europe S.A.R.L.                       |  | Indirect     |  | Sales of products     |  | 5,964                     |  | 6,836                                | 
|NU3 B.V.                                   |  | Indirect     |  | Sales of products     |  | 5,904                     |  | 4,735                                | 
|Adubo Trevo S.A.                           |  | Shareholder  |  | Sales of products     |  | 5,564                     |  | 5,148                                | 
|PCS Yumbes SCM(1)                          |  | Shareholder  |  | Sales of products     |  | 7,221                     |  | 13,617                               | 
|                                           |  |              |  | Purchases of products |  | 29,466                    |  | 25,558                               | 
|Sales de Magnesio Ltda.                    |  | Indirect     |  | Sales of products     |  | 333                       |  | —                                    | 
|Ajay North
    America LLC                 |  | Indirect     |  | Sales of products     |  | 8,519                     |  | 6,909                                | 
|Yara Internacional
    ASA                 |  | Shareholder  |  | Sales of products     |  | 340                       |  | 2,991                                | 
|Yara GMBH & Co Kg                          |  | Shareholder  |  | Sales of products     |  | 1,381                     |  | 1,082                                | 
|Yaea
    International Asia Trade Pte Ltd. |  | Shareholder  |  | Sales of product      |  | 6,035                     |  | 5,370                                | 
|Yara France S.A.                           |  | Shareholder  |  | Sales of product      |  | 1,729                     |  | 6,054                                | 
|Yara Hellas S.A.                           |  | Shareholder  |  | Sales of product      |  | 1,022                     |  | 1,138                                | 
|Yara Benelux B.V.                          |  | Shareholder  |  | Sales of product      |  | 5,593                     |  | 5,384                                | 
|Yara AB Sweden                             |  | Shareholder  |  | Sales of product      |  | 705                       |  | 561                                  | 
|Impronta SRL                               |  | Indirect     |  | Sales of product      |  | 4,282                     |  | —                                    | 
|Hydro Agri
    Rotterdam B.V               |  | Shareholder  |  | Sales of product      |  | —                         |  | —                                    | 
|Yara Planta
    Nutrition, Cis Reg.        |  | Shareholder  |  | Sales of product      |  | —                         |  | 1,070                                | 
|Yara
    International Australia Pty Ltd.  |  | Shareholder  |  | Sales of product      |  | 2,530                     |  | 1,722                                | 
|Yara Iberian S.A.                          |  | Shareholder  |  | Sales of product      |  | 6,665                     |  | 4,739                                | 
|Yara France BU Africa                      |  | Shareholder  |  | Sales of product      |  | 917                       |  | —                                    | 
|Yara France BU Latin America               |  | Shareholder  |  | Sales of product      |  | 2,296                     |  | —                                    | 
|Hydro Fertilizantes Ltda.                  |  | Shareholder  |  | Sales of product      |  | —                         |  | —                                    | 
|Hydro Agri International France            |  | Shareholder  |  | Sales of product      |  | —                         |  | —                                    | 
|Yara Argentina S.A.                        |  | Shareholder  |  | Sales of product      |  | 7,724                     |  | 6,425                                | 
|Yara Colombia Ltda                         |  | Shareholder  |  | Sales of product      |  | 3,537                     |  | 2,760                                | 
|Yara Poland SP                             |  | Shareholder  |  | Sales of product      |  | 1,525                     |  | —                                    | 
|Yara North America                         |  | Shareholder  |  | Sales of product      |  | 40,491                    |  | —                                    | 
|Hydro Agri Venezuela                       |  | Shareholder  |  | Sales of product      |  | —                         |  | —                                    | 
|Yara Business Support                      |  | Shareholder  |  | Services              |  | 2,761                     |  | 2,093                                | 
|                                           |  |              |  |                       |  |                           |  |                                      | 
|                                           |  |              |  |                       |  | 177,005                   |  | 116,777                              | 
|                                           |  |              |  |                       |  |                           |  |                                      | 

|   
|---
|(1)

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SOCIEDAD QUIMICA Y MINERA DE CHILE S.A.

Notes to the Consolidated
Financial Statements

Note 6 – Inventories

Inventories are summarized as follows:


|                  | 2004    |  | 2003    | 
|----------------- | ------- |  | ------- | 
|                  |         |  |         | 
|                  | ThUS$   |  | ThUS$   | 
|Finished products | 165,436 |  | 138,435 | 
|Work in process   | 96,616  |  | 95,961  | 
|Supplies          | 12,550  |  | 10,998  | 
|                  |         |  |         | 
|Total             | 274,602 |  | 245,394 | 
|                  |         |  |         | 

F-22

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SOCIEDAD QUIMICA Y MINERA DE CHILE S.A.

Notes to the Consolidated
Financial Statements

Note 7 – Property, Plant and Equipment

Property, plant and equipment as of each December 31are summarized as follows:


|                                                                               | 2004      |   | 2003      |  
|------------------------------------------------------------------------------ | --------- | - | --------- | -
|                                                                               |           |   |           |  
|                                                                               | ThUS$     |   | ThUS$     |  
|Land                                                                           |           |   |           |  
|Land                                                                           | 20,003    |   | 20,003    |  
|Mining Concessions                                                             | 44,223    |   | 42,286    |  
|                                                                               |           |   |           |  
|                                                                               | 64,226    |   | 62,289    |  
|                                                                               |           |   |           |  
|                                                                               |           |   |           |  
|Buildings and infrastructure                                                   |           |   |           |  
|Buildings                                                                      | 163,075   |   | 157,249   |  
|Installations                                                                  | 343,168   |   | 302,939   |  
|Construction-in-progress                                                       | 47,727    |   | 25,771    |  
|Other                                                                          | 587       |   | 1,849     |  
|                                                                               |           |   |           |  
|                                                                               | 554,557   |   | 487,808   |  
|                                                                               |           |   |           |  
|Machinery and Equipment                                                        |           |   |           |  
|Machinery                                                                      | 415,801   |   | 400,079   |  
|Equipment                                                                      | 118,088   |   | 121,700   |  
|Other                                                                          | 16,278    |   | 11,600    |  
|                                                                               |           |   |           |  
|                                                                               | 550,167   |   | 533,379   |  
|                                                                               |           |   |           |  
|Other property, plant and equipment                                            |           |   |           |  
|Tools                                                                          | 8,019     |   | 8,927     |  
|Furniture and office equipment                                                 | 14,425    |   | 19,157    |  
|Projects in progress                                                           | 10,876    |   | 13,615    |  
|Other                                                                          | 10,750    |   | 1,164     |  
|                                                                               |           |   |           |  
|                                                                               | 44,070    |   | 42,863    |  
|                                                                               |           |   |           |  
|Amounts
    relating to technical revaluation of property, plant and equipment |           |   |           |  
|Land                                                                           | 8,651     |   | 8,651     |  
|Buildings and infrastructure                                                   | 40,627    |   | 40,627    |  
|Machinery and equipment                                                        | 12,091    |   | 12,110    |  
|Other assets                                                                   | 53        |   | 53        |  
|                                                                               |           |   |           |  
|                                                                               | 61,422    |   | 61,441    |  
|                                                                               |           |   |           |  
|Total property, plant and equipment                                            | 1,274,442 |   | 1,187,780 |  
|                                                                               |           |   |           |  
|                                                                               |           |   |           |  
|Less: Accumulated depreciation                                                 |           |   |           |  
|Buildings and infrastructure                                                   | (230,740  | ) | (195,099  | )
|Machinery and equipment                                                        | (295,584  | ) | (272,756  | )
|Other property, plant and equipment                                            | (19,012   | ) | (17,475   | )
|Technical appraisal                                                            | (34,344   | ) | (33,071   | )
|                                                                               |           |   |           |  
|Total accumulated depreciation                                                 | (579,680  | ) | (518,401  | )
|                                                                               |           |   |           |  
|Net property, plant and equipment                                              | 694,762   |   | 669,379   |  
|                                                                               |           |   |           |  

F-23

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SOCIEDAD QUIMICA Y MINERA DE CHILE S.A.

Notes to the Consolidated
Financial Statements

Note 7 – Property, Plant and Equipment (continued)

Depreciation expense for the years ended December 31 2004, 2003 and 2002 is as follows:


|                                    | For
         the year
         ended December
         31, |  
|----------------------------------- | ---------------------------------------------------------- | -
|                                    |                                                            |  
|                                    | 2004                                                       |  
|                                    |                                                            |  
|                                    | ThUS$                                                      |  
|Buildings and infrastructure        | (26,547                                                    | )
|Machinery and equipment             | (33,552                                                    | )
|Other property, plant and equipment | (1,300                                                     | )
|Technical revaluation               | (1,291                                                     | )
|                                    |                                                            |  
|Total depreciation                  | (62,690                                                    | )
|                                    |                                                            |  

The Company has capitalized assets obtained through leasing, which are included in other property, plant and equipment and are as follows:


|                                | As
         of December 31, |  
|------------------------------- | --------------------------- | -
|                                |                             |  
|                                | 2004                        |  
|                                |                             |  
|                                | ThUS$                       |  
|Administrative office buildings | 1,988                       |  
|Leased vehicles                 | 98                          |  
|Accumulated depreciation        | (468                        | )
|                                |                             |  
|Total assets in leasing         | 1,618                       |  
|                                |                             |  

The administrative office buildings were acquired for 230 installments of UF 663.75 each and an annual, contractually established interest rate of 8.5%. The vehicles were acquired for 36 installments of ThUS$ 98 each.


F-24

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SOCIEDAD QUIMICA Y MINERA DE CHILE S.A.

Notes to the Consolidated
Financial Statements

Note 8 – Investments in and Receivables from Related Parties

|a) | Information
    on foreign investments
|-- | --------------------------------------

There are no
  plans for the foreign investments to pay dividends, as it is the Companys
  policy to reinvest those earnings.


The Company has not designated its non U.S. dollar denominated liabilities as net investment hedges of its foreign investments.


|b) | Transactions
    executed in 2004
|-- | ---------------------------------

* In January 2004, the subsidiary Soquimich European Holding B.V. made a capital contribution of ThUS$ 475 on its affiliate Misr Specialty Fertilizers. In accordance with BT 72 of the Chilean Association of Accountants and SVS Circular 1,697, the investment in Misr Specialty Fertilizers was valued using the book value of equity as of December 31, 2003, which did not differ significantly from its fair value determined as of the same date.


* At the shareholders meeting of Empresas Melón S.A. held on February 25, 2004, the shareholders agreed its spin-off in 2 companies, Empresas Melón S.A. and Inmobiliaria San Patricio S.A. As a result, SQM S.A. maintained its ownership of 14.05% in Empresas Melón S.A. and a same ownership percentage was assigned to this entity in the new company.


* In April 2004, the subsidiary Soquimich European Holding B.V. increased capital by ThUS$ 475 in its affiliate Misr Specialty Fertilizers. In accordance with BT 72 of the Chilean Association of Accountants and SVS Circular 1,697, the investment in Misr Specialty Fertilizers was valued using the book value of equity as of March 30, 2004, which did not differ significantly from its fair value determined as of the same date.


* On August 13, 2004, SQM S.A. transferred 653,748,837 shares of Inmobiliaria San Patricio to Blue Circle South American Holding S.A., which was the totality of the shares held by SQM S.A. (14.05% participation). This transfer was performed in accordance with the contract for acquiring shares of Empresas Melón during 1998. The effect on income is presented as part of the gain from the sale of Empresas Melón.


* On August 18, 2004, 653,748,837 shares of Empresas Melón S.A. representing all the shares held at the time by the Company (14.05% participation) were sold in a public auction in the Santiago Stock Market for ThUS$69,337. The proceeds were rec eived in cash and a gain on sale of ThUS$ 8,179 was recorded in net income.


* On August 20, 2004, SQM Potasio S.A. decreased its capital in RS Agro Chemical Trading A.V.V. by ThUS$ 25,000, leaving it with 99.98% participation and SQM S.A. with 0.02%. This operation did not produce goodwill or negative goodwill.


F-25

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SOCIEDAD QUIMICA Y MINERA DE CHILE S.A.

Notes
  to the Consolidated Financial Statements

Note
  8 – Investments in and Receivables from Related Parties (continued)

b)  Transactions
executed in 2004 (continued)

* In October 2004, the subsidiary Soquimich European Holding B.V. increased its capital in Misr Specialty Fertilizers by ThUS$ 475. In accordance with BT 72 of the Chilean Association of Accountants and SVS Circular 1697, the investment in Misr Specialty Fertilizers was valued using the book value of equity as of September 30, 2004, which did not differ significantly from its fair value determined as of the same date.


* On November 18, 2004, the subsidiary Soquimich European Holding B.V., contributed ThUS$268 to a joint venture with SQM Eastmed Turkey.


* On November 25, 2004, SQM Potasio S.A. decreased its capital in RS Agro Chemical Trading A.V.V. by ThUS$ 30,000, leaving it with 1.667% participation and SQM S.A. with 98.333%. This operation did not produce goodwill or negative goodwill.


* On December 23, 2004, SQM S.A. and SQM Nitratos S.A. acquired 43,733,165 and 2,000 shares, respectively, of PCS Yumbes S.C.M. for ThUS$ 39,707 (equivalent to 99.9954% and 0.0046% participation, respectively), of which ThUS$34,511 was paid on the date of acquisition and the remaining ThUS$5,196 will be paid on January 27, 2005.


In accordance with BT 72 (see note 3), the Company began valuing the assets and liabilities of the individual financial statements of PCS Yumbes S.C.M. as of December 31, 2004, valuing them at their respective fair values. This valuation method created goodwill of ThUS$ 12,637, produced principally by the valuation of property, plant and equipment carried out using appraisals performed in accordance with SVS Circular 1,698. The goodwill will be amortized over a period of 20 years.


Therefore, the assets, liabilities and equity incorporated in the consolidation at their respective fair values as of December 31, 2004 are as follows:


|                                    | Book             |       | Adjustment
      to |   | Adjusted | 
|----------------------------------- | ---------------- | ----- | ------------------- | - | -------- | 
|value                               | Fair
      value | value
|                                    |                  |       |                     |   |          | 
|                                    | ThUS$            |       | ThUS$               |   | ThUS$    | 
|Current
      assets                | 10,958           |       | —                   |   | 10,958   | 
|Property,
      plant and equipment | 25,708           |       | (7,954              | ) | 17,754   | 
|Other assets                        | 293              |       | —                   |   | 293      | 
|Current
      liabilities           | 1,935            |       | —                   |   | 1,935    | 
|Equity                              | 35,024           |       | (7,954              | ) | 27,070   | 

The Company is in the process of finalizing the purchase price allocation related to the purchase of PCS Yumbes S.C.M. Pursuant to BT 72, the Company has a period of one year to finalize this allocation.


F-26

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SOCIEDAD QUIMICA Y MINERA DE CHILE S.A.

Notes
  to the Consolidated Financial Statements

Note
  8 – Investments in and Receivables from Related Parties (continued)

|c) | Transactions
      executed in 2003
|-- | -----------------------------------

* On January
    27, 2003, SQM Comercial de México S.A. de C.V. and SQM Nitratos S.A.
    acquired 8,750 shares of the related company Fertilizantes Olmeca y SQM S.A.
    de C.V. which represented 50% of its share capital. Consequently, Fertilizantes
    Olmeca y SQM S.A. de C.V. became a subsidiary of SQM S.A. This transaction
    generated goodwill of ThUS$279. Subsequently, SQM Nitratos S.A. acquired from
    SQM Comercial de México S.A. de C.V. 8,749 shares in Fertilizantes
    Olmeca y SQM S.A. de C.V. This transaction did not produce goodwill.


* On January 31, 2003, SQM S.A. acquired shares owned by SQM Nitratos S.A. in Sociedad Contractual Minera Antucoya for ThUS$ 100. This united all the shares of SCM Antucoya in one shareholder and consequently SCM Antucoya was liquidated and SQM S.A. assumed of all this companys assets and liabilities.


* On March 30, 2003, Fertilizantes Olmeca y SQM S.A. de C.V. increased its capital by ThUS$2,000 through the issuance of 431,200 shares, which were subscribed in full by SQM Nitratos S.A. As a result, SQM Nitratos S.A. had an ownership interest of 78.29% and SQM Comercial de Mexico had an ownership interest of 21.71%.


* On March 30, 2003, Soquimich European Holding acquired 50% ownership of Mineag SQM Africa Ltd. from Ravlin Investment Limited for ThUS$990. Consequently, Mineag SQM Africa Ltd. became a subsidiary of SQM S.A. This transaction did not produce goodwill.


* On April 28, 2003, SQM Comercial S.A. acquired from Norsk Hydro ASA, 819,999 shares in Norsk Hydro Chile S.A., SQM Comercial Internacional Ltda., a subsidiary company of SQMC, acquired the one remaining share consequently and SQMC became the sole owner and controlled 100% of Norsk Hydro Chile S.A. This transaction generated goodwill of ThUS$ 1,282.


* On June 30, 2003, SQM Nitratos S.A. acquired the shares owned by SQM S.A. in Sociedad Energía y Servicios S.A. The shares amounted to ThUS$2,422. This transaction resulted in the consolidation of all the shares of Energía y Servicios S.A. by one shareolder, SQM Nitratos S.A. Consequently under Chilean law, Energía y Servicios S.A. was dissolved and SQM Nitratos S.A. assumed all its assets and liabilities.


* On June 30, 2003, the subsidiaries SQM Virginia LLC and North American Trading Company, made a capital contribution to the subsidiary SQM Lithium Specialties LLP of ThUS$ 1,678, in a proportion of 99% and 1%, respectively.


* On
    July 16, 2003, the subsidiary Norsk Hydro Chile changed its name to Comercial
    Hydro S.A..


*On
    September 30, 2003, the subsidiaries SQM Virginia LLC and North American Trading
    Company, made a capital contribution to the subsidiary SQM Lithium Specialties
    LLP of ThUS$ 367, in a proportion of 99% and 1%, respectively.


F-27

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SOCIEDAD QUIMICA Y MINERA DE CHILE S.A.

Notes
  to the Consolidated Financial Statements

Note
  8 – Investments in and Receivables from Related Parties (continued)

|c) | Transactions
      executed in 2003 (continued)
|-- | -----------------------------------------------

* On September 30, 2003, SQM Corporation N.V. participated in a capital increase of Ajay Europe SARL in equal parts with Ajay Chemicals Inc., both therefore maintaining the same ownership percentages.


* On November 10, 2003, SQM Nitratos S.A. and SQM S.A. liquidated the subsidiary SQM Colombia Limitada.


* On November 18, 2003, the subsidiary Soquimich European Holding BV, provided capital of ThUS$ 676 to initiate a joint venture with the company Misr Specialty Fertilizer in Egypt.


* On November 20, 2003, SQM Potasio S.A. made a capital contribution of ThUS$ 55,000 to RS
Agro Chemical Trading
AVV, increasing its participation in this subsidiary to 99.99%.SQM S.A. did not
participate and therefore reduced its participation by 0.01%.


|d) | 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 forms part of its Board of Directors, have been accounted for using the equity method.


F-28

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SOCIEDAD QUIMICA Y MINERA DE CHILE S.A.

Notes
  to the Consolidated Financial Statements

Note
  8 – Investments in and Receivables from Related Companies (continued)

|e) | Detail
    of investments in related companies
|-- | ----------------------------------------------

|                
|----------------
|                
|**Tax******     
|**Registration**
|**Number**      
|                
|                
|                
|                
|0-E             
|0-E             
|0-E             
|0-E             
|0-E             
|0-E             
|                
|0-E             
|0-E             
|0-E             
|77.557.430-5    
|0-E             
|                
|81.767.200-0    
|93.390.000-2    
|99.551.480-K    
|                
|Total           
|                

F-29

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SOCIEDAD QUIMICA Y MINERA DE CHILE S.A.

Notes
  to the Consolidated Financial Statements

Note
  9 – Goodwill and Negative Goodwill

Goodwill, negative goodwill and the related amortization is summarized as follows:

|a) | Goodwill
|-- | --------



|                                    |          |                    |          |                  |          |                                              |  |                  |  |                    |  |                  | 
|----------------------------------- | -------- | ------------------ | -------- | ---------------- | -------- | -------------------------------------------- |  | ---------------- |  | ------------------ |  | ---------------- | 
|                                    |          |                    |          |                  |          | **As of and for the year endedDecember 31,** |  |                  |  |                    | 
|                                    |          |                   
|                                    | **2004** |                    | **2003** |                  | **2002** |                                             
|                                    |          |                    |          |                  |          |                                             
|                                    |          | **Amortization**   |          | **Goodwill**     |          | **Amortization**                             |  | **Goodwill**     |  | **Amortization**   |  | **Goodwill**     | 
|**Company**                         |          | **for the period** |          | **Balance, net** |          | **for the period**                           |  | **Balance, net** |  | **for the period** |  | **Balance, net** | 
|                                    |          |                    |          |                  |          |                                              |  |                  |  |                    |  |                  | 
|                                    |          | **ThUS$**          |          | **ThUS$**        |          | **ThUS$**                                    |  | **ThUS$**        |  | **ThUS$**          |  | **ThUS$**        | 
|Doktor Tarsa Tarim Sanayi S.A.      |          | 76                 |          | 23               |          | 69                                           |  | 98               |  | 63                 |  | 145              | 
|Soquimich Comercial S.A.            |          | 150                |          | 122              |          | 150                                          |  | 272              |  | 150                |  | 422              | 
|SCM SQM Boratos                     |          | —                  |          | —                |          | —                                            |  | —                |  | 65                 |  | —                | 
|Empresas Melón S.A.                 |          | 324                |          | —                |          | 503                                          |  | 8,490            |  | 525                |  | 7,585            | 
|SQM Salar S.A.                      |          | 43                 |          | 40               |          | 43                                           |  | 83               |  | 43                 |  | 126              | 
|SQM México S.A. de C.V.             |          | 56                 |          | 947              |          | 56                                           |  | 1,003            |  | 56                 |  | 1,058            | 
|SQM Potassium                       |          | 144                |          | 1,735            |          | 144                                          |  | 1,879            |  | 145                |  | 2,024            | 
|SQM Venezuela S.A.                  |          |                    |          |                  |          | —                                            |  | —                |  | 166                |  | —                | 
|Comercial Caiman Internacional S.A. |          | 23                 |          | 177              |          | 23                                           |  | 200              |  | 6                  |  | 222              | 
|Fertilizantes Olmeca                |          | 56                 |          | 167              |          | 56                                           |  | 223              |  | —                  |  | —                | 
|Comercial Hydro S.A.                |          | 140                |          | 1,305            |          | 90                                           |  | 1,339            |  | —                  |  | —                | 
|PCS Yumbes SCM                      |          | —                  |          | 12,637           |          | —                                            |  | —                |  | —                  |  | —                | 
|Safnits PTY Ltd.                    |          | 61                 |          | 317              |          | —                                            |  | —                |  | —                  |  | —                | 
|                                    |          |                    |          |                  |          |                                              |  |                  |  |                    |  |                  | 
|                                    |          | 1,073              |          | 17,470           |          | 1,134                                        |  | 13,587           |  | 1,219              |  | 11,582           | 
|                                    |          |                    |          |                  |          |                                              |  |                  |  |                    |  |                  | 

|   |                      
|-- | ---------------------
|b) | Negative
    Goodwill

|                          |                          |                        |                          |                        |                          |                                                 |  |              |  |           |  |              | 
|------------------------- | ------------------------ | ---------------------- | ------------------------ | ---------------------- | ------------------------ | ----------------------------------------------- |  | ------------ |  | --------- |  | ------------ | 
|                          |                          |                        |                          |                        |                          | As
      of and for the year ended December 31, |  |              | 
|                          |                          |                       
|                          | 2004                     |                        | 2003                     |                        | 2002                     |                                                
|                          |                          |                        |                          |                        |                          |                                                
|                          |                          |                        |                          | **Negative**           |                          |                                                 |  | **Negative** |  |           |  | **Negative** | 
|**Amortization**          | **Goodwill**             | **Amortization**       | **Goodwill**             | **Amortization**       | **Goodwill**            
|**Company**               | **for
      the period** | **Balance,
      net** | **for
      the period** | **Balance,
      net** | **for
      the period** | **Balance,
      net**                         
|                          |                          |                        |                          |                        |                          |                                                 |  |              |  |           |  |              | 
|                          |                          | **ThUS$**              |                          | **ThUS$**              |                          | **ThUS$**                                       |  | **ThUS$**    |  | **ThUS$** |  | **ThUS$**    | 
|                          |                          |                        |                          |                        |                          |                                                 |  |              |  |           |  |              | 
|SQM Salar
      S.A.      |                          | —                      |                          | —                      |                          | 167                                             |  | —            |  | 211       |  | 167          | 
|Minera
      Mapocho S.A. |                          | 203                    |                          | 271                    |                          | 203                                             |  | 474          |  | 203       |  | 686          | 
|                          |                          |                        |                          |                        |                          |                                                 |  |              |  |           |  |              | 
|                          |                          | 203                    |                          | 271                    |                          | 370                                             |  | 474          |  | 414       |  | 853          | 
|                          |                          |                        |                          |                        |                          |                                                 |  |              |  |           |  |              | 

F-30

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SOCIEDAD QUIMICA Y MINERA DE CHILE S.A.

Notes
to the Consolidated
Financial Statements



|Note
    10 –Other
    Long-term Assets
|---------------------------------------

Other long-term
      assets are summarized as follows:


|                                      | 2004   |  | 2003    | 
|------------------------------------- | ------ |  | ------- | 
|                                      |        |  |         | 
|                                      | ThUS$  |  | ThUS$   | 
|Engine and equipment spare-parts, net | 24,734 |  | 24, 089 | 
|Mine development costs                | 23,208 |  | 20,185  | 
|Prepaid pension cost                  | 1,165  |  | 1,137   | 
|Salar-Baquedano road, net (1)         | 1,650  |  | 1,770   | 
|Deferred loan issuance costs          | 866    |  | 2,263   | 
|Other                                 | 1,518  |  | 2,392   | 
|                                      |        |  |         | 
|Total                                 | 53,141 |  | 51,836  | 
|                                      |        |  |         | 

|   
|---
|(1)

|                            | 
|--------------------------- | 
|Note
    11 – Bank
    Debt
|                            | 

|a) | Short-term
    bank debt is detailed as follows:
|-- | ------------------------------------------------
|   |                                                 

|                                | 2004  |   | 2003   |  
|------------------------------- | ----- | - | ------ | -
|                                |       |   |        |  
|                                | ThUS$ |   | ThUS$  |  
|Bank or financial institution   |       |   |        |  
|Banco BBVA                      | —     |   | 3,006  |  
|Banco de Chile                  | 6,019 |   | 10,019 |  
|Banco Santander SCH Overseas    | —     |   | 8,000  |  
|Banco Santander Central Hispano | —     |   | 10,000 |  
|Banco Crédito e Inversiones     | —     |   | 12,022 |  
|Citibank                        | —     |   | 12,021 |  
|Other banks                     | 1,936 |   | 2,324  |  
|                                |       |   |        |  
|Total                           | 7,955 |   | 57,392 |  
|                                |       |   |        |  
|Annual average interest rate    | 2.48  | % | 1.55   | %

F-31

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SOCIEDAD QUIMICA Y MINERA DE CHILE S.A.

Notes
to the Consolidated
Financial Statements

|Note
    11 –Bank
    Debt (continued)
|--------------------------------------
|                                      

|b) | Long-term
    bank debt is detailed as follows:
|-- | -----------------------------------------------
|   |                                                

|                                     | 2004    |   | 2003    |  
|------------------------------------ | ------- | - | ------- | -
|                                     |         |   |         |  
|Bank or financial institution        | ThUS$   |   | ThUS$   |  
|Union Bank
       of Switzerland (1) | 204,577 |   | 204,577 |  
|Royal Bank of Canada (2)             | —       |   | 60,019  |  
|                                     |         |   |         |  
|Total                                | 204,577 |   | 264,596 |  
|                                     |         |   |         |  
|Less: Current portion                | (4,577  | ) | (4,596  | )
|                                     |         |   |         |  
|Long-term portion                    | 200,000 |   | 260,000 |  
|                                     |         |   |         |  
|                                     |         |   |         |  

|(1) | U.S. dollar-denominated loan without guarantee, interest rate of 7.7% per annum, paid semi-annually. The principal is due on September 15, 2006.                                                     
|--- | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|(2) | U.S. dollar-denominated loan without guarantee, interest rate of 1.99% per annum, paid semi-annually. The principal was divided into five equal installments, which were fully paid on June 24, 2004.
|    |                                                                                                                                                                                                      

|c) | The
    maturity of long-term debt is as follows:
|-- | -------------------------------------------------
|   |                                                  

|                  | 2004    |  | 2003    | 
|----------------- | ------- |  | ------- | 
|                  |         |  |         | 
|                  | ThUS$   |  | ThUS$   | 
|Years to maturity |         |  |         | 
|Current portion   | 4,577   |  | 4,596   | 
|1 to 2 years      | 200,000 |  | —       | 
|2 to 3 years      | —       |  | 260,000 | 
|                  |         |  |         | 
|Total             | 204,577 |  | 264,596 | 
|                  |         |  |         | 

F-32

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SOCIEDAD QUIMICA Y MINERA DE CHILE S.A.

Notes
to the Consolidated
Financial Statements

|Note
    12 –Accrued
    Liabilities
|------------------------------------
|                                    

As of December
      31, 2004 and 2003, accrued liabilities are summarized as follows:


|                                                    | 2004   |  | 2003   | 
|--------------------------------------------------- | ------ |  | ------ | 
|                                                    |        |  |        | 
|                                                    | ThUS$  |  | ThUS$  | 
|Provis ion for royalties                            | 1,360  |  | 1,006  | 
|Quarterly bonus                                     | —      |  | 322    | 
|Provision for employee compensation and legal costs | 1,570  |  | 1,117  | 
|Taxes and monthly income tax installment payments   | 1,077  |  | 747    | 
|Vacation accrual                                    | 6,932  |  | 6,107  | 
|Accrued employee benefits                           | —      |  | 1,342  | 
|Other accruals                                      | 1,328  |  | 1,614  | 
|                                                    |        |  |        | 
|Total current liabilities                           | 12,267 |  | 12,255 | 
|                                                    |        |  |        | 
|                                                    |        |  |        | 

|Note
    13 –Current
    and Deferred Income Taxes
|--------------------------------------------------
|                                                  

|a) | As of
          December 31, 2004 and 2003, the Company has the following consolidated
          balances for distributable retained taxed earnings, income not subject
    to taxes, tax loss carry-forwards and credit for shareholders:
|-- | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|   |                                                                                                                                                                                                                                           

|                                                                | 2004    |  | 2003   | 
|--------------------------------------------------------------- | ------- |  | ------ | 
|                                                                |         |  |        | 
|                                                                | ThUS$   |  | ThUS$  | 
|Accumulated
    tax basis retained earnings with
    tax credit | 86,518  |  | 30,675 | 
|Accumulated
    tax basis retained earnings with
    no credit  | —       |  | —      | 
|Tax loss carry-forwards (1)                                     | 198,215 |  | 62,609 | 
|Credit for shareholders                                         | 17,355  |  | 5,697  | 
|                                                                |         |  |        | 

|(1) | Income
    tax losses in Chile can be carried forward indefinitely.
|--- | -------------------------------------------------------------------

F-33

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SOCIEDAD QUIMICA Y MINERA DE CHILE S.A.

Notes
to the Consolidated
Financial Statements

|Note
    13 –Current
    and Deferred Income Taxes (continued)
|--------------------------------------------------------------

The deferred
      taxes as of December 31, 2004 and 2003 represented a net liability of ThUS$
      42,022 and ThUS$ 29,273, respectively, and are detailed as follows:


|2004                                | Deferred tax asset |   | Deferred tax liability |  
|----------------------------------- | ------------------ | - | ---------------------- | -
|                                    |                    |   |                        |  
|                                    | Short-term         |   | Long -term             |  
|                                    |                    |   |                        |  
|                                    | ThUS$              |   | ThUS$                  |  
|Temporary differences               |                    |   |                        |  
|Allowance for doubtful accounts     | 1,324              |   | 386                    |  
|Vacation accrual                    | 1,165              |   | —                      |  
|Unrealized gain on sale of products | 8,748              |   | —                      |  
|Provision for obsolescence          | —                  |   | 1,835                  |  
|Production expenses                 | 7,872              |   | —                      |  
|Accelerated depreciation            | —                  |   | —                      |  
|Exploration expenses                | —                  |   | —                      |  
|Capitalized interest                | —                  |   | —                      |  
|Staff severance indemnities         | —                  |   | 467                    |  
|Accrued expenses                    | —                  |   | —                      |  
|Capitalized expenses                | —                  |   | —                      |  
|Tax loss
       carry-forwards      | —                  |   | 36,472                 |  
|Losses from derivative transactions | 85                 |   | —                      |  
|Accrued interest                    | 130                |   | —                      |  
|Other                               | 1,466              |   | 1,856                  |  
|                                    |                    |   |                        |  
|Total gross deferred taxes          | 20,790             |   | 41,016                 |  
|Total complementary accounts        | —                  |   | (5,815                 | )
|Valuation allowance                 | (8,046             | ) | (27,619                | )
|                                    |                    |   |                        |  
|Total deferred taxes                | 12,744             |   | 7,582                  |  
|                                    |                    |   |                        |  

F-34

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SOCIEDAD QUIMICA Y MINERA DE CHILE S.A.

Notes
to the Consolidated
Financial Statements

|Note
    13 – Current
    and Deferred Income Taxes (continued)
|---------------------------------------------------------------
|                                                               

|2003                                | Deferred tax asset |  | Deferred tax liability |  
|----------------------------------- | ------------------ |  | ---------------------- | -
|                                    |                    |  |                        |  
|                                    | Short-term         |  | Long-term              |  
|                                    |                    |  |                        |  
|                                    | ThUS$              |  | ThUS$                  |  
|Temporary differences               |                    |  |                        |  
|Allowance for doubtful accounts     | 1,201              |  | 474                    |  
|Vacation accrual                    | 1,044              |  | —                      |  
|Unrealized gain on sale of products | 5,318              |  | —                      |  
|Provision for obsolescence          | —                  |  | 2,620                  |  
|Production expenses                 | —                  |  | —                      |  
|Accelerated depreciation            | —                  |  | —                      |  
|Exploration expenses                | —                  |  | —                      |  
|Capitalized interest                | —                  |  | —                      |  
|Staff severance indemnities         | —                  |  | —                      |  
|Accrued expenses                    | —                  |  | —                      |  
|Capitalized expenses                | —                  |  | —                      |  
|Tax loss carry-forwards             | 1,202              |  | 12,190                 |  
|Losses from derivative transactions | 90                 |  | —                      |  
|Accrued interest                    | 102                |  | —                      |  
|Other                               | 771                |  | 476                    |  
|                                    |                    |  |                        |  
|Total gross deferred taxes          | 9,728              |  | 15,760                 |  
|Total complementary accounts        | —                  |  | (1,206                 | )
|Valuation allowance                 | —                  |  | (539                   | )
|                                    |                    |  |                        |  
|Total deferred taxes                | 9,728              |  | 14,015                 |  
|                                    |                    |  |                        |  

F-35

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SOCIEDAD QUIMICA Y MINERA DE CHILE S.A.

Notes to
the Consolidated Financial Statements

Note 13 – Current and Deferred Income Taxes (continued)

c)     Income tax
expense is summarized as follows:


|                                                                                        | 2004    |   | 2003    |   | 2002    |  
|--------------------------------------------------------------------------------------- | ------- | - | ------- | - | ------- | -
|                                                                                        |         |   |         |   |         |  
|                                                                                        | ThUS$   |   | ThUS$   |   | ThUS$   |  
|                                                                                        |         |   |         |   |         |  
|Provision for current income tax                                                        | (14,435 | ) | (2,829  | ) | (2,911  | )
|Effect of deferred tax assets and liabilities                                           | (6,613  | ) | (7,731  | ) | (9,344  | )
|Adjustment for tax expense (previous year)                                              | (144    | ) | 56      |   | —       |  
|Effect of amortization of complementary accounts                                        | (6,022  | ) | (5,917  | ) | 1,405   |  
|Effect on
    deferred tax assets and liabilities due to changes in valuation allowance | —       |   | 236     |   | (775    | )
|                                                                                        |         |   |         |   |         |  
|Other tax charges and credits                                                           | (94     | ) | 129     |   | 1,070   |  
|                                                                                        |         |   |         |   |         |  
|Total income tax expense                                                                | (27,308 | ) | (16,056 | ) | (10,555 | )
|                                                                                        |         |   |         |   |         |  

Note
14 – Staff Severance Indemnities

Staff severance
indemnities are summarized as follows:


|                             | 2004   |   | 2003   |  
|---------------------------- | ------ | - | ------ | -
|                             |        |   |        |  
|                             | ThUS$  |   | ThUS$  |  
|                             |        |   |        |  
|Opening balance              | 10,127 |   | 9,143  |  
|Increases in obligation      | 3,301  |   | 2,283  |  
|Payments                     | (2,245 | ) | (2,802 | )
|Foreign currency translation | 692    |   | 1,503  |  
|                             |        |   |        |  
|Balance as of December 31    | 11,875 |   | 10,127 |  
|                             |        |   |        |  

F-36

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SOCIEDAD QUIMICA Y MINERA DE CHILE S.A.

Notes to the Consolidated
Financial Statements

Note 15 – Minority Interest

Minority interest is summarized as follows:


|                                 | Equity |   | Net Income/(Loss) |  
|-------------------------------- | ------ | - | ----------------- | -
|                                 |        |   |                   |  
|                                 | 2004   |   | 2003              |  
|                                 |        |   |                   |  
|                                 | ThUS$  |   | ThUS$             |  
|                                 |        |   |                   |  
|Soquimich Comercial S.A.         | 30,741 |   | 25,634            |  
|Ajay SQM Chile S.A               | 3,313  |   | 3,172             |  
|Cape Fear Bulk LLC               | 146    |   | 100               |  
|SQM Indonesia S.A.               | (2     | ) | —                 |  
|Fenasa                           | 258    |   | 272               |  
|SQM Nitratos México S.A. de C.V. | (46    | ) | (82               | )
|SQM Italia S.R.L                 | 20     |   | 23                |  
|Mineag SQM Africa Ltda           | —      |   | —                 |  
|                                 |        |   |                   |  
|Total                            | 34,430 |   | 29,119            |  
|                                 |        |   |                   |  

F-37

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SOCIEDAD QUIMICA Y MINERA DE CHILE S.A.

Notes
to the Consolidated
Financial Statements

Note 16 – Shareholders Equity

a)     Movements within shareholders equity are detailed as follows:


|                                                                      |               |  |         |  |          |   | Accumulated  |   |          |   |         |   |         |  
|--------------------------------------------------------------------- | ------------- |  | ------- |  | -------- | - | ------------ | - | -------- | - | ------- | - | ------- | -
|                                                                      |               |  |         |  |          |   | deficit      |   |          |   |         |   |         |  
|                                                                      |               |  |         |  |          |   | of           |   |          |   |         |   |         |  
|                                                                      |               |  |         |  |          |   | subsidiaries |   |          |   |         |   |         |  
|                                                                      |               |  |         |  |          |   | in           |   |          |   |         |   |         |  
|                                                                      | Number        |  | Paid-in |  | Other    |   | development  |   | Retained |   | Net     |   |         |  
|                                                                      | of
    shares |  | capital |  | reserves |   | stage        |   | earnings |   | income  |   | Total   |  
|                                                                      |               |  |         |  |          |   |              |   |          |   |         |   |         |  
|                                                                      |               |  | ThUS$   |  | ThUS$    |   | ThUS$        |   | ThUS$    |   | ThUS$   |   | ThUS$   |  
|Balance as of January 1, 2002                                         | 263,196,524   |  | 477,386 |  | 131,066  |   | (2,223       | ) | 195,366  |   | 30,102  |   | 831,697 |  
|Transfer 2001 net income to retained earnings                         | —             |  | —       |  | —        |   | —            |   | 30,102   |   | (30,102 | ) | —       |  
|Declared dividends 2002                                               | —             |  | —       |  | —        |   | —            |   | (14,844  | ) | —       |   | (14,844 | )
|Net loss from subsidiaries in development stages (1)                  | —             |  | —       |  | —        |   | (1,438       | ) | —        |   | —       |   | (1,438  | )
|Other comprehensive income (2)                                        | —             |  | —       |  | (5,955   | ) | —            |   | —        |   | —       |   | (5,955  | )
|Net income                                                            | —             |  | —       |  | —        |   | —            |   | —        |   | 40,202  |   | 40,202  |  
|                                                                      |               |  |         |  |          |   |              |   |          |   |         |   |         |  
|Balance as of December 31, 2002                                       | 263,196,524   |  | 477,386 |  | 125,111  |   | (3,661       | ) | 210,624  |   | 40,202  |   | 849,662 |  
|                                                                      |               |  |         |  |          |   |              |   |          |   |         |   |         |  
|                                                                      |               |  |         |  |          |   |              |   |          |   |         |   |         |  
|Transfer 2002 net income to retained earnings                         | —             |  | —       |  | —        |   | —            |   | 40,202   |   | (40,202 | ) | —       |  
|Declared dividends 2003                                               | —             |  | —       |  | —        |   | —            |   | (19,894  | ) | —       |   | (19,894 | )
|Accumulated deficit from subsidiaries in development stage (1)        | —             |  | —       |  | —        |   | (2,858       | ) | —        |   | —       |   | (2,858  | )
|Other comprehensive income (2)                                        | —             |  | —       |  | 16,309   |   | —            |   | —        |   | —       |   | 16,309  |  
|Net income                                                            | —             |  | —       |  | —        |   | —            |   | —        |   | 46,753  |   | 46,753  |  
|                                                                      |               |  |         |  |          |   |              |   |          |   |         |   |         |  
|Balance as of December 31, 2003                                       | 263,196,524   |  | 477,386 |  | 141,420  |   | (6,519       | ) | 230,932  |   | 46,753  |   | 889,972 |  
|                                                                      |               |  |         |  |          |   |              |   |          |   |         |   |         |  
|                                                                      |               |  |         |  |          |   |              |   |          |   |         |   |         |  
|Transfer 2003 net income to retained earnings                         | —             |  | —       |  | —        |   | —            |   | 46,753   |   | (46,753 | ) | —       |  
|Declared dividends 2004                                               | —             |  | —       |  | —        |   | —            |   | (23,192  | ) | —       |   | (23,192 | )
|Accumulated
       deficit from subsidiaries in development stage (1) | —             |  | —       |  | —        |   | (1,851       | ) | —        |   | —       |   | (1,851  | )
|Other comprehensive income (2)                                        | —             |  | —       |  | 9,467    |   | —            |   | —        |   | —       |   | 9,467   |  
|Net income                                                            | —             |  | —       |  | —        |   | —            |   | —        |   | 74,232  |   | 74,232  |  
|                                                                      |               |  |         |  |          |   |              |   |          |   |         |   |         |  
|Balance as of December 31, 2004                                       | 263,196,524   |  | 477,386 |  | 150,887  |   | (8,370       | ) | 254,493  |   | 74,232  |   | 948,628 |  
|                                                                      |               |  |         |  |          |   |              |   |          |   |         |   |         |  

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

F-38

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SOCIEDAD QUIMICA Y MINERA DE CHILE S.A.

Notes
to the Consolidated
Financial Statements

Note 16 – Shareholders Equity (continued)

b)     Other comprehensive
income as of December 31, 2004 is as follows:


|                                                                             |    |   | For the year ended December 31, |   | As of December 31, | 
|---------------------------------------------------------------------------- | -- | - | ------------------------------- | - | ------------------ | 
|                                                                             |    |   |                                 |   |                    | 
|                                                                             |    |   | 2004                            |   | 2003               | 
|                                                                             |    |   |                                 |   |                    | 
|                                                                             |    |   | ThUS$                           |   | ThUS$              | 
|                                                                             |    |   |                                 |   |                    | 
|Technical appraisal                                                          |    |   | —                               |   | —                  | 
|Changes
       to other comprehensive income from equity method investments: |    |   |                                 |   |                    | 
|Soquimich Comercial S.A.                                                     | (1 | ) | 3,242                           |   | 6,421              | 
|Isapre Norte Grande Ltda                                                     | (1 | ) | 14                              |   | —                  | 
|Inversiones Augusta S.A                                                      | (1 | ) | —                               |   | —                  | 
|SQM Ecuador S.A.                                                             | (3 | ) | —                               |   | —                  | 
|Almacenes y Depósitos Ltda                                                   | (1 | ) | 34                              |   | 1                  | 
|Asociación Garantizadora de Pensiones                                        | (1 | ) | 2                               |   | 2                  | 
|Empresas Melón S.A                                                           | (1 | ) | 6,190                           |   | 9,446              | 
|Sales de Magnesio Ltda                                                       | (1 | ) | —                               |   | 69                 | 
|SQM North America Corp.                                                      | (2 | ) | (15                             | ) | 370                | 
|Other Companies                                                              | (1 | ) | —                               |   | —                  | 
|                                                                             |    |   |                                 |   |                    | 
|Total other comprehensive income                                             |    |   | 9,467                           |   | 16,309             | 
|                                                                             |    |   |                                 |   |                    | 

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

c)     Capital consists
    of 263,196,524 fully authorized, subscribed and paid shares with no par value,
    divided into 142,819,552 Series A shares and 120,376,972 Series B shares.


The preferential voting rights of each series are as follows:


| | Series
    A : |  |    | If the
        vote for president of the Company is tied, all directors may vote once
    again, except the director elected by the Series B shareholders.                                                       
| | -------------- |  | -- | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | Series
    B:  |  | 1) | A general
        or extraordinary shareholders’ meeting may be called at the request of
        shareholders
representing 5% of the Company’s Series B shares.                                                  
| |                |  | 2) | An extraordinary
        meeting of the Board of Directors may be called with or without the agreement
        of the Company’s president, at the request of a director elected by Series
        B
shareholders.

F-39

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SOCIEDAD QUIMICA Y MINERA DE CHILE S.A.

Notes
to the Consolidated
Financial Statements

Note 17 – Derivatives Instruments

Derivative instruments are recorded at their fair value as of year-end. Changes in fair value are recognized in income with the liability recorded in other current liabilities. Losses from options relate to fees paid by the Company to enter into such contracts. As of December 31, 2004, the Companys derivative instruments are as follows:


|2004          |  | Notional |  |               |  |                    |  |               |  |                  |   |        |  
|------------- |  | -------- |  | ------------- |  | ------------------ |  | ------------- |  | ---------------- | - | ------ | -
|Type of       |  | covered  |  | Expiration    |  | Description of the |  | Position      |  | (Liability)Asset |   | Income |  
|derivative    |  | amount   |  |               |  | type               |  | Purchase/Sale |  | amount           |   | (loss) |  
|              |  |          |  |               |  |                    |  |               |  |                  |   |        |  
|              |  | ThUS$    |  |               |  |                    |  |               |  | ThUS$            |   | ThUS$  |  
|US dollar     |  | 1,013    |  | 1stquarter of |  | Exchange rate      |  | P             |  | (108             | ) | (108   | )
|US dollar     |  | 4,629    |  | 1stquarter of |  | Exchange rate      |  | S             |  | 110              |   | 110    |  
|US dollar     |  | 399      |  | 2ndquarter of |  | Exchange rate      |  | S             |  | 42               |   | 42     |  
|US dollar     |  | 10,004   |  | 1stquarter of |  | Arbitration        |  | P             |  | (539             | ) | (539   | )
|US dollar     |  | 5,187    |  | 1stquarter of |  | Exchange rate      |  | S             |  | (207             | ) | (207   | )
|US dollar Put |  | 38,721   |  | 1stquarter of |  | Exchange rate      |  | P             |  | (893             | ) | (893   | )
|US dollar Put |  | 43,884   |  | 2ndquarter of |  | Exchange rate      |  | P             |  | (1,012           | ) | (1,012 | )
|US dollar Put |  | 25,814   |  | 3ndquarter of |  | Exchange rate      |  | P             |  | (595             | ) | (595   | )
|US dollar Put |  | 20,651   |  | 4stquarter of |  | Exchange rate      |  | P             |  | (476             | ) | (476   | )
|              |  |          |  |               |  |                    |  |               |  |                  |   |        |  
|              |  | 150,302  |  |               |  |                    |  |               |  | (3,678           | ) | (3,678 | )
|              |  |          |  |               |  |                    |  |               |  |                  |   |        |  



|2003          |  | Notional |  |                      |  |                    |  |               |  |             |   | Income   |  
|------------- |  | -------- |  | -------------------- |  | ------------------ |  | ------------- |  | ----------- | - | -------- | -
|Type of       |  | covered  |  | Expiration           |  | Description of the |  | Position      |  | (Liability) |   | (loss)   |  
|derivative    |  | amount   |  |                      |  | type               |  | Purchase/Sale |  | amount      |   | recorded |  
|              |  |          |  |                      |  |                    |  |               |  |             |   |          |  
|              |  | ThUS$    |  |                      |  |                    |  |               |  | ThUS$       |   | ThUS$    |  
|US dollar Put |  | 24,570   |  | 1stquarter of        |  | Exchange rate      |  | P             |  | —           |   | (20      | )
|US dollar Put |  | 11,494   |  | 1stquarter of        |  | Exchange rate      |  | P             |  | —           |   | (20      | )
|US dollar     |  | 408      |  | 1stquarter of        |  | Exchange rate      |  | P             |  | (12         | ) | (12      | )
|US dollar     |  | 3,006    |  | 1stquarter of        |  | Exchange rate      |  | P             |  | 142         |   | 142      |  
|US dollar     |  | 3,980    |  | 1stquarter of        |  | Exchange rate      |  | P             |  | (48         | ) | (48      | )
|US dollar     |  | 4,500    |  | 1stquarter of        |  | Exchange rate      |  | P             |  | (138        | ) | (138     | )
|US dollar     |  | 159      |  | 2ndquarter of        |  | Exchange rate      |  | P             |  | (10         | ) | (10      | )
|US dollar     |  | 201      |  | 2ndquarter of        |  | Exchange rate      |  | P             |  | (12         | ) | (12      | )
|US dollar     |  | 27       |  | 1stquarter of        |  | Exchange rate      |  | P             |  | (2          | ) | (2       | )
|US dollar     |  | 159      |  | 1stquarter of        |  | Exchange rate      |  | P             |  | 10          |   | 10       |  
|US dollar     |  | 201      |  | 2ndquarter
       of |  | Exchange rate      |  | P             |  | 12          |   | 12       |  
|US dollar     |  | 27       |  | 1stquarter of        |  | Exchange rate      |  | P             |  | 2           |   | 2        |  
|US dollar     |  | 3,000    |  | 1stquarter of        |  | Exchange rate      |  | P             |  | (216        | ) | (216     | )
|US dollar     |  | 5,500    |  | 1stquarter of        |  | Exchange rate      |  | P             |  | (176        | ) | (176     | )
|              |  |          |  |                      |  |                    |  |               |  |             |   |          |  
|              |  | 57,232   |  |                      |  |                    |  |               |  | (448        | ) | (488     | )
|              |  |          |  |                      |  |                    |  |               |  |             |   |          |  

F-40

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

Notes to the Consolidated
Financial Statements

Note 18 – Non-Operating Income and Expenses

Non-operating income and expenses are detailed as follows:


a)Non-operating income


|                                                            | 2004   |  | 2003   |  | 2002   | 
|----------------------------------------------------------- | ------ |  | ------ |  | ------ | 
|                                                            |        | 
|                                                            | ThUS$  |  | ThUS$  |  | ThUS$  | 
|Interest income                                             | 3,650  |  | 2,957  |  | 4,140  | 
|Equity participation in net income equity method investment | 4,897  |  | 5,529  |  | 3,479  | 
|Reversal of allowance for staff severance indemnities       |        |  | —      |  | 1,308  | 
|Insurance recoveries                                        | 546    |  | 154    |  | 1,065  | 
|Reversal of provision relating to Distrinor                 | —      |  | —      |  | 800    | 
|Reversal of allowance for doubtful accounts                 | 388    |  | 422    |  | 584    | 
|Net foreign exchange                                        | —      |  | 6,590  |  | —      | 
|Sale of mining concessions                                  | 635    |  | 135    |  | —      | 
|Sale of materials and services                              | —      |  | 827    |  | 273    | 
|Gain on sale of investments in related companies companies  | 8,179  |  | —      |  | —      | 
|Rental of property, plant and equipment                     | 774    |  | —      |  | —      | 
|Other income                                                | 1,760  |  | 2,040  |  | 2,388  | 
|                                                            |        |  |        |  |        | 
|Total                                                       | 20,829 |  | 18,654 |  | 14,037 | 
|                                                            |        |  |        |  |        | 

b)Non-operating expenses


|                                                                  | 2004   |  | 2003   |  | 2002   | 
|----------------------------------------------------------------- | ------ |  | ------ |  | ------ | 
|                                                                  |        | 
|                                                                  | ThUS$  |  | ThUS$  |  | ThUS$  | 
|Interest expense                                                  | 18,782 |  | 21,777 |  | 29,666 | 
|Foreign currency translation, net                                 | 475    |  | —      |  | 3,483  | 
|Non-capitalizable project expenses                                | 9,262  |  | 8,965  |  | 3,019  | 
|Equity participation in net losses of unconsolidated subsidiaries | 387    |  | 1      |  | 473    | 
|Amortization of goodwill                                          | 1,073  |  | 1,134  |  | 1,219  | 
|Work disruption expenses                                          | 568    |  | 1,640  |  | —      | 
|Provision for employee compensation and legal costs               | 533    |  | 1,442  |  | —      | 
|Pension plan curtailment charge                                   | —      |  | 87     |  | 1,467  | 
|Sales of materials and services                                   | 1,628  |  | —      |  | 1,147  | 
|Increase in allowance for doubtful accounts                       | 2,500  |  | 687    |  | 641    | 
|Non-recoverable taxes                                             | 531    |  | 690    |  | 91     | 
|Other expenses                                                    | 2,681  |  | 3,390  |  | 2,810  | 
|                                                                  |        |  |        |  |        | 
|Total                                                             | 38,420 |  | 39,813 |  | 44,016 | 
|                                                                  |        |  |        |  |        | 

F-41

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

Notes
to the Consolidated
Financial Statements

Note 19 – Price-level Restatement

Amounts charged or credited to income relating to price-level restatement during the year ended December 31, are summarized as follows:


|                                                             | (Charge)
    credit to income from operations |     
|------------------------------------------------------------ | --------------------------------------------- | ----
|                                                            
|2004                                                         |                                               | 2003
|                                                             |                                               |     
|                                                             | ThUS$                                         |     
|Property, plant and equipment                                | 173                                           |     
|Other assets and liabilities                                 | (396                                          | )   
|Shareholders equity                                         | (1,467                                        | )   
|                                                             |                                               |     
|Subtotal price-level restatement                             | (1,690                                        | )   
|                                                             |                                               |     
|Net readjustment of assets and liabilities denominated in UF | (23                                           | )   
|                                                             |                                               |     
|Net price-level restatement                                  | (1,713                                        | )   
|                                                             |                                               |     

Note 20 – Assets and Liabilities Denominated in Foreign Currency

|                       | 2004      |  | 2003      | 
|---------------------- | --------- |  | --------- | 
|                       |          
|Assets                 | ThUS$     |  | ThUS$     | 
|Chilean pesos          | 81,886    |  | 173,310   | 
|US dollars             | 1,175,983 |  | 1,074,602 | 
|Euros                  | 30,996    |  | 67,821    | 
|Japanese Yen           | 3,889     |  | 2,461     | 
|Brazilian Real         | 348       |  | 2,251     | 
|Mexican pesos          | 6,926     |  | 21,131    | 
|UF                     | 49,785    |  | 12,937    | 
|South African Rand     | 9,214     |  | 6,662     | 
|Other currencies       | 2,345     |  | 2,301     | 
|                       |           |  |           | 
|                       |           |  |           | 
|Current liabilities    |           |  |           | 
|Chilean pesos          | 51,877    |  | 46,582    | 
|US dollars             | 54,437    |  | 78,884    | 
|Euros                  | 10,927    |  | 13,347    | 
|Japanese Yen           | 75        |  | 147       | 
|Brazilian Real         | 796       |  | 646       | 
|Mexican pesos          | 9,696     |  | 3,443     | 
|UF                     | 1,177     |  | 250       | 
|South African Rand     | 2,140     |  | 282       | 
|Other currencies       | 119       |  | 1,678     | 
|                       |           |  |           | 
|Long -term liabilities |           |  |           | 
|Chilean pesos          | 10,531    |  | 112       | 
|US dollars             | 235,310   |  | 289,672   | 
|UF                     | 1,106     |  | 9,267     | 
|Japanese Yen           | 121       |  | —         | 
|Other currencies       | 2         |  | 75        | 

F-42

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

Notes
to the Consolidated
Financial Statements

Note 21 – Commitments
        and Contingencies

|I. | Contingencies:
|-- | --------------
|   |               
|   | (a)           
|   |               
|   |               
|   |               
|   |               
|   |               
|   |               
|   |               
|   |               
|   |               
|   |               
|   |               
|   |               
|   |               
|   |               
|   |               
|   |               
|   |               
|   |               
|   |               
|   |               
|   |               
|   |               
|   |               
|   |               

F-43

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

Notes
to the Consolidated
Financial Statements

Note 21 – Commitments and Contingencies (continued)

|I.  | Contingencies
    (continued):
|--- | ------------------------------
|    |                               
|    | (b)                           
|    |                               
|    |                               
|    |                               
|    |                               
|    |                               
|    |                               
|    |                               
|    |                               
|    |                               
|    |                               
|    |                               
|    | (c)                           
|    |                               
|    |                               
|    |                               
|II. | Commitments:                  
|    |                               
|    | (a)                           
|    |                               
|    | (b)                           
|    |                               
|    | (c)                           

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

Notes
to the Consolidated
Financial Statements

Note 22 – Third Party Guarantees

As of December 31, 2004 and 2003 the Company has the following indirect guarantees outstanding:

|                         | Debtor               |  | Balances
    outstanding | 
|------------------------ | -------------------- |  | ------------------------ | 
|                         |                      |  |                          | 
|Beneficiary              | Name                 |  | Relationship             | 
|                         |                      |  |                          | 
|                         |                      |  |                          | 
|Phelps Dodge Corporation | SQM
    Potasio S.A. |  | Subsidiary               | 

Note 23 - Sanctions

During 2004 and 2003, the SVS did not apply sanctions to the Company, its directors or managers.

Note 24  Environmental Projects

Disbursements incurred by the Company for the years ended December 31, 2004, 2003 and 2002 relating to its investments in production processes and compliance with regulations related to industrial processes and facilities were as follows:


|                                              | 2004  |       | 2003  |  | 2002  | 
|--------------------------------------------- | ----- | ----- | ----- |  | ----- | 
|                                              |       |      
|                                              | ThUS$ | ThUS$ | ThUS$
|Project                                       |       |       |       |  |       | 
|Environmental department                      | 544   |       | 383   |  | 311   | 
|Boratos sewage treatment plant                | 281   |       | 555   |  | 506   | 
|Tocopilla project                             | 615   |       | 792   |  | 415   | 
|Engineering and building of María Elena piles | 2,667 |       | 2,014 |  | 4,680 | 
|Treatment plant MOP                           | 208   |       | 208   |  | 857   | 
|Other                                         | 1,242 |       | 408   |  | 173   | 
|                                              |       |       |       |  |       | 
|Total                                         | 5,557 |       | 4,360 |  | 6,942 | 
|                                              |       |       |       |  |       | 

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

Notes to the Consolidated Financial Statements

Note 24  Environmental Projects (continued)

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
      Maria Elena Plant exceeded the level allowed for air quality and, consequently,
      affected the nearby city of Maria Elena. Particles mainly come from dust
      that results from processing the sod ium nitrate, particularly at the crushing
      process prior to leaching. The Company has implemented a series of measures
      that have shown notable improvement in air quality at María Elena.
      A new decontamination plan for this area, released on March 13, 2004, is
      intended to meet air quality standards by April 1, 2006. On December 30,
      2004, the Company submitted a proposal entitled Technological Change
      at María Elena, which intends to reduce particle emission,
      to the governments Environmental Impact Evaluation System. This proposal
      is presently pending evaluation by the environmental regulators, whose
      decision should be made public during the first semester of 2005.


Ore treatment
      operations, as they are controlled processes, produce solid residual materials
      that are the non-soluble by product and a certain degree of moisture.


Productive
      operations based on brine, are carried out at the Atacama Salt Mine and
      almost 95% of the energy used is solar energy and the remaining 5% comes
      from natural gas, electricity and fossil fuels. Residual brine left after
      the production processes are again injected to the Atacama Salt Mine in
      order to minimize the possible environmental impact.


SQM entered
      into a contract with the National Forestry Corporation (CONAF) aimed at
      researching the activities of flamingo groups that live in the Atacama
      Salt Mine lagoons. Such research includes a population count of the birds
      and wildlife, breeding research, additional behavior research and the climate
      phenomena of the area.


Consistent
      with the Companys ongoing commitment with the environmental authorities,
      the Company actively participates in the Joint Monitoring Research project
      for the Atacama Salt Mine watershed along with other mining companies that
      make use of the water resourc es that supply the Atacama Salt Mine. To
      perform this study, SQM has involved diverse scientists from prestigious
      research institutions such as Dictuc of Pontificia Universidad Católica,
      the University of Nevada, Cornell University and the University of Binghamton
      in New York.


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

Notes to
the Consolidated Financial Statements

Note 25  Significant Events

On March
      19, 2004, the Company informed the Superintendency of Securities and Insurance
      that the Board of Directors of SQM, at its meeting dated March 16, 2005,
      unanimously agreed to propose payment of a final dividend of US$ 0.08811
      per share in favor of SQMs shareholders that were registered in the
      respective registry during the fifth working day prior to the payment of
      this dividend.


This proposal
      was approved by the Companys shareholders at their meeting
      held on April 30, 2004, thus allowing the Company to pay and distribute,
      as stated in the respective Dividend Policy, an annual dividend equivalent
      to 50% of the net profits.


On April
      30, 2004, the Company held a general shareholders meeting. At this
      meeting, a majority of the Companys shareholders, agreed the following
      issues, among others:


| | a) | The shareholders
        approved the distribution and payment of a final and total dividend of
        Ch$ 55.05465 per share. The payment of this dividend was agreed in one
    single installment on May 12, 2004 with a charge to 2003 income.                                                                                                                    
| | -- | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |    |                                                                                                                                                                                                                                                                                                                                                                        
| | b) | The shareholders
        approved the payment of UF 50 to each member of the Directors Committee
        regardless of the number of meetings that this Committee holds during
        the respective month. In addition, they approved the implementation of
        an annual budget for the operating expenses of this Committee and their
    advisors of UF 1,800.
| |    |                                                                                                                                                                                                                                                                                                                                                                        
| | c) | The shareholders
        approved the Directors fees to be paid to the Companys directors
    during the next twelve months.                                                                                                                                                                                                                                         

Note 26  Subsequent Events

On January
        19, 2005, the Companys Board of Directors informed the SVS that,
        in an Ordinary Session of the Board on January 18, 2005, they accepted
        the voluntary and irrevocable resignation of Mr. Avi Milstein as Director
        and appointed Mr. Daniel Yarur E. in his place.


On February
        25, 2005, Royal Seed Trading Corp A.V.V., a subsidiary of Sociedad Química
        y Minera de Chile S.A., entered into a syndicated loan for ThUS$ 100,000,
        guaranteed by SQM Potasio S.A., with the following banks: BBVA Securities
        Inc., BNP Paribas and Rabobank Curacao N.V. The loan matures in 5 years,
        with quarterly interest payments at an initial annual interest rate of
        Libor + 0.325%”, which could vary depending on any possible future modifications
        in the subsidiarys external debt classification. There are no guarantees
        of real property associated with this loan. The director Mr. José Antonio
        Silva B. consulted with the Chilean Superintendency of Securities and
        Insurance (SVS) as to the
      applicability of the concept of limitation of related persons to
      Article 31 of the by-laws of SQM S.A. and as equal to this concept already
      existing in Article 31 Bis of the aforementioned by-laws- and also in respect
      to the quorum required to modify the percentage of 37.5% referred
      to in Article 31. The SVS, through Ordinary Official Communication N002622
      dated March 16, 2005, asked the Company’s opinion in this respect and the
      Company, through its management informed the Board of Directors that the
      concept of limitation of related persons does not exist in
      Article 31 and that the history of both articles plus the interpretation
      of these articles at the different Shareholders’ meetings held throughout
      the years and the different objectives of these articles, among other aspects,
      allow concluding that this concept is not applicable to article 31 and
      that; in addition, the amendment of the percentage requires the vote by
      absolute majority of shares issued with voting rights present at the Shareholders’
      meeting that analyze this amendment. Four directors agreed with the opinion
      provided by the management of SQM S.A. and two directors disagreed with
      this opinion and this was informed to the SVS. The SVS confirmed the opinion
      provided by the management of SQM S.A. based on matter of law of fact considerations
  explained in Ordinary Official Communication N003821 dated April 19, 2005. Inversiones El Boldo
        Limitada, owner of more than 10% of voting right shares issued of SQM
        S.A. and related to Potash Corporation
        of Saskatchewan
      Inc., on April 25, 2005 has requested from the Board of directors of SQM
      S.A. that it requests an Extraordinary Shareholders’ Meeting of the Company
      to vote as to the convenience of either eliminating or not Series A and
      B shares - and preferences related to these series - in which the Company’s
      capital is currently divided through the amendment of the pertinent articles
      of the Company’s by-laws required to reflect this possible elimination
      and; alternately, and provided that the shareholders do not approve this
      elimination, to modify article 31 of these by-laws with the purpose of
      incorporating in this article the concept of related persons already
      included in Article 31 Bis of the aforementioned by-laws. The Company’s
      Board of Directors unanimously agreed on its meeting held on April 26,
      2005 to summon such a meeting for May 25, 2005 at 10.00 a.m. Up to December 31, 2004, the financial statements of the subsidiary Fertilizantes
      Naturales S.A. were considered in consolidation given that the Company
      maintained the control of this subsidiary (due to its right to manage this
      subsidiary’s financial and operating policies). Beginning on January 1,
      2005, the Company no longer controls this subsidiary and therefore the
      aforementioned subsidiary has been excluded from consolidation in accordance
      with letters a) to d) of No.6 in Attachment 1 to Technical Bulletin No.
      72 issued by the Chilean Association of Accountants. On March 10, 2005, the subsidiary PCS Yumbes SCM, changed its name to
      Yumbes SCM. At the Annual Ordinary Shareholders’ Meeting held on April 29, 2005, the
      shareholders approved a single dividend with respect to 2004 of US$0.18282
      per share, equal to 65% of the net income, before amortization of negative
      goodwill for that year, which was paid on May 12, 2005. The Board of Directors
      also reaffirmed for 2005 a dividend policy that authorizes distribution
      of cash dividends in an amount equal to 65% of our net income before amortization
  of negative goodwill for the year.


Management
        is not aware of any significant subsequent events that have occurred
        after December 31, 2004 and that may affect the Companys financial
        position or the interpretation of these financial statements.


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

Notes to
the Consolidated Financial Statements

Note 27  Differences between Chilean and United States Generally Accepted Accounting Principles

Accounting
      principles generally accepted in Chile (Chilean GAAP) vary
      in certa in important respects from accounting principles generally accepted
      in the United States (US GAAP). Such differences involve certain
      methods for measuring the amounts shown in the financial statements, as
      well as additional disclosures required by US GAAP.


The principal
      differences between Chilean GAAP and US GAAP are described below together
      with explanations, where appropriate, of the method used in the determination
      of the adjustments that affect net income and total shareholders equity.
      References below to SFAS are to 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 2 k), certain property, plant and equipment are reported in the
        financial statements at amounts determined in accordance with a technical
        appraisal performed in 1988. US GAAP does not allow the revaluation of
        property, plant and equipment. The effects of the reversal of this revaluation,
        as well as of the related accumulated depreciation and depreciation charge
        for each year are set-forth under paragraph I p) below.


|b) | Deferred
    income taxes
|-- | -------------------------

On January
          1, 2000 the Company began applying Technical Bulletin No. 60, and related
          amendments, of the Chilean Association of Accountants concerning deferred
          taxes. These technical bulletins require the recognition of deferred
          income taxes for all temporary differences arising after January 1,
          2000, using the liability method. For US GAAP purposes, the Company
          applies SFAS 109, Accounting for Income Taxes, whereby
          income taxes are also 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 Companys assets and liabilities based on enacted
          tax rates.


Prior
          to implementation of Technical Bulletin No. 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.


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

Notes to
the Consolidated Financial Statements

|b) | Deferred
    income taxes, continued
|-- | ------------------------------------

In order
      to mitigate the effects of not recording deferred income taxes under the
      prior deferred income tax accounting standard, Technical Bulletin N° 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
      must be amortized to income over the estimated average reversal periods
      corresponding to the underlying temporary differences to which the deferred
      tax asset or liability relates.


The primary
      difference between Chile an GAAP and US GAAP relates to the reversal of
      the amortization of the complementary asset and liability recorded in accordance
      with the transition procedures for unrecorded deferred income taxes as
      of January 1, 2000, the elimination of complementary accounts included
      in consolidation with PCS Yumbes S.C.M. as of December 31, 2004 and the
      recognition of the deferred income tax impact of US GAAP adjustments, the
      effect of which is set-forth under paragraph I p) below. Additional disclosures
      required under SFAS 109 are set forth under paragraph II b) below.


|c) | Translation
    of foreign currency financial statements
|-- | --------------------------------------------------------

In accordance
        with Chilean GAAP, the financial statements of subsidiaries which do
        not maintain their accounting records in US dollars, are transla ted
        from local currency to US dollars as described in Note 2 d).


For the
        purposes of reconciling to US GAAP, the Company applies SFAS 52, Foreign
        Currency Translation, 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:


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.

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

Notes
to the Consolidated Financial Statements

Note 27  Differences between Chilean and United States Generally Accepted Accounting Principles, continued

|c) | Translation
    of foreign currency financial statements, continued
|-- | -------------------------------------------------------------------

Income statement
      accounts:


| | • | Cost
        of sales, depreciation and amortization expense and other accounts derived
        from non-monetary assets and liabilities are translated at historical
    rates; and
| | - | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |   |                                                                                                                                                                                     
| | • | All other
        accounts are translated at monthly-average exchange rates, which approximate
    the actual rates of exchange at the date the transactions occurred.              

Remeasurement
        gains and losses are included in the determination of net income for
        the period.


The effect
        of eliminating price-level restatement and the inclusion in income of
        translation gains and losses from subsidia ries that maintain their records
        in Chilean pesos is included in paragraph I p) below.


|d) | Empresas
    Melón S.A.
|-- | -----------------------

During
        1998, the Company purchased a 14.05% participation in Empresas Melón
        S.A., (Melon) a cement manufacturing company. As mentioned
        in Note 8 b), this investment was sold during 2004. Significant adjustments
        between Chilean GAAP and US GAAP relating to Melón both in the
        accounting of the purchase and in the subsequent accounting treatment
        are which as follows:


|d-1) | Purchase
    accounting adjustments
|---- | -----------------------------------

At the
        time of the purchase, under Chilean GAAP, the Company recorded goodwill
        on the transaction, calculated as the difference between the purchase
        price and the proportionate share of net book value acquired as presented
        in the most recent mont h end financial statements of Melon prior to
        the date of the acquisition. Such goodwill is being amortized over a
        period of 20 years.


Under US
        GAAP, the Company calculates goodwill as the difference between the purchase
        price and the proportionate fair value of the assets and liabilities
        purchased. The purchase price is allocated to the assets and liabilities
        based on the estimated fair market value of such assets and liabilities
        at the date of acquisition.


Under US
        GAAP, due to the increased net value of the acquired assets and liabilities,
        negative goodwill was generated. Such negative goodwill was allocated
        to the fixed assets acquired, reducing the accounting base, and consequently
        the depreciation of such fixed assets.


The effects
        of reversing goodwill recorded and its related amortization recognized
        under Chilean GAAP and the recognition of the new basis of assets and
        liabilities and subsequent depreciation until December 31, 2003 are set
        forth in paragraph I p) below.


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

Notes
        to the
Consolidated
Financial Statements

Note
  27  Differences between Chilean and United States Generally Accepted Accounting
  Principles, continued

|d-2) | Accounting
    for participation in Melón on a US GAAP basis
|---- | ------------------------------------------------------------

Pursuant to a shareholders agreement, until August of 2004 the Company exerted significant influence over Melón and thus it accounts for this investment under the equity method, consistent with Chilean GAAP.
 Until that date, the Company recognized its participation of income and net assets of Melón under US GAAP, therefore a US GAAP basis of Melón was prepared. The principle differences between Chilean GAAP and US GAAP as they exist in Melón relate to deferred taxes and the elimination of price-level restatement.
 Under US GAAP the financial statements of Melón must be converted into dollars in accordance with SFAS 52 as described in paragraph c) above. The effect of recognizing income and net assets under the equity method under US GAAP until December 31, 2003 is set forth in paragraph I p) below.
 e)
    Consolidation
    and net loss of subsidiaries in the development stage Under Chilean GAAP subsidiaries in the development stage are not consolidated and their results from operations are not included in the income statement. For purposes of US GAAP, these subsidiaries must be consolidated with their losses recorded in the income statement. Until June 30, 2004, SQM Lithium Specialties Limited Partnership LLP was the only development stage company in operation (see Note 3). The effects of recognizing its net loss for the years ended December 31, 2002, 2003 and 2004 is set forth in paragraph I p) below.
 The principal effects in 2003 of recognizing assets and liabilities as recorded under US GAAP, which would result from the consolidation of the subsidiary SQM Lithium Specialties Limited Partnership LLP, are as follows:
 2003Effect on:
   ThUS$Assets Increase /(Decrease)Current assets
   318Fixed asset
   27,995Investment in related companies
   (28,067
   )Other Assets
   750Related party receivable
   (573
   )Liabilities (Increase)/DecreaseCurrent liabilities
   (144
   )Related party payables
   —Deferred income taxes
   (279
   )


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

Notes to the Consolidated
Financial Statements

|Note
            27  Differences between Chilean and United States Generally
    Accepted Accounting Principles, continued
|---------------------------------------------------------------------------------------------------------------------------
|                                                                                                                           

|f) | 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 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 p) below to recognize the corresponding decrease in net equity at December 31 for each year for the difference between 30% of net income and interim dividends paid during the year.


Net income related to the amortization of negative goodwill can only be distributed as an additional dividend by the approval of the shareholders, and accordingly, is not included in the calculation of the minimum dividend to be distributed.


|g) | Loans
    to 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 bala nce of such loans, amounting to ThUS$ 764, ThUS$ 1,102and ThUS$ 3,903 at December 31, 2004, 2003 and 2002, respectively, has been treated as a reduction of shareholders’ equity under paragraph I p) below.


|h) | Capital
    leases
|-- | ------------------

During 1992 and 1994, the Compa ny entered into rental agreements covering certain equipment, which had an original cost basis of ThUS$16,507. In accordance with Chilean GAAP these transactions have been recorded as operating leases with the rental payments recognized in income on an accrual basis. Under US GAAP, the transactions were recorded as capital leases, with the equipment recorded in fixed assets and the associated present value of future minimum lease payments recorded as an obligation. During 2002, the Company exercised the purchase option on such assets. Accordingly, the fixed assets were recognized at the cost of the purchase option in Chilean GAAP, and as of December 31, 2002 had been fully depreciated under Chilean and US GAAP.  The effect of accounting for the equipment as capital leases under US GAAP and the subsequent exercise of the purchase option is set-forth in paragraph I p) below.


|i) | Staff
    Severance 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.


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

Notes to the Consolidated
Financial Statements

|Note
            27  Differences between Chilean and United States Generally
    Accepted Accounting Principles, continued
|---------------------------------------------------------------------------------------------------------------------------
|                                                                                                                           

|i) | Staff
    Severance Indemnities, continued
|-- | ------------------------------------------

Under US GAAP, termination indemnity employee benefits are accounted for in accordance with SFAS 87 consistent with that of a defined benefit pension plan, measuring the liability by projecting the future expected severance payments using an assumed salary progression rate, net of inflation adjustments, mortality and turnover assumptions, and discounting the resulting amounts to their present value using real interest rates. The effect of accounting for the indemnities in accordance with SFAS 87 is set forth under paragraph I p) below. Additional disclosure requirements are presented in paragraph II m) below.


|j) | Marketable
    securities
|-- | -------------------------

The Companys marketable securities may be sold in the short term if appropriate based on market conditions. Under Chilean GAAP, these securities are valued at the lower of cost or market value. Under US GAAP such securities are classified as available-for-sale and are shown at market value in the balance sheet with any unrealized gains or losses recognized in other comprehensive income.  The unrealized gains and losses related to these securities are not material for the periods presented.


|k) | Derivatives
|-- | -----------

In June 1998, the Financial Accounting Standards Board issued SFAS 133, Accounting for Derivative Instruments and Hedging Activities. SFAS 133 requires that all of a companys derivative instruments be recorded in the balance sheet at fair value and that changes in a derivative instrument’s fair value be recognized currently in earnings unless specific hedge accounting criteria are met. Special accounting for qualifying hedges allows a derivative instrument’s gains and losses to offset related results on the hedged item in the income statement, to the extent effective, and requires that a company must formally document, designate, and assess the effectiveness of transactions that receive hedge accounting


|k-1) | Sale
    of swaps
|---- | -----------------

During 2000, the Company sold three interest rate swap contracts with original expiration dates in 2001 and 2003, which generated a gain of ThUS$3,213. Under Chilean GAAP, the gain was recognized in income at the time of sale. Under US GAAP, the gain is deferred and amortized over the effective life of the instruments that it hedged. The effect of deferring the gain is set forth under paragraph I p) below.


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

Notes to the Consolidated
Financial Statements

|Note
            27  Differences between Chilean and United States Generally
    Accepted Accounting Principles, continued
|---------------------------------------------------------------------------------------------------------------------------
|                                                                                                                           

|k) | Derivatives,
    continued
|-- | --------------------------
|   |                           

|k-2) | Fair
    value accounting of derivatives
|---- | ----------------------------------------

The Company enters into forward exchange contracts principally to mitigate the risk associated with maintaining certain accounts receivable in foreign currencies. The purpose of the Company’s foreign currency-hedging activities is to protect the Company from the risk that cash flows will be adversely affected by changes in exchange rates resulting from the collection of receivables from international customers. The effects of accounting for derivatives under Chilean GAAP are recorded in income.


The Company periodically uses interest rate swap agreements to manage interest rate risk on its floating rate debt portfolio. Interest rate swap agreements are generally entered into at the time floating rate debt is issued, in order to convert the floating rate debt to a fixed rate. As of December 31, 2004 the Company had no interest rate swap contracts in place.


The Company does not have the documentation and hedge effectiveness to qualify for hedge accounting, as required under SFAS 133. Therefore all derivatives have been accounted at fair value with changes in fair value recorded in income.


The effect of measuring the derivative instruments at their fair value and the corresponding effect in income is set forth under paragraph I p) below.


|l) | Business
    combinations and Goodwill
|-- | --------------------------------------

For US GAAP purposes, the Company adopted SFAS 142, Goodwill and Other Intangible Assets, as of January 1, 2002, and did not amortize goodwill related to acquisitions made after June 30, 2001. SFAS 142 applies to all goodwill and identified intangible assets acquired in a business combination.


The Company has performed the required annual impairment test, which did not result in any impairment.


Under Chilean GAAP, goodwill is amortized over the estimated period of return of the investment made. Impairment tests are only performed if there is evidence of impairment. No impairment has been recognized for any of the periods presented under either Chilean GAAP or US GAAP. The effect of reversing the amortization of goodwill under Chilean GAAP is set forth under paragraph I p) below.


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

Notes to the Consolidated
Financial Statements

|Note
            27  Differences between Chilean and United States Generally
    Accepted Accounting Principles, continued
|---------------------------------------------------------------------------------------------------------------------------

|   |                      
|-- | ---------------------
|m) | Negative
    goodwill

Negative goodwill was generated on the acquisition of the investments in SQM Salar S.A. and Minera Mapocho S.A. Under Chilean GAAP, such negative goodwill was capitalized as a credit to the balance sheet and is being amortized over a period of 10 years.


Under US GAAP, prior to the adoption of SFAS 142, negative goodwill was considered as a reduction of the long-term assets of the acquired company, and if a credit remained after reducing those assets to zero, negative goodwill was recorded and amortized over the period of expected benefit.  However, in the period of adoption, SFAS 141, Business Combinations requires that unamortized negative goodwill be written off and the resulting gain be recognized as an effect of a change in accounting principle.  The effects of reversing goodwill recorded and its related amortization, the recognition of the new basis of assets and liabilities and subsequent depreciation and writing off the remaining balance of negative goodwill are set-forth in paragraph I p) below as follows:


| | m-1: |  | The effects
        of reducing depreciation expense, due to the allocation of the excess
    purchase price to property, plant and equipment;
| | ---- |  | ----------------------------------------------------------------------------------------------------------------------------------------------
| | m-2: |  | The
    reversal of negative goodwill amortization recorded under Chilean GAAP.                                                               
| |      |  |                                                                                                                                               

|n) | 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.


Under US GAAP, the capitalization of interest on qualifying assets under construction is required, regardless of whether interest is associated with debt directly related to a project. The accounting differences between Chilean and US GAAP for financing costs and the related depreciation expense are included in the reconciliation to US GAAP under paragraph I p) below.


|o) | Minority
    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 p) below.


F-55

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

NOTES
  TO THE CONSOLIDATED FINANCIAL STATEMENTS

Note
  27  Differences between Chilean and United States Generally Accepted Accounting
  Principles, continued

|p) | Effects
      of conforming to US GAAP
|-- | --------------------------------------

The adjustments
  to reported net income required to conform to US GAAP are as follows:


|                                                                                        | 2004   |       | 2003   |   | 2002   |  
|--------------------------------------------------------------------------------------- | ------ | ----- | ------ | - | ------ | -
|                                                                                        |        |      
|ThUS$                                                                                   | ThUS$  | ThUS$
|                                                                                        |        |       |        |   |        |  
|Net
      income as shown in the accompanying financial statements                      | 74,232 |       | 46,753 |   | 40,202 |  
|Revaluation
      of property, plant and equipment (paragraph a)                        | 4,367  |       | 4,580  |   | 3,787  |  
|Deferred
      income taxes (paragraph b)                                               | 6,022  |       | 5,917  |   | (1,657 | )
|Translation
      of foreign currency financial statements (paragraph c)                | 5,318  |       | 7,455  |   | (2,385 | )
|Empresas
      Melón S.A. purchase accounting adjustments (paragraph d-1)               | (34    | )     | (264   | ) | (128   | )
|Accounting
      for participation in Melón on a US GAAP basis(paragraph
      d-2)     | (467   | )     | 250    |   | 146    |  
|Consolidation
      and net loss of subsidiaries in the development stage (paragraph e) | (1,851 | )     | (2,858 | ) | (1,438 | )
|Capital
      leases (paragraph h)                                                      | —      |       | —      |   | (783   | )
|Staff severance
      indemnities (paragraph i)                                         | (618   | )     | (1,902 | ) | 1,007  |  
|Derivatives
      – sale of swaps (paragraph k-1)                                       | —      |       | 175    |   | 1,180  |  
|Derivatives
      – fair value accounting of derivatives (paragraph k-2)                | (1,483 | )     | 309    |   | 4,148  |  
|Goodwill
      (paragraph l)                                                            | 749    |       | 631    |   | 714    |  
|Negative
      goodwill (paragraph m)                                                   |        |       |        |   |        |  
|M-1:
      Depreciation expense                                                         | 123    |       | 104    |   | 571    |  
|M-2:
      Negative goodwill amortization                                               | (213   | )     | (370   | ) | (414   | )
|Capitalized
      interest (paragraph n)                                                | (91    | )     | —      |   | 1,643  |  
|Minority
      interest (paragraph o)                                                   | (2,115 | )     | (3,041 | ) | 959    |  
|Deferred
      income tax effect of the above US GAAP adjustments                       | 551    |       | 35     |   | (1,111 | )
|Empresas
      Melón S.A. cost of sale US GAAP adjustments (paragraph d)                | 2,336  |       | —      |   | —      |  
|                                                                                        |        |       |        |   |        |  
|Net income
      under US GAAP before effect of change in accounting principle          | 86,826 |       | 57,774 |   | 46,441 |  
|                                                                                        |        |       |        |   |        |  
|Cumulative
      effect of change in accounting principle (paragraph m)                 | —      |       | —      |   | 457    |  
|Net
      income under US GAAP                                                          | 86,826 |       | 57,774 |   | 46,898 |  
|                                                                                        |        |       |        |   |        |  
|Other comprehensive
      income (loss), net of tax:                                    |        |       |        |   |        |  
|Minimum
      pension liability adjustment                                              | (15    | )     | 370    |   | (1,147 | )
|Translation
      adjustment                                                            | 6,460  |       | 8,802  |   | (3,959 | )
|Deferred
      gain from sale of swaps (paragraph k-1)                                  | —      |       | (146   | ) | (979   | )
|                                                                                        |        |       |        |   |        |  
|Total
      comprehensive income under US GAAP                                          | 93,271 |       | 66,800 |   | 40,813 |  
|                                                                                        |        |       |        |   |        |  

F-56

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

NOTES
  TO THE CONSOLIDATED FINANCIAL STATEMENTS

Note
  27  Differences between Chilean and United States Generally Accepted Accounting
  Principles, continued

|p) | Effects of conforming to US GAAP, continued
|-- | -------------------------------------------

The adjustments
  required to conform shareholders’ equity amounts under Chilean GAAP to US GAAP
  are as
  follows:


|                                                                                 | 2004     |   | 2003     |  
|-------------------------------------------------------------------------------- | -------- | - | -------- | -
|                                                                                 |         
|ThUS$                                                                            | ThUS$   
|                                                                                 |          |   |          |  
|Net
      shareholders equity as shown in the accompanying financial statements | 948,628  |   | 889,972  |  
|Revaluation
      of property, plant and equipment: (paragraph a)                |          |   |          |  
|Property,
      plant and equipment                                              | (133,768 | ) | (133,768 | )
|Accumulated
      depreciation                                                   | 97,597   |   | 93,230   |  
|Deferred
      income taxes (paragraph b)                                        | (28,884  | ) | (34,906  | )
|Translation
      of foreign currency financial statements (paragraph c)         |          |   |          |  
|Property,
      plant and equipment, net                                         | (915     | ) | (424     | )
|Inventory                                                                        | (1,198   | ) | (1,698   | )
|Goodwill,
      net                                                              | (297     | ) | (209     | )
|Other
      assets                                                               | (8       | ) | (8       | )
|Empresas
      Melón S,A, purchase accounting adjustments: (paragraph d-1)       |          |   |          |  
|Investments
      in related companies                                           | —        |   | 8,437    |  
|Goodwill                                                                         | —        |   | (11,591  | )
|Accumulated
      amortization                                                   | —        |   | 3,101    |  
|Accounting
      for participation in Melón on a US GAAP basis (paragraph d-2)   | —        |   | (2,060   | )
|Minimum
      dividend (paragraph f)                                             | (22,270  | ) | (14,026  | )
|Employer
      loans used to purchase shares (paragraph g)                       | (764     | ) | (1,102   | )
|Staff severance
      indemnities (paragraph i)                                  | (4,090   | ) | (3,472   | )
|Derivatives
      – Fair value accounting of derivatives (paragraph k-2)         | (1,483   | ) | —        |  
|Goodwill
      (paragraph l)                                                     | 2,094    |   | 1,345    |  
|Negative
      goodwill: (paragraph m)                                           |          |   |          |  
|m-1:
      Property, plant and equipment                                         | (3,156   | ) | (3,156   | )
|m-1:
      Accumulated depreciation                                              | 1,683    |   | 1,560    |  
|m-2:
      Negative goodwill                                                     | 3,156    |   | 3,156    |  
|m-2:
      Accumulated amortization                                              | (2,885   | ) | (2,673   | )
|Capitalized
      interest (paragraph n)                                         | 1,552    |   | 1,643    |  
|Effect of
      minority interest on US GAAP adjustments (paragraph o)           | 1,017    |   | 1,036    |  
|Deferred
      income tax effect of the above US GAAP adjustments                | 862      |   | 311      |  
|                                                                                 |          |   |          |  
|Shareholders’
      equity in accordance with US GAAP                            | 856,871  |   | 794,698  |  
|                                                                                 |          |   |          |  

F-57

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

NOTES
  TO THE CONSOLIDATED FINANCIAL STATEMENTS

Note
  27  Differences between Chilean and United States Generally Accepted Accounting
  Principles, continued

|p) | Effects
      of conforming to US GAAP, continued
|-- | -------------------------------------------------

The changes in
  the net equity accounts determined under US GAAP are summarized as follows:

|                                                               |         |  
|-------------------------------------------------------------- | ------- | -
|Balance
      at January 1, 2001                               | 721,355 |  
|                                                               |         |  
|Reversal
      of accrued minimum divided at December 31, 2001 | 8,731   |  
|Distribution
      of final 2001 dividend                      | (14,844 | )
|Accrued
      minimum dividend at December 31, 2002            | (11,685 | )
|Employer
      loans used to purchase shares                   | 2,962   |  
|Other comprehensive
      loss                                 | (6,085  | )
|Net income
      for the year                                  | 46,898  |  
|                                                               |         |  
|Balance
      at December 31, 2002                             | 747,332 |  
|                                                               |         |  
|Reversal
      of accrued minimum divided at December 31, 2002 | 11,685  |  
|Distribution
      of final 2002 dividend                      | (19,894 | )
|Accrued
      minimum dividend at December 31, 2003            | (14,026 | )
|Employer
      loans used to purchase shares                   | 2,801   |  
|Other comprehensive
      income                               | 9,026   |  
|Net income
      for the year                                  | 57,774  |  
|                                                               |         |  
|Balance
      at December 31, 2003                             | 794,698 |  
|                                                               |         |  
|Reversal
      of accrued minimum divided at December 31, 2003 | 14,026  |  
|Distribution
      of final 2003 dividend                      | (23,192 | )
|Accrued
      minimum dividend at December 31, 2004            | (22,270 | )
|Employer
      loans used to purchase shares                   | 338     |  
|Other comprehensive
      income                               | 6,445   |  
|Net income
      for the year                                  | 86,826  |  
|                                                               |         |  
|Balance
      at December 31, 2004                             | 856,871 |  
|                                                               |         |  

F-58

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

NOTES
  TO THE CONSOLIDATED FINANCIAL STATEMENTS

Note
  27  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
|-- | ------------------------

The following
  disclosure of earnings per share information is not generally required for presentation
  in financial statements under Chilean accounting principles but is required
  under US GAAP:


|                                                                                                               | 2004                                   |  | 2003    |  | 2002    | 
|-------------------------------------------------------------------------------------------------------------- | -------------------------------------- |  | ------- |  | ------- | 
|                                                                                                               |                                        | 
|                                                                                                               | (Expressed
      in single US dollars) | 
|                                                                                                               |                                        |  |         |  |         | 
|Basic and
      diluted earnings per share under Chilean GAAP                                                  | 0.28                                   |  | 0.18    |  | 0.15    | 
|Basic and
      diluted earnings per share under US GAAP before effect of change in accounting
      principle | 0.33                                   |  | 0.22    |  | 0.18    | 
|Effect of
      accounting change on earnings per share                                                        | —                                      |  | —       |  | 0.00    | 
|                                                                                                               |                                        |  |         |  |         | 
|Basic and
      diluted earnings per share under US GAAP                                                       | 0.33                                   |  | 0.22    |  | 0.18    | 
|                                                                                                               |                                        |  |         |  |         | 
|Dividends
      declared per share (1)                                                                         | 0.09                                   |  | 0.08    |  | 0.06    | 
|Weighted
      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.


F-59

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

NOTES
  TO THE CONSOLIDATED FINANCIAL STATEMENTS

Note
  27  Differences between Chilean and United States Generally Accepted Accounting
  Principles, continued

|b) | Income
      taxes
|-- | ------------------

The provision
  for income taxes differs from the amount of income tax determined by applying
  the applicable Chilean statutory income tax rate of 17% (16.5% in 2003 and 16%
  in 2002) to pretax accounting income on a US GAAP basis as a result of the following
  differences:


|                                                       | 2004    |       | 2003   |   | 2002   |  
|------------------------------------------------------ | ------- | ----- | ------ | - | ------ | -
|                                                       |         |      
|ThUS$                                                  | ThUS$   | ThUS$
|                                                       |         |       |        |   |        |  
|Consolidated
      pretax income under US GAAP         | 114,815 |       | 74,573 |   | 61,623 |  
|Statutory
      tax rate                               | 17      | %     | 16.5   | % | 16     | %
|                                                       |         |       |        |   |        |  
|Theoretical
      tax at statutory rate                | 19,519  |       | 12,305 |   | 9,860  |  
|Non-deductible
      items                             | 91      |       | (2,325 | ) | 1,955  |  
|Difference
      in tax rates in foreign jurisdictions | 553     |       | 360    |   | 1,095  |  
|Valuation
      allowance                              | 572     |       | (236   | ) | 775    |  
|Other                                                  | —       |       | —      |   | (362   | )
|                                                       |         |       |        |   |        |  
|Total
      income tax under US GAAP                   | 20,735  |       | 10,104 |   | 13,323 |  
|                                                       |         |       |        |   |        |  

F-60

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

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

Note 27  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.:


|                                      | 2004    |   | 2003    |  
|------------------------------------- | ------- | - | ------- | -
|                                      |         |   |         |  
|                                      | ThUS$   |   | ThUS$   |  
|Deferred Tax Assets                   |         |   |         |  
|Allowance for doubtful debts          | 1,710   |   | 1,675   |  
|Vacation accrual                      | 1,165   |   | 1,044   |  
|Unrealized gains on sales of products | 8,749   |   | 5,318   |  
|Provision for obsolescence            | 1,836   |   | 2,620   |  
|Losses from derivative transactions   | 336     |   | 90      |  
|Tax loss carryforwards (1)            | 36,472  |   | 13,392  |  
|Other accruals                        | 3,451   |   | 1,349   |  
|                                      |         |   |         |  
|Gross deferred tax assets             | 53,719  |   | 25,488  |  
|Valuation allowance                   | (35,665 | ) | (539    | )
|                                      |         |   |         |  
|Total deferred tax assets             | 18,054  |   | 24,949  |  
|                                      |         |   |         |  
|Deferred Tax Liabilities              |         |   |         |  
|Production expenses                   | (15,172 | ) | (15,726 | )
|Accelerated depreciation              | (53,890 | ) | (59,592 | )
|Staff severance indemnities           | (866    | ) | (1,414  | )
|Exploration expenses                  | (5,336  | ) | (4,119  | )
|Capitalized interest                  | (6,113  | ) | (6,425  | )
|Other                                 | (740    | ) | (1,541  | )
|                                      |         |   |         |  
|Total deferred tax liabilities        | (82,117 | ) | (88,817 | )
|                                      |         |   |         |  

For 2004 the table includes deferred tax assets and liabilities of PCS Yumbes S.C.M., which were consolidated as of December 31, 2004 due to the acquisition of this company (see Note 8 b) and paragraph II i) below).


---

|1 | The Companys
        tax loss carry forwards were primarily generated from losses incurred
        in Chile and Mexico. In accordance with current laws, in Chile tax losses
        may be carried forward indefinitely and in Mexico they expire after 10
        years. For the years ended December 31, 2004, 2003 and 2002 the Company
        realized benefits from the use of tax loss carry forwards amounting to
    ThUS$ 9,324, ThUS$ 6,567 and ThUS$ 8,572, respectively.
|- | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

F-61

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

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

Note 27  Differences between Chilean and United States Generally Accepted Accounting Principles, continued

b)      Income taxes, continued

Tax loss carry forwards relate to the following countries as of December 31:


|       | 2004   |  | 2003   | 
|------ | ------ |  | ------ | 
|       |        |  |        | 
|       | ThUS$  |  | ThUS$  | 
|Chile  | 31,081 |  | 9,042  | 
|Mexico | 3,833  |  | 2,328  | 
|Other  | 1,558  |  | 2,022  | 
|       |        |  |        | 
|Total  | 36,472 |  | 13,392 | 
|       |        |  |        | 

The classification of the deferred tax assets and liabilities detailed above is as follows:


|                             | 2004    |   | 2003    |  
|---------------------------- | ------- | - | ------- | -
|                             |         |   |         |  
|                             | ThUS$   |   | ThUS$   |  
|                             |         |  
|Short-term                   | (10,264 | ) | (6,223  | )
|Long-term                    | (53,799 | ) | (57,645 | )
|                             |         |   |         |  
|Net deferred tax liabilities | (64,063 | ) | (63,868 | )
|                             |         |   |         |  

The provision for income taxes in accordance with US GAAP is as follows:


|                                                   | 2004   |   | 2003   |   | 2002   | 
|-------------------------------------------------- | ------ | - | ------ | - | ------ | 
|                                                   |        |   |        |   |        | 
|                                                   | ThUS$  |   | ThUS$  |   | ThUS$  | 
|                                                   |        |   |        |   |        | 
|Income tax
    expense under Chilean GAAP- Note 13 | 27,308 |   | 16,056 |   | 10,555 | 
|Additional deferred tax under US GAAP              | (551   | ) | (35    | ) | 1,111  | 
|Reversal of complementary Accounts                 | (6,022 | ) | (5,917 | ) | 1,657  | 
|                                                   |        |   |        |   |        | 
|Total tax provision U,S GAAP                       | 20,735 |   | 10,104 |   | 13,323 | 
|                                                   |        |   |        |   |        | 

In accordance with Chilean Law No, 19,753, which was issued on September 28, 2001, the corporate income tax rate was 16% in 2002, 16.5% for the year 2003, and 17% for the year 2004 and thereafter.


F-62

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

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

Note 27  Differences between Chilean and United States Generally Accepted Accounting Principles, continued

b)  Income
taxes, continued

US GAAP before tax income related to Chile and foreign operations for the years ended December 31 is as follows:


|        | 2004    |  | 2003   |  | 2002   |  
|------- | ------- |  | ------ |  | ------ | -
|        |         |  |        |  |        |  
|        | ThUS$   |  | ThUS$  |  | ThUS$  |  
|Chile   | 113,683 |  | 59,625 |  | 63,919 |  
|Foreign | 1,132   |  | 14,948 |  | (2,296 | )
|        |         |  |        |  |        |  
|Total   | 114,815 |  | 74,573 |  | 61,623 |  
|        |         |  |        |  |        |  

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:


|        | 2004     |  | 2003    |  | 2002   | 
|------- | -------- |  | ------- |  | ------ | 
|        |          |  |         |  |        | 
|        | Deferred |  | Current |  | Total  | 
|        |          |  |         |  |        | 
|        | ThUS$    |  | ThUS$   |  | ThUS$  | 
|Chile   | 5,045    |  | 14,001  |  | 19,046 | 
|Foreign | 1,255    |  | 434     |  | 1,689  | 
|        |          |  |         |  |        | 
|Total   | 6,300    |  | 14,435  |  | 20,735 | 
|        |          |  |         |  |        | 

F-63

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

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

Note 27  Differences between Chilean and United States Generally Accepted Accounting Principles, continued

b)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, 2004, 2003 and 2002:


|                                     | Year ended December 31, 2002 |              
|------------------------------------ | ---------------------------- | -------------
|                                    
|Before -tax                          |                              | Tax (expense)
|amount                               | or benefit                   | amount       
|                                     |                              |              
|ThUS$                                | ThUS$                        | ThUS$        
|                                     | (9,945)                      |              
|Beginning
    balance                |                              |              
|Translation adjustment               | (3,959                       | )            
|Deferred gain on sale of swaps       | (1,180                       | )            
|Minimum pension liability adjustment | (1,850                       | )            
|                                     |                              |              
|Net unrealized losses                | (6,989                       | )            
|                                     |                              |              
|Ending balance                       | (16,934                      | )            
|                                     |                              |              

|                                     |            |              
|------------------------------------ | ---------- | -------------
|Year ended December 31, 2003        
|                                    
|Before -tax                          |            | Tax (expense)
|amount                               | or benefit | amount       
|                                     |            |              
|ThUS$                                | ThUS$      | ThUS$        
|Beginning balance                    | (16,934)   |              
|                                     |            |              
|Translation adjustment               | 8,802      |              
|Deferred gain on sale of swaps       | (175       | )            
|Minimum pension liability adjustment | 597        |              
|                                     |            |              
|Net unrealized losses                | 9,224      |              
|                                     |            |              
|Ending balance                       | (7,710     | )            
|                                     |            |              

|                                     |                              |              
|------------------------------------ | ---------------------------- | -------------
|                                     | Year ended December 31, 2004 |              
|                                     |                              |              
|Before -tax                          |                              | Tax (expense)
|amount                               | or benefit                   | amount       
|                                     |                              |              
|ThUS$                                | ThUS$                        | ThUS$        
|Beginning balance                    | (7,710)                      |              
|                                     |                              |              
|Translation adjustment               | 6,460                        |              
|Minimum pension liability adjustment | (24                          | )            
|                                     |                              |              
|Net unrealized gains                 | 6,436                        |              
|                                     |                              |              
|Ending balance                       | (1,274                       | )            
|                                     |                              |              

F-64

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

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

Note 27  Differences between Chilean and United States Generally Accepted Accounting Principles, continued

c)Credit Agreements

The Company has renewable lines of credit arrangements for short-term US dollar borrowings with various Chilean and foreign banks totaling, in the aggregate, ThUS$ 449,000 and ThUS$ 422,000 at December 31, 2004 and 2003 respectively. There was US$ 435 million and US$ 307 million available as of December 31, 2004 and 2003, respectively. The Company pays no commitment fees on such credit lines and the average rate was in the range of LIBOR+0,40%.


d)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 capital leases are recorded in Other accounts payable and are as follows:


|Year ended December 31,                  | ThUS$ |  
|---------------------------------------- | ----- | -
|                                         |       |  
|2005                                     | 270   |  
|2006                                     | 258   |  
|2007                                     | 247   |  
|2008                                     | 247   |  
|2009                                     | 247   |  
|2010                                     | 394   |  
|                                         |       |  
|Total future minimum lease payments      | 1,663 |  
|Interest                                 | (378  | )
|                                         |       |  
|Presentvalue
       of net minimum lease | 1,285 |  
|                                         |       |  

F-65

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

Notes to the Consolidated
Financial Statements

Note 27  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 for the rental of land for the purpose of exploration and exploitation of certain minerals. Rental payments are stated in US dollars and are determined based on actual mineral sales through 2030 in accordance with specified rates in the agreement, The Company paid ThUS$ 4,910, ThUS$ 4,024 and ThUS$ 3,411 in 2004, 2003 and 2002 respectively, related to such rental payments (including the minimum annual rental, which was ThUS$ 3,477, ThUS$ 2,995 and ThUS$ 2,816 for 2004, 2003 and 2002, respectively. Future minim um annual rentals are as follows:


|                            | Minimum
     Annual
    Rentals | 
|--------------------------- | ------------------------------- | 
|                            |                                 | 
|                            | ThUS$                           | 
|Year
    ended December 31, |                                 | 
|2005                        | 3,791                           | 
|2006                        | 3,791                           | 
|2007                        | 3,791                           | 
|2008                        | 3,791                           | 
|2009                        | 3,791                           | 
|Thereafter                  | 79,619                          | 
|                            |                                 | 
|Total                       | 98,574                          | 
|                            |                                 | 
|                            |                                 | 

|f) | Foreign
    exchange losses
|-- | ---------------------------

For US GAAP presentation purposes, the net foreign exchange gains and losses on transactions in foreign currencies and UF amounted to ThUS$ 3,000 , ThUS$ 14,036 and ThUS$ (5,868) in 2004, 2003 and 2002, respectively.


|g) | 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 insurances for certain accounts as deemed necessary by management.


F-66

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

Notes to the Consolidated
Financial Statements

Note 27  Differences between Chilean and United States Generally Accepted Accounting Principles, continued

|h) | Advertising
    and Research and development costs
|-- | --------------------------------------------------

Advertising costs are expensed as incurred and amounted to ThUS$ 1,719, ThUS$ 1,346 and ThUS$ 1,134 for the years ended December 31, 2004, 2003 and 2002, respectively.


Research and development costs are expensed as incurred and amounted to ThUS$ 1,803, ThUS$ 1,444 and ThUS$ 2,197 for the years ended December 31, 2004, 2003 and 2002.


|i) | Business
    combinations and goodwill
|-- | --------------------------------------

As described in paragraph I l) above the Company adopted SFAS 142 as of January 1, 2002, SFAS 142 applies to all goodwill and identified intangible assets acquired in a business combination.


Goodwill under US GAAP as of December 31 is summarized as follows:


|                         | 2004   |   | 2003   |  
|------------------------ | ------ | - | ------ | -
|                         |        |   |        |  
|                         | ThUS$  |   | ThUS$  |  
|Goodwill, gross          | 14,710 |   | 7,994  |  
|Accumulated amortization | (1,425 | ) | (1,425 | )
|                         |        |   |        |  
|Goodwill, net            | 13,285 |   | 6,569  |  
|                         |        |   |        |  

As described in Note 8 b), during 2004 the Company purchased PCS Yumbes S.C.M. Although with the issuance of BT 72 no significant differences exist between Chilean GAAP and U.S. GAAP when accounting for business combinations, certain complementary accounts of deferred taxes (see paragraph I b) above) were not eliminated in the process of identify the fair value of acquired net assets. Therefore, for US GAAP purposes the allocation of the purchase price is as follows:


|                                               | ThUS$  |  
|---------------------------------------------- | ------ | -
|Net book value of acquired entities            | 35,024 |  
|Fair value decrease of identifiable net assets | (1,973 | )
|                                               |        |  
|Fair value of acquired entities                | 33,051 |  
|Purchase price                                 | 39,707 |  
|                                               |        |  
|Goodwill                                       | 6,656  |  
|                                               |        |  

F-67

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

Notes
  to the Consolidated
Financial Statements

Note 27  Differences between Chilean and United States Generally Accepted Accounting Principles, continued

|j) | Reclassification
    differences between Chilean GAAP and US GAAP
|-- | -----------------------------------------------------------------

The following reclassifications are required to conform the presentation of Chilean GAAP income statement information to that required under US GAAP. The reclassification amounts are determined in accordance with Chilean GAAP.


|                                                                                                         | 2004   |  | 2003   |  | 2002   | 
|-------------------------------------------------------------------------------------------------------- | ------ |  | ------ |  | ------ | 
|                                                                                                         |        |  |        |  |        | 
|                                                                                                         | ThUS$  |  | ThUS$  |  | ThUS$  | 
|Non-operating income under Chilean GAAP                                                                  | 20,829 |  | 18,654 |  | 14,037 | 
|Less:                                                                                                    |        |  |        |  |        | 
|Sale of mining concessions                                                                               | 635    |  | 135    |  | —      | 
|Sale of material and services                                                                            | 190    |  | 827    |  | 273    | 
|Reversal of provision relating to Distrinor                                                              | —      |  | —      |  | 800    | 
|Insurance recoveries                                                                                     | 546    |  | 154    |  | 1,065  | 
|Reversal of allowance for staff severance indemnities                                                    | —      |  | —      |  | 1,308  | 
|Reversal of obligations with third parties                                                               | 388    |  | 422    |  | 584    | 
|Other income                                                                                             | 1,931  |  | 1,765  |  | 2,023  | 
|                                                                                                         |        |  |        |  |        | 
|Non-operating
    income as classified under US GAAP, but calculated in accordance with Chilean
    GAAP | 17,139 |  | 15,351 |  | 7,984  | 
|                                                                                                         |        |  |        |  |        | 
|                                                                                                         |        |  |        |  |        | 
|                                                                                                         |        |  |        |  |        | 
|Non-operating expenses under Chilean GAAP                                                                | 38,420 |  | 39,813 |  | 44,016 | 
|Less:                                                                                                    |        |  |        |  |        | 
|Amortization of goodwill                                                                                 | 1,073  |  | 1,134  |  | 1,219  | 
|Work disruption expenses                                                                                 | 569    |  | 1,640  |  | —      | 
|Increase in allowance for doubtful debts                                                                 | 2,500  |  | 687    |  | 641    | 
|Pension plan curtailment charge                                                                          | —      |  | 87     |  | 1,467  | 
|Non-capitalizable project expenses                                                                       | 6,971  |  | 8,965  |  | 3,019  | 
|Project relating to commercial effectiveness                                                             | —      |  | —      |  | 1,147  | 
|Unrecoverable taxes                                                                                      | 531    |  | 690    |  | 91     | 
|Provision for compensation and legal costs                                                               | 533    |  | 1,442  |  | —      | 
|Other                                                                                                    | 3,684  |  | 3,390  |  | 2,541  | 
|                                                                                                         |        |  |        |  |        | 
|Non-operating
    expense as classified under US GAAP, butcalculated in accordance with Chilean GAAP     | 22,559 |  | 21,778 |  | 33,891 | 
|                                                                                                         |        |  |        |  |        | 

F-68

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

Notes to the Consolidated
Financial Statements

Note 27  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, which establishes standards for reporting information about operating segments in annual financial statements as well as related disclosures about products and services and geographic areas.  Operating segments are defined as components of an enterprise about which separate financial statement information available is evaluated regularly by the chief operating decision maker in making decisions about allocating resources and assessing performance, In accordance with SFAS 131, the Company has five segments, which are split into geographical areas: Chile, Latin American and Caribbean except Chile, Europe, USA and Asia and other.


The accounting policies of each segment are the same as those described in the Summary of Significant Accounting Policies(Note 2).


The following segment information is presented in accordance with US GAAP reporting requirements, however, the amounts have been determined in accordance with Chilean GAAP.


|                                         | Chile     |  | Latin
     America
     and
     Caribbean
     except
    Chile |  | Europe  |  | NorthAmerica |  | Asia
     and
    other |  | Elimination |   | Consolidated | 
|---------------------------------------- | --------- |  | ---------------------------------------------------------------- |  | ------- |  | ------------ |  | ----------------------- |  | ----------- | - | ------------ | 
|                                         |           |  |                                                                  |  |         |  |              |  |                         |  |             |   |              | 
|                                         | ThUS$     |  | ThUS$                                                            |  | ThUS$   |  | ThUS$        |  | ThUS$                   |  | ThUS$       |   | ThUS$        | 
|For
    the year ended December 31, 2004 |           |  |                                                                  |  |         |  |              |  |                         |  |             |   |              | 
|Sales to unaffiliated customers          | 158,846   |  | 111,066                                                          |  | 228,287 |  | 233,506      |  | 56,811                  |  | —           |   | 788,516      | 
|Transfers between geographic areas       | 202,293   |  | 11,231                                                           |  | 245,585 |  | 175,859      |  | 36,689                  |  | (671,657    | ) | —            | 
|                                         |           |  |                                                                  |  |         |  |              |  |                         |  |             |   |              | 
|Total revenues                           | 361,139   |  | 122,297                                                          |  | 473,872 |  | 409,365      |  | 93,500                  |  | (671,657    | ) | 788,516      | 
|                                         |           |  |                                                                  |  |         |  |              |  |                         |  |             |   |              | 
|                                         |           |  |                                                                  |  |         |  |              |  |                         |  |             |   |              | 
|Exports by region                        | —         |  | 102,266                                                          |  | 171,861 |  | 142,970      |  | 43,124                  |  | —           |   | 460,221      | 
|Net assets                               | 1,862,554 |  | 16,005                                                           |  | 12,519  |  | 92,582       |  | 332                     |  | (1,035,364  | ) | 948,628      | 
|Goodwill                                 | 16,952    |  | 177                                                              |  | 341     |  | —            |  | —                       |  | —           |   | 17,470       | 
|Long-lived assets                        | 2,478,562 |  | 15,255                                                           |  | 11,615  |  | 91,597       |  | 228                     |  | (1,811,335  | ) | 785,922      | 
|Expenditures on long-lived assets        | 85,601    |  | 132                                                              |  | 2,488   |  | 616          |  | 13                      |  | —           |   | 88,850       | 

F-69

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

Notes
to the Consolidated
Financial Statements

Note 27  Differences between Chilean and United States Generally Accepted Accounting Principles, continued

|k) | Industry
    segment and geographic area information, continued
|-- | ---------------------------------------------------------------



|                                           | Chile     |  | Latin
      America
      and
      Caribbean
      except Chile |  | Europe  |  | NorthAmerica |  | Asia
      and
      other |   | Elimination |   | Consolidated | 
|------------------------------------------ | --------- |  | ---------------------------------------------------------------- |  | ------- |  | ------------ |  | -------------------------- | - | ----------- | - | ------------ | 
|                                           |           |  |                                                                  |  |         |  |              |  |                            |   |             |   |              | 
|                                           | ThUS$     |  | ThUS$                                                            |  | ThUS$   |  | ThUS$        |  | ThUS$                      |   | ThUS$       |   | ThUS$        | 
|For
    the year ended December 31, 2003   |           |  |                                                                  |  |         |  |              |  |                            |   |             |   |              | 
|Sales to
        unaffiliated customers    | 216,820   |  | 36,433                                                           |  | 219,239 |  | 185,224      |  | 34,090                     |   | —           |   | 691,806      | 
|Transfers
        between geographic areas | 167,098   |  | 11,671                                                           |  | 236,119 |  | 129,760      |  | 22,614                     |   | (567,262    | ) | —            | 
|                                           |           |  |                                                                  |  |         |  |              |  |                            |   |             |   |              | 
|Total revenues                             | 383,918   |  | 48,104                                                           |  | 455,358 |  | 314,984      |  | 56,704                     |   | (567,262    | ) | 691,806      | 
|                                           |           |  |                                                                  |  |         |  |              |  |                            |   |             |   |              | 
|                                           |           |  |                                                                  |  |         |  |              |  |                            |   |             |   |              | 
|Exports
        by region                  | —         |  | 79,400                                                           |  | 164,072 |  | 110,834      |  | 31,169                     |   | —           |   | 385,475      | 
|                                           |           |  |                                                                  |  |         |  |              |  |                            |   |             |   |              | 
|Net assets                                 | 1,682,653 |  | 69,481                                                           |  | 14,931  |  | 66,084       |  | (100                       | ) | (943,077    | ) | 889,972      | 
|Goodwill                                   | 13,289    |  | 200                                                              |  | 98      |  | —            |  | —                          |   | —           |   | 13,587       | 
|Long-lived
        assets                  | 2,448,591 |  | 17,686                                                           |  | 12,853  |  | 65,991       |  | 134                        |   | (1,716,249  | ) | 829,006      | 
|Expenditures
        on long-lived assets  | 56,616    |  | 1,614                                                            |  | 2,856   |  | 5,358        |  | —                          |   | —           |   | 66,444       | 



|                                               | Chile     |  | Latin
      America
      and
      Caribbean
      except Chile |  | Europe  |  | NorthAmerica |  | Asia
      and
      other |   | Elimination |   | Consolidated | 
|---------------------------------------------- | --------- |  | ---------------------------------------------------------------- |  | ------- |  | ------------ |  | -------------------------- | - | ----------- | - | ------------ | 
|                                               |           |  |                                                                  |  |         |  |              |  |                            |   |             |   |              | 
|                                               | ThUS$     |  | ThUS$                                                            |  | ThUS$   |  | ThUS$        |  | ThUS$                      |   | ThUS$       |   | ThUS$        | 
|For
          the year ended December 31, 2002 |           |  |                                                                  |  |         |  |              |  |                            |   |             |   |              | 
|Sales to
        unaffiliated customers        | 113,551   |  | 78,969                                                           |  | 187,801 |  | 151,978      |  | 21,510                     |   | —           |   | 553,809      | 
|Transfers
        between geographic areas     | 257,902   |  | 15,709                                                           |  | 134,414 |  | 113,876      |  | 13,601                     |   | (535,502    | ) | —            | 
|                                               |           |  |                                                                  |  |         |  |              |  |                            |   |             |   |              | 
|Total revenues                                 | 371,453   |  | 94,678                                                           |  | 322,215 |  | 265,854      |  | 35,111                     |   | (535,502    | ) | 553,809      | 
|                                               |           |  |                                                                  |  |         |  |              |  |                            |   |             |   |              | 
|                                               |           |  |                                                                  |  |         |  |              |  |                            |   |             |   |              | 
|Exports
        by region                      | —         |  | 15,710                                                           |  | 111,315 |  | 104,277      |  | 13,600                     |   | —           |   | 244,902      | 
|                                               |           |  |                                                                  |  |         |  |              |  |                            |   |             |   |              | 
|Net assets                                     | 1,548,929 |  | 7,018                                                            |  | 13,231  |  | 60,317       |  | (426                       | ) | (779,407    | ) | 849,662      | 
|Goodwill                                       | 11,136    |  | 222                                                              |  | 224     |  | —            |  | —                          |   | —           |   | 11,582       | 
|Long-lived
        assets                      | 2,317,778 |  | 12,278                                                           |  | 7,348   |  | 65,527       |  | 112                        |   | (1,566,890  | ) | 836,153      | 
|Expenditures
        on long-lived assets      | 39,935    |  | 366                                                              |  | 796     |  | 10,589       |  | 5                          |   | —           |   | 51,691       | 

F-70

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

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

Note 27  Differences between Chilean and United States Generally Accepted Accounting Principles, continued

|k) | Industry
    segment and geographic area information, continued
|-- | ---------------------------------------------------------------

Sales by
      product type to unaffiliated customers for the years ended December 31
      are as follows:


|                                | 2004    |  | 2003    |  | 2002    | 
|------------------------------- | ------- |  | ------- |  | ------- | 
|                                |         |  |         |  |         | 
|                                | ThUS$   |  | ThUS$   |  | ThUS$   | 
|Specialty plant nutrition       | 428,236 |  | 362,791 |  | 281,360 | 
|Iodine and derivatives          | 110,495 |  | 84,557  |  | 84,131  | 
|Lithium and derivatives         | 62,623  |  | 49,695  |  | 37,325  | 
|Industrial chemicals            | 71,650  |  | 73,748  |  | 70,847  | 
|Others                          | 115,512 |  | 121,015 |  | 80,146  | 
|                                |         |  |         |  |         | 
|Sales to unaffiliated customers | 788,516 |  | 691,806 |  | 553,809 | 
|                                |         |  |         |  |         | 

|   |                                                                                       
|-- | --------------------------------------------------------------------------------------
|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.                                                                                                                                 
| | - | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |   |                                                                                                                                                                                                                                                        
| | – | Marketable
          securities with a readily determinable market value are recorded at
      fair value,                                                                                                                                             
| |   |                                                                                                                                                                                                                                                        
| | – | 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.                                                                                  

F-71

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

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

Note 27  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
      is a detail of the Companys financial instruments Chilean GAAP
      carrying amount and estimated fair value:


|                                                          | December 31,   |         
|--------------------------------------------------------- | -------------- | --------
|                                                          |                |         
|2004                                                      |                | 2003    
|                                                          |                |         
|Chilean GAAP                                              |                | US GAAP 
|Carrying                                                  | Estimated Fair | Carrying
|Amount                                                    | Value          | Amount  
|                                                          |                |         
|ThUS$                                                     | ThUS$         
|Assets:                                                   |                |         
|Cash and cash equivalents                                 | 66,753         |         
|Short-term accounts receivable                            | 204,213        |         
|Long-term accounts receivable                             | 289            |         
|                                                          |                |         
|Liabilities:                                              |                |         
|Short-term bank debt                                      | (7,955         | )       
|Short-term notes and accounts payable                     | (73,938        | )       
|Derivative instruments                                    | (702           | )       
|Current
    and long-term portions of long-term bank debt | (204,577       | )       
|Long-term other accounts payable                          | (1,106         | )       

|   |                                                                
|-- | ---------------------------------------------------------------
|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 such that after December 31, 2002, participants do not
      earn additional benefits for future services, Such action resulted in a
      curtailment loss (equal to the amount of unrecognized prior service cost)
      of approximately US$1.3 million for the year ended December 31, 2002.


Assumptions
      used in determining the actuarial present value of the projected benefit
      obligation as of December 31 are as follows:


|                                        | 2004 |   | 2003 |  
|--------------------------------------- | ---- | - | ---- | -
|                                        |      |   |      |  
|Weighted-average discount rate          | 7.5  | % | 7.5  | %
|Rate of increase in compensation levels | 0.0  | % | 0.0  | %
|Long-term rate of return on plan assets | 8.5  | % | 8.5  | %

F-72

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

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

Note 27  Differences between Chilean and United States Generally Accepted Accounting Principles, continued

|m) | Post-retirement
    obligations and staff severance indemnities, continued
|-- | --------------------------------------------------------------------------

The long-term
      rate of return on assets was determined based upon past investment experience
      and the expectation for future experience.


The following
      table sets forth the plans funded status and amounts recognized in
      the consolidated balance sheet as of December 31:


|                                                  | 2004   |   | 2003   |   | 2002   |  
|------------------------------------------------- | ------ | - | ------ | - | ------ | -
|                                                  |        |   |        |   |        |  
|                                                  | ThUS$  |   | ThUS$  |   | ThUS$  |  
|Change in benefit obligation:                     |        |   |        |   |        |  
|Benefit obligation at beginning of year           | 4,831  |   | 4,903  |   | 4,492  |  
|Service cost                                      | 15     |   | 13     |   | 284    |  
|Interest cost                                     | 362    |   | 345    |   | 340    |  
|Actuarial loss                                    | 115    |   | (186   | ) | 20     |  
|Benefits paid                                     | (243   | ) | (244   | ) | (249   | )
|Plan amendments                                   | —      |   | —      |   | 146    |  
|Curtailments/settlements                          | —      |   | —      |   | (130   | )
|                                                  |        |   |        |   |        |  
|Benefit obligation at end of the year             | 5,080  |   | 4,831  |   | 4,903  |  
|                                                  |        |   |        |   |        |  
|Change in plan assets:                            |        |   |        |   |        |  
|Fair value of plan assets at beginning of year    | 4,713  |   | 4,049  |   | 5,741  |  
|Employer contributions                            | 82     |   | —      |   | —      |  
|Actual return (loss) on plan assets               | 414    |   | 908    |   | (1,443 | )
|Benefits paid                                     | (243   | ) | (244   | ) | (249   | )
|                                                  |        |   |        |   |        |  
|Fair value of plan assets at end of year          | 4,966  |   | 4,713  |   | 4,049  |  
|                                                  |        |   |        |   |        |  
|Funded status                                     | (114   | ) | (118   | ) | (854   | )
|                                                  |        |   |        |   |        |  
|Unrecognized transitional asset                   | —      |   | —      |   | 899    |  
|Unrecognized net actuarial loss                   | 1,165  |   | 1,137  |   | 2,123  |  
|Adjustment to recognize minimum pension liability | (1,279 | ) | (1,255 | ) | (2,078 | )
|                                                  |        |   |        |   |        |  
|Accrued pension (liability)/ prepaid pension cost | (114   | ) | (118   | ) | (854   | )
|                                                  |        |   |        |   |        |  

F-73

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

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

Note 27  Differences between Chilean and United States Generally Accepted Accounting Principles, continued

|m) | Post-retirement
    obligations and staff severance indemnities, continued
|-- | --------------------------------------------------------------------------

Net periodic
      pension expense was comprised of the following components for the year
      ended December 31, 2003 and 2004:


|                                                  | 2004  |   | 2003  |   | 2002  |  
|------------------------------------------------- | ----- | - | ----- | - | ----- | -
|                                                  |       |   |       |   |       |  
|                                                  | ThUS$ |   | ThUS$ |   | ThUS$ |  
|Service cost or benefits earned during the period | 15    |   | 13    |   | 284   |  
|Interest cost on benefit obligation               | 362   |   | 345   |   | 340   |  
|Actual return on plan assets                      | (414  | ) | (908  | ) | (477  | )
|Amortization of unrecognized transitional asset   | —     |   | (45   | ) | (68   | )
|Other                                             | 91    |   | 682   |   | 101   |  
|                                                  |       |   |       |   |       |  
|Net periodic pension expense                      | 54    |   | 87    |   | 180   |  
|                                                  |       |   |       |   |       |  

The plans
      asset allocations by asset category as of December 31 are as follows:


|                           | 2003 |   | 2004 |  
|-------------------------- | ---- | - | ---- | -
|                           |      |   |      |  
|Growth securit ies         | 62   | % | 69   | %
|Treasury securities        | 14   | % | 2    | %
|International securities   | 12   | % | 14   | %
|Growth & income securities | 11   | % | 14   | %
|Money market funds         | 1    | % | 1    | %
|                           |      |   |      |  
|Total                      | 100  | % | 100  | %
|                           |      |   |      |  

The transition
      liability (asset) re-established on January 1, 1992 is being amortized
      in level amounts over 11.66 years. As of January 1, 2004, the transition
      asset has been fully amortized.


The excess
      of the unrecognized (gain) or loss (if any) over the larger of 10% of the
      projected benefit obligation or 10% of the market related value of assets
      is amortized in level amounts over 12-48 years.


All unrecognized
      prior service costs have been considered fully amortized as a result of
      the December 31, 2002 curtailment brought about as the result of the December
      31, 2002 cessation of benefit accruals.


The Company
      expects the plan to be fully funded for 2005. As a result no contribution
      is anticipated during this period.


F-74

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

Notes to the
Consolidated
Financial Statements

Note 27-
Differences between Chilean and United States Generally Accepted Accounting Principles,
continued

|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.


Under US GAAP, the cash movements within subsidiaries in the development stage would be included in the consolidated statement of cash flows, as described in paragraph I e). The effect on the consolidated statement of cash flows is not material for the periods presented.


|o) | Recently
    issued accounting pronouncements
|-- | ---------------------------------------------

In March 2005 the Financial Accounting Standards Board (FASB) published FASB Interpretation No. 47, Accounting for Conditional Asset Retirement Obligations. Interpretation 47 will result in (a) more consistent recognition of liabilities relating to asset retirement obligations, (b) more information about expected future cash outflows associated with those obligations, and (c) more information about investments in long-lived assets because additional asset retirement costs will be recognized as part of the carrying amounts of the assets.


Interpretation 47 clarifies that the term conditional asset retirement obligation as used in FASB Statement No. 143, Accounting for Asset Retirement Obligations, refers to a legal obligation to perform an asset retirement activity in which the timing and (or) method of settlement are conditional on a future event that may or may not be within the control of the entity. The obligation to perform the asset retirement activity is unconditional even though uncertainty exists about the timing and (or) method of settlement. Uncertainty about the timing and (or) method of settlement of a conditional asset retirement obligation should be factored into the measurement of the liability when sufficient information exists. Interpretation 47 also clarifies when an entity would have sufficient information to reasonably estimate the fair value of an asset retirement obligation.


Interpretation 47 is effective for fiscal years ending after December 15, 2005. The Company is in process of analyzing the impact of the Interpretation on its results of operations and financial position.


Inventory costs

In November 2004, the FASB issued Statement of Financial Accounting
    Standards No.151 (SFAS 151), “Inventory Costs – an amendment of ARB No. 43,
  Chapter 4”, which clarifies that abnormal amounts of idle facility expense,
  freight, handling costs, and wasted material (spoilage) should be recognized
  as a current period expense. In addition, SFAS 151 requires that allocation
  of fixed production overhead to the costs of conversion be based on the normal
  capacity of the production facilities. SFAS 151 is effective for fiscal years
  beginning after 15 June 2005. The Company is in process of analyzing the impact
  of this Statement on its results of operations and financial position.


Stripping costs

In
      March 2005, the FASB Emerging Issues Task Force (EITF) issued
  EITF No. 04-06 “Accounting for Stripping Costs in the Mining Industry” and
  concluded that stripping costs incurred during the production phase of a mine
  are variable production costs that should be included in the costs of the inventory
  produced during the period that the stripping costs are incurred. EITF No.
  04-06 does not address the accounting for stripping costs incurred during the
  pre-production phase of a mine. EITF 04-06 is effective for the first reporting
  period in fiscal years beginning after December 15, 2005, with early adoption
  permitted. The effect of initially applying this consensus should be accounted
  for in a manner similar to a cumulative-effect adjustment. Since the Company
  have historically adhered to the accounting principles similar to EITF 04-06,
  the Company does not believe that adoption of EITF 04-06 will have a material
impact on the Company’s consolidated financial statements.


Impairment of mining assets

In March 2004, the EITF issued EITF 04-03, “Mining Assets’ Impairment
  and Business Combinations”. EITF 04-03 requires mining companies to consider
  cash flows to the economic value of mining assets (including mineral properties
  and rights) beyond those assets’ proven and probable reserves, as well
  as anticipated market price fluctuations, when assigning value in a business
  combination in accordance with SFAS 141 and when testing the mining assets
  for impairment in accordance with SFAS 144. The consensus is effective for
  reporting periods beginning after March 31, 2004, but earlier adoption is permitted.
  The Company is in process of analyzing the impact of this Statement on its
results of operations and financial position.


F-75

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