*Table
            of Contents*





**SECURITIES
      AND EXCHANGE COMMISSION**


**Washington,
      D.C. 20549**


**____________________**




**FORM 20-F**




o
              REGISTRATION
                  STATEMENT PURSUANT TO SECTION 12(b) OR 12(g) OF THE
                  SECURITIES EXCHANGE ACT OF
                  1934




OR





x
            ANNUAL
                REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
                EXCHANGE ACT OF 1934




**For
      the fiscal year ended December 31, 2006**




OR





o
            TRANSITION
                REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
                EXCHANGE ACT OF 1934




OR





o
            SHELL
                COMPANY REPORT PURSUANT TO SECTION 23 OR 15(d) OF THE SECURITIES
                EXCHANGE ACT OF 1934


Date
      of
      event requiring this shell company report_______________________________
      .


For
      the
      transition period from   _____________to__________
 .




**Commission
      file number** **33-65728** **/** **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 +56 2 425-2000**


(Address
      of principal executive offices)





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





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




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


**NONE**





Securities
      for which there is a reporting obligation pursuant to Section 15(d) of the
      Act.


**NONE**





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


**Series
                  A shares**
              **142,819,552****Series
                  B shares**
              **120,376,972**





Indicate
      by check mark if the registrant is a well-known seasoned issuer, as defined
      in
      rule 405 of the Securities Act: T YES   £ NO





If
      this
      report is an annual or transition report, indicate by check mark if the
      registrant is not required to file reports pursuant to Section 13 or 15(d)
      of
      the Securities Exchange act of 1934: £ YES    T NO





Indicate
      by check mark whether the registrant (1) has filed all reports required to
      be
      filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
      the
      preceding 12 months (or for such shorter period that the registrant was required
      to file such reports), and (2) has been subject to such filing requirements
      for
      the past 90 days. T YES  £ NO





Indicate
      by check mark whether the registrant is a large accelerated filer, an
      accelerated filer, or a non accelerated filer. See definition of “accelerated
      filer and large accelerated filer” in rule 12b-2 of the Exchange Act.


T Large
      accelerated filer  £ Accelerated filer £ Non-
      accelerated filer





Indicate
      by check mark which financial statement item the registrant has elected to
      follow. £ Item
      17  T Item
      18




If
      this
      is an annual report, indicate by check mark whether the registrant is a shell
      company (as defined in Rule 12b-2 of the Exchange Act):


£ YES  T NO







*Table
        of Contents*




TABLE
      OF CONTENTS




PagePRESENTATION
                  OF INFORMATION
              iiiGLOSSARY
              iiiCAUTIONARY
                  STATEMENT REGARDING FORWARD-LOOKING
                  STATEMENTS
              vi**PART
                  I**
              
              **1**ITEM
                  1.
              IDENTITY
                  OF DIRECTORS, SENIOR MANAGEMENT AND
                  ADVISERS
              1ITEM
                  2.
              OFFER
                  STATISTICS AND EXPECTED TIMETABLE
              1ITEM
                  3.
              KEY
                  INFORMATION
              1ITEM
                  4.
              INFORMATION
                  ON THE COMPANY
              12ITEM
                  5.
              OPERATING
                  AND FINANCIAL REVIEW AND
                  PROSPECTS
              44ITEM
                  6.
              DIRECTORS,
                  SENIOR MANAGEMENT AND
                  EMPLOYEES
              61ITEM
                  7.
              MAJOR
                  SHAREHOLDERS AND RELATED PARTY
                  TRANSACTIONS
              73ITEM
                  8.
              FINANCIAL
                  INFORMATION
              74ITEM
                  9.
              THE
                  OFFER AND LISTING
              77ITEM
                  10.
              ADDITIONAL
                  INFORMATION
              79ITEM
                  11.
              QUANTITATIVE
                  AND QUALITATIVE DISCLOSURES ABOUT MARKET
                  RISK
              89ITEM
                  12.
              DESCRIPTION
                  OF SECURITIES OTHER THAN EQUITY
                  SECURITIES
              90**PART
                  II**
              
              **91**ITEM
                  13.
              DEFAULTS,
                  DIVIDEND ARREARAGES AND
                  DELINQUENCIES
              91ITEM
                  14.
              MATERIAL
                  MODIFICATIONS TO THE RIGHTS OF SECURITY HOLDERS
                  AND USE OF PROCEEDS
              91ITEM
                  15.
              CONTROLS
                  AND PROCEDURES
              91ITEM
                  16.
              RESERVED
              92ITEM
                  16.A.
              AUDIT
                  COMMITTEE FINANCIAL EXPERT
              92ITEM
                  16.B.
              CODE
                  OF ETHICS
              92ITEM
                  16.C.
              PRINCIPAL
                  ACCOUNTANT FEES AND SERVICES
              93ITEM
                  16.D.
              EXEMPTIONS
                  FROM THE LISTING STANDARDS FOR AUDIT
                  COMMITTEES
              93ITEM
                  16.E.
              PURCHASES
                  OF EQUITY SECURITIES BY THE ISSUERS AND
                  AFFILIATED PURCHASERS
              93**PART
                  III**
              
              **94**ITEM
                  17.
              FINANCIAL
                  STATEMENTS
              94ITEM
                  18.
              FINANCIAL
                  STATEMENTS
              94ITEM
                  19.
              EXHIBITS
              94SIGNATURES
              95CONSOLIDATED
                  FINANCIAL STATEMENTS
              F-1EXHIBIT
                  1.1EXHIBIT
                  8.1EXHIBIT
                  12.1EXHIBIT
                  12.2EXHIBIT
                  13.1EXHIBIT
                  13.2




ii
 *Table
          of Contents*


**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$** "
      are to
      Chilean pesos, and references to " **UF** "
      are to *Unidades
      de Fomento* .
      The UF
      is an inflation-indexed, peso-denominated unit that is linked to, and adjusted
      daily to reflect changes in, the previous month's Chilean consumer price index.
      As of June 15, 2007, UF 1.00 was equivalent to US$ 35.10 and Ch$
      18,568.55.




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 accordance with exploitation
      designs.




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




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




iii
 *Table
          of Contents*





" **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 Offered Rate.




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




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




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




" **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.




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.




iv
 *Table
          of Contents*




" **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, 2006 divided
      by the total gross book value of the Company's fixed assets at such facility
      as
      of December 31, 2006.




*
      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.com).





v
 *Table
          of Contents*


**CAUTIONARY
      STATEMENT REGARDING FORWARD-LOOKING
      STATEMENTS**





This
      Form
      20-F contains statements that are or may constitute forward-looking statements
      within the meaning of the Private Securities Litigation Reform Act of 1995.
      These statements appear throughout this Form 20-F and include statements
      regarding the intent, belief or current expectations of the Company and its
      management, including but not limited to any statements concerning:




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





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





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





·
            the
                future impact of competition;





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





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





Such
      forward-looking statements are not guarantees of future performance and involve
      risks and uncertainties. Actual results may differ materially from those
      described in such forward-looking statements included in this Form 20-F,
      including, without limitation, the information under Item 4. Information on
      the
      Company and Item 5. Operating and Financial Review and Prospects. Factors that
      could cause actual results to differ materially include, but are not limited
      to:




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





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





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





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




vi
 *Table
          of Contents*


**PART
      I**





**ITEM
      1.****IDENTITY
      OF DIRECTORS, SENIOR MANAGEMENT AND ADVISERS**




Not
      Applicable.




**ITEM
      2.****OFFER
      STATISTICS AND EXPECTED TIMETABLE**




Not
      Applicable.




**ITEM
      3.****KEY
      INFORMATION**




**3.A.****Selected
      Financial Data**




The
      following table presents selected consolidated financial information for SQM
      and
      one or more of its subsidiaries, as applicable, for each of the periods
      indicated. This information should be read in conjunction with, and is qualified
      in its entirety by reference to, the Audited Consolidated Financial Statements
      of the Company as of December 31, 2006 and 2005 and for each of the three years
      in the period ended December 31, 2006. The consolidated financial statements
      as
      of December 31, 2003 and 2002 and for the years then ended are not included
      herein. The Company's Consolidated Financial Statements are prepared in
      accordance with Chilean GAAP, which differs in certain material respects from
      U.S. GAAP. Note 29 to the Consolidated Financial Statements as of December
      31,
      2006 and 2005 and for each of the three years in the period ended December
      31,
      2006 provides a description of the principal differences between Chilean GAAP
      and U.S. GAAP and a reconciliation of net income for the years ended December
      31, 2006, 2005 and 2004 and total shareholders' equity as of December 31, 2006
      and 2005 to U.S. GAAP.




**2006**
              
              **2005**
              
              **2004**
              
              **2003**
              
              **2002****Income
                  Statement Data**
              
              **(in
                  millions of US$)**(1)**Chilean
                  GAAP**Total
                  Revenues
              
              
              1,042.9
              
              
              896.0
              
              
              788.5
              
              
              691.8
              
              
              553.8Operating
                  Income
              
              
              219.9
              
              
              181.2
              
              
              124.1
              
              
              87.3
              
              
              82.7Non-operating
                  results, net
              
              
              (36.1
              )
              
              (34.4
              )
              
              (17.6
              )
              
              (21.2
              )
              
              (30.0
              )Net
                  income
              
              
              141.3
              
              
              113.5
              
              
              74.2
              
              
              46.8
              
              
              40.2Net
                  earnings per share (2)
              
              
              0.54
              
              
              0.43
              
              
              0.28
              
              
              0.18
              
              
              0.15Net
                  earnings per ADS (2)
              
              
              5.37
              
              
              4.31
              
              
              2.82
              
              
              1.78
              
              
              1.53Dividend
                  per share (3)(4)
              
              
              0.349
              
              
              0.279
              
              
              0.182
              
              
              0.088
              
              
              0.076**Weighted
                  average shares Outstanding (000s) (2)**
              
              
              **263,197**
              
              
              **263,197**
              
              
              **263,197**
              
              
              **263,197**
              
              
              **263,197****U.S.
                  GAAP**Total
                  Revenues
              
              
              1,042.9
              
              
              896.0
              
              
              788.5
              
              
              691.8
              
              
              553.8Operating
                  Income
              
              
              205.5
              
              
              163.9
              
              
              114.6
              
              
              76.7
              
              
              87.0Non-operating
                  results, net (5)
              
              
              (14.1
              )
              
              (6.1
              )
              
              (1.6
              )
              
              (4.3
              )
              
              (26.2
              )Equity
                  participation in income (loss) of related companies, net
              
              
              2.0
              
              
              2.6
              
              
              1.8
              
              
              2.2
              
              
              1.1Effect
                  of change in accounting principles
              
              
              —
              
              
              —
              
              
              —
              
              
              —
              
              
              0.5Net
                  income
              
              
              154.3
              
              
              125.2
              
              
              86.8
              
              
              57.8
              
              
              46.9Basic
                  and diluted earnings per share
              
              
              0.59
              
              
              0.48
              
              
              0.33
              
              
              0.22
              
              
              0.18Basic
                  and diluted earnings per ADS
              
              
              5.86
              
              
              4.76
              
              
              3.30
              
              
              2.19
              
              
              1.78**Weighted
                  average shares Outstanding (000s)(2)**
              
              
              **263,197**
              
              
              **263,197**
              
              
              **263,197**
              
              
              **263,197**
              
              
              **263,197**




1
 *Table
          of Contents*




**Year
                ended December 31,****2006**
            
            **2005**
            
            **2004**
            
            **2003**
            
            **2002****Balance
                Sheet Data:**
            
            **(In
                millions of US$)**(1)**Chilean
                GAAP:**Total
                assets
            
            
            1,871.2
            
            
            1,640.6
            
            
            1,361.4
            
            
            1,363.5
            
            
            1,322.3Long-term
                debt
            
            
            480.7
            
            
            100.0
            
            
            200.0
            
            
            260.0
            
            
            324.0Total
                shareholders' equity
            
            
            1,085.9
            
            
            1,020.4
            
            
            948.6
            
            
            890.0
            
            
            849.7Capital
                Stock
            
            
            477.4
            
            
            477.4
            
            
            477.4
            
            
            477.4
            
            
            477.4**U.S.
                GAAP:**Total
                assets
            
            
            1,846.0
            
            
            1,609.0
            
            
            1,318.5
            
            
            1,319.4
            
            
            1,274.6Long-term
                debt
            
            
            478.7
            
            
            100.0
            
            
            200.0
            
            
            260.0
            
            
            324.0Total
                shareholders' equity
            
            
            994.5
            
            
            923.4
            
            
            856.9
            
            
            794.7
            
            
            747.3Capital
                Stock
            
            
            479.3
            
            
            479.3
            
            
            479.3
            
            
            479.3
            
            
            479.3




Note:
                The Company is not aware of any material differences between Chilean
                and
                U.S. GAAP that are not addressed in Note 29 to the Consolidated Financial
                Statements of December 31, 2006.




(1)
                Except shares outstanding, dividend and net earnings per share and
                net
                earnings per ADS.
              
              (2)
                There are no authoritative pronouncements related to the calculation
                of
                earnings per share in accordance with Chilean GAAP. For comparative
                purposes the calculation has been based on the same number of weighted
                average shares outstanding as used for the U.S. GAAP
                calculation.
              
              (3)
                Dividends per share are calculated based on 263,197 thousand shares
                for
                the periods ended December 31, 2002, 2003, 2004, 2005 and
                2006.
              
              (4)
                Dividends may only be paid from net income before amortization of
                negative
                goodwill as determined in accordance with Chilean GAAP; see Item
                8.A.8.
                Dividend Policy. For dividends in Ch$ see Item 8.A.8.Dividend Policy
—
                Dividends.
              
              (5)
                Does not include equity participation in income (loss) of related
                companies, net




**EXCHANGE
      RATES**




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





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





2
 *Table
          of Contents*


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





The
      Informal Exchange Market reflects transactions carried out at an informal
      exchange rate, or the Informal Exchange Rate. There are no limits imposed on
      the
      extent to which the rate of exchange in the Informal Exchange Market can
      fluctuate above or below the Observed Exchange Rate.





Since
      1993, the Observed Exchange Rate and the Informal Exchange Rate have typically
      been within less than 1% of one another.





The
      following table sets forth the annual low, high, average and year-end Observed
      Exchange Rate for U.S. dollars for each year starting in 2002 as reported by
      the
      Chilean Central Bank. The Federal Reserve Bank of New York does not report
      a
      noon buying rate for Chilean pesos.





On
      June
      15, 2007, the Observed Exchange Rate was Ch$529.00 = US$1.00.





**Observed
                Exchange Rate (1)****Ch$
                per US$****Year/Month**
            **Low
                (1)**
            
            **High
                (1)**
            
            **Average**
              **(2)(3)**
            
            **Year/Month
                End****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**2005**
            509.70
            
            592.75
            
            559.27
            
            514.21**2006**
            511.44
            
            549.63
            
            530.27
            
            534.43Jan-07
            532.39
            
            545.18
            
            540.51
            
            545.18Feb-07
            535.29
            
            548.67
            
            542.27
            
            538.42Mar-07
            535.36
            
            541.95
            
            538.49
            
            539.37Abr-07
            527.08
            
            539.69
            
            532.30
            
            527.08May-07
            517.64
            
            527.52
            
            522.02
            
            527.52




Source:
              Central Bank of Chile




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




(2)
              The
                  yearly average rate is calculated as the average of the exchange
                  rates on
                  the last day of each month during the
                  period.
 (3)
                  The
                        monthly average rate is calculated on a day-to-day basis
                        for each
                        month.




**3.B.****Capitalization
      And Indebtedness**




N ot
      applicable.




3
 *Table
          of Contents*




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




Not
      applicable.





**3.D.****Risk
      Factors**




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





**Risks
      Relating to our Business**





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




We
      sell
      our products in more than 100 countries around the world. In 2006, approximately
      37% of our sales were made to emerging market countries: (i) approximately
      12%
      in Central and South America, excluding Chile, specifically in countries such
      as
      Brazil, Argentina, Colombia and Peru; (ii) approximately 16% in Chile; and
      (iii)
      approximately 9% in Asia, excluding Japan. 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 we establish
      operations can be expected to be dependent, in part, on the general level of
      political stability and economic activity and policies in those countries.
      Future developments in the political systems or economies of these countries
      or
      the implementation of future governmental policies in those countries, including
      the imposition of withholding and other taxes, restrictions on the payment
      of
      dividends or repatriation of capital or the imposition of new environmental
      regulations or price controls, could have a material adverse effect on our
      sales
      or operations in those countries.




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





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





In
      particular, 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$18.00
      in
      1999, and subsequently it began to decline, reaching approximately US$12.50
      during early 2003. By late 2003 and during 2004 prices reversed the downward
      trend and began to increase. The average price in 2005 reached approximately
      US$19.00 per kilogram, and it has continued to increase to an average of
      approximately US$22.80 per kilogram in 2006. We cannot assure you that this
      trend will continue.





We
      started production of lithium carbonate from the Atacama Salar brines in October
      1996 and started selling lithium carbonate commercially in January 1997. Our
      entrance into the market created an oversupply of lithium carbonate, resulting
      in a drop in prices from over US$3,000 per ton before our entrance to less
      than
      US$2,000 per ton. Currently, prices are higher than US$5,000 per ton. We believe
      the increase in prices is mainly due to the high growth in demand that has
      not
      been fully balanced by the supply of lithium carbonate. We cannot assure you
      that this trend will continue.




4
 *Table
          of Contents*




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





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





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





***Currency
      fluctuations may have a negative effect on our financial
      results***





The
      Chilean peso has been subject to large devaluations and revaluations in the
      past
      and may be subject to significant fluctuations in the future. We transact a
      significant portion of our business in U.S. dollars, and the U.S. dollar is
      the
      currency of the primary economic environment in which we operate and is our
      functional currency for financial statement reporting purposes. A significant
      portion of our operating costs, however, are related to the Chilean peso.
      Therefore, an increase or decrease in the exchange rate between the Chilean
      peso
      and the U.S. dollar would affect our costs of production. Additionally, as
      an
      international company operating in Chile and several other countries, we
      transact a portion of our business and have assets and liabilities in Chilean
      pesos and other non-U.S. dollar currencies, such as the Euro, the South African
      Rand and the Mexican Peso, among others. As a result, fluctuation in the
      exchange rate of such foreign currencies to the U.S. dollar may affect our
      business, financial condition and results of operations.





***Sustained
      high raw material and energy prices increase our production costs and cost
      of
      goods sold***





We
      rely
      on certain raw materials and various sources of energy (diesel, electricity,
      natural gas, fuel oil and others) to manufacture our products. Purchases of
      raw
      materials that we do not produce and energy constitute a significant part of
      our
      cost of sales (approximately 11.7% in 2006). To the extent we are unable to
      pass
      on increases in raw materials and energy prices to our customers, our business,
      financial condition and results of operations could be adversely affected.





***Our
      reserves estimates could significantly vary***





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





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





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




5
 *Table
          of Contents*




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





Our
      facilities located in Chile and abroad are insured against losses, damages
      or
      other risks by insurance policies that are standard for the industry and that
      would reasonably be expected to be sufficient by prudent and experienced persons
      engaged in a business or businesses similar to those of our business.
      Nonetheless, we may be subject to certain events that may not be covered under
      the insurance policies, and that could materially affect our financial condition
      or results of operations.





***The
      continuity of our natural gas supply is dependent on the Argentinean
      authorities’ policies***





As
      part
      of a cost reduction effort, in 2001 we connected our facilities to a natural
      gas
      network. The natural gas, which originates in Argentina and is subject to a
      10-year agreement, is used mainly for heat generation at our industrial
      facilities. Due to energy shortages in Argentina, 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 has increased
      taxes on gas exports and there can be no assurance that they will not do it
      again in the future.





We
      suffered partial shortages of natural gas during 2004, 2005 and 2006, and the
      shortages have increased in the second quarter of 2007. We have experienced,
      as
      a result of the shortages, an inability to procure a significant portion of
      our
      normal supply of natural gas. Considering what has happened in the second
      quarter of 2007 and the public statements made in Argentina, we believe further
      cutbacks in the supply of natural gas are likely in the future. To mitigate
      this, we have adopted measures intended to limit the effects of any further
      decrease in the natural gas supply. Most of our industrial equipment that uses
      natural gas can also operate on fuel oil and the remaining equipment can operate
      on diesel. The costs of using fuel oil and diesel are significantly higher
      than
      natural gas.





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, and therefore,
      we
      cannot estimate the exact economic impact of future natural gas supply
      reductions. However, further increases in prices of natural gas or a sustained
      reduction in our natural gas supply could have an adverse effect on our
      business, financial condition and results of operations. During 2006, purchases
      of natural gas represented approximately 1.3% of our cost of sales.





***Decline
      in the supply of natural gas could negatively affect the supply of electricity
      in the Northern Power Grid***





The
      natural gas supply crisis discussed above has placed the Northern Power Grid
      (SING) under significant stress. This condition, if maintained, could lead
      to a
      system failure that would then affect the supply of electricity. Restrictions
      on
      the Company’s electricity consumption could affect our operations potentially
      decreasing our production volumes and increasing our production 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 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 S.A. and Norgener S.A., and both have requested revision
      of
      the tariffs involved. As a result of these requests, we entered into arbitration
      proceedings between us and Electroandina and Norgener. As of December 31, 2006
      we were party to arbitration proceedings with Electroandina and Norgener. As
      of
      June, 2007 the arbitration proceeding with Norgener has finalized and the
      arbitration with Electroandina continues its course. The new tariffs resulting
      from the conclusions of negotiation will have a negative affect on our results
      of operations .




6
 *Table
          of Contents*




During
      2006, purchases of electricity represented approximately 2.7% of our cost of
      sales.





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





Of
      our
      permanent employees in Chile, 68.2% are represented by 31 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.





The
      Chilean Congress has amended the Labor Code. The new wording contemplates that
      the work-owner shall be jointly liable for some benefits of the subcontractor’s
      employees being hired for the performance of such work and thus increasing
      the
      owner’s responsibilities and costs.





***Our
      water supply could be affected by regulatory changes and/or natural
      problems***





Although
      we have not experienced significant difficulties obtaining the necessary water
      to conduct our operations, there can be no assurance that we will not have
      problems in securing our water supply due to new environmental regulations
      or
      natural depletion of water resources. This could affect our operations,
      negatively affecting our business, financial condition and results of
      operations.





***Pending
      lawsuits could adversely impact us***




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





***Potencial
      new production of Lithium Carbonate in China.***




Currently
      there are several projects for the expansion of lithium carbonate production
      capacity being developed by Chinese competitors. As there is limited information
      on the status of these projects we cannot make accurate projections regarding
      their capacities and the dates in which they will become operational. However,
      should these projects be developed during a short period of time, we believe
      there could be negative impacts on prices that could have a significant impact
      in the Company's financial condition or results of operations.





**Risks
      Relating to Chile**





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





The
      prospects and results of operations of the Company could be affected by changes
      in policies of the Chilean government, other political developments in or
      affecting Chile, and regulatory and legal changes or administrative practices
      of
      Chilean authorities, over which the Company has no control.




7
 *Table
          of Contents*




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





We
      conduct our mining (including brine extraction) operations under exploitation
      and exploration concessions granted pursuant to judicial proceedings in
      accordance with provisions of the Chilean Constitution, and the Constitutional
      Mining Law and related statutes. Our exploitation concessions essentially grant
      a perpetual right to conduct mining operations in the areas covered by the
      concessions, provided that we pay annual concession fees (with the exception
      of
      the Atacama Salar rights, which have been leased to us until 2030). Our
      exploration concessions permit us to explore for mineral resources on the land
      covered thereby for a specified period of time, and to subsequently request
      a
      corresponding exploitation concession. We hold water rights obtained from the
      Chilean Water Authority for a supply of water from rivers and wells near our
      production facilities, which we believe are sufficient to meet current and
      anticipated operational requirements. We operate port facilities at Tocopilla,
      Chile, for the shipment of our products and the delivery of certain raw
      materials, pursuant to concessions granted by Chilean regulatory authorities.
      These concessions are renewable provided that we use such facilities as
      authorized and pay annual concession fees. Any significant changes to these
      concessions could have a material adverse impact on our business, financial
      condition and results of operations.





The
      following changes in Chilean law are also likely to affect our
      operations:





The
      Chilean Congress approved a modification to Chilean laws relating to water
      rights (the “Water Code”). The changes to the Water Code include establishing
      annual fee payments for owners of water rights that do not use the water
      associated with them. This fee does not affect the holder’s right to use
      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. The referred changes will not have a
      material adverse effect on our business, financial condition and results of
      operations. Nevertheless, as the Company maintains water rights that
      are key to its business development, further changes to the Water Code could
      have a material adverse impact on our business, financial condition and results
      of operations.





On
      May
      18, 2005, the Chilean Congress approved Law No. 20,026, also known as the
“Royalty Law,” which established a royalty to be applied to mining activities
      developed in Chile, levied on mining companies whose sales are equal to or
      greater than the equivalent value of 12,000 metric tons of fine copper (MFT),
      as
      determined according to the London Metal Exchange Grade A copper cash quotation.
      This new mining royalty, which has been applied from 2006 onwards, is levied
      on
      the “taxable operating income” (as this term is defined in Law No. 20,026) of
      the mining company, at a rate that varies from 0.5% up to 5%, depending on
      the
      consolidated annual sales.





Law
      No.20,017, published on June 16, 2005, modified the Water Code. Under
      certain conditions, these modifications allow the constitution of permanent
      water rights of up to 2 liters per second for each well built prior to June
      30, 2004, in the locations where we conduct our mining operations. These changes
      to the Water Code could have a material adverse impact on our business,
      financial condition and results of operations, as it could affect the amount
      of
      water as to which, based on our rights, we should effectively
      have access to.





If
      similar changes are enacted in the future, they may have a material adverse
      impact on our business, financial condition and results of
      operation.





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





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




8
 *Table
          of Contents*




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





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





In
      connection with our current investments at the Atacama Salar we have obtained
      approval for an environmental impact assessment study that allows to increase
      brine and water extraction, subject to a rigorous environmental monitoring
      system. The success of these investments is dependent on the observed values
      of
      the ecosystem variables being monitored over time. If the ecosystem shows a
      detrimental behavior in future years, our operation may be subject to important
      restrictions by the authorities on the maximum allowable amounts of brine and
      water extraction.





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





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





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





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





There
      are
      important differences between Chilean GAAP and U.S. GAAP. As a result, Chilean
      financial statements and reported earnings generally differ from those that
      are
      reported based on U.S. GAAP. In particular, our earnings and the amount of
      dividends that we declare under Chilean GAAP may be subject to a higher degree
      of fluctuation as compared to U.S. GAAP, due to accounting pronouncements or
      other modifications required under Chilean GAAP. Note 29 to the consolidated
      Financial Statements includes a description of differences and a reconciliation
      of the net income and shareholder’s equity amounts reported under Chilean GAAP
      to U.S. GAAP.




9
 *Table
          of Contents*




**Risks
      related to our financial activities**




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




We
      maintain short and long-term debt priced at Libor, plus a spread. As we do
      not
      have derivative instruments to hedge the Libor, we are subject to fluctuations
      in this rate. As of December 31, 2006, we had approximately 41% of our 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
      world
      leaders in our core businesses, part of our strategy is to be 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 relating to any of our
      businesses. 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 our share price.




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




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




Our
      Company is a "sociedad anónima abierta" (open stock corporation) incorporated
      under the laws of the Republic of Chile. Most of SQM's directors and officers
      reside outside the United States, principally in Chile. All or a substantial
      portion of the assets of these persons are located outside the United States.
      As
      a result, if any of our shareholders, including holders of our 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
      judgments obtained in United States courts based upon the civil liability
      provisions of the federal securities laws of the United States against them
      in
      United States courts.




10
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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 United States federal
      securities laws.




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




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




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.




11
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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, Las Condes, Santiago,
      Chile. The Company's telephone number is +56 2 425-2000.




Commercial
      exploitation of the caliche ore deposits in northern Chile began in the 1830s,
      when sodium nitrate was extracted from the ore for use in the manufacturing
      of
      explosives and fertilizers. By the end of the nineteenth century, nitrate
      production had become the leading industry in Chile and the country was the
      world's leading supplier of nitrates. The accelerated commercial development
      of
      synthetic nitrates in the 1920s and the global economic depression in the 1930s
      caused a serious contraction of the Chilean nitrate business, which did not
      recover significantly until shortly before the Second World War. After the
      war,
      the widespread commercial production of synthetic nitrates resulted in a further
      contraction of the natural nitrate industry in Chile, which continued to operate
      at depressed levels into the 1960s.




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




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 (Series B ADR issuance)
      and in 1999 (by issuing our Series A ADRs
      on
      the NYSE under the ticker symbol “SQM-A”).




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




Since
      2005, we have strengthened our leadership in our main business by increasing
      our
      capital expenditure program and making appropriate acquisitions and
      divestitures. During this period we acquired Kefco in Dubai and the iodine
      business of DSM. We also sold our stake in the Italian subsidiary Impronta
      S.R.L. and the Mexican Subsidiary Fertilizantes Olmeca; these sales allowed
      SQM
      to concentrate its efforts on its core products.




12
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          of Contents*


**Capital
      Expenditure Program**




We
      are
      constantly reviewing different opportunities for improving our production
      methods, increasing production capacity of existing products and developing
      new
      products and markets. Additionally, significant maintenance of capital
      expenditures is 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.




SQM's
      capital expenditures in the 2004-2006 period were the following:




**2006**(4)
            
            **2005**(3)
            
            **2004**(2)**(in
                millions of US$)**Expenditures
                (1)
            
            
            290.5
            
            
            198.1
            
            
            91.4






(1)
              In
                  these item, capital expenditures mean any investment aimed at sustaining,
                  improving or increasing production levels, including acquisitions
                  and
                  investment in related companies. These amounts will not match the
                  consolidated statements of cash flows, as the Company does not
                  consolidate
                  development stage companies.(2)
              Includes
                  acquisition of PCS Yumbes (US$35 million). The Yumbes mine is not
                  currently being mined and some of the purchased facilities have
                  been
                  relocated to be used in other SQM facilities.(3)
              Includes
                  acquisition of Kefco in Dubai (US$9.3 million)(4)
              Includes
                  acquisition of DSM’s Iodine business for a total of US$72 million, plus
                  all the cash, accounts receivable and final product inventories
                  minus the
                  total liabilities of the Chilean and Dutch companies considered
                  in the
                  transaction.


We
      have
      developed a capital expenditure program calling for investments totaling
      approximately US$630 million (not including acquisitions) between 2007-2009
      of
      which approximately US$230 million should be spent in 2007. The main purpose
      of
      our capital expenditure program is to increase production capacity of natural
      nitrates by approximately 25% and lithium carbonate by more than
      30%.




During
      2006, the company had total capital expenditures of approximately US$177.3
      million (not including the DSM iodine business acquisition) primarily relating
      to:


·  María
      Elena project including a new crushing facility


·  a
      granular and prilling facility located at Coya Sur


·  a
      new
      drying facility for soluble potassium nitrate at Coya Sur


·  completion
      of the investment in the iodine facility and solar ponds at Nueva Victoria
      ;
      and


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





Additionally,
      SQM bought the iodine business of DSM for approximately US$72.0 million (plus
      working capital) in January 2006.





The
      company has budgeted for 2007 total capital expenditures of approximately US$230
      million, primarily relating to:


§
            completion
                of the María Elena project


§
            investment
                in a new potassium nitrate production facility at Coya
                Sur


§
            completion
                of the granular and prilling facility located at Coya
                Sur


§
            revamping
                of our railroad and rolling stock


§
            investment
                in the new solar ponds and wells at the Salar de
                Atacama


§
            investment
                in the expansion of lithium carbonate
                production


§
            development
                of new mining areas at Pedro de Valdivia; and various
                projects designed to maintain capacity, increase yields and reduce
                costs.





For
      2008
      and 2009, we estimate total capital expenditures of approximately US$400
      million, primarily for (i) the increase in lithium carbonate production
      capacity; (ii) the completion of the potassium nitrate production facility
      at
      Coya Sur; (iii) the upgrade of our railroad system to handle expanded capacity;
      (iv) additional solar ponds and wells at the Salar de Atacama in order to
      increase production; and (v) various projects designed to maintain capacity,
      increase yields and lower costs, and to develop new NPK-soluble blending
      facilities.




13
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          of Contents*




***4.B.*** **Business
      Overview**




**The
      Company**




We
      believe we are the world’s largest integrated producers of potassium nitrate,
      iodine and lithium carbonate. We also produce other specialty plant nutrition
      products, iodine and lithium derivatives, and certain industrial chemicals,
      including industrial nitrates. Our products are sold in over 100 countries
      through our worldwide distribution network and we generate approximately 84%
      of
      our revenues from countries outside Chile. Our products are mainly derived
      from
      mineral deposits found in 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 the Atacama Salar, a salt-encrusted depression within the Atacama
      Desert in northern Chile, contain high concentrations of lithium and potassium
      as well as significant concentrations of sulfate and boron.





From
      our
      caliche ore deposits, we produce a wide range of nitrate-based products used
      for
      specialty plant nutrition and industrial applications, as well as iodine and
      iodine derivatives. At the 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 and lithium
      hydroxide at a plant near the city of Antofagasta, Chile, from the solutions
      brought from the Atacama Salar. We market all of these products through an
      established worldwide distribution network.





Our
      products are divided into five main categories: specialty plant nutrition
      products, iodine and derivatives, lithium and derivatives; industrial chemicals;
      and other products. Specialty plant nutrition is comprised of specialty plant
      nutrition products that are fertilizers that enable farmers to improve yields
      and quality of certain crops. Iodine, lithium and their derivatives are used
      in
      human nutrition, pharmaceuticals and other industrial applications.
      Specifically, iodine and its derivatives are mainly used in the x-ray contrast
      media and biocides industries and a growing application is in the production
      of
      polarizing film, which is an important component in liquid crystal displays
      (“LCDs”) screens, and lithium and its derivatives are mainly used in batteries,
      greases and frits for production of ceramics. Industrial chemicals have a wide
      range of applications in certain chemical processes such as the manufacturing
      of
      glass, explosives and ceramics. Other products include potassium chloride and
      other commodity fertilizers that are bought from third parties and sold mostly
      in Chile and Mexico.





For
      the
      year ended December 31, 2006, we had revenues of approximately US$1,042.9
      million, operating income of approximately US$219.9 million and net income
      of
      approximately US$141.3 million.





***Specialty
      Plant Nutrition*** :
      We
      produce five principal types of specialty plant nutrients: potassium nitrate,
      sodium nitrate, sodium potassium nitrate, potassium sulfate and specialty
      blends. All of these specialty plant nutrients are used in either solid or
      liquid form mainly on high value crops such as fruits, vegetables, industrial
      crops, 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: UltrasolTM (fertigation), QropTM (field application), SpeedfolTM (foliar
      application), AllganicTM (organic farming) and NutrilakeTM (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 along with technical service provided by us, allow us to create
      plant nutrients solutions that add value to crops through higher yields and
      better quality production. Because our products are natural or derived from
      natural nitrate compounds or natural potassium brines (in the case of potassium
      sulfate), they have certain advantages over synthetically produced fertilizers,
      including the presence of certain beneficial trace elements and their organic
      nature, which makes them more attractive to customers who prefer products of
      natural origin. As a result, our specialty plant nutrients enable our customers
      to achieve higher yields and better quality crops. Consequently, specialty
      plant
      nutrients are sold at a premium price




14
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          of Contents*




***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, in the synthesis of pharmaceuticals, herbicides, electronics,
      pigments, dye components and heat stabilizers




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




***Industrial
      Chemicals*** :
      We
      produce four industrial chemicals: sodium nitrate, potassium nitrate, boric
      acid
      and potassium chloride. Sodium nitrate is used primarily in the production
      of
      glass, explosives, charcoal briquettes and metal treatment. However, other
      uses,
      such as adhesives and wastewater treatment also account for important sales
      volumes and have good prospects for the future. Potassium nitrate, while also
      used in the manufacture of specialty glass, is consumed primarily in cathode
      ray
      tubes for TV’s and computer monitors. In addition, potassium nitrate is an
      important raw material for the production of frits for the ceramics and enamel
      industries. 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 close to 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, offering complete
      fertilization services to our customers.




The
      following table sets forth the percentage breakdown of our revenues in the
      2002-2006 period according to our product lines:




**2006**
            
            **2005**
            
            **2004**
            
            **2003**
            
            **2002**Specialty
                Plant Nutrition
            
            
            48%
            
            
            54%
            
            
            54%
            
            
            52%
            
            
            51%Iodine
                and derivatives
            
            
            21%
            
            
            17%
            
            
            14%
            
            
            12%
            
            
            15%Lithium
                and derivatives
            
            
            12%
            
            
            9%
            
            
            8%
            
            
            7%
            
            
            7%Industrial
                Chemicals
            
            
            7%
            
            
            8%
            
            
            9%
            
            
            10%
            
            
            11%Other
                Products
            
            
            12%
            
            
            12%
            
            
            15%
            
            
            19%
            
            
            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)
            pursue
                vertical integration into value added
                markets.




15
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          of Contents*




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




***Specialty
      Plant Nutrition***




Our
      strategy in our specialty plant nutrition business is to (i) continue expanding
      our sales of natural nitrates by continuing to 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
      nutrition products based on natural nitrates, particularly soluble potassium
      nitrate and NPK-soluble blends; (iii) pursue investment opportunities in
      complementary businesses to increase production, reduce costs and add value
      to
      and improve the marketing of our products; (iv) 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
      primarily on the soluble and foliar plant nutrient market in order to establish
      a leadership position; (vi) further develop our global distribution and
      marketing system directly and through strategic alliances with other producers
      and global or local distributors; and (vii) reduce our production costs through
      improved processes and higher labor productivity so as to compete more
      effectively.





***Iodine***




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





***Lithium***




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




***Industrial
      Chemicals***




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





***New
      Business Ventures***




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


16
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            of Contents*




**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.




**Caliche
      Ore Deposits**




We
      mine
      caliche ore from open pit deposits located in northern Chile. Caliche deposits
      are the largest known source of natural nitrates in the world. The geological
      origin of caliche ore deposits in northern Chile is uncertain, with a number
      of
      possible geological formation theories. The consensus is that a volcanic
      formation of deposits was followed by water runoff, leaching and depositing
      in
      existing sediments.




Caliche
      deposits are located in northern Chile, where we currently operate four mines:
      Pedro de Valdivia, María Elena, Pampa Blanca and Nueva Victoria (including the
      Iris operation, formerly the DSM Iodine business mine)




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




Before
      proper mining begins, a full exploration stage is 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 containing 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, iodine and iodine derivatives.




***Sodium
      Nitrate***




Sodium
      nitrate for both agricultural and industrial applications is produced at the
      María Elena and Pedro de Valdivia facilities using the Guggenheim method, which
      was originally patented in 1921. This closed circuit method involves adding
      a
      heated leaching solution to the crushed caliche in the vats to selectively
      dissolve the 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 caliche ore is leached at ambient temperature with
      water, producing a weak solution that is pumped to solar evaporation ponds
      at
      our Coya Sur facilities, 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.




17
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The
      remaining materials from the sodium nitrate crystallization process are vat
      leach tailings and a weak solution. The ore tailings are unloaded from the
      leaching vats and deposited at sites near the production facilities. The weak
      solution is re-cycled for further leaching and for the extraction of
      iodine.




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 shipping to customers and distributors worldwide. Our current
      crystallized sodium nitrate production capacity at Pedro de Valdivia and María
      Elena is approximately 770,000 metric tons per year. A significant part of
      the
      sodium nitrate produced at María Elena and Pedro de Valdivia is used in the
      production of potassium nitrate at Coya Sur, sodium potassium nitrate at María
      Elena and a highly refined industrial grade sodium nitrate at Coya
      Sur.




***Potassium
      Nitrate***




Potassium
      nitrate is produced at our Coya Sur facility using production methods we have
      developed. The solutions from the leaching of the fine fraction of the ore,
      once
      the iodine is extracted,are pumped to the Coya Sur 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 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.




Concentrated
      nitrate salts are produced at Pampa Blanca by leaching caliche ore in leach
      pads
      from which 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 the solutions are evaporated, where rich
      nitrate salt is produced. These concentrated nitrate salts are sent to Coya
      Sur
      or another of our salt processing facilities where they are leached and the
      resulting rich nitrate solution is used in the production of potassium
      nitrate.




Our
      current potassium nitrate production capacity at Coya Sur is more than 650,000
      metric tons per year, including 260,000 metric tons per year of technical grade
      potassium nitrate. We expect by the end of 2009 to increase that capacity by
      approximately 250,000 metric tons per year.




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




***Sodium
      Potassium Nitrate***




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




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




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




18
 *Table
          of Contents*




***Iodine
      and Iodine Derivatives***




We
      produce iodine at our Pedro de Valdivia and Nueva Victoria 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 nitrates, the process of extracting iodine from the caliche
      ore is well established, but variations in the iodine and other chemical
      contents of the treated ore and other operational parameters require a high
      level of know-how to manage the process effectively and
      efficiently.




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




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




Our
      total
      iodine production in 2006 was approximately 9.7 thousand metric tons:
      approximately 2.5 thousand metric tons from Pedro de Valdivia, 1.3 thousand
      metric tons from María Elena, 1.4 thousand metric tons from Pampa Blanca, 3.3
      thousand metric tons from Nueva Victoria and 1.2 thousand metric tons from
      Iris.
      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.




As
      we had
      anticipated, the various projects oriented to significantly increase our iodine
      production capacity, together with the recent DSM iodine business acquisition,
      have allowed us to have, from the second quarter of 2006 onwards, an aggregate
      production capacity approximately 11 thousand metric tons per year, which is
      higher than our sales for 2006. This will allow us to have the capability to
      respond to sudden changes in demand and the expected future demand growth.
      During 2006 we recovered our operational inventories. Since June 2006, Iris
      Iodine operations are halted.




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




**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. Our production
      rights to the Atacama Salar are pursuant to a contract with the Chilean
      government, expiring in 2030.




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




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




19
 *Table
          of Contents*




***Potassium
      Chloride***




We
      use
      potassium chloride in the production of potassium nitrate. Production of our
      own
      supplies of potassium chloride provide 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 processing facility where the
      potassium chloride is separated by a grinding, flotation, and filtering process.
      Potassium chloride is sent approximately 300 kilometers to our Coya Sur
      facilities via a dedicated dual transport system (truck/rail), where it is
      used
      in the production of potassium nitrate. We sell potassium chloride produced
      at
      the Atacama Salar and in excess of our needs to third parties. Our production
      facilities currently have a production capacity up to 650,000 metric tons per
      year. Actual capacity will depend on volumes and quality of the mining resources
      pumped from the Salar. During 2006 actual production was lower than in 2005
      and
      we expect that 2007 producion will be higher than in 2006.




The
      by-products of the potassium chloride production process are (i) brines
      remaining after removal of the potassium chloride, which are used to produce
      lithium carbonate as described below, and the amount in excess of our needs
      is
      reinjected into the Atacama Salar; (ii) sodium chloride, which is similar 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***




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 30,000 metric tons per year. A project
      is
      currently under way to increase our production capacity to 40,000 metric tons
      per year and will be completed by second half 2008. Future production will
      depend on the actual volumes and quality of the lithium solutions sent by the
      Salar operations.




***Lithium
      Hydroxide***




By
      the
      end of 2005 we completed the construction of a processing facility for producing
      lithium hydroxide monohydrate. This facility, with a capacity of 6,000 metric
      tons per year, is located at Salar del Carmen, adjacent to our existing lithium
      carbonate operations. Raw material for this operation is lithium carbonate
      which
      is reacted with a lime solution to produce lithium hydroxide brine and calcium
      carbonate salt, which is filtered and piled in reservoirs. The brine is
      evaporated in a multiple effect evaporator and crystallized to produce the
      lithium hydroxide monohydrate which is dried and packaged for dispatch to
      customers.




***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 preconcentration
      solar evaporation ponds where waste sodium chloride salts are removed by
      precipitation. After further evaporation, the sulfate and potassium salts are
      harvested and sent for treatment at the potassium sulfate plant. Potassium
      sulfate is produced using flotation, concentration and reaction processes,
      after
      which it is crystallized, dried and packaged for shipment. 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.




20
 *Table
          of Contents*




**Specialty
      Plant Nutrition**




We
      believe we are the world's largest producers of potassium nitrate. We also
      produce the following specialty plant nutrients: sodium nitrate, potassium
      nitrate, sodium potassium nitrate, potassium sulfate, urea phosphate (since
      2005) and specialty blends (containing various combinations of nitrogen,
      phosphate and potassium and generally known as "NPK blends"). These specialty
      plant nutrients have specific characteristics that increase productivity and
      enhance quality when used on certain crops and soils. Additionally, these plant
      nutrients are well suited for high-yield agricultural techniques such as
      hydroponics, fertigation, greenhousing and foliar applications. High value
      crop
      farmers are prompted to invest in specialty plant nutrients by to their
      technical advantages over commodity fertilizers (such as urea and potassium
      chloride). These advantages translate into products and crops with higher yields
      and added quality. Our specialty plant nutrients have significant advantages
      for
      certain applications over commodity based nitrogen and potassium fertilizers,
      such as the before mentioned urea and potassium chloride.





In
      particular, our specialty plant nutrients:




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





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





·
            are
                free of chlorine content, reducing the risk of scorching
                roots;





·
            do
                not release hydrogen after application, therefore 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
      2006,
      our revenues from specialty plant nutrients were approximately US$502.8 million,
      representing approximately 48% 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
      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 and weather changes force farmers to develop new agricultural
      techniques such as fertigation that minimize water requirements. These
      applications require fully water soluble plant nutrients.




Increasing
      land costs near urban centers also force **s** farmers
      to maximize their yield per surface area. Specialty plant nutrients, when
      applied to certain crops, help to increase productivity for various reasons.
      In
      particular, since our nitrate-based specialty plant nutrients provide nitrogen
      in nitric form, as opposed to ammonium form provided by urea, they are absorbed
      faster by crops. Crops absorb nitrogen in nitric form; thus nitrogen in ammonium
      form has to be converted into nitric form in the soil first. This is not an
      immediate process (it takes time and needs special soil conditions) 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.




21
 *Table
          of Contents*




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


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




***Specialty
      Plant Nutrition: Our 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.


The
      following table shows our sales volume of specialty plant nutrient fertilizer
      products and the revenues during the 2002-2006 period.




**Sales
                Volume**
              (in
                metric tons)
            
            **2006**
            
            **2005**
            
            **2004**
            
            **2003**
            
            **2002**Sodium
                nitrate
            
            
            55,000
            
            
            63,300
            
            
            58,900
            
            
            62,500
            
            
            59,500Potassium
                nitrate and sodium potassium nitrate(1)
            
            
            635,000
            
            
            690,200
            
            
            707,600
            
            
            696,500
            
            
            558,600Potassium
                Sulfate
            
            
            172,400
            
            
            178,600
            
            
            157,700
            
            
            143,200
            
            
            161,000Blended
                and other specialty plant nutrients(2)
            
            
            361,500
            
            
            350,700
            
            
            374,400
            
            
            377,100
            
            
            276,600**Revenues
                (in US$ millions)**
            
            
            **502.8**
            
            
            **487.8**
            
            
            **426.8**
            
            
            **362.8**
            
            
            **281.4**




(1)
            Includes
              re-sales of potassium nitrate purchased from PCS
              Yumbes. (2)
            Includes
                blended and other specialty plant nutrients. It also includes Yara's
                products sold pursuant to our commercial
                agreement.




***Specialty
      Plant Nutrition: Marketing and Customers***




In
      2006,
      we sold our specialty plant nutrients to more than 100 countries. During the
      same year, approximately 91% of the Company's specialty plant nutrients sales
      in
      2006 were exported: approximately 29% were sold to customers in Central and
      South America, 22% to customers in North America, 19% to customers in Europe
      and
      21% to customers in other regions. Without considering any sales to related
      parties, no single customer represented more than 4.3% of SQM's specialty plant
      nutrients sales during 2006, and our 10 largest customers accounted in the
      aggregate for approximately 24% of sales during that period.




**Sales
                Breakdown**
            
            **2006**
            
            **2005**
            
            **2004**
            
            **2003**
            
            **2002**Central
                and South America
            
            
            29%
            
            
            29%
            
            
            29%
            
            
            26%
            
            
            30%North
                America
            
            
            22%
            
            
            22%
            
            
            22%
            
            
            18%
            
            
            17%Europe
            
            
            19%
            
            
            20%
            
            
            19%
            
            
            20%
            
            
            15%Others
            
            
            21%
            
            
            20%
            
            
            20%
            
            
            27%
            
            
            27%Chile
            
            
            9%
            
            
            9%
            
            
            10%
            
            
            9%
            
            
            11%





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




22
 *Table
          of Contents*




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




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


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




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


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




***Specialty
      Plant Nutrition: Fertilizer Sales in Chile***




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




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




We
      estimate that Soquimich Comercial's joint sales of fertilizers represented
      approximately 36% of total fertilizer sales in Chile during 2006, of which
      no
      single customer represented more than 4% of total fertilizer sales revenues,
      and
      of which the 10 largest customers in total represented less than 12% of
      revenues.




Revenues
      generated by Soquimich Comercial represented 13.6% of the Company's 2006
      consolidated revenues. Soquimich Comercial's consolidated revenues were
      approximately US$142 million, US$144 million and US$140 million in 2006, 2005
      and 2004, respectively.




***Specialty
      Plant Nutrition: Competition***




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




In
      the
      potassium nitrate market our largest competitor is Trans Resources International
      Inc., with its subsidiary Haifa Chemicals Ltd. in Israel. We estimate that
      sales
      of potassium nitrate by Trans Resources International and Haifa Chemicals
      accounted for approximately 36% of total world sales during the year
      2006.




23
 *Table
          of Contents*




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




ACF,
      another Chilean producer, mainly oriented to iodine production, began production
      of potassium nitrate from caliche ore and potassium chloride during 2005. We
      believe that ACF production will be lower than S.C.M. Virginia.




Arab
      Potash, a Jordanian producer, produces potassium nitrate in a plant
      located close to the Port of Aqaba, Jordan.




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




In
      the
      potassium sulfate market, we have several competitors of which the most
      important are Kali und Salz GmbH (Germany), Tessenderlo Chemie (Belgium) and
      Great Salt Lake Minerals Corp. (United States). We believe that those three
      producers account for a majority of the world production of potassium sulfate.
      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
      believe we are the largest Chilean producer of bulk specialty blends. In Chile,
      our products mainly compete with imported fertilizer blends that use calcium
      ammonium nitrate or potassium magnesium sulfate. Our specialty plant nutrients
      also compete indirectly with lower-priced synthetic commodity-type fertilizers
      such as ammonia and urea, which are produced by many producers in a highly
      price-competitive market. Our products compete on the basis of advantages that
      make them more suitable for certain applications as described
      above.




**Iodine**




We
      believe we are the world's largest producer of iodine. In 2006, our revenues
      from iodine and iodine derivatives amounted to approximately US$217.7 million,
      representing approximately 21% of our total revenues in that year. We estimate
      that our sales accounted for approximately 33% of world iodine sales by volume
      in 2006. In January 2006, we acquired the iodine business of DSM, which
      represented approximately 8% of worldwide iodine production in
      2005.




***Iodine:
      Market***




Iodine
      and iodine derivatives are used in a wide range of medical, agricultural and
      industrial applications as well as in human and animal nutrition products.
      Iodine and iodine derivatives are used as raw materials or catalysts in the
      formulation of products, such as x-ray contrast media, biocides, antiseptics
      and
      disinfectants, pharmaceutical intermediates, polarizing films for liquid crystal
      displays (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:
      Our Products***




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




Ajay-SQM
      Group (ASG) was formed in mid 1990s, as a 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 producer. In 2006, approximately 33% of SQM's iodine sales were
      made
      to ASG.




24
 *Table
          of Contents*




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. In January 2006, SQM
      acquired the iodine and iodine derivatives business of DSM Group. The
      transaction included DSM’s iodine and iodine derivatives facilities located in
      the first region of Chile and the mining reserves located in the first and
      second region of Chile. Additionally, SQM acquired DSM’s iodine and iodine
      derivatives commercial operation in Europe. The agreement involved a base
      payment of US$ 72 million plus all the cash, accounts receivable and final
      product inventories minus total liabilities. With a production capacity of
      approximately 2.0 thousand metric tons, DSM reached an 8% global market share
      in
      2005.




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





The
      following table sets forth our total sales and revenues from iodine and iodine
      derivatives in the 2002-2006 period:





**Sales
                Volume**
              (in
                thousand metric tons)
            
            **2006**
            
            **2005**
            
            **2004**
            
            **2003**
            
            **2002**Iodine
                and iodine derivatives
            
            
            9.8
            
            
            8.1
            
            
            7.7
            
            
            6.6
            
            
            6.4Revenues
                (in US$ millions)
            
            
            217.7
            
            
            149.1
            
            
            110.5
            
            
            84.6
            
            
            84.1





***Iodine:
      Marketing and Customers***




In
      2006,
      we sold our iodine products to around 400 customers in more than 70 countries.
      During the same year, most of our iodine production was exported: approximately
      34% was sold to customers in Europe, 40 % to customers in North America, 5%
      to
      customers in Central and South America and 21% to customers in Asia, Oceania
      and
      other regions. Not considering sales to related parties, no single customer
      accounted for more than 10 % of the Company's iodine sales in 2006, and our
      ten
      largest customers accounted in the aggregate for approximately 39% of
      sales.




**Sales
                Breakdown**
            
            **2006**
            
            **2005**
            
            **2004**
            
            **2003**
            
            **2002**Europe
            
            
            34%
            
            
            30%
            
            
            27%
            
            
            34%
            
            
            36%North
                America
            
            
            40%
            
            
            37%
            
            
            38%
            
            
            40%
            
            
            41%Central
                and South America
            
            
            5%
            
            
            13%
            
            
            13%
            
            
            6%
            
            
            13%Others
            
            
            21%
            
            
            20%
            
            
            22%
            
            
            20%
            
            
            10%





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
      together with the extraction of natural gas. Several Japanese producers also
      have recycling facilities where they recover iodine and iodine derivatives
      from
      iodine waste streams.




We
      estimate that eight Japanese iodine producers accounted for approximately 24%
      of
      world iodine sales in the year 2006. We estimate that the largest Japanese
      producer, Ise Chemicals Ltd., accounted for approximately 10% of the world
      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
      2006, while four Chilean companies, including SQM iodine business, accounted
      for
      approximately 57% of such sales (33% by SQM and 24% by the other Chilean
      producers).




25
 *Table
          of Contents*




Additionally,
      iodine recycling, mainly related to LCD consumption has increased over the
      past
      few years and currently represents approximately 8% of world iodine
      sales.




The
      prices of our iodine and iodine derivative products are determined by world
      iodine prices, which are subject to market conditions. World iodine prices
      vary
      depending upon, among other things, the relationship between supply and demand
      at any given time. The supply of iodine varies principally depending upon the
      production of the few major iodine producers (including us) and their respective
      business strategies. As a result of a steady growing demand, iodine prices
      have
      been increasing since the end of 2003. While prices were around US$13 per
      kilogram in 2003, they reached an average of approximately US$22 per kilogram
      in
      2006.




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.




The
      main
      factors of competition in the sale of iodine and iodine derivative products
      are
      reliability, price, quality, customer services and the price and availability
      of
      substitutes. We believe we have competitive advantages compared to other
      producers due to the size of our mining reserves, the installed capacity and
      relatively lower production costs (as most part of our iodine is produced as
      part of a process for other products -mainly sodium nitrate and potassium
      nitrate for agricultural and industrial purposes). We believe our iodine is
      competitive with that produced by other manufacturers in certain advanced
      industrial processes. We also believe we have benefited competitively from
      the
      long-term relationships we have established with our larger customers. While
      there are substitutes for iodine available for certain applications, such as
      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
      believe we are the world's largest producer of lithium carbonate and one of
      the
      world’s largest producers of lithium hydroxide. In 2006, our revenues from
      lithium sales amounted to approximately US$128.9 million, representing
      approximately 12% of our total revenues. We estimate that our sales accounted
      for approximately 36% of world's lithium units used in production of lithium
      chemicals. Lithium is also available in the form of lithium minerals. However,
      there is virtually no
      overlap of 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. Butyllithium is used as a catalyst in the
      synthetic rubber and pharmaceutical industries.




***Lithium:
      Our Products***




We
      produce lithium carbonate at the Salar del Carmen facilities, near Antofagasta,
      Chile, from solutions with high concentrations of lithium coming from the
      potassium chloride production at the Atacama Salar. The technologies 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.




SQM
      used
      to produce lithium hydroxide through tolling operations in the United States
      and
      Russia. During the second half of 2005, we began to produce it at our lithium
      hydroxide facility, at the Salar del Carmen next to our lithium carbonate
      facility in Antofagasta. The lithium hydroxide facility has a production
      capacity of 6,000 TM/per year and is one of the largest plants in the
      world.




26
 *Table
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SQM
      produces butyl lithium in its own plant located in Pasadena, Texas. This product
      is sold principally in the U.S. market. Shipments to overseas markets started
      during the second quarter of 2006.





The
      following table sets forth our total sales and revenues from lithium carbonate
      and derivatives in the 2002-2006 period:




**Sales
                Volume**
              (in
                thousand metric tons)
            
            **2006**
            
            **2005**
            
            **2004**
            
            **2003**
            
            **2002**Lithium
                carbonate and derivatives
            
            
            30.4
            
            
            27.8
            
            
            31.2
            
            
            27.4
            
            
            22.3Revenues
                (in US$ millions)
            
            
            128.9
            
            
            81.4
            
            
            62.6
            
            
            49.7
            
            
            37.3





***Lithium:
      Marketing and Customers***




In
      2006,
      we sold our lithium products to approximately 270 customers in approximately
      50
      countries. Virtually all of our lithium products were sold overseas:
      approximately 32% to customers in Europe, 24% to customers in North America,
      36%
      to customers in Asia and Oceania and 8% to customers in other regions. No single
      customer accounted for more than 11% of the Company's sales in 2006, and our
      ten
      largest customers accounted in the aggregate for approximately 47% of
      sales.





**Sales
                Breakdown**
            
            **2006**
            
            **2005**
            
            **2004**
            
            **2003**
            
            **2002**Europe
            
            
            32%
            
            
            33%
            
            
            32%
            
            
            31%
            
            
            40%North
                America
            
            
            24%
            
            
            25%
            
            
            26%
            
            
            29%
            
            
            37%Asia
                and Oceania
            
            
            36%
            
            
            31%
            
            
            37%
            
            
            37%
            
            
            21%Others
            
            
            8%
            
            
            11%
            
            
            5%
            
            
            3%
            
            
            2%





***Lithium:
      Competition***




Our
      main
      competitors in the lithium carbonate and lithium hydroxide businesses are
      Chemetall GmbH (“Chemetall”, subsidiary of Rockwood Specialties Group Inc.) and
      FMC Corporation (“FMC”). We estimate that they together sold approximately 43%
      of lithium in the lithium chemicals market (excluding lithium minerals) in
      2006.
      Chemetall produces lithium carbonate in its operations located in Chile
      (Sociedad Chilena del Litio Limitada) and Nevada, USA. Its production of
      downstream lithium products is mostly performed in the United States, Germany
      and Taiwan. FMC has production facilities in Argentina (Minera del Altiplano),
      where they produce lithium chloride and lithium carbonate. Production of its
      downstream lithium products is mostly performed in the United States and the
      United Kingdom.




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




We
      estimate that worldwide sales of lithium chemicals expressed as lithium
      carbonate equivalent (excluding lithium minerals) amounted to approximately
      83,000 metric tons in 2006.




**Industrial
      Chemicals**




In
      addition to producing sodium nitrate for agricultural applications, we produce
      three grades of sodium nitrate for industrial applications: industrial,
      technical and refined grades. The three grades differ mainly in purity. Our
      industrial grades of potassium nitrate also differ from agricultural grade
      potassium nitrate in its degree of purity. We enjoy certain operational
      flexibility when producing industrial potassium nitrate because it is produced
      from the same process as its equivalent agricultural grade, needing only an
      additional step of purification. We may, with certain constraints, shift
      production from one grade to the other depending on market conditions. This
      flexibility allows us to maximize yields as well as to reduce commercial risk.
      In addition to producing industrial nitrates, we produce boric acid. Boric
      acid
      is a by-product of the production of potassium sulfate. In 2006, our revenues
      from industrial chemicals were approximately US$71.3 million, representing
      approximately 7% of our total revenues for that year.




27
 *Table
          of Contents*




***Industrial
      Chemicals: Market***




Industrial
      sodium nitrate and potassium nitrate are used in a wide range of industrial
      applications, including the production of glass, ceramics, explosives, charcoal
      briquettes and various chemical processes and metal treatments. Boric acid
      is
      mainly used in the glass, ceramics, fiberglass, enamels and as a raw material
      in
      the fabrication of screens for LCDs.




We
      estimate that our sales of industrial sodium nitrate (excluding production
      in
      China and India, which is consumed internally) and potassium nitrate in 2006
      accounted for 54%, and 30%, respectively, of worldwide sales in that
      period.




***Industrial
      Chemicals: Our 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 boric acid in crystalline
      form.




The
      following table sets forth our sales volumes of industrial chemicals and total
      revenues in the 2002-2006 period:




**Sales
                Volume (*)**
              (in
                metric tons)
            
            **2006**
            
            **2005**
            
            **2004**
            
            **2003**
            
            **2002**Industrial
                nitrates
            
            
            162,000
            
            
            176,300
            
            
            192,800
            
            
            193,200
            
            
            187,300Boric
                Acid
            
            
            9,700
            
            
            6,300
            
            
            6,120
            
            
            10,700
            
            
            11,300Revenues
                (in US$ millions)
            
            
            71.3
            
            
            70.5
            
            
            68.8
            
            
            66.7
            
            
            62.3





(*)
            We
                halted our sodium sulfate production at the beginning of 2006 to
                prioritize the production of nitrates. We do not expect to produce
                sodium
                sulfate again in the short term. As a result of this change, we have
                ceased to include sodium sulfate in this business line, and we have
                reclassified its volumes and revenes to the "Others"
                segment.




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




***Industrial
      Chemicals: Marketing and Customers***




We
      sold
      our industrial nitrate products in more than 50 countries in 2006. Approximately
      41% of our sales of industrial chemicals were made to customers in North
      America, 29% to customers in Europe, 17% to customers in Central and South
      America and 13% to customers in Asia, Oceania and other regions. No single
      customer accounted for more than 7% of the Company's sales of industrial
      chemicals in 2006, and our ten largest customers accounted in the aggregate
      for
      approximately 36% of such sales.




**Sales
                Breakdown**
            
            **2006**
            
            **2005**
            
            **2004**
            
            **2003**
            
            **2002**North
                America
            
            
            41%
            
            
            42%
            
            
            38%
            
            
            39%
            
            
            31%Europe
            
            
            29%
            
            
            28%
            
            
            23%
            
            
            25%
            
            
            17%Central
                and South America
            
            
            17%
            
            
            17%
            
            
            24%
            
            
            12%
            
            
            24%Others
            
            
            13%
            
            
            13%
            
            
            15%
            
            
            24%
            
            
            28%





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




28
 *Table
          of Contents*




***Industrial
      Chemicals: Competition***




We
      believe we are the world's largest producer of industrial sodium nitrate. We
      estimate that we accounted for approximately 54% of world production of
      industrial sodium nitrate in 2006 (excluding China and India internal demand,
      for which reliable estimates are not available). Our competitors are mainly
      in
      Europe and Asia. These producers together represent 46% of total production
      and
      produce sodium nitrate as a by-product of other production processes. In the
      refined grade sodium nitrate market, Badische Anilin 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 nitrat e,
      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 28% market share in the industrial sector. We estimate
      our market share at approximately 30% for 2006.




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




Other
      important raw materials are sodium carbonate (in lithium carbonate production
      and for neutralization of iodine solutions), anti-caking and anti-dust agents
      (in the production of nitrates), kerosene (in the iodine production), ammonium
      nitrate (in the preparation of the anfo that is used as explosives in the mining
      operations), diesel (mainly in mining equipment and as replacement of natural
      gas), natural gas (in heat generation and heating processes), fuel oil (as
      replacement of natural gas), electricity acquired from electric utilities and
      woven bags for packaging our final products. Our raw material costs (excluding
      caliche ore and salar brines and including energy) represented approximately
      11.7% of our cost of sales in 2006.




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




In
      1998
      we entered into a long-term (fifteen years) electricity supply agreement with
      Norgener, a major Chilean electricity producer. During 1999, we entered into
      a
      long-term (ten years) electricity supply agreement with Electroandina S.A.,
      also
      a major Chilean electricity producer. 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. As of December 31, 2006 we were party to
      arbitration proceedings with Electroandina and Norgener. As of June, 2007 the
      arbitration proceeding with Norgener has finalized and the arbitration with
      Electroandina continues its course. For a discussion of risks related to
      electricity supply, see Item 3. Key Information—Risk Factors.





In
      May
      2001, we entered into a 10 year gas supply contract with Distrinor S.A., which
      would supply a maximum of 3,850,000 million Btu per year. This gas supply is
      sufficient to satisfy the requirements for the facilities that are connected
      to
      a gas supply. Nonetheless, we are currently facing important shortages in the
      supply of natural gas derived from export restrictions imposed by the
      Argentinean government. For a discussion of risks related to natural gas supply
      see Item 3. Key Information—Risk Factors.




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




29
 *Table
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We
      believe that all of the contracts and agreements between SQM and third-party
      suppliers with respect to our main raw materials contain standard and customary
      commercial terms and conditions.




**Water
      Supply**




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




**Government
      Regulations**




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





We
      also
      hold water rights obtained from the Chilean water regulatory authority for
      a
      supply of water from rivers or wells near our production facilities sufficient
      to meet our current and anticipated 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.


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




The
      following recent changes in Chilean law are likely to affect our
      operations:




The
      Chilean Congress recently approved modifications to the Water Code. The changes
      to the Water Code include establishing annual fee payments for owners of water
      rights that do not use the water associated with them. This fee does not affect
      the holder’s right to use 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 No. 20,026, also known as the
“Royalty II Law,” which established a royalty to be applied to mining activities
      developed in Chile, levied on mining companies whose sales are equal to or
      greater than the equivalent value of 12,000 metric tons of fine copper (MFT),
      as
      determined according to the London Metal Exchange Grade A copper cash quotation.
      This new mining royalty, which has been applied from 2006 onwards, is levied
      on
      the “taxable operating income” (as this term is defined in Law No. 20,026) of
      the mining company, at a rate that varies from 0.5% up to 5% depending on the
      consolidated annual sales.




30
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          of Contents*




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




***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 the Chilean Environmental Framework Law.




The
      Chilean Environmental Framework Law created CONAMA, which is the governmental
      agency in charge of supervising the due compliance with the Chilean
      Environmental Framework Law. Under the Chilean Environmental Framework Law,
      we
      are required to conduct environmental impact studies of any future projects
      or
      activities (or their significant modifications) that may affect the environment.
      CONAMA evaluates environmental impact studies submitted for its approval and
      also oversees the implementation of projects. The Chilean Environmental
      Framework Law also enables private citizens, public agencies or local
      authorities to challenge projects that may affect the environment, either before
      these projects are executed or once they are already operating. Enforcement
      remedies available include temporary or permanent closure of facilities and
      fines.




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




On
      August
      10, 1993, the Ministry of Health published in the Official Gazette a
      determination pursuant to applicable air quality standard regulations 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. Residents of the town of Pedro de Valdivia were relocated
      to the town of María Elena, practically removing Pedro de Valdivia from the
      scope of the determination of the Ministry of Health. In the year 2000, CONAMA
      approved a plan to reduce the atmospheric particulate levels below permissible
      levels by July of the same year, with certain amendments, by Decree 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 a revision and reformulation of the plan. The new plan
      was
      published by Decree N°37/2004 on March 2004, and it demands to reduce 80% of the
      emissions for atmospheric particulate material in two years. We designed a
      new
      project that modifies the milling and screening systems used in the processing
      of the caliche ore at María Elena facilities, which should allow for the
      necessary reduction of particulate material emissions. An environmental impact
      study for the project was presented to the Environment Commission and it was
      approved through Resolution No270 in October 2005. Upon issuing the approval for
      the environmental impact study, the Environmental Commission issued Decree
      N°53975, which authorizes this project as the one through which we will comply
      with the emission reductions asked for in Decree N° 37/2004. The project
      finished construction in April 2007 and is estimated to be in full operation
      by
      July 2007.




31
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          of Contents*




We
      continuously monitor the impact of our operations on the environment and have
      made, from time to time, modifications to our facilities trying to eliminate
      any
      adverse impact. Also, over time, new environmental standards and regulations
      have been enacted, which have required minor adjustments or modifications of
      our
      operations for full compliance. We anticipate that additional laws and
      regulations will be enacted over time with respect to environmental matters.
      While we believe that we will continue to be in compliance with all applicable
      environmental regulations of which we are now aware, there can be no assurance
      that future legislative or regulatory developments will not impose 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 as of March
      31, 2007. For a list of all our consolidated subsidiaries see Note 2(a) to
      the
      Consolidated Financial Statements .




**Main****subsidiaries**
              **Activity**
              **Country
                  of Incorporation**
              **SQM
                  Beneficial**
                **Ownership
                  Interest****(Direct/Indirect)**SQM
                  Nitratos S.A.
              Extracts
                  and sells Caliche oreto
                  subsidiaries and affiliates of SQM
              Chile
              100%SQM
                  Industrial S.A.
              Produces
                  and markets the Company’s products directly and throughother
                  subsidiaries and affiliates of SQM
              Chile
              100%SQM
                  SalarS.A.
              Exploits
                  the Atacama Salar to produce and market the Company’s products directly
                  and through other subsidiaries and affiliates of SQM
              Chile
              100%Minera
                  Nueva Victoria S.A.
              Produces
                  and markets the Company’s products directly and through other subsidiaries
                  and affiliates of SQM
              Chile
              100%Servicios
                  Integrales de Tránsitos y Transferencias S.A. (SIT)
              Owns
                  and operates a rail transport system and also owns and operates
                  the
                  Tocopilla port facilities
              Chile
              100%Soquimich
                  Comercial S.A.
              Markets
                  domestically the Company’s specialty plant nutrition products and imports
                  fertilizers for resale in Chile
              Chile
              61%Ajay-SQM
                  Chile S.A.
              Produces
                  and markets the Company’s iodine and iodine derivatives
              Chile
              51%Sales
                  and distribution affiliates in the United States, Belgium, Brazil,
                  Venezuela, Ecuador, Peru, Argentina, Mexico, South Africa and other
                  locations.
              Market
                  the Company’s products throughout the world
              Various




32
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          of Contents*





**4.D.****Property,
      Plants And Equipment**




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




**DESCRIPTION
      OF THE CALICHE ORE MINES**




As
      of
      December 31 2006, we held exploration rights or exploitation rights to mineral
      resources representing approximately 1,799,441 hectares. We have also submitted
      applications for exploration and exploitation rights for more than 728,874
      additional hectares. As part of these rights, we have six mines covering an
      area
      of approximately 388,000 hectares. Of these six mines, four are being exploited and two are without
      current operations. Additionally, at the beginning of 2006 we incorporated
      the
      Iris mine as described below.




***Pedro
      de Valdivia***




The
      mine
      and facilities that we operate in Pedro de Valdivia are located 170 kilometers
      northeast of Antofagasta and are accessible by highway. These facilities have
      been in operation for approximately 77 years and were previously owned and
      operated by Anglo Lautaro. The area currently being mined is located
      approximately 25 kilometers west of the Pedro de Valdivia production facilities.
      Our mining facilities at Pedro de Valdivia have a Weighted Average Age of
      approximately 9.4 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 in María Elena are located 220 kilometers
      northeast of Antofagasta and are accessible by highway. These facilities have
      been in operation for approximately 82 years and were previously owned and
      operated by Anglo Lautaro. The area currently being mined is located
      approximately 14 kilometers north of the María Elena production facilities. The
      power sources utilized are mainly electricity, diesel, natural gas and fuel
      oil.
      The Weighted Average Age of the Company's mining facilities at María Elena is
      approximately 11.7 years.




***Pampa
      Blanca***




We
      currently conduct caliche ore operations in Pampa Blanca, which is located
      100
      kilometers northeast of Antofagasta and is accessible by highway. 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 truck 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 12.5 years. The power source
      utilized is mostly electricity, produced by mobile diesel
      generators.




***Nueva
      Victoria***




At
      the
      end of 2002, we restarted our caliche ore operations in 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 4.3 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. This mine represents a future extension of
      Nueva Victoria mining operations




33
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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.




***Iris—Stand
      By***




Formerly
      the mine used by DSM, it is not currently in operation. This mine was in
      operation during the first half of 2006 and was not exploited during the rest
      of
      the year. This area has not been further explored by us since its acquisition
      at
      the beginning of 2006, therefore we have not carried out an estimation of proven
      or probable reserves. This mine represents a future extension of Nueva Victoria
      mining operations, or a continuity of operations of the Iris iodine
      operations.





**Description
      of the Atacama Salar Brines**




***Atacama
      Salar Brines***


We
        hold
        rights to exploit the mineral resources in an area covering approximately
        197,000 hectares of land in the Atacama Salar in northern Chile, and have
        applied for additional rights covering approximately 194,700 hectares. The
        Weighted Average Age of our mining facilities at Atacama Salar is approximately
        7.7 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 197,000 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
        2006, 2005 and 2004, royalty payments amounted to approximately US$ 9.2 million,
        US$ 6.8 million, and US$4.9 million, respectively.
  In
        addition to the mining rights leased to SQM Salar S.A. described above, Corfo
        has exclusive mining rights covering a total area of approximately 65,200
        additional hectares in the 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 65,200 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 concessions whereby we are legally entitled
      to use the land in order to exploit the mineral resources contained therein
      on a
      perpetual basis subject to annual payments to the Chilean government;
      or




34
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          of Contents*




(2)
      "Exploration Concessions" These are concessions whereby we are legally entitled
      to use the land in order to explore for mineral resources for a period of two
      years, at the expiration of which the concession may be extended one time only
      for two additional years if the area covered by the concession is reduced by
      half.




An
      Exploration Concession is generally obtained for purposes of evaluating the
      mineral resources in an area. Generally, after the holder of the Exploration
      Concession has determined that the area contains exploitable mineral resources,
      such holder will apply for an Exploitation Concession for the area. Such
      application will give the holder absolute priority with respect to such
      Exploitation Concession against third parties. If the holder of the Exploration
      Concession determines that the area does not contain commercially exploitable
      mineral resources, the concession is usually allowed to lapse, although it
      is
      our policy to convert substantially all Exploration Concessions to Exploitation
      Concessions. An application also can be made for an Exploitation Concession
      without first having obtained an Exploration Concession for the area
      involved.




***Concessions
      for the Caliche Ore Mines and Salar Brines***




Approximately
      79% of our total mining concessions are held pursuant to Exploitation
      Concessions and 21% pursuant to Exploration Concessions, not including areas
      within the Atacama Salar Mines. Of the Exploitation Concessions, approximately
      77% have been already granted pursuant to applicable Chilean law, and
      approximately 23% are in the process of being granted. Of the Exploration
      Concessions, approximately 60% have been already granted pursuant to applicable
      Chilean law, and approximately 40% are in the process of being granted. Chile
      owns substantially all the surface land covering our Exploration and
      Exploitation Concessions.




We
      made
      payments to the Chilean government for our Exploration and Exploitation
      Concessions of approximately US$5.9 million in the year 200 6 .




The
      following table sets forth our exploitation and exploration concessions as
      of
      December 31, 2006:





**Exploitation
                Concessions (*)**
            
            **Exploration
                Concessions (*)****Mines**
            
            **Total**
              **number**
            
            **Hectares**
            
            **Total**
              **number**
            
            **hectares**
            
            **Total**
              **number**
            
            **hectares**Pedro
                de Valdivia
            
            
            708
            
            
            93,207
            
            
            2
            
            
            100
            
            
            710
            
            
            93,307Maria
                Elena
            
            
            658
            
            
            125,879
            
            
            38
            
            
            2,838
            
            
            696
            
            
            128,717Pampa
                Blanca
            
            
            516
            
            
            96,718
            
            
            2
            
            
            30
            
            
            518
            
            
            96,748Nueva
                Victoria
            
            
            71
            
            
            8,366
            
            
            15
            
            
            2,829
            
            
            86
            
            
            11,195Mapocho
            
            
            61
            
            
            8,240
            
            
            11
            
            
            366
            
            
            72
            
            
            8,606Soronal
            
            
            311
            
            
            42,580
            
            
            49
            
            
            6,883
            
            
            360
            
            
            49,463Atacama
                Salar
            
            
            132
            
            
            197,483
            
            
            669
            
            
            194,700
            
            
            801
            
            
            392,183**Sub
                total mines**
            
            
            **2,457**
            
            
            **572,473**
            
            
            **786**
            
            
            **207,746**
            
            
            **3,243**
            
            
            **780,219**Other
                caliche areas
            
            
            6,648
            
            
            1,743,225
            
            
            1,228
            
            
            397,054
            
            
            7,876
            
            
            2,140,279Salars
                and other areas
            
            
            123
            
            
            31,053
            
            
            111
            
            
            30,300
            
            
            234
            
            
            61,353**Sub
                total other areas**
            
            
            **6,771**
            
            
            **1,774,278**
            
            
            **1,339**
            
            
            **427,354**
            
            
            **8,110**
            
            
            **2,201,632**Total
            
            
            **9,228**
            
            
            **2,346,751**
            
            
            **2,125**
            
            
            **635,100**
            
            
            **11,353**
            
            
            **2,981,851**


*(*)
      We have included in this table both granted concessions and concessions in
      the
      process of being granted*





35
 *Table
            of Contents*





***Extraction
      Yields***


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





*(Values
                in thousands unless otherwise stated)*
            **2004**
            **2005**
            **2006****Pedro
                de Valdivia**Metric
                tons of ore mined
            12,029
            12,362
            11,652Average
                grade Nitrate (% by weight)
            7.2
            7.2
            7.4Iodine
                (parts per million (ppm))
            378
            402
            399Metric
                tons of Crystallized Nitrate Produced
            458
            476
            454Metric
                tons of Iodine Produced
            2.3
            2.6
            2.5**María
                Elena (1)**Metric
                tons of ore mined
            5,835
            5,917
            5,682Average
                grade Nitrate (% by weight)
            8.6
            8.0
            7.5Iodine
                (ppm)
            485
            428
            399Metric
                tons of Crystallized Nitrate Produced
            480
            479
            504Metric
                tons of Iodine Produced
            1.5
            1.4
            1.3**Pampa
                Blanca**Metric
                tons of ore recovered
            4,976
            5,309
            4,832Iodine
                (ppm)
            560
            520
            530Metric
                tons of Iodine Produced
            1.4
            1.5
            1.4**Nueva
                Victoria**Metric
                tons of ore recovered
            6,776
            7,140
            12,024Iodine
                (ppm)
            505
            504
            501Metric
                tons of Iodine Produced
            2.0
            2.2
            3.4**Iris**Metric
                tons of ore recovered
            —
            —
            2,611Iodine
                (ppm)
            —
            —
            440Metric
                tons of Iodine Produced
            —
            —
            1.2**SQM
                Salar**Metric
                tons of Lithium Carbonate Produced
            27
            27
            29Metric
                tons of Potash Produced
            638
            632
            539Metric
                tons of Potassium Sulfate Produced
            178
            162
            170Metric
                tons of Boric Acid
            9
            9
            8





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




36
 *Table
          of Contents*




**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 mining 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
      technical, economic and legal aspects, as proven reserves. These reserves are
      obtained using the Kriging evaluation and the application of operational
      parameters to obtain economically profitable reserves. Similarly, the
      information obtained from detailed geologic work and samples taken from grid
      pattern drill-holes with spacing equal to or less than 200 meters can be
      considered indicated resources and then, adjusting for technical, 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. These probable reserves are obtained
      by evaluation of polygons and have an uncertainty or error margin greater than
      that of proven reserves.




The
      updated estimates of our proven reserves of caliche ore at each of our mines,
      as
      of December 31 2006, are as follows:




**Mine**
              
              **Proven
                  Reserves**
                (millions
                  of metric tons)
              
              **Nitrate
                  Average Grade**
                (percentage
                  by weight**)**
              
              **Iodine
                  Average Grade**
                (parts
                  per million)Pedro
                  de Valdivia
              
              
              158.7
              
              
              7.1%
              
              
              371María
                  Elena
              
              
              136.6
              
              
              7.2%
              
              
              416Pampa
                  Blanca
              
              
              78.1
              
              
              6.2%
              
              
              546Nueva
                  Victoria
              
              
              93.9
              
              
              4.1%
              
              
              460Mapocho
              
              
              4.6
              
              
              5.3%
              
              
              436Soronal
              
              
              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 31 2006, are the following:




**Mine**
            
            **Probable
                Reserves**
              (millions
                of metric tons**)**
            
            **Nitrate
                Average Grade**
              (percentage
                by weight)
            
            **Iodine
                Average Grade**
              (parts
                per million)Pedro
                de Valdivia
            
            
            133.5
            
            
            6.8%
            
            
            435María
                Elena
            
            
            97.6
            
            
            7.3%
            
            
            380Pampa
                Blanca
            
            
            429.4
            
            
            6.0%
            
            
            524Nueva
                Victoria
            
            
            71.7
            
            
            3.7%
            
            
            440Soronal
            
            
            59.1
            
            
            7.6%
            
            
            362





The
      proven and probable reserves shown above are the result of exploration and
      evaluation in approximately 15.2% of the total caliche-related mining property
      of our Company. However, we have explored those areas in which we believe there
      is a higher potential of finding high-grade caliche ore minerals. The remaining
      84.8% of this area has not been explored yet or has limited reconnaissance
      as
      inferred or hypothetical resources. Reserves shown in these tables consider
      and
      are calculated over mining properties that are not involved in any legal issues
      between SQM and other parties. Additionally, these reserves do not include
      the
      Iris as we have not carried out an estimation of proven or probable reserves
      since its acquisition at the beginning of 2006.




37
 *Table
          of Contents*




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%.




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 Nueva Victoria, Pedro de Valdivia, María Elena and
      Pampa Blanca and at other sites for which we have the appropriate concessions.
      In 20 06 ,
      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 42,171 hectares. Additionally, we conducted general explorations
      based on a closer grid pattern drill-holes in a total area of approximately
      1,154 hectares and, in addition, carried out in-depth sampling of approximately
      1,936 hectares (761 hectares at Pedro de Valdivia, 341 hectares at María Elena,
      710 hectares Nueva Victoria and 119 hectares at Pampa Blanca). The exploration
      and development program in 2007 calls for a basic reconnaissance program over
      a
      total area of 34,221 hectares, general exploration over a total area of about
      1,836 hectares and, in addition, in-depth sampling of approximately 1,813
      hectares.




**Reserves
      and Concessions for the Atacama Salar Brines**




***Reserves
      for the Atacama Salar Brines***




Our
      in-house staff of hydro-geologists and mining engineers prepares our estimates
      of potassium, sulfate, lithium and boron reserves at the Atacama Salar. We
      have
      explored the land up to a depth of 100 meters 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**
              (millions
                of metric tons)
            
            **Probable
                Reserves**
              (millions
                of metric tons)Potassium
                (K+)
            
            
            39.9
            
            
            5.1Sulfate
                (SO42–)
            
            
            36.1
            
            
            1.3Lithium
                (Li+)
            
            
            2.1
            
            
            1.3Boron
                (B3+)
            
            
            1.2
            
            
            0.1





The
      proven and probable reserves are based on drilling, brine sampling and
      geo-statistic reservoir modeling in order to estimate brine volumes and their
      composition. To evaluate reserves, we conduct a geostatistical study using
      the
      Kriging method in 2D. We calculate the quality of brine effectively drainable
      or
      exploitable in each evaluation unit. We consider chemical parameters to
      determine the process to be applied to the brines. Based on the chemical
      characteristics, the volume of brine and drainable percentage, we determine
      the
      number of metric tons for each of the chemical ions. Proven reserves are defined
      as those geographical blocks that comply with a Kriging method estimation error
      of up to 15%. In the case of probable reserves, the selected blocks must comply
      with an estimation error between 15% and 35%. Blocks with an error greater
      than
      35% are not considered in the evaluation of reserves. This procedure considers
      process restrictions from which economic feasibility has been determined to
      produce commercial products like potassium chloride, potassium sulfate, lithium
      carbonate and boric acid. 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.




38
 *Table
          of Contents*




The
      recoveries of each ion depend on brine composition, which changes in time,
      and
      the process applied to produce the desired commercial products. Ponds and
      metallurgical recoveries for potassium vary from 47% to 68% while for sulfate
      vary from 27% to 44%. The recoveries for lithium vary from 28% to 32% and for
      boron is approximately 29%.





**PORTS
      AND WATER RIGHTS**




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




39
 *Table
          of Contents*




The
      map
      below shows the location of SQM's principal mining operations and land
      concessions.









40
 *Table
          of Contents*




**PRODUCTION
      FACILITIES**




Our
      principal production facilities are located near our mines and extraction
      facilities in northern Chile. The following table sets forth the principal
      production facilities as of December 31, 2006:




**Location**
            **Type
                of Facility**
            **Approximate
                Size**(1)**(Hectares)**Pedro
                de Valdivia
            Nitrate,
                sulfate and iodine production
            126María
                Elena
            Nitrate,
                sulfate and iodine production
            110Coya
                Sur
            Nitrate,
                sulfate and iodine production
            232Pampa
                Blanca
            Concentrated
                nitrate salts and iodine production
            86Nueva
                Victoria
            Iodine
                production
            11Atacama
                Salar(2)
            Potassium
                chloride, lithium chloride, potassium sulfate and boric
                acid
            2,288Salar
                del Carmen, Antofagasta
            Lithium
                carbonate and lithium hydroxide production
            32Tocopilla
            Port
                facilities
            24




(1)
                    Includes
                        production facilities, solar evaporation ponds and leaching
                        heaps, if
                        any.  (2)
                    We
                        lease the exploitation rights used at the Atacama Salar from
                        Corfo.


We
      own,
      directly or indirectly through subsidiaries, all of the facilities, free of
      any
      material liens, pledges or encumbrances, and believe that they are suitable
      and
      adequate for the business we conduct in them. As of December 31, 2006, 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$188.93 million, US$322.04
      million, US$156.04 million, US$17.05 million, US$166.21 million, US$374.45
      million, US$94.29 million and US$61.79 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 10.39 years, 10.20 years, 9.32 years, 4.51 years, 8.30 years
      and
      7.96 years, respectively. The Weighted Average Age of our iodine facilities
      at
      Pampa Blanca is approximately 12.53 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 13.29 years. We consider the
      condition of our principal plant and equipment to be good.




We
      maintain different projects to improve our production methods, to increase
      production capacity of current products and to develop new products and markets.
      We have in place a capital expenditure program calling for investments totaling
      approximately US$630 million. For further discussion see item 4.A History And
      Development Of The Company - Capital Expenditure Program .





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**TRANSPORTATION
      AND STORAGE FACILITIES**




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




The
      main
      center for our production and storage of raw material is the hub composed of
      the
      facilities in Coya Sur, Pedro de Valdivia and María Elena. Our Salar de Atacama
      facilities constitute the second largest concentration of plants and raw
      material storage. Other facilities include Nueva Victoria, Pampa Blanca, and
      the
      finished product plants of Lithium Carbonate and Lithium Hydroxide. The
      Tocopilla Port Terminal, which we own, is the main facility for storage and
      shipment of our products. In January 2006, the company acquired, a new facility
      in Iris, near Nueva Victoria, containing nitrates and iodine ores as well as
      iodine and iodine derivatives finished product plants.




Nitrate
      raw materials are produced and first stored at our Pampa Blanca, Pedro de
      Valdivia and María Elena mines, and then transported by rail (Pedro de
      Valdivia), conveyor belt (María Elena) and truck (others) to the plants
      described in the next paragraph, for further production processes.




Nitrate
      finished products are produced at our facilities in Pedro de Valdivia, María
      Elena and Coya Sur and then transported by our rail system to Tocopilla Port
      Terminal, where they are stored and shipped, either bagged or in bulk.




Potassium
      chloride is produced at our facilities in the Salar de Atacama and transported
      either to Tocopilla Port Terminal or Coya Sur by a dedicated dual transport
      system (rail/truck) owned by a third party dedicated contractor. Product 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 a contracted trucking company.




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




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




The
      facilities at Tocopilla Port Terminal are located approximately 186 kilometers
      n orth
      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 port also complies with ISPS
      (International Ship and Port Facility Security Code) regulation. The Tocopilla
      Port Terminal facilities include a railcar dumper to transfer bulk product
      into
      the Conveyor Belt system used to store and ship bulk product.




Storage
      facilities consist of a six silo system, with a total capacity of 54,000 metric
      tons, and an open storage area for approximately 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, Mejillones and Iquique.




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




A
      fuel
      oil storage facility at Tocopilla, owned by SQM, was closed and dismantled
      during February 2006, as a part of a rationalization plan for the terminal.
      The
      space is destined as bag storage and a new container loading
      facility.





**ITEM
      4A. UNRESOLVED STAFF COMMENTS**




Not
      applicable




43
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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 in Note 29—Differences between Chilean and United States Generally
      Accepted Accounting Principles. There are also areas in which management's
      judgment in selecting available alternatives would not produce materially
      different results. For a summary of significant accounting policies and methods
      used in the preparation of the financial statements, see Note 2 to the
      Consolidated Financial Statements as of December 31, 2006 and 2005, and for
      the
      three years in the period ended December 31, 2006.





***Allowance
      for doubtful accounts***




We
      maintain allowances for doubtful accounts for estimated losses resulting from
      the assessed inability of our customers to make r equired
      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.




***Deferred
      tax asset valuation allowance***




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




We
      record
      a valuation allowance to reduce deferred tax asset to the amount that we believe
      is more likely than not to be realized. The valuation of the deferred tax asset
      is dependent on, amongst other things, the ability of the Company to generate
      a
      sufficient level of future taxable income.




***Inventories***




Inventories
      of finished products and work in process are valued at average production cost.
      Raw materials and 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 staff severance indemnity liabilities, which are recognized on
      accrual basis. Inherent in the valuations of these obligations are key
      assumptions, including discount rates. We are required to consider current
      market conditions, including changes in interest rates, in selecting these
      assumptions. Changes in the related benefit plan liabilities may occur in the
      future due to changes resulting from fluctuations in our related headcount
      or to
      changes in the assumptions.




***Mining
      development costs***




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




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




***Long-lived
      assets and their impairment***




We
      estimate the useful lives of property, plant and equipment in order to determine
      the amount of depreciation expense to be recorded during any reporting period.
      The estimated useful lives are based on historical experience with similar
      assets, taking into account anticipated technological or other changes. If
      technological changes are expected to occur more rapidly or in a different
      way
      than previously anticipated, the useful lives assigned to these assets may
      need
      to be reduced, resulting in the recognition of increased depreciation expense
      in
      future periods.




We
      evaluate the recoverability of our long-lived assets (other than
      intangibles  and
      deferred tax assets) in accordance with Technical Bulletin No. 33 “Accounting
      treatment of Property, Plant and Equipment”, issued by the Chilean Association
      of Accountants, and SFAS No. 144 "Accounting for the Impairment or Disposal
      of
      Long-Lived Assets". Long-lived assets are reviewed for impairment whenever
      events or changes in circumstances indicate that the carrying amount of an
      asset
      may not be recoverable. The rules require recognition of impairment of
      long-lived assets in the event that the net book value of such assets exceeds
      the future undiscounted net cash flows attributable to such assets. Impairment,
      if any, is recognized in the period of identification to the extent the carrying
      amount of an asset exceeds the fair value of such asset. We believe that the
      accounting estimate related to asset impairment is critical because it requires
      us to make assumptions about future cash flows generated from the use of the
      assets over their estimated useful lives.





***Impairment
      of goodwill***




We
      have
      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’s goodwill is calculated and compared to the carrying amount
      of goodwill recorded in the Company’s financial records. If the carrying value
      of the reporting units goodwill exceeds the implied fair value of that goodwill,
      then we would recognize an impairment loss in the amount of the difference,
      which would be recorded as a charge against net income.





The
      fair
      values of the reporting units are determined using discounted cash flow models
      based on each reporting unit’s internal forecasts.





The
      impairment analysis requires management to make subjective judgments concerning
      estimates of how the assets will perform in the future using a discounted cash
      flow analysis. Additionally, estimated cash flows may extend beyond ten years
      and, by their nature, are difficult to determine. Events and factors that may
      significantly affect the estimates include, among others, competitive forces,
      customer behavior and attrition, changes in revenue growth trends, cost
      structures and technology, and changes in interest rates and specific industry
      or market sector conditions. Impairment is recognized earlier whenever
      warranted.





During
      the period ended December 31, 2006, there were no changes in the application
      of
      generally accepted accounting principles in Chile compared to the prior
      year.




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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.
      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 29 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, 2006, 2005 and 2004 and of total
      shareholders' equity as of December 31, 2006, 2005 and 2004. Our Consolidated
      Financial Statements are prepared in U.S. dollars. The U.S. dollar is the
      primary currency in which we operate.




We
      operate as an independent corporation. Nonetheless we are a "controlled
      corporation", as that term is defined under Chilean law. See Item 6.E. Share
      Ownership.




Certain
      segment information by products group and by geographical area is provided
      in
      Note 29 -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 characteristics.





·
            Iodine
                and derivatives: production and commercialization of iodine and
                derivatives.





·
            Lithium
                and derivatives: production and commercialization of lithium and
                derivatives.





·
            Industrial
                chemicals: production and commercialization of industrial nitrates,
                and
                boric acid.





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;





·
            Trends
                in the exchange rate between the US dollar and Chilean peso, as a
                significant portion of the cost of sales is related to the Chilean
                peso;





·
            Logistics,
                raw materials and maintenance costs, which have been increasing in
                the
                last three years; and




46
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·
            Energy
                costs, which have increased due to the high cost of oil and the
                interruption of our natural gas
                supply.





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,****2006**
            
            **2005**
            
            **2004**US$
            
            %
            
            US$
            
            %
            
            US$
            
            %Specialty
                plant nutrition
            
            
            502.8
            
            
            48
            
            
            487.8
            
            
            54
            
            
            426.8
            
            
            54Iodine
                and derivatives
            
            
            217.7
            
            
            21
            
            
            149.1
            
            
            17
            
            
            110.5
            
            
            14Lithium
                and derivatives
            
            
            128.9
            
            
            12
            
            
            81.4
            
            
            9
            
            
            62.6
            
            
            8Industrial
                chemicals
            
            
            71.3
            
            
            7
            
            
            70.5
            
            
            8
            
            
            68.8
            
            
            9Other
                products(1)
            
            
            122.2
            
            
            12
            
            
            107.2
            
            
            12
            
            
            119.8
            
            
            15**Total**
            
            
            **1,042.9**
            
            
            **100**
            
            
            **896.0**
            
            
            **100**
            
            
            **788.5**
            
            
            **100**





(1)
            Primarily imported fertilizers distributed in Chile and Mexico and
                potassium chloride sold to third
                parties.





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




**Year
                ended December 31,****2006**
            
            **2005**
            
            **2004**US$
            
            %
            
            US$
            
            %
            
            US$
            
            %Total
                revenues
            
            
            1,042.9
            
            
            100.0
            
            
            896.0
            
            
            100.0
            
            
            788.5
            
            
            100.0Cost
                of goods sold
            
            
            (753.3)
            
            
            (72.2)
            
            
            (652.9)
            
            
            (72.9)
            
            
            (608.7)
            
            
            (77.2)Gross
                margin
            
            
            289.6
            
            
            27.8
            
            
            243.1
            
            
            27.1
            
            
            179.8
            
            
            22.8Selling
                and administrative expenses
            
            
            (69.7)
            
            
            (6.7)
            
            
            (61.9)
            
            
            (6.9)
            
            
            (55.7)
            
            
            (7.1)Operating
                income
            
            
            219.9
            
            
            21.1
            
            
            181.2
            
            
            20.2
            
            
            124.1
            
            
            15.7Non-operating
                income
            
            
            19.2
            
            
            1.8
            
            
            16.4
            
            
            1.8
            
            
            20.8
            
            
            2.7Non-operating
                expenses
            
            
            (55.3)
            
            
            (5.3)
            
            
            (50.8)
            
            
            (5.7)
            
            
            (38.4)
            
            
            (4.9)Income
                before income taxes
            
            
            183.8
            
            
            17.6
            
            
            146.8
            
            
            16.3
            
            
            106.5
            
            
            13.5Income
                tax
            
            
            (37.9)
            
            
            (3.6)
            
            
            (32.5)
            
            
            (3.6)
            
            
            (27.3)
            
            
            (3.5)Minority
                interest
            
            
            (4.7)
            
            
            (0.5)
            
            
            (1.0)
            
            
            (0.1)
            
            
            (5.1)
            
            
            (0.6)Amortization
                of negative goodwill
            
            
            0.1
            
            
            0.0
            
            
            0.2
            
            
            0.0
            
            
            0.2
            
            
            0.0**Net
                income**
            
            
            **141.3**
            
            
            **13.5**
            
            
            **113.5**
            
            
            **12.7**
            
            
            **74.2**
            
            
            **9.4**





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**Results
      of Operations - 2006 compared to 2005**




During
      2006, we generated total revenues of approximately US$1,042.9 million, which
      is
      approximately 16.4% higher than the US$896.0 million recorded for the year
      ended
      December 31, 2005.





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





***Specialty
      Plant Nutrition***





Revenues
      from sales of specialty plant nutrition products increased 3.1% to US$502.8
      million in 2006 from US$487.8 million in 2005. Set forth below are sales volume
      data in the specified year by product category.




**2006**
            **2005**
            **%
                Change**Sodium
                nitrate
            Th.
                Ton
            55.0
            
            63.3
            
            -13
            %Potassium
                nitrate and sodium potassium nitrate
            Th.
                Ton
            635.0
            
            690.2
            
            -8
            %Blended
                and other specialty fertilizers
            Th.
                Ton
            219.2
            
            217.5
            
            0
            .8%Other
                non-SQM Specialty plant nutrients
            Th.
                Ton
            142.3
            
            133.2
            
            7
            %Potassium
                sulfate
            Th.
                Ton
            172.4
            
            178.6
            
            -3
            %





Lower
      sales volume obtained during 2006 are mainly explained by the
      following:





§
            Increased
                production levels reached by other producers mainly affected our
                potassium
                nitrate and sodium potassium nitrate sales in the Brazilian market.
                Our
                sales of sodium potassium nitrate to the Brazilian market were also
                affected by a reduction in the planted hectares of some of our target
                crops. This reduction in the planted hectares is believed to have
                been
                caused in part by the strengthening of the Real against the US dollar
                observed during the first half of 2006, affecting the export volumes
                of
                local producers.





§
            Spain,
                an important market for our soluble plant nutrients, was affected
                by one
                of the most severe droughts of recent years. This situation generated
                a
                decrease of 6% in the sales volume for that market compared with
                2005.





§
            Lower
                volume of sodium nitrate was sold to the Japanese market. This effect
                was
                caused by a delay in arrival of a vessel destined to Japan that was
                rescheduled for the first half of
                2007.




The
      lower
      sales volume observed during this period were partially offset by better price
      conditions across most of our markets. Specialty plant nutrition revenues were
      therefore mainly driven by improved pricing conditions, increasing on average
      5%
      as compared with the previous year. The increase in prices responds mainly
      to
      the positive pricing conditions for all potassium-related
      fertilizers.





Consistent
      with the company’s decision to focus more on its core businesses, during the
      last part of 2006, SQM sold its stakes in the Italian company Impronta and
      in
      the Mexican company Fertilizantes Olmeca. Sales of specialty plant nutrients
      in
      those countries will be centralized in SQM Italy and SQM Mexico,
      respectively.





Regarding
      our Chilean operation, during 2006 our subsidiary Soquimich Comercial had
      revenues of US$ 141.2 million with a significant increase in margins related
      to
      the fertilizer trading activity .





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***Iodine
      and iodine derivatives***





Revenues
      for iodine and iodine derivatives increased 46% to US$217.7 million in 2006
      from
      US$149.1 million in 2005. Set forth below are sales volume data in the specified
      year by product category.





**2006**
            
            **2005**
            
            **%
                Change****Iodine
                and derivatives**
            
            
            Th.
                Ton
            
            
            9.8
            
            
            8.1
            
            
            21%








The
      higher revenues reached in this business line are explained both by higher
      volume and higher prices:





§
            Higher
                volume was mainly due to the acquisition of DSM’s iodine business and the
                capacity increase in Nueva Victoria, both during first quarter 2006





§
            The
                most important applications of iodine and derivatives increasing
                in demand
                are iodophors and biocides, in USA; LCD polarizing film in Asia and
                x-ray
                contrast media in Europe and USA.




On
      average, iodine prices increased by approximately 20% or close to US$3.50 per
      kilogram as compared with 2005. Considering the positive price scenario that
      prevailed during the fourth quarter 2006, we expect that average prices for
      2007
      should be higher than in 2006.





During
      the early part of 2006, SQM acquired the iodine and iodine derivatives business
      of the Dutch "DSM Group" for a base payment of US$72 million plus working
      capital. The acquisition provided SQM with logistics, commercial and productive
      synergies and reaffirmed SQM ́s commitment with the development and strengthening
      of its core businesses and with the iodine industry as part of its strategy
      to
      be a long-term reliable iodine supplier.




***Lithium
      and lithium derivatives***





Revenues
      for lithium and lithium derivatives increased 58.4% to US$128.9 million in
      2006
      from US$81.4 million in 2005. Set forth below are sales volume data in the
      specified year by product category.





**2006**
            
            **2005**
            
            **%
                Change****Lithium
                carbonate and derivatives**
            
            
            Th.
                Ton
            
            
            30.4
            
            
            27.8
            
            
            9%




The
      higher revenues recorded in this business line are mainly explained by better
      price conditions. The strong demand observed during the last few years, with
      a
      growth of approximately 6% during 2006, positively affected pricing conditions
      and we expect that a positive scenario is likely to repeat in 2007.





The
      higher sales volume observed during 2006 was mainly due to the increase in
      consumption in markets such as batteries in Japan, Korea and China and glass
      in
      Europe. Another application with an important increase during this period was
      the continuous casting powder used in the steel industry in Asia.





As
      the
      lithium carbonate plant is working close to nameplate capacity, the increase
      in
      volume was limited by this fact and the use of inventories. Subsequently, SQM
      is
      expecting to finish the 10,000 mtpa expansion of its lithium carbonate
      production capacity by second half 2008.





Regarding
      lithium hydroxide, demand continues to increase, also generating improved
      pricing conditions. During 2006 prices increased by more than 30% compared
      to
      the previous year.




49
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          of Contents*




***Industrial
      Chemicals***





Revenues
      for industrial chemicals increased 1.1% to US$71.3 million in 2006 from US$70.5
      million in 2005. Set forth below are sales volume data in the specified year
      by
      product category.




**2006**
            
            **2005
                (1)**
            
            **%
                Change**Industrial
                nitrates
            
            
            Th.
                Ton
            
            
            162
            
            
            176.3
            
            
            -8%Boric
                acid
            
            
            Th.
                Ton
            
            
            10
            
            
            6.3
            
            
            59%





(1)
      Figures have been restated to reflect a reclassification affecting Industrial
      Nitrates. Sodium Sulfate that used to be included under Industrial Chemicals
      was
      relocated to Other Products. Sodium Sulfate revenues reached US$3.5 million
      during 2005.





Volume
      of
      industrial nitrates was lower than in 2005. Most of the end customers using
      the
      nitrates are located in mature industries, negatively affecting future
      growth.





Partially
      offsetting the volume effect, the increase in prices observed during 2006 has
      allowed this business line to maintain its revenues.





***Other
      Products***





***Potassium
      chloride***





Revenues
      from sales of potassium chloride decreased 0.9% to US$32.1 million in 2006
      from
      US$32.4 million in 2005. Set forth below are sales volume data in the specified
      year by product category.





**2006**
            
            **2005**
            
            **%
                Change**Potassium
                Chloride
            
            
            Th.
                Ton
            
            
            126.4
            
            
            128.7
            
            
            -2%




Revenues
      remained relatively constant due to the increase in average price, which was
      able to offset the decrease in sales volume.





***Other
      commodity fertilizers***





Sales
      of
      other commodity fertilizers increased to US$90.1 million in 2006 from US$75.0
      million in 2005.








***Production
      Costs***





Production
      costs during 2006 were higher than in 2005, as they were affected by the
      following factors:





§
            Higher
                energy costs. Oil, electricity and natural gas costs were higher
                in 2006
                compared to the previous year. This was exacerbated by shortages
                of
                natural gas caused by Argentinean export restrictions.





§
            The
                less favorable exchange rate scenario in Chile. The average appreciation
                of the Chilean peso of 5.6% had a negative effect for our peso-denominated
                costs.





§
            Depreciation
                costs increased by approximately US$ 20 million during
                2006.




50
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SQM
      is
      focused on implementing several cost-reduction initiatives mainly oriented
      to
      energy savings and production yield improvements





***Gross
      Profit***





As
      a
      result of the factors described above, gross profit increased 19.1% to US$289.6
      million in 2006 from US$243.1 million in 2005.





***Selling
      and Administrative Expenses***





Selling
      and Administrative Expenses were US$69.7 million (6.7% of revenues) during
      the
      year 2006 compared to the US$61.9 million (6.9% of revenues) recorded during
      the
      year 2005.





***Operating
      Income***





As
      a
      result of the factors described above, operating income increased 21.4% to
      US$219.9 million in 2006 from US$181.2 million in 2005.





***Non-Operating
      Income and Expenses***





Non-operating
      income for the year 2006 shows a US$36.1 million loss which compares to a
      US$34.4 million loss for the same period of the previous year. The main
      variations in the non-operating income were the following:





§
            Net
                financial expenses reached US$(16.2) million during 2006, higher
                than the
                US$(11.1) million reached during the year 2005. This increase in
                financial
                expenses is related to the increase in the financial debt of the
                company.





§
            During
                the year 2006, the Company recorded exchange losses of approximately
                US$2.3 million, lower than the US$3.8 million during
                2005.




***Income
      Taxes***


In
      2006,
      income taxes were US$37.9 million, resulting in an effective consolidated tax
      rate of 20.6%, compared to income taxes of US$32.5 million and an effective
      consolidated tax rate of 22.1% in 2005. In accordance with Chilean law, SQM
      and
      each of its Chilean subsidiaries compute and pay taxes on an individual basis,
      not on a consolidated basis. We had tax loss carry-forwards of US$171.2 million
      as of December 31, 2006, the majority of which have no expiration dates and
      are
      expected to be utilized in the future.





The
      corporate income tax rate in Chile was 17% for 2006 and 2005.





The
      16.6%
      increase in income taxes is mainly due to the increase in our taxable
      income.





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





51
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          of Contents*




**Results
      of Operations - 2005 compared to 2004**




During
      2005, we generated total revenues of approximately US$896.0 million, which
      is
      approximately 14% higher than the US$788.5 million recorded for the year ended
      December 31, 2004.





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





***Specialty
      Plant Nutrition***





Revenues
      from sales of specialty plant nutrition products increased 14.3% to US$487.8
      million in 2005 from US$426.8 million in 2004. Set forth below are sales volume
      data in the specified year by product category.




**2005**
            
            **2004**
            
            **%
                Change**Sodium
                nitrate
            
            
            Th.
                Ton
            
            
            63.3
            
            
            58.9
            
            
            8%Potassium
                nitrate and sodium potassium nitrate
            
            
            Th.
                Ton
            
            
            690.2
            
            
            707.6
            
            
            -3%Blended
                and other specialty fertilizers
            
            
            Th.
                Ton
            
            
            217.5
            
            
            243.3
            
            
            -11%Other
                non-SQM Specialty plant nutrients (1)
            
            
            Th.
                Ton
            
            
            133.2
            
            
            131.1
            
            
            2%Potassium
                sulfate
            
            
            Th.
                Ton
            
            
            178.6
            
            
            157.7
            
            
            13%





(1)Includes
                resale of purchased products.





The
      14.3%
      increase in specialty plant nutrition product revenue was mainly driven by
      improved pricing conditions. The increase in prices resulted from two main
      factors: increased demand and the favorable pricing conditions for
      potassium-related fertilizers.





Potassium
      nitrate and sodium potassium nitrate sales volumes were slightly lower than
      in
      the previous year with a different product mix increasing soluble potassium
      nitrate sales volume, consistent with our strategy of focusing on more
      profitable markets.





The
      lower
      sales volume of blended fertilizers was mainly related to the lower sales in
      the
      Chilean market.





Demand
      for specialty plant nutrition products continues to be strong, but our sales
      volume is constrained by current production capacity. SQM expects to increase
      its nitrate production capacity between 20% and 30% from the second half of
      2007
      onwards.





***Iodine
      and iodine derivatives***





Revenues
      for iodine and iodine derivatives increased 34.9% to US$149.1 million in 2005
      from US$110.5 million in 2004. Set forth below are sales volume data in the
      specified year by product category.





**2005**
            
            **2004**
            
            **%
                Change****Iodine
                and derivatives**
            
            
            Th.
                Ton
            
            
            8.1
            
            
            7.7
            
            
            5%





The
      increase in revenue is due primarily to higher prices related to growing demand
      combined with the high capacity utilization rates in the industry, which put
      an
      upward pressure on prices.




52
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The
      applications of iodine and iodine derivatives that contributed to a significant
      portion of the growth in demand are: x-ray contrast media, the utilization
      of
      iodine in the production of polarizing film, which is an important component
      in
      LCD screens and iodo-fluoride compounds used in the synthetic fiber
      industry.





During
      2005, SQM increased its sales volume in proportion to the market’s growth, which
      allowed SQM to preserve its market share of approximately 30%.





On
      average, prices for iodine increased by approximately US$4.00 per kilogram
      as
      compared to the previous year. Considering the tight supply situation, we
      believe that these positive pricing trends will continue during
      2006.





In
      January 2006, SQM acquired the iodine and iodine derivatives business of the
      Dutch company DSM N.V., or DSM. The transaction included the iodine and iodine
      derivatives facilities and the mining reserves located in northern Chile.
      Additionally, SQM acquired DSM’s iodine and iodine derivatives commercial
      operations in Europe. Currently, DSM’s iodine production capacity is higher than
      2,000 metric tons per year.





This
      acquisition will provide SQM with logistics, commercial and productive synergies
      and reflects SQM’s commitment to the development and strengthening of its core
      businesses and its strategy to be a long-term reliable iodine
      supplier.





The
      agreement involved a base payment of US$72.0 million plus all the cash, accounts
      receivable and final product inventories minus the total liabilities of the
      Chilean and Dutch companies involved in the transaction.





***Lithium
      and lithium derivatives***





Revenues
      for lithium and lithium derivatives increased 29.9% to US$81.4 million in 2005
      from US$62.6 million in 2004. Set forth below are sales volume data in the
      specified year by product category.





**2005**
            
            **2004**
            
            **%
                Change****Lithium
                carbonate and derivatives**
            
            
            Th.
                Ton
            
            
            27.8
            
            
            31.2
            
            
            -11%




The
      increase in revenues in this business line was mainly due to better price
      conditions. The strong demand during the last few years, with a growth of
      approximately 5% during 2005, positively affected pricing conditions and we
      expect this trend to continue.





During
      2005 the most important applications driving market growth were batteries,
      greases and frits. Regarding lithium-ion batteries, during 2004 certain
      producers overstocked, leading to a lower demand at the beginning of 2005.
      This
      situation was reversed by the end of the first half of 2005.





The
      lower
      sales volume during 2005 was due to production capacity constraints. Current
      production capacity is approximately 28,500 metric tons per year. SQM expects
      to
      increase its lithium carbonate production capacity from 2008
      onwards.





Demand
      continued to increase for lithium hydroxide. Our new lithium hydroxide plant
      has
      a total capacity to satisfy approximately 50% of that market.




***Industrial
      Chemicals***





Revenues
      for industrial chemicals increased 2.5% to US$70.5 million in 2005 from US$68.8
      million in 2004. Set forth below are sales volume data in the specified year
      by
      product category.




53
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          of Contents*





**2005
                (1)**
            
            **2004
                (1)**
            
            **%
                Change**Industrial
                nitrates
            
            
            Th.
                Ton
            
            
            176.3
            
            
            192.9
            
            
            -9%Boric
                acid
            
            
            Th.
                Ton
            
            
            6.3
            
            
            6.1
            
            
            3%





(1)
            2005
                and 2004 figures have been restated to reflect a reclassification
                affecting Industrial Nitrates. Sodium Sulfate that used to be included
                under Industrial Chemicals was relocated to Other Products Sodium
                Sulfate
                revenues reached US$3.5 million in 2005 and US$4.3 million in
                2004





The
      slight increase in revenues from sales of industrial chemicals was mainly due
      to
      a continued increase in prices for most of our industrial products, which more
      than offset lower sales volume during this period.





Industrial
      nitrates saw a reduction in sales volume in 2005, mainly due to lower demand
      for
      potassium nitrate from the CRT industry (TV screens). In spite of a 9% decrease
      in volume, the increased price for industrial nitrates led to higher revenues
      in
      this product line.





***Other
      Products***





***Potassium
      chloride***





Revenues
      from sales of potassium chloride decreased 12.9% to US$32.4 million in 2005
      from
      US$37.2 million in 2004. Set forth below are sales volume data in the specified
      year by product category.





**2005**
            
            **2004**
            
            **%
                Change**Potassium
                Chloride
            
            
            Th.
                Ton
            
            
            128.7
            
            
            211.9
            
            
            -39%




Lower
      revenues from potassium chloride are mainly due to the acquisition of PCS Yumbes
      S.C.M. (today, SQM Industrial S.A.) at the end of 2004, which led to a decrease
      in third party sales of potassium chloride and an increase in internal
      consumption for the production of potassium nitrate.





We
      plan
      to continue using potassium chloride internally for the production of potassium
      nitrate.





***Other
      commodity fertilizers***





Sales
      of
      other commodity fertilizers decreased to US$75.0 million in 2005 from US$82.6
      million in 2004.





The
      2005
      results of SQM’s subsidiary in charge of the trading of special plant nutrients
      and commodity fertilizer in Chile were negatively affected by lower sales
      volumes and lower margins than in 2004. The continuous rains that affected
      the
      fertilizer season in Chile and the high inventory of commodity fertilizers
      put a
      downward pressure, significantly affecting its trading margins.








***Production
      Costs***





Production
      costs during 2005 were higher than 2004, mainly in iodine and nitrate
      production. The main factors that affected the production costs were the
      following:





• higher
      energy and raw materials costs;





• less
      favorable exchange rates; and





• maintenance
      and depreciation cost increase.




54
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          of Contents*




***Gross
      Profit***





As
      a
      result of the factors described above, gross profit increased 35.2% to US$243.1
      million in 2005 from US$179.8 million in 2004.





***Selling
      and Administrative Expenses***





Selling
      and administrative expenses increased to US$61.9 million (6.9% of revenues)
      during 2005 compared to US$55.7 million (7.1% of revenues) recorded during
      2004.





***Operating
      Income***





As
      a
      result of the factors described above, operating income increased 46% to
      US$181.2 million in 2005 from US$124.1 million in 2004.





***Non-Operating
      Income and Expenses***





For
      2005,
      net non-operating expenses amounted to US$34.4 million, compared to US$17.6
      million during 2004. The main changes in non-operating income and expenses
      were
      due to the following:





• During
      2004, SQM sold its 14.05% stake in Empresas Melón S.A., or Empresas Melón, at a
      public auction carried out in the Santiago Stock Exchange on August 18, 2004.
      The transaction resulted in a before-tax profit of approximately US$8.2
      million.





• The
      income derived from the investments in related companies decreased to US$2.6
      million in the year 2005 from US$4.5 million during 2004 (including Empresas
      Melón).





• During
      2005 there were exchange losses of approximately US$3.8 million compared to
      approximately US$0.5 million during 2004. This was due to the Chilean peso
      exchange rate and the Euro exchange rate.





• Other
      losses were approximately US$4.0 million greater in 2005 than those of 2004,
      including write-off of investments, amortization of goodwill and
      others.





***Income
      Taxes***


In
      2005,
      income taxes were US$32.5 million, resulting in an effective consolidated tax
      rate of 22.1%, compared to income taxes of US$27.3 million and an effective
      consolidated tax rate of 25.6% in 2004. In accordance with Chilean law, SQM
      and
      each of its Chilean subsidiaries compute and pay taxes on an individual basis,
      not on a consolidated basis. We had tax loss carry-forwards of US$232.6 million
      as of December 31, 2005, the majority of which have no expiration dates and
      are
      expected to be utilized in the future.





The
      corporate income tax rate in Chile was 17% for 2005 and 2004.





The
      19.1%
      increase in income taxes is mainly due to the increase in our taxable
      income.





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




***Foreign
      Exchange Rates - Inflation***




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




55
 *Table
          of Contents*




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, 2006
      and 2005:





**2006**
            
            **2005****Th
                US$**
            
            **Th
                US$**Chilean
                pesos
            
            
            (41,922)
            
            
            53,167Brazilian
                real
            
            
            (1,332)
            
            
            (941)Euro
            
            
            27,167
            
            
            19,373Japanese
                yen
            
            
            730
            
            
            6,333Mexican
                pesos
            
            
            1,587
            
            
            8,101South
                African rand
            
            
            11,676
            
            
            7,529Dirhams
            
            
            13,554
            
            
            11,543Other
                currencies
            
            
            7,854
            
            
            3,282**Net
                Total**
            
            
            **19,314**
            
            
            **108,387**




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, 2006, for this purpose we had open forward
      exchange contracts and options to buy U.S. dollars and sell foreign currency
      for
      approximately UF 3 million (US$ 102 million), 13 million Euros (US$17.12
      million), 50 million South African Rands (US$ 7.15 million) and 20 million
      Mexican Pesos (US$ 1.89 million), and forward exchange contracts to buy Chilean
      pesos and sell U.S. dollars for approximately 5,323.9 million Chilean Pesos
      (US$
      10 million)




The
      net
      impact of price level adjustments to non-monetary assets and liabilities and
      equity for those subsidiaries that maintain their accounting records in Chilean
      pesos is presented in the Chilean GAAP financial statements as part of the
      net
      foreign exchange gains and losses and is affected by the level of inflation
      in
      Chile. Although other income statement accounts are not affected by monetary
      correction adjustments, operating expenses that are denominated in UF or are
      linked to inflation in some manner increase their U.S. dollar values in the
      same
      way inflation increases (assuming that the exchange rate remains
      unchanged).




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




**U.S.
      GAAP Reconciliation**




This
      discussion on our operating and financial results and condition presented above
      is based on our primary financial statements prepared in accordance with Chilean
      GAAP. Chilean GAAP differs significantly in certain aspects from U. S. GAAP.
      The
      principal differences between Chilean GAAP and U.S. GAAP as they relate to
      our
      Company are (i) the elimination of the effects of reappraisal of property,
      plant
      and equipment undertaken in 1988, (ii) the effects of elimination of monetary
      correction (price-level restatement) and conversion of financial statements
      of
      subsidiaries that keep their accounting records in currencies other than U.S.
      dollars, (iii) the accounting for derivative contracts, (iv) the accounting
      for
      staff severance indemnities, (v) treatment of goodwill, and (vi) the elimination
      of deferred tax complementary accounts. For further details of these differences
      between Chilean GAAP and U.S. GAAP, see Note 29 to the Consolidated Financial
      Statements.




Net
      income under U.S. GAAP for 2006, 2005, and 2004 was US$ 154.3 million, US$125.2
      million and US$86.8 million, respectively, compared to that reported under
      Chilean GAAP of US$ 141.3 million, US$113.5 million and US$74.2 million,
      respectively.




56
 *Table
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Total
      shareholders' equity under U.S. GAAP at December 31, 2006 and 2005 was US$
      994.5
      million and US$923.4 million, respectively, compared to that reported under
      Chilean GAAP of US$ 1,085.9 million and US$1,020.4 million,
      respectively.




**5.B.****Liquidity
      and Capital Resources**





We
      operate a capital-intensive business that requires significant investments
      in
      revenue-generating assets.  Our growth strategy has included the purchase
      of production facilities and equipment and has also 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 and issuance
      of debt securities.




The
      current ratio (current assets divided by current liabilities) increased
      from 1.7 as of December 31, 2005  to  4.28  as of
      December 31, 2006 , primarily due to the payment, in September 2006, of the
      US$200 million rule 144-A bond that was classified as a current liability at
      the
      end of 2005. This bond was replaced by another of similar tenor with maturity
      on
      April 2016.




As
      of
      December 31, 2006 under Chilean GAAP , we had total debt (short-term
      borrowings, current portion of long-term bank debt  and bonds payable 
and long-term bank debt  and obligations with the public) of US$545.4 
million, as compared to total debt of US$389.9 million as of December 31,
      2005.  Of the total debt as of December 31, 2006, US$64.7 million was
      short-term debt plus the current portion of long-term bank debt.  Most of
      our long-term debt (including the current portion) as of December 31, 2006 
was denominated in U.S. dollars, with the exception of our UF 3 million local
      bond, issued on January 24, 2006, which was hedged with a cross currency swap
      to
      the U.S. dollar.  The following table sets forth the maturities of our
      long-term debt as of December 31, 2006:





**Maturity(*)**
            **Amount
                ( millions of US$)**2008
            5.152009
            5.152010
            105.152011
            85.152012
            5.152013
                and thereafter
            272.05**Total**
            **477.8**





(*)
            Only
                the capital has been considered




In November 2006,
      our wholly-owned Aruban subsidiary, Royal Seed Trading Corporation A.V.V.,
      entered into a loan agreement with several local and international
      banks.  The 5-year loan is for US$80 million and bears interest at an
      annual rate of Libor + 0.3 %.  SQM is guarantor of the borrower’s
      obligations under the loan agreement.  The financial covenants include: (i)
      minimum net worth, (ii) limitation on net financial debt to EBITDA ratio on
      a
      consolidated basis, and (iii) limitation on interest indebtedness of operating
      subsidiaries.




In
      April
      2006 we issued in the US market a bond of US$200 million with an annual interest
      rate of 6.125%. The interest will be paid semi-annually and the capital will
      be
      paid in a single amortization during April, 2016. This amount was used by SQM
      to
      refinance indebtedness that matured in September 2006.




In
      January 2006 we issued a Chilean bond at a re-offer yield of 4.18% in UF, for
      a
      nominal amount of UF3 million (approximately US$102.6 million), due 2026,
      amortizing on a semi-annual basis from year 2 onwards.  The principal and
      interest payable on the bond are fully hedged in U.S. dollars for both principal
      and interest (approximately 5.8%).  The financial covenants include: (i)
      limitation on the ratio of total liabilities to equity (including minority
      interest) on a consolidated basis, and (ii) limitation on the ratio of total
      liabilities to equity (including minority interest) on an individual
      basis.




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, 2006, we had US$183.9  million of cash and cash equivalents,
      including marketable securities.  In addition, as of December 31, 2006, we
      had unused uncommitted credit lines amounting to approximately US$464 million
      and unused committed 3-year credit lines amounting to approximately US$100
      million.




57
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Shareholders’
      equity increased from US$1,020.4  million in 2005  to US$1,085.9 
million in 2006 .  Our ratio of total liabilities to equity (including
      minority interest) increased from  0.37:1 as of December 31,
      2005  to  0.42 :1 as of December 31, 2006  due to the
      increase in our consolidated debt.




Our
      capital expenditures in 2006, defined as net cash used in investing activities,
      amounted to US$290.5 million (including the acquisition of DSM’s iodine business
      for US$ 72 million plus working capital described in “Business-Capital
      Expenditure Program”).




For
      2007,
      we expect total capital expenditures of approximately US$230 million.  We
      have currently budgeted capital expenditures of a total of US$400 million
      for 2008 and 2009 that can be increased/decreased depending on market
      conditions.




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




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




We
      evaluate from time to time our cash requirements to fund capital expenditures,
      dividend payouts and increases in working capital.  If we find that
      resources coming from our internally generated cash flows (including
      depreciation and retained earnings) will not be enough, we evaluate and choose
      the best financial alternative available for the company.  As debt
      requirements also depend on the increase or decrease of accounts receivables
      and
      inventories, we cannot accurately determine the amount of debt we will require,
      but we believe that cash flow generated by internal operations, cash balances
      and available credit lines, will enable us to meet our working capital, capital
      expenditure and debt service requirements for 2007, 2008 and
      2009 .




***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:





**2006**
            
            **2005**Weighted-average
                discount rate
            
            
            7.0%
            
            
            7.5%Rate
                of increase in compensation levels
            
            
            0.0%
            
            
            0.0%Cost
                of living
            
            
            2.5%
            
            
            2.5%Long-term
                rate of return on plan assets
            
            
            8.5%
            
            
            8.5%





For
      further discussion see Note 29 Differences between Chilean and United States
      Generally Accepted Accounting Principles—II.m) Post retirement obligations and
      staff severance indemnities.




***Environmental
      Projects***




In
      2006
      we made disbursements amounting to US$6.8 million related to environmental
      projects. We have budgeted future disbursements amounting to US$5.2 million
      related to environmental projects. This amount forms part of the capital
      expenditure program discussed above. Regarding the María Elena Project as well
      as our other major environmental projects see Item 4. Information on the
      Company—Environmental Regulations.





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**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.




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




Our
      research and development activities are conducted principally at our
      Antofagasta Research and Development Center. The staff involved adds up to
      51
      people, including 8 Ph.Ds and 4 MScs 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.




Our
      research and development activities have been instrumental in improving our
      production processes and developing new value added products. As a result
      of research and development activities new methods of extraction 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 been able to improve the physical quality of our prilled products,
      and
      we have been successful at lowering dust emission and caking by applying
      especially designed additives for our products handled in bulk .




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




For
      the
      years ended December 31, 2006, 2005, and 2004 we spent approximately US$2.4
      million, US$2.4 million, and US$1.8 million, respectively, on research and
      development activities.




**5.D.****Trend
      Information**




In
      2006,
      iodine prices continued to increase following the positive trend of the previous
      years. We expect this trend to continue during 2007 due to sustained growth
      in
      demand accompanied by the relative equilibrium between production and demand.





We
      expect
      the increased demand for lithium carbonate observed in the past years to
      continue. Demand is mostly driven by lithium batteries. Further price increases
      are forecasted during 2007. However, we are limited in our ability to increase
      our sales volume due to the Company’s production capacity
      constraint.





Potassium
      nitrate and sodium potassium nitrate sales volumes decreased during 2006
      compared with 2005. We expect 2007 will deliver higher sales volumes with higher
      average prices compared to 2006.





At
      this
      stage, the Company cannot predict what the price trends will be for 2008
      onwards.





During
      2006, production costs were higher than 2005, mainly due to the higher cost
      of
      energy and raw materials, together with the increase in maintenance and
      depreciation costs. Additionally, since a significant portion of our costs
      is
      related to the Chilean peso, production costs were negatively affected by the
      appreciation of the Chilean peso. Considering the current energy market and
      exchange rate expectations, we expect that 2007 production costs will be higher
      than in 2006.





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**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,
                2006:




**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
            
            
            545,442
            
            
            64,718
            
            
            —
            
            
            180,000
            
            
            300,724Capital
                lease obligations
            
            
            1,045
            
            
            196
            
            
            443
            
            
            406
            
            
            —Operating
                leases (*)
            
            
            109,349
            
            
            6,816
            
            
            8,916
            
            
            8,916
            
            
            84,701Purchase
                commitments
            
            
            38,415
            
            
            38,415
            
            
            —
            
            
            —
            
            
            —Staff
                severance indemnities
            
            
            17,472
            
            
            —
            
            
            —
            
            
            —
            
            
            17,472**Total
                Contractual Obligations and Commitments**
            
            
            **711,723**
            
            
            **110,145**
            
            
            **9,359**
            
            
            **189,322**
            
            
            **402,897**




(*)
                See Consolidated Financial Statements note 29 II.e)




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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 as of June 15, 2007 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 with a degree from the Universidad de
                Chile.
                He joined the Company in 1981. He is also Chairman of the Board of
                the
                following corporations: Sociedad de Inversiones Pampa Calichera S.A.,
                Sociedad de Inversiones Oro Blanco S.A., Norte Grande S.A. and Soquimich
                Comercial S.A. He is the brother of Luis Eugenio
                Ponce.*Wayne
                R. Brownlee
            
            Vice
                Chairman of the Board and Director
            
            May
                2002*Mr.
                Brownlee is Executive 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 a
                director
                of SQM in December 2001.*Hernán
                Büchi B.
            
            Director
            
            April
                1993*Mr.
                Büchi is a Civil Engineer with a degree from the Universidad de Chile.
                He
                served as Vice Chairman of SQM's Board from January 2000 to April
                2002. He
                is currently a Board member in Quiñenco S.A. banco de Chile, S.A.C.I.
                Falabella and Madeco S.A., among others.He is also Chairman of the
                board
                of Universidad del Desarrollo.*





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José
                María Eyzaguirre B.
            
            Director
            
            December
                2001*Mr.
                Eyzaguirre is a lawyer and is a partner of the Chilean law firm Claro
                y
                Cia.  He obtained his law degree from the Universidad de Chile and
                was admitted to the Chilean Bar in 1985.  In 1987, he obtained a
                Master's Degree from the New York University School of Law. He was
                admitted to the New York Bar in 1988. He is also a member of the
                board of
                directors of Gasoducto del Pacífico S.A., a transandean gas pipeline,
                Embotelladora Andina S.A., a bottler of The Coca Cola Company, and
                Chairman of the Board of directors of Club de Golf Valle
                Escondido.*Daniel
                Yarur E. (2)
            
            Director
            
            April
                2003*Mr.
                Yarur is an Information Engineer with a degree from the Universidad
                de
                Chile and holds an MSc in Finance at the London School of Economics
                and an
                AMP from Harvard Business School. He is a member of the Board of
                Banco de
                Crédito e Inversiones, Antofagasta P.L.C. (based in London), Antofagasta
                Minerals, Invertec Pesquera Mar de Chiloé S.A., President Fundación
                Chilena de Ajedrez, President Fondo de Inversiones Alekine. Mr Yarur
                was
                Chairman of the Chilean Securities and Exchange Commission from 1994
                to
                2000 and was also Chairman of the Council Organization of the Securities
                Regulators of America. He is also a Professor in the Faculty of Economic
                and Administrative Sciences, Universidad de Chile.*Wolf
                von Appen
            
            Director
            
            May
                2005*Mr.
                Von Appen is an entrepreneur. He is currently a Board member of Sociedad
                de Fomento Fabril and Vice president of Centro de Estudios
                Publicos.*José
                Antonio Silva B.
            
            Director
            
            December
                2001*Mr.
                Silva is a lawyer with a degree from the Pontificia Universidad Católica
                de Chile and holds a Master's Degree in law from Harvard Law School.
                Currently, he is Senior Partner of the Chilean law firm Silva, Rencoret,
                Schultz & Lehuedé Abogados. He is also a substitute member of the
                board of directors of HQI Transelec Chile S.A. and Embotelladora
                Andina
                S.A.*





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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 of Norsk Hydro ASA for
                North and
                South America in Tampa, Florida. Before that he was a partner in
                the law
                firm of Bryan Cave LLP in Kansas City, Missouri. Mr. Wallace is a
                member
                of the Board of Directors of Yara Brasil Ltda. in Brasil, OAO
                Minudobreniya (Rossosh) in Russia and of a number of subsidiaries
                of Yara
                International ASA. 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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Our
      executive officers as of December 31, 2006 are as follows:





**Executive
                Officers****Name**
            
            **Position**
            
            **Current
                position held since**Patricio
                Contesse G.
            
            Chief
                Executive Officer
            
            March
                1990*Mr.
                Contesse is a Forestry Engineer with a degree from the Universidad
                de
                Chile. He joined the Company in 1981 as CEO, a position he held until
                1982, and again in 1988. In the past, he was CEO of Celco Limitada,
                Schwager S.A. and Compañía de Aceros del Pacífico S.A. He has also served
                as Operations Senior Executive Vice President of Codelco Chile, President
                of Codelco USA and Executive President of Codelco Chile. Mr. Contesse
                is
                also a member of the Board of Soquimich Comercial.*Patricio
                de Solminihac T.
            
            Chief
                Operating Officer and
              Executive
                Vice President
            
            January
                2000*Mr.
                de Solminihac is an Industrial Enginee with a degree r 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 and Senior Vice President
            
            February
                1989*Mr.
                Astaburuaga is a lawyer with a degree from the Pontificia Universidad
                Católica de Chile. He joined the Company in 1989. Before that, he was
                Regional Counsel of The Coca Cola Export Corporation, Andean Region
                and
                Regional Counsel of American Life Insurance Company, Latin America
                Region.*Ricardo
                Ramos R.
            
            Chief
                Financial Officer and
              Business
                Development Senior Vice President
            
            November
                1994*Mr.
                Ramos is an Industrial Engineer with a degree from the Pontificia
                Universidad Católica de Chile.  He joined SQM in 1989.  Mr.
                Ramos is also a member of the Board of Soquimich
                Comercial.*





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Jaime
                San Martín L. (2)
            
            Lithium
                Operations and Mining Affairs Senior Vice President
            
            January
                2007*Mr.
                San Martín is a Transportation Engineer with a degree from the Pontificia
                Universidad Católica de Chile. He joined the Company in 1995 as Project
                Manager. He became Metallic Mining Development Manager in 1997, and
                Development Manager in 1998, Business Development and Mining Property
                Vice
                President in 1999 and Technical Senior Vice President in
                2001.*Eugenio
                Ponce L.
            
            Corporate
                Commercial Senior Vice President
            
            March
                1999*Mr.
                Ponce is a Mechanical Engineer with a degree from the Universidad
                Católica
                de Valparaíso. In 1981, he joined the Company as a Sales Manager. He
                became Commercial Manager in 1982, Commercial and Operations Manager
                in
                1988 and Chief Executive Officer of SQM Nitratos S.A. in 1991. In
                the past
                he was member of the Board of IANSA. Currently he is a member of
                the board
                of Soquimich Comercial and Vice Chairman of the Board of Pampa Calichera.
                He is brother of Julio Ponce.*Camila
                Merino C.
            
            Human
                Resources and Administration
              Senior
                Vice President
            
            March
                2001*Mrs.
                Merino is an Industrial Engineer with a degree from the Pontificia
                Universidad Católica de Chile and holds a Master in Business
                Administration degree from the Sloan School of Management at MIT.
                She
                joined the Company in 1991, and after a two-year period at MIT, she
                re-joined the Company in 1998 as Nitrates 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. She left the Company
                at
                the end of April 2007*Mauricio
                Cabello C.
            
            Nitrates-Iodine
                Operations Senior Vice President
            
            June
                2005*Mr.
                Cabello is a Mechanical Engineer with a degree from the Universidad
                de
                Santiago de Chile. He joined the Company in 2000 as Maintenance
                Superintendent of SQM Salar. He became Maintenance Manager of SQM
                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.*





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Pauline
                De Vidts S.
            
            Safety,
                Health & Environment Senior Vice President
            
            June
                2005*Mrs.
                De Vidts is an Industrial Engineer with a degree from the Pontificia
                Universidad Católica de Chile and holds a Ph.D. in Chemical Engineering
                from Texas A&M University. She joined the company in 1996 to work in
                process development for the Salar de Atacama Operations, becoming
                Development Manager for this operations in 1998, and in 2001, she
                became
                Corporate R&D and Environmental Issues Vice President until
                2005.*





During
      January 2007, the Company was restructured. The position of Salar Operations
      Vice President was split in to two positions: Lithium Operations and Mining
      Affairs Vice Precident reporting to Mr. Jaime San Martin, and the Salar
      Operations Vice Precident reporting to Mr. Juan Carlos Barrera.





During
      May 2007, Mrs. Camila Merino left the Company, and was replaced in her position
      as Human Resources and Administration Senior Vice President by Mr. Daniel
      Jimenez.





Juan
                Carlos Barrera P. (2)
            
            Salar
                Operations Senior Vice President
            
            January
                2007*Mr.
                Barrera is an Industrial Engineer with a degree from the Pontificia
                Universidad Católica de Chile and holds a Master in Business
                Administration degree from Tulane University and a Master in Business
                Administration degree from Universidad de Chile. He joined the Company
                in
                1991 as an advisor in the Business Development area and has served
                in many
                positions since then. In 1995, he became Business Development Manager
                of
                SQM Nitratos S.A. In 1999, Corporate Quality Manager, in 2000 Corporate
                Supply Chain Vicepresident and, in 2006, General Manger of Soquimich
                Comercial S.A*.





Daniel
                Jiménez Sch.
            
            Human
                Resources and Administration
              Senior
                Vice President
            
            May
                2007*Mr.
                Jiménez is an Industrial Engineer with a degree from the Pontificia
                Universidad Católica de Chile and holds a Masters in Business
                Administration degree from Old Dominion University.  He joined the
                Company in 1991, holding several positions in the finance and sales
                areas
                at SQM’s headquarters and foreign subsidiaries in USA and Belgium,
                countries he was based in for 8 years. In 2002, he became VP Sales
                and
                Marketing Iodine, Lithium and Industrial Chemicals*.





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


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





66
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**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 the last annual general shareholders meeting of SQM, they
      defined the percentage of additional compensation to an amount equal
      to 0.50% of the net income (after amortization of negative goodwill) for
      the Chairman of the Board and of 0.50% 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.





During
      2006, 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**
            **Meeting**
            **Committee**Ponce
                Lerou, Julio
            425,547,389
            —
            65,431,746
            —
            
            490,979,135Büchi
                Buc, Hernán
            64,552,485
            3,678,762
            —
            —
            
            68,231,247Brownlee,
                Wayne R,
            64,552,485
            —
            —
            —
            
            64,552,485Eyzaguirre,
                José María
            63,628,710
            —
            —
            —
            
            63,628,710Silva,
                José Antonio
            63,654,098
            9,090,088
            —
            —
            
            72,744,186Wallace,
                Kendrick T,
            64,552,485
            —
            —
            —
            
            64,552,485Yarur,
                Daniel
            64,552,485
            9,988,475
            —
            —
            
            74,540,960Von
                Appen Wolf
            62,712,649
            —
            —
            —
            
            62,712,649**Total**
            **873,752,786**
            **22,757,325**
            **65,431,746**
            —
            
            **961,941,857**




For
      the
      year ended December 31, 2006, the aggregate compensation paid to our 93 main
      executives based in Chile was approximately Ch$7,137.8 million. We do not
      disclose to our shareholders or otherwise make available to the public
      information as to the compensation of our individual executive
      officers.




We
      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 in 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.




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As
      of
      December 31, 2006, the Company’s Directors Committee was formed by SQM
      Directors; Mr. Hernán Büchi B., Mr. Jose Antonio Silva B. and Mr. Daniel Yarur
      E. This Committee operates in accordance with article 50 bis of Law No18.046,
      which provides that the Committee shall:




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


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


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


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





Pursuant
      to the above, these were the main activities of our Directors' Committee during
      2006:


a)
            Analysis
                of un-audited financial reports.


b)
            Analysis
                of audited financial reports.


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


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


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


f)
            Analysis
                of contracts with related people, subsidiaries and related companies
                in
                Chile and abroad.


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


h)
            Analysis
                of future investments.


i)
            Approval
                of the minutes of previous meetings





The
      Directors Committee examined the following records in connection with operations
      related to section 44 of law N° 18.046.:




In
      the
      April 24, 2006 session, the Directors Committee analyzed the selling of all
      of
      SQM’s rights over the Italian company Impronta SRL to the Yara Group (an
      important indirect shareholder of SQM), and recommended the implementation
      of
      the agreement.




In
      the
      September 26, 2006 session, the Committee analyzed the selling of all of SQM’s
      rights over the Mexican company Fertilizantes Olmeca y SQM S.A. de C.V. to
      the
      Yara Group (an important indirect shareholder of SQM S.A.), and recommended
      the
      implementation of the agreement.




In
      the
      December 18, 2006 session, the Committee analyzed certain Sea Freight Contracts
      between the “group SQM” and the “group Ultramar" (linked to Mr. Wolf von Appen,
      Director of SQM), and recommended the implementation of the
      agreements.




In
      the
      April 24, 2006 session, the Committee examined the operations referring to
      the
      section 89 of law N°18.046.




On
      April
      28, 2006, the Annual General Shareholders Meeting of SQM agreed to pay a monthly
      remuneration of 50UF to each member of the Directors Committee, regardless
      of
      the number of sessions held by the Committee during the period between May
      2006
      and April 2007, both months included. This remuneration is also independent
      from
      what the Committee members obtain as members of the Company’s Board of
      Directors. In this same meeting, an operational budget for the Directors
      Committee of UF 1,800 was approved.




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The
      activities carried out by the Committee, as well as the expenses incurred by
      it,
      are to be disclosed at the General Shareholders Meeting. During 2006, the
      Directors Committee did not incur in any consulting expenses.




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




Sociedad
      de Inversiones Pampa Calichera S.A. and Kowa Company Ltd., subscribed on
      December 21, 2006, a “Joint Performance Agreement” that enables them to be
      considered as the Controller Group of SQM, as that term is defined under Chilean
      law.




This
      Agreement, in respect of Sociedad de Inversiones Pampa Calichera S.A., includes
      directly and indirectly Global Mining Investments Chile S.A. and Inversiones
      SQYA. S.A.




Additionally,
      the Agreement, in respect of Kowa Company Ltd., includes directly and indirectly
      Kochi S.A., Inversiones La Esperanza (Chile) Ltda. and Inversiones La Esperanza
      Delaware Corp.




Considering
      the above and the effective shareholder structure as of December 31, 2006,
      the
      Company has a Controller Group. The three members of the Company’s Directors
      Committee are independent from the Controller Group. This independence statement
      is defined and required under Chilean law.




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




The
      members of the audit committee are Hernán Büchi B., José Antonio Silva B. and
      Daniel Yarur E. 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.




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





**Section**
            **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 regularly scheduled 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
                committeecomposed
                entirely of independent directors, and must have a written charter.
            This
                committee is not required as such in the Chilean regulations. Pursuant
                to
                Chilean regulations SQM has a Directors' Committee (see Board practices
                above).303A.05
            Listed
                companies must have a compensation committee composed entirely of
                independent directors, and must have a written charter
            This
                committee is not required as such in the Chilean regulations. Pursuant
                to
                Chilean regulations SQM has a Director’s Committee (see Board practices
                above) that is in charge of reviewing management’s
                compensation.




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**Section**
            **NYSE
                Standards**
            **SQM
                practices pursuant to Chilean regulations**303A.06
            Listed
                companies must have an audit committee.
            This
                committee is not required as such in the Chilean regulations. On
                May 24,
                2005, the Board of Directors approved the establishment of an audit
                committee to comply with the requirements of the NYSE corporate governance
                rules.303A.07
            The
                audit committe must have a minimum of three members. Each of them
                must
                satisfy requirements of independence and the committee must have
                a written
                charter.
            Pursuant
                to Section 303A.00, SQM is not required to comply with requirements
                in
                303A.07. Pursuant to Chilean Regulations SQM has a Director’ 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
                required in the Chilean regulations. SQM has adopted and disclosed
                aCode
                of Business Conduct and Ethics, available at the Company's website,
                www.sqm.com.303A.11
            Listed
                foreign private issuers must disclose any significant ways in which
                their
                corporate governance practices differ from those followed by domestic
                companies under NYSE listed standards.
            Pursuant
                to 303A.11, this table sets forth a comparative summary of differences
                in
                corporate governance practices followed by SQM under Chilean regulations
                and those applicable to U.S. domestic issuers pursuant to Section
                303A.303A.12
            Each
                listed company CEO must (a) certify to the NYSE each year that he
                or she
                is not aware of any violation by the company of NYSE corporate
                governancelisting
                standards.(b) promptly notify the NYSE in writing after any executive
                officer becomes aware of any material non- compliance with any applicable
                provisions of Section 303A; (c) must submit an executed Written
                Affirmation annually to the NYSE.
            Not
                required in the Chilean regulations. The CEO must only comply with
                Section
                303A.12 (b) and (c).




**6.D.****Employees**




As
      of
      December 31, 2006, we had 3,745 permanent employees, of whom 330 were employed
      outside of Chile. The average tenure of our full time employees is approximately
      8.6 years.




**2006**
            
            
            **2005**
            
            
            **2004**
            
            
            **2003**
            
            
            **2002**Permanent
                employees
            
            
            3,745
            
            
            3,672
            
            
            3,418
            
            
            3,455
            
            
            3,050Employees
                in Chile
            
            
            3,415
            
            
            3,350
            
            
            3,138
            
            
            3,154
            
            
            2,869Employees
                outside of Chile
            
            
            330
            
            
            322
            
            
            280
            
            
            301
            
            
            181




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Of
      our
      permanent employees in Chile, 68.2% are represented by 31 labor unions, which
      represent their members in collective negotiations with the Company.
      Compensation for unionized personnel is established in accordance with the
      relevant collective bargaining agreements. The terms of most such agreements
      currently in effect are three years, and expiration dates of such agreements
      vary from contract to contract. Under these agreements, employees receive a
      salary according to a scale that depends upon job function, seniority and
      productivity. Unionized employees also receive certain benefits provided for
      by
      law and certain benefits, which vary depending upon the terms of the collective
      agreement, such as housing allowances and additional death and disability
      benefits.




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




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. We however sponsor staff severance
      indemnities plan for employees in our Chilean subsidiaries whereby we commit
      to
      provide a lump sum payment to each employee at the end of his/her employment,
      whether due to death, termination, resignation or retirement.




We
      have
      experienced no strikes or significant work stoppages in the last twelve years
      and consider the relationship with our employees to be good. As of July 2006,
      the process of anticipated negotiations with unions has begun with the objective
      to have all agreements renegotiated for a new three year period before the
      end
      of 2007. Up to April 2007, negotiations with unions representing 30% of the
      company’s unionized employees have concluded.




As
      of
      October 16 th ,
      2006, a
      new employment law for contractors and subcontractors came in force. The law
      basically prohibits the hiring of labor through third parties, increases the
      liabilities of the contracting party with respect to labor and pension
      obligations, hygiene and safety of its contractors.




***6.E.*** ***Share
      Ownership***




SQM
      has
      been informed that the Canadian company Potash Corporation of Saskatchewan
      Inc.(“PCS”) indirectly controls 100% of the stock of Inversiones el Boldo
      Limitada, and 100% of the stock of Inversiones RAC Limitada. During the month
      of
      December of 2006, Inversiones el Boldo Limitada carried out a Public Tender
      for
      SQM shares, that concluded during January of year 2007 and that allowed PCS,
      together with other transactions made in the stock market, to increase its
      indirect stake in SQM to 31.62% of the total shares.




SQM
      has
      also been informed -i- that Mr. Julio Ponce L. and related persons control
      100%
      of the total shares of Inversiones SQ S.A. -ii- that Inversiones SQ S.A. with
      Yara International ASA control, respectively, 51% and 49% of the total shares
      of
      Inversiones SQYA S.A. and -iii-that Inversiones SQYA S.A. currently, and
      indirectly, control 30.26% of the total shares of SQM. The above, considering
      -a- that Inversiones SQYA S.A. controls 90% of the total shares of Norte Grande
      S.A., that Norte Grande S.A. controls 78.35% of the total shares of Sociedad
      de
      Inversiones Oro Blanco S.A., that Sociedad de Inversiones Oro Blanco S.A
      controls 68.57% of the total shares of Sociedad de Inversiones Pampa Calichera
      S.A. and that Sociedad de Inversiones Pampa Calichera S.A. ultimately controls
      30.26% of the total shares of SQM.




Sociedad
      de Inversiones Pampa Calichera S.A. and Kowa Company Ltd. -the latter, owner,
      directly and indirectly, of a 2.03% of the total shares of SQM- subscribed
      during december 21, 2006 a Joint Performance Agreement that allows them to
      currently control 32.28% of the total shares of SQM. As a result of this
      Agreement, the “group” led by Mr. Julio Ponce L. becomes the Controller Group of
      SQM, as that term is defined under Chilean law.




71
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The
      following table shows the combined stakes that Mr. Julio Ponce and Yara
      International ASA have held in SQM as of:




**%
                Beneficial ownership**June
                15, 2007 (1)
            32.28%December
                31, 2006 (1)
            37.28%December
                31, 2005
            24.96%December
                31, 2004
            22.63%




(1)  
                  Includes the Agreement with Kowa
                  group





No
      other
      director or executive officer owns more than 1% of each share class of the
      Company as of May 31, 2007. 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 0.022% 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, 2007 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)
            57,934,256
            40.56%
            13,778,252
            11.45%
            27.25%Inversiones
                El Boldo Ltda. (3)
            43,861,795
            30.71%
            17,450,015
            14.50%
            23.30%The
                Bank of New York
            88,020
            0.06%
            34,319,480
            28.51%
            13.07%Inversiones
                RAC Chile Ltda. (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%
            8,425,266
            7.00%
            3.20%Global
                Mining Investments (Chile ) S.A.
            7,916,514
            5.54%
            —
            0.00%
            3.01%Larrain
                Vial S.A.
            5,432,608
            3.80%
            1,255,015
            1.04%
            2.54%Kowa
                Group (5)
            5,292,450
            3.71%
            50,000
            0.04%
            2.03%A.F.P.
                Cuprum S.A. (4)
            —
            0.00%
            4,847,441
            4.03%
            1.84%





(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
                79,629,022 Shares constituting 30.25% of the total shares of SQM.
                This
                stake resulted from successive purchases carried out in the Santiago
                Stock
                Exchange during the last part of 2006 and the first months of 2007.
                The
                stake held by Mr. Ponce and related parties as of December 31, 2006,
                2005,
                and 2004 was, respectively, 30.26%, 24.96%,and 22.63% 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 46 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 83,211,825 SQM's shares that represent 31.62% of SQM's total
                shares. This stake resulted from successive purchases carried out
                in the
                Santiago Stock Exchange during the last part of 2006 and the first
                months
                of 2007. The stake held by Potash Corporation of Saskatchewan as
                of
                December 31, 2006, 2005, and 2004 was respectively 24.99%, 24.99%
                and
                24.99%, 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.


(5)
            Kowa
                Group represents the companies Kowa Co. Ltd, Kochi S.A., La Esperanza
                Delaware Corporation and Inversiones La Esperanza (Chile)
                Ltda.





Series
      A
      and Series B shares have the same economic rights (i.e. both Series are entitled
      to share equally in any dividends declared on the outstanding stock) and voting
      rights at any shareholders meeting, whether ordinary or extraordinary. One
      share
      equals one vote, with the sole exception of the election of the Board of
      Directors, in which the Series A shareholders elect seven members and the Series
      B shareholders elect one member. Additionally, Series B shares cannot exceed
      50%
      of our issued and outstanding stock, shareholders of at least 5% of this Series
      may call an ordinary or extraordinary Shareholders ́ Meeting and the director
      elected by this Series may request an extraordinary Board of Directors Meeting
      without the authorization of the Chairman of the Board of Directors. These
      preferences will remain until 2043. Maximum individual voting power personally
      and/or in representation of other shareholders per Series is 37.5% of the
      subscribed shares of each Series with voting rights and 32% of the total
      subscribed shares of the Company with voting rights. To calculate these
      percentages, shares that belong to the voting shareholder’s related persons must
      be added. In addition, the director elected by the Series B shares cannot vote
      in the election of the Chairman of the Board of Directors after a tie vote
      has
      occurred in the prior voting process. 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 Law No. 18,046, or the Chilean Corporations Act, requires that our
      transactions with related parties be on a market basis or on terms similar
      to
      those customarily prevailing in the market. Directors and executive officers
      of
      companies that violate Article 89 are liable for losses resulting from such
      violations. In addition, Article 44 of the Chilean Corporations Act provides
      that any transaction in which a director has a personal interest or is acting
      on
      behalf of a third party may be implemented only after the same is approved
      by
      the Board of Directors under terms similar to those prevailing in the market.
      Resolutions approving such transactions must be reported to the Company's
      shareholders at the next shareholders' meeting. Violation of Article 44 may
      result in administrative or criminal sanctions and civil liability may be sought
      by the Company, shareholders or interested third parties that suffer losses
      as a
      result of such violations. We believe that we have complied with the
      requirements of Article 89 and Article 44 in all transactions with related
      parties.




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




We
      further believe that we could obtain from third parties all raw materials now
      being provided by related parties. The provision of such raw materials by new
      suppliers could initially entail additional expenses.




For
      additional information concerning our transactions with affiliates and other
      related parties, see Note 5 of the Consolidated Financial
      Statements.




**7.C.****Interests
      Of Experts And Counsel**




Not
      applicable





**ITEM
      8.****FINANCIAL
      INFORMATION**




**8.A.****Consolidated
      Statements And Other Financial Information**




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





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





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





***8.A.4*** **** Not
      applicable.





***8.A.5*** **** Not
      applicable.





***8.A.6*** ***Export
      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:





74
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Th.
                US$
            
            **2006**
            
            **2005**
            
            **2004****Foreign
                sales**
            
            
            878,066
            
            
            739,924
            
            
            629,671**Total
                sales**
            
            
            1,042,886
            
            
            895,970
            
            
            788,516**%
                of foreign sales**
            
            
            **84.20%**
            
            
            **82.60%**
            
            
            **79.90%**





***8.A.7*** ***Legal
      Proceedings***





In
      September 2005, Electroandina S.A., one of our main electricity suppliers,
      commenced an arbitration proceeding against us. The complaint mainly seeks
      the
      early termination, partial amendment or temporary suspension of the electricity
      supply agreement entered into between Electroandina and SQM on February 12,
      1999, and the revision of the tariffs agreed to in such electricity supply
      agreement. The basis of Electroandina’s claim is that certain unforeseen events
      have restricted the supply of and increased the price of gas from
      Argentina.





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





***8.A.8.*** ***Dividend
      Policy***





As
      required by Chilean law and regulations, our dividend policy is decided upon
      from time to time by our Board of Directors and is announced at the Annual
      Ordinary Shareholders' Meeting, which is generally held in April of each year.
      Shareholder approval of the dividend policy is not required. However, each
      year
      the Board must submit the declaration of the final dividend or dividends in
      respect of the preceding year, consistent with the then-established dividend
      policy to the Annual Ordinary Shareholders' Meeting for approval. 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.




The
      Board
      of Directors has followed a policy of paying a single dividend ranging from
      50%
      to 65% of our consolidated net income for the year (determined on a Chilean
      GAAP
      basis), and dividends for each year have been paid not later than May of the
      following year. During 2007, and considering our capacity to deliver increasing
      cash flows, at the Annual Ordinary Shareholders' Meeting held on April 27,
      2007,
      the shareholders approved a single dividend with respect to 2006 of US$0.34874
      per share, equal to 65% of the net income, before amortization of negative
      goodwill for that year, which was paid in full on May 10, 2007. The Board of
      Directors also reaffirmed for 2007 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 2008.




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.




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.




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**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$**
            **US$**2002
            2003
            53.31
            533.1
            0.076
            0.762003
            2004
            55.05
            550.5
            0.088
            0.882004
            2005
            106.56
            1,065.6
            0.182
            1.822005
            2006
            145.11
            1,451.1
            0.279
            2.792006
            2007
            183.96
            1,839.6
            0.349
            3.49





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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            of Contents*





**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 (1)**
            
            **Series
                A (3)**
            
            **Series
                B (1)****High**
            
            **Low**
            
            **High**
            
            **Low**
            
            **High**
            
            **Low**
            
            **High**
            
            **Low****Ch$**
            
            **Ch$**
            
            **Ch$**
            
            **Ch$**
            
            **US$**
            
            **US$**
            
            **US$**
            
            **US$****2002**
            
            
            3,000
            
            
            1,620
            
            
            1,660
            
            
            1,305
            
            
            44.75
            
            
            23.00
            
            
            24.44
            
            
            18.41**2003**
            
            
            3,050
            
            
            1,630
            
            
            2,995
            
            
            1,580
            
            
            47.10
            
            
            22.00
            
            
            46.26
            
            
            21.60**2004**
            
            
            3,900
            
            
            2,350
            
            
            3,580
            
            
            2,160
            
            
            68.00
            
            
            37.05
            
            
            62.75
            
            
            32.98**2005**
            
            
            7,000
            
            
            3,600
            
            
            7,170
            
            
            3,269
            
            
            129.40
            
            
            66.80
            
            
            133.37
            
            
            57.50**2006**
            
            
            7,100
            
            
            5,220
            
            
            7,346
            
            
            5,000
            
            
            137.5
            
            
            93.15
            
            
            139.54
            
            
            89.92








**(b)**  **Last
      10 quarters**




**Santiago
                Stock Exchange**
            
            **NYSE****Per
                Share (2)**
            
            **Per
                ADS****Series
                A**
            
            **Series
                B (1)**
            
            **Series
                A (3)**
            
            **Series
                B (1)****High**
            
            **Low**
            
            **High**
            
            **Low**
            
            **High**
            
            **Low**
            
            **High**
            
            **Low****Ch$**
            
            **Ch$**
            
            **Ch$**
            
            **Ch$**
            
            **US$**
            
            **US$**
            
            **US$**
            
            **US$****2005**First
                quarter
            
            
            4,900
            
            
            3,600
            
            
            4,760
            
            
            3,269
            
            
            83.50
            
            
            66.80
            
            
            80.55
            
            
            57.50Second
                quarter
            
            
            6,010
            
            
            4,900
            
            
            5,900
            
            
            4,597
            
            
            103.00
            
            
            84.95
            
            
            101.75
            
            
            78.98Third
                quarter
            
            
            7,000
            
            
            6,000
            
            
            7,170
            
            
            5,889
            
            
            127.25
            
            
            101.50
            
            
            128.38
            
            
            101.45Fourth
                quarter
            
            
            6,800
            
            
            5,600
            
            
            6,989
            
            
            5,382
            
            
            129.40
            
            
            103.18
            
            
            133.37
            
            
            104.23**2006**First
                quarter
            
            
            6,000
            
            
            5,599
            
            
            6,390
            
            
            5,540
            
            
            115.50
            
            
            105.02
            
            
            122.53
            
            
            109.88Second
                quarter
            
            
            5,950
            
            
            5,220
            
            
            6,000
            
            
            5,000
            
            
            109.01
            
            
            93.15
            
            
            116.25
            
            
            89.92Third
                quarter
            
            
            6,000
            
            
            5,300
            
            
            6,190
            
            
            5,300
            
            
            104.95
            
            
            99.35
            
            
            115.10
            
            
            96.72Fourth
                quarter
            
            
            7,100
            
            
            6,000
            
            
            7,346
            
            
            6,240
            
            
            137.5
            
            
            105.2
            
            
            139.54
            
            
            116.73**2007**First
                quarter
            
            
            7,600
            
            
            7,100
            
            
            7,830
            
            
            6,800
            
            
            142.95
            
            
            136.95
            
            
            146.00
            
            
            124.95Second
                quarter (through May 31)
            
            
            8,900
            
            
            7,555
            
            
            8,660
            
            
            7,810
            
            
            167.75
            
            
            150.00
            
            
            166.23
            
            
            145.50




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**(c)**
            **Last
                6 months**





**Santiago
                Stock Exchange**
            
            **NYSE****Per
                Share (2)**
            
            **Per
                ADS****Series
                A**
            
            **Series
                B (1)**
            
            **Series
                A (3)**
            
            **Series
                B (1)****High**
            
            **Low**
            
            **High**
            
            **Low**
            
            **High**
            
            **Low**
            
            **High**
            
            **Low****Ch$**
            
            **Ch$**
            
            **Ch$**
            
            **Ch$**
            
            **US$**
            
            **US$**
            
            **US$**
            
            **US$****December
                2006**
            
            
            7,100
            
            
            7,000
            
            
            7,346
            
            
            6,950
            
            
            137.50
            
            
            135.50
            
            
            139.54
            
            
            131.30**January
                2007**
            
            
            7,150
            
            
            7,100
            
            
            7,320
            
            
            6,800
            
            
            —
            
            
            —
            
            
            135.67
            
            
            124.95**February
                2007**
            
            
            7,310
            
            
            7,150
            
            
            7,755
            
            
            7,250
            
            
            142.95
            
            
            139.45
            
            
            145.26
            
            
            132.05**March
                2007**
            
            
            7,600
            
            
            7,300
            
            
            7,830
            
            
            6,921
            
            
            139.45
            
            
            136.95
            
            
            146.00
            
            
            127.81**April
                2007**
            
            
            8,700
            
            
            7,555
            
            
            8,506
            
            
            7,810
            
            
            161.70
            
            
            150.00
            
            
            162.48
            
            
            145.50**May
                2007**
            
            
            8,900
            
            
            8,700
            
            
            8,660
            
            
            8,100
            
            
            167.75
            
            
            155.65
            
            
            166.23
            
            
            154.95




(1)  Series
      B
      shares began trading on the New York Stock Exchange in September
      1993.


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


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





As
      of
      June 15, 2007, there were 8,802 Series A and 3,431,948 Series B ADSs (equivalent
      to 88,020 Series A shares and 34,319,480 Series B shares respectively)
      outstanding held by 3 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
      13.07% of the total number of issued and outstanding shares of our
      Company.




**9.B**  ***Plan
      Of Distribution***





Not
      Applicable




**9.C**  ***Markets***





The
      Series A shares and the Series B shares are currently traded on the Santiago
      Stock Exchange, the Bolsa Electrónica de Chile Bolsa de Valores S.A., (the
      Electronic Stock Exchange), and the Bolsa de Corredores Bolsa de Valores S.A.,
      (the Valparaíso Stock Exchange). 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.D**  ***Selling
      Shareholders***





Not
      applicable




**9.E**  ***Dilution***





Not
      applicable




**9.F**  ***Expenses
      Of The Issue***





Not
      applicable





78
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            of Contents*




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





79
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            of Contents*





**Directors**





The
      Company's By-laws, in articles 16 and 16 bis, essentially establish that the
      transactions in which a Director has a material interest must comply with the
      provisions set forth in articles 44 and 136 of Law No 18.046 and the applicable
      regulations of such Law. Notwithstanding the above, the said operations must
      be
      approved by two thirds of the Board of Directors.




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




Directors
      cannot authorize Company loans on their behalf.




As
      stated
      in article 10 of the Company's By-laws, Directors can be reelected indefinitely;
      thus, there is no age limit for their retirement.




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




**Shares**





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




Article
      5
      of the Company's By-laws establishes that Series B shares may in no case exceed
      fifty percent of our issued, outstanding and paid shares. Series B shares have
      a
      restricted right to vote as they can only elect one Director of the Company,
      regardless of their capital stock's share. Series B shares have the right to
      call for an Ordinary or Extraordinary Shareholders’ Meeting when the
      shareholders of at least 5% of the Series B issued shares request so and for
      an
      Extraordinary Board of Directors Meeting without the Chairman's authorization
      when it is requested by the Director elected by the shareholders of the Series
      B
      shares. Series A shares have the option to exclude the Director elected by
      Series B shareholders from the voting process in which the Chairman of the
      Board
      is to be elected, if there is a tie in the first voting process. However,
      articles 31 and 31 bis establish that in General Shareholders’ Meetings each
      shareholder will have a right to one vote for each share he owns or represents
      and that no shareholder will have the right to vote for himself or on behalf
      of
      other shareholders of the same Series A or Series B shares representing more
      than 37.5% of the outstanding shares with right to vote of each Series. In
      calculating a single shareholder's ownership of Series A or B shares, the
      shareholder's stock and those pertaining to third parties related to them are
      to
      be added.




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




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




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




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




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




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




(c)
      By
      agreement of an Extraordinary Shareholders Meeting;




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




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




80
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          of Contents*




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 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 hold more than 32% of our
      shares, unless the by-laws are modified at an extraordinary shareholders’
meeting. Moreover, on December 12, 2000, the government published the Ley de
      Oferta Pública de Acciones (Public Share Offering law) or (OPA law) that seeks
      to protect the interests of minority shareholders of open stock corporations
      in
      transactions involving a change in control, by requiring that the potential
      new
      controller purchase the shares owned by the remaining shareholders either in
      total or pro rata. The law applies to those transactions in which the
      controlling party would receive a material premium price compared with the
      price
      that would be received by the minority shareholders.




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




(1)
            When
                an investor wants to take control of a company's
                stock.


(2)
            When
                a controlling shareholder holds two-thirds of the company's stock.
                If such
                shareholder buys one more share, it will be mandatory to offer to
                acquire
                the rest of the outstanding stock within 30 days of surpassing that
                threshold.


(3)
            When
                an investor wants to take control of a corporation, which, in turn,
                controls an open stock corporation that represents 75% or more of
                the
                consolidated assets of the former
                corporation.




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





81
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            of Contents*





**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 five long-term supply
      contracts with two electric power companies: Electroandina S.A. and Norgener
      S.A. Our heat generation and in fusion processes have been modified in order
      to
      allow the use of either natural gas or fuel oil to secure operations through
      periods of gas shortages We believe that the terms and conditions of the natural
      gas and fuel oil 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 an Electrical Energy Supply
                contract with Electroandina S.A. The term of this contract runs through
                February 12, 2009, allowing two three year renewals at SQM’s option and
                the anticipated termination is subject to payment of non amortized
                investments.





·
            On
                March 21, 1997, SQM Salar S.A. entered into an 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
                income un-received .





·
            On
                January 13, 1998, SQM Nitratos S.A. entered into an 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 a Natural Gas Supply agreement
                with
                Distrinor S.A. The term of this contract runs through May 21, 2011
                and the
                anticipated termination is subject to payment of non amortized
                investments.





The
      arbitration proceeding with Norgener has finalized, the arbitration with
      Electroandina continues its course and we face risks regarding the continuity
      of
      natural gas supply. For further information see Item 3. D. Risk
      factors.




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, none of which are 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 purposes of converting from Chilean Pesos
      to
      U.S. dollars and repatriating from Chile amounts received in respect to
      deposited Series A or B shares or Series A or B shares withdrawn from deposit
      on
      surrender of ADRs (including amounts received as cash dividends and proceeds
      from the sale in Chile of the underlying Series A and Series B shares and any
      rights arising therefrom). The following is a summary of the material provisions
      contained in the Foreign Investment Contract. This summary does not purport
      to
      be complete and is qualified in its entirety by reference to Chapter XXVI and
      the Foreign Investment Contract.




82
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          of Contents*




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 requires approval of the
      Central Bank of Chile based on a request presented through a banking institution
      established in Chile. The Foreign Investment Contract will provide that if
      the
      Central Bank of Chile has not acted on such request within seven banking days,
      the request will be deemed approved.




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




83
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          of Contents*




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




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




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, 2006, we had one long-term
      loan outstanding obtained in the international markets (through a Rule 144A
      offering of US$200 million). Additionally Royal Seed Trading Corporation, a
      wholly owned subsidiary, has two syndicated loans for an amount US$180.0 million
      outstanding, which are fully guaranteed by us.




In
      April
      2006 we informed the Central Bank about the issuance of a new Rule 144A bond
      for
      an amount of US$200 million. Additionally, the Central Bank has been informed
      about the guarantee given to Royal Seed. Accordingly, all purchases of U.S.
      dollars in connection with payments on these loans will occur with the Formal
      Exchange Market. There can be no assurance, however, that restrictions
      applicable to payments in respect to the loans could not be imposed in the
      future, nor can there be any assessment of the duration or impact of such
      restrictions if imposed.




***10.E.*** **Taxation**




**Chilean
      Tax Considerations**





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




Under
      Chilean law, provisions contained in statutes such as tax rates applicable
      to
      foreign investors, the computation of taxable income for Chilean purposes and
      the manner in which Chilean taxes are imposed and collected may only be amended
      by another statute. In addition, the Chilean tax authorities issue rulings
      and
      regulations of either general or specific application and interpret the
      provisions of Chilean tax law. Chilean tax may not be assessed retroactively
      against taxpayers who act in good faith relying on such rulings, regulations
      and
      interpretations, but Chilean tax authorities may change said rulings,
      regulations and interpretations prospectively.




**Cash
      Dividends and Other Distributions**





Cash
      dividends paid by the Company with respect to the shares, including shares
      represented by 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.




84
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The
      effective Withholding Tax rate, after giving effect to the credit for First
      Category Tax, generally is:





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


1
      -
      (First Category Tax effective rate)





The
      effective rate of Withholding Tax to be imposed on dividends paid by the Company
      will vary depending upon the amount of the First Category Tax paid by the
      Company on the earnings to which the dividends are attributed. The dividends
      distributed by the Company corresponding to the business year 2006 were
      dividends considered taxable, and the total tax retention rate was approximately
      27%.




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).




85
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          of Contents*




**Other
      Chilean Taxes**





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




**Withholding
      Tax Certificates**





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




**United
      States Tax Considerations** ****





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




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




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




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.




86
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          of Contents*




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 disposition 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.




87
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          of Contents*




**Information
      Reporting and Backup Withholding**





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




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




**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.





88
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            of Contents*




**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, 2006, we had approximately 41% of our financial debt priced at
      Libor, and therefore significant increases in the rate could impact our
      financial condition. We also maintain the majority of our short-term financial
      debt priced at Libor plus a spread for which we do not have any kind of
      derivative contract.




**Expected
                Maturity Date****On
                Balance Sheet**
              **Financial
                Instruments**
            
            **2007**
            **2008**
            **2009**
            **2010**
            **2011
                and thereafter**
            **Total**
            **Fair
                Value**(in
                thousands of U.S. dollars)**Fixed
                Rate (US$)**
            
            **22,786**
            **22,527**
            **22,239**
            **21,965**
            **385,627**
            **475,144**
            **308,781**200m
                US$ bond - Avge. Int.: 6.125%
            12,250
            12,250
            12,250
            12,250
            267,375
            316,375
            204,612100m
                UF bond - Avge. Int.: 5.26% (1)
            10,536
            10,277
            9,989
            9,715
            118,252
            158,769
            104,169**Variable
                Rate (US$)**
            
            **10,362**
            **10,335**
            **10,271**
            **105,986**
            **84,826**
            **221,780**
            **182,723**100m
                US$ loan - Avge. Int.: 5.735%
            5,788
            5,799
            5,735
            101,450
            —
            118,772
            101,43080m
                US$ loan - Avge. Int.: 5.67%
            4,574
            4,536
            4,536
            4,536
            84,826
            103,008
            81,293**Total**
            
            **33,148**
            **32,862**
            **32,510**
            **127,951**
            **470,453**
            **696,924**
            **491,504**




(1)
                UF-bond fully hedged, under Chilean GAAP to US$ with a Cross Currency
                Swap. Resulting in a fixed US$ rate of
                5.26%





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





89
 *Table
            of Contents*





As
      of
      December 31, 2006 and 2005 we had the following net monetary assets and
      liabilities that are subject to foreign exchange gain or loss
      fluctuation:





**2006**
            **2005****Th
                US$**
            **Th
                US$**Chilean
                pesos
            (41,922)
            53,167Brazilian
                real
            (1,332)
            (941)Euro
            27,167
            19,373Japanese
                yen
            730
            6,333Mexican
                pesos
            1,587
            8,101South
                African rand
            11,676
            7,529Dirhams
            13,554
            11,543Other
                currencies
            7,854
            3,282**Total,
                net**
            **19,314**
            **108,387**




As
        of
        December 31, 2006, for this purpose we had open forward exchange contracts
        and
        options to buy U.S. dollars and sell foreign currency for approximately UF
        3
        million (US$ 102 million), 13 million Euros (US$17.12 million), 50 million
        South
        African Rands (US$ 7.15 million) and 20 million Mexican Pesos (US$ 1.89
        million), and forward exchange contracts to buy Chilean pesos and sell U.S.
        dollars for approximately 5,323.9 million Chilean Pesos (US$ 10
        million)
 **ITEM
        12.****DESCRIPTION
        OF SECURITIES OTHER THAN EQUITY SECURITIES**





Not
      applicable





90
 *Table
            of Contents*




**PART
      II**





**ITEM
      13.****DEFAULTS,
      DIVIDEND ARREARAGES AND DELINQUENCIES**




Not
      applicable




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




Not
      applicable.




**ITEM
      15.****CONTROLS
      AND PROCEDURES**




***(a)***
            ***Disclosure
                Control and
                Procedures***




Under
      the
      supervision and with the participation of the Company's management, including
      the Company's Chief Executive Officer and Chief Financial Officer, we evaluated
      the effectiveness of the design and operation of our disclosure controls and
      procedures, pursuant to Exchange Act Rules 13(a)-15(b), as of the end of the
      period covered by this Annual Report. Based upon that evaluation, the Chief
      Executive Officer and Chief Financial Officer have concluded that the Company's
      disclosure controls and procedures are effective in providing reasonable
      assurance that material information is made known to management and that
      financial and non-financial information is properly recorded, processed,
      summarized and reported.




The
      procedures associated to our internal controls are designed to provide
      reasonable assurance that our transactions are properly authorized, assets
      are
      safeguarded against unauthorized or improper use, and transactions are properly
      recorded and reported. However, through the same design and evaluation period
      of
      the disclosure controls and procedures, the Company's management, including
      the
      Company's Chief Executive Officer and Chief Financial Officer, recognized that
      there are inherent limitations to the effectiveness of any internal control
      system regardless of how well designed and operated. In such a way they can
      provide only reasonable assurance of achieving the desired control objectives
      and no evaluation can provide absolute assurance that all control issues or
      instances of fraud, if any, within the Company have been detected.




There
      were no significant changes in our internal controls over financial reporting
      that occurred during the period covered by this Annual Report that have
      materially affected, or are likely to materially affect our internal control
      over financial reporting.





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




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




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




Management
      assessed the effectiveness of its internal control over financial reporting
      for
      the year ended December 31, 2006. The assessment was based on criteria
      established in the framework “Internal Controls — Integrated Framework” issued
      by the Committee of Sponsoring Organizations of the Treadway Commission (COSO).
      Based on the assessment, SQM management has concluded that as of
      December 31, 2006, the Company’s internal control over financial reporting
      was effective.






91
 *Table
          of Contents*




***(c)***
            ***Attestation
                Report of the Registered Public Accounting
                Firm***




Our
      management's assessment of the effectiveness of our internal control over
      financial reporting as of December 31, 2006 has been audited by Ernst &
Young Ltda, Chile, an independent registered public accounting firm, as stated
      in their report, which is included under Item 18 Financial Statements on pages
      F-2 and F-3.




***(d)***
            ***Changes
                in internal control***




There
      were no changes in the Company’s internal control over financial reporting that
      occurred during 2006 that have materially affected, or are reasonably likely
      to
      materially affect, the Company’s internal control over financial reporting.





**ITEM
      16.****[Reserved]**






**ITEM
      16A.****AUDIT
      COMMITTEE FINANCIAL EXPERT**





On
      May
      24, 2005 the Board of Directors approved the establishment of an audit committee
      to comply with the requirements of the NYSE corporate governance rules. On
      June
      21, 2005, the Board of Directors determined that the Company does not have
      an
      audit committee financial expert within the meaning of the regulations adopted
      under Sarbanes-Oxley Act of 2002.




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




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





**ITEM
      16B.****CODE
      OF ETHICS**





We
      have
      adopted a Code of Business Conduct that applies to the Chief Executive Officer,
      the Chief Financial Officer and the Internal Auditor, as well as, to all our
      officers and employees. Our Code adheres to the definition set forth in Item
      16B
      of Form 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 at http://www.sqm.com  in
      the
      Investor Relations section under “Corporate Governance Framework”.




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




92
 *Table
            of Contents*





**ITEM
      16C.****PRINCIPAL
      ACCOUNTANT FEES AND SERVICES**





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




**Year
                ended December 31,****2006**
            
            **2005**Audit
                fees
            
            
            859.5
            
            
            555.2Audit-related
                fees
            
            
            —
            
            
            —Tax
                fees
            
            
            202.5
            
            
            168.9Other
                fees
            
            
            84.0
            
            
            —**Total
                fees**
            
            
            **1,146.0**
            
            
            **724.1**





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




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




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





**Directors'
      Committee Pre-Approval Policies and Procedures**





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




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





**ITEM
      16D.****EXEMPTIONS
      FROM THE LISTING STANDARDS FOR AUDIT COMMITTEES**





Not
      applicable








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





Not
      applicable





93
 *Table
            of Contents*




**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 IndependentRegistered
                Public Accounting Firm
            
            
            F-1Consolidated
                Financial Statements
            
            
            F-2Consolidated
                Balance Sheets as of December 31, 2006 and 2005
            
            
            F-2Consolidated
                Statements of Income for each of the three years in the periodended
                December 31, 2006, 2005 and 2004
            
            
            F-4Consolidated
                Statements of Cash Flows for each of the three years in the period
                ended
                December 31, 2006, 2005 and 2004
            
            
            F-5Notes
                to the Consolidated Financial Statements
            
            
            F-6




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
            By-laws
                (Estatutos) of the Company**8.1
            Significant
                subsidiaries of the Company12.1
            Section
                302 Chief Executive Officer Certification12.2
            Section
                302 Chief Financial Officer Certification13.1
            Section
                906 Chief Executive Officer Certification13.2
            Section
                906 Chief Financial Officer
                Certification








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





94
 *Table
            of Contents*





**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 29, 2007






95
 *Table
          of Contents*




Consolidated
      Financial Statements








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








As
      of
      December 31, 2006 and 2005


and
      for
      each of the three years in the period ended December 31, 2006






**Contents**Report
                of Independent Registered Public Accounting
                Firm
            F-1Report
                of Independent Registered Public Accounting Firm on
                the management’s assessment of internal control and on the effectiveness
                of internal control as of December 31, 2006
            F-2**Consolidated
                Financial Statements:**Audited
                Consolidated Balance Sheets as of December 31, 2006 and 2005
            F-4Audited
                Consolidated Statements of Income for each of the three years in
                the
                period endedDecember
                31, 2006
            F-6Audited
                Consolidated Statements of Cash Flows for each of the
                three years in the period ended December 31, 2006
            F-7Notes
                to the Audited Consolidated Financial Statements
            F-9








US$
            -United
                States dollars


ThUS$
            -Thousands
                of United States dollars


Ch$
            -Chilean
                pesos


ThCh$
            -Thousands
                of Chilean pesos


ThEuro
            -Thousands
                of Euros


UF
            -or*Unidad
                de Fomento.*The
                UF is an inflation-indexed, Chilean peso-denominated monetary unit.
                The UF
                rate is set daily in advance, based on the change in the Consumer
                Price
                Index of the previous month.




*Table
          of Contents*
 **Report
          of Independent Registered Public Accounting Firm**
 
 To
          the
          Board of Directors and Shareholders of
 Sociedad
          Química y Minera de Chile S.A.:
 
 We
          have
          audited the accompanying consolidated balance sheets of Sociedad Química y
          Minera de Chile S.A. and subsidiaries (“the Company”) as of December 31, 2006
          and 2005, and the related consolidated statements of income and cash flows
          for
          each of the three years in the period ended December 31, 2006. These financial
          statements are the responsibility of the Company’s management. Our
          responsibility is to express an opinion on these financial statements based
          on
          our audits.
 
 We
          conducted our audits in accordance with the standards of the Public Company
          Accounting Oversight Board (United States). Those
          standards require that we plan and perform the audit to obtain reasonable
          assurance about whether the financial statements are free of material
          misstatement. An audit also includes examining, on a test basis, evidence
          supporting the amounts and disclosures in the financial statements, assessing
          the accounting principles used and significant estimates made by management,
          and
          evaluating the overall financial statement presentation. We believe that
          our
          audits provide a reasonable basis for our opinion.
 
 In
          our
          opinion, the financial statements referred to above present fairly, in
          all
          material respects, the consolidated financial position of Sociedad Química y
          Minera de Chile S.A. and subsidiaries at December 31, 2006 and 2005, and
          the
          results of their operations and their cash flows for each of the three
          years in
          the period ended December 31, 2006 in conformity with accounting principles
          generally accepted in Chile, which differ in certain respects from accounting
          principles generally accepted in the United States of America (see Note
          29 to
          the consolidated financial statements).
  We
          also
          have audited, in accordance with the standards of the Public Company Accounting
          Oversight Board (United States), the effectiveness of the Company’s internal
          control over financial reporting as of December 31, 2006, based on the
          criteria established in Internal Control-Integrated Framework issued by
          the
          Committee of Sponsoring Organizations of the Treadway Commission and our
          report
          dated June 28, 2007, expressed an unqualified opinion thereon.
 
 
 ERNST
                    & YOUNG LTDA.
 
 Santiago,
          Chile
 June
          28,
          2007





F-1
 *Table
            of Contents*


**Report
        of Independent Registered Public Accounting Firm**
 
 To
        the
        Board of Directors and Shareholders of
 Sociedad
        Química y Minera de Chile S.A.:
 
 We
        have
        audited management’s assessment, included in the accompanying Form 20-F on
        internal control over financial reporting, that Sociedad Química y Minera de
        Chile S.A. and subsidiaries (the “Company”) maintained effective internal
        control over financial reporting as of December 31, 2006, based on criteria
        established in Internal Control—Integrated Framework issued by the Committee of
        Sponsoring Organizations of the Treadway Commission (the COSO criteria).
        The
        Company’s management is responsible for maintaining effective internal control
        over financial reporting and for its assessment of the effectiveness of internal
        control over financial reporting. Our responsibility is to express an opinion
        on
        management’s assessment and an opinion on the effectiveness of the Company’s
        internal control over financial reporting based on our audit.
 
 We
        conducted our audit in accordance with the standards of the Public Company
        Accounting Oversight Board (United States). Those standards require that
        we plan
        and perform the audit to obtain reasonable assurance about whether effective
        internal control over financial reporting was maintained in all material
        respects. Our audit included obtaining an understanding of internal control
        over
        financial reporting, evaluating management’s assessment, testing and evaluating
        the design and operating effectiveness of internal control, and performing
        such
        other procedures as we considered necessary in the circumstances. We believe
        that our audit provides a reasonable basis for our opinion.
 
 A
        company’s internal control over financial reporting is a process designed to
        provide reasonable assurance regarding the reliability of financial reporting
        and the preparation of financial statements for external purposes in accordance
        with generally accepted accounting principles. A company’s internal control over
        financial reporting includes those policies and procedures that (1) pertain
        to
        the maintenance of records that, in reasonable detail, accurately and fairly
        reflect the transactions and dispositions of the assets of the company; (2)
        provide reasonable assurance that transactions are recorded as necessary
        to
        permit preparation of financial statements in accordance with generally accepted
        accounting principles, and that receipts and expenditures of the company
        are
        being made only in accordance with authorizations of management and directors
        of
        the company; and (3) provide reasonable assurance regarding prevention or
        timely
        detection of unauthorized acquisition, use, or disposition of the company’s
        assets that could have a material effect on the financial statements.
 
 Because
        of its inherent limitations, internal control over financial reporting may
        not
        prevent or detect misstatements. Also, projections of any evaluation of
        effectiveness to future periods are subject to the risk that controls may
        become
        inadequate because of changes in conditions, or that the degree of compliance
        with the policies or procedures may deteriorate.




F-2
 *Table
            of Contents*


In
        our
        opinion, management’s assessment that the Company maintained effective internal
        control over financial reporting as of December 31, 2006, is fairly stated,
        in
        all material respects, based on the COSO criteria. Also, in our opinion,
        the
        Company maintained, in all material respects, effective internal control
        over
        financial reporting as of December 31, 2006, based on the COSO criteria.
 
 We
        also
        have audited, in accordance with the standards of the Public Company Accounting
        Oversight Board (United States), the 2006, 2005 and 2004 consolidated financial
        statements of Sociedad Química y Minera de Chile S.A. and our report dated June
        28, 2007 expressed an unqualified opinion thereon.
 
 ERNST
                  & YOUNG LTDA.
 
 Santiago,
        Chile
 June
        28,
        2007




F-3
 *Table
          of Contents*




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


**Audited
        Consolidated Balance Sheets**
 **(Expressed
        in thousand of US dollars, except as stated)**


**As
                of December 31,****ASSETS**
            
            **Note**
            
            **2006**
            
            **2005****ThUS$**
            
            **ThUS$****Current
                assets**Cash
                and cash equivalents
            
            
            
            
            
            183,943
            
            
            147,956Trade
                accounts receivable, net
            
            
            4
            
            
            177,406
            
            
            155,836Other
                accounts receivable, net
            
            
            4
            
            
            4,857
            
            
            9,737Accounts
                receivable from related companies
            
            
            5
            
            
            65,640
            
            
            56,459Inventories,
                net
            
            
            6
            
            
            365,499
            
            
            327,232Recoverable
                taxes
            
            
            
            
            
            32,830
            
            
            31,212Prepaid
                expenses
            
            
            
            
            
            3,885
            
            
            3,189Deferred
                income taxes
            
            
            14
            
            
            —
            
            
            2,528Other
                current assets
            
            
            
            
            
            11,815
            
            
            8,634Total
                current assets
            
            
            
            
            
            845,875
            
            
            742,783**Property,
                plant and equipment, net**
            
            
            7
            
            
            916,928
            
            
            794,647**Other
                Assets**Investments
                in related companies
            
            
            8
            
            
            18,329
            
            
            20,676Goodwill,
                net
            
            
            9
            
            
            36,331
            
            
            27,209Negative
                goodwill, net
            
            
            9
            
            
            (1,928
            )
            
            (68
            )Intangible
                assets, net
            
            
            
            
            
            4,523
            
            
            4,783Long-term
                accounts receivable, net
            
            
            4
            
            
            388
            
            
            379Long-term
                accounts receivable from related companies
            
            
            5
            
            
            2,000
            
            
            2,000Other
                long-term assets
            
            
            10
            
            
            48,756
            
            
            48,159Total
                other assets
            
            
            
            
            
            108,399
            
            
            103,138Total
                assets
            
            
            
            
            
            1,871,202
            
            
            1,640,568






The
      accompanying notes 1 to 29 form an integral part of these consolidated financial
      statements.


F-4
 *Table
            of Contents*




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


**Audited
        Consolidated Balance Sheets**
 **(Expressed
        in thousand of US dollars, except as stated)**


**As
                of December 31,****LIABILITIES
                AND SHAREHOLDERS' EQUITY**
            
            **Note**
            
            **2006**
            
            **2005****ThUS$**
            
            **ThUS$****Current
                liabilities**Short-term
                bank debt
            
            
            11
            
            
            58,350
            
            
            85,022Current
                portion of long-term bank debt
            
            
            11
            
            
            828
            
            
            204,880Current
                portion of bonds payable
            
            
            12
            
            
            5,540
            
            
            —Dividends
                payable
            
            
            
            
            
            264
            
            
            229Accounts
                payable
            
            
            
            
            
            80,810
            
            
            70,292Notes
                and accounts payable to related companies
            
            
            5
            
            
            5,807
            
            
            7,662Accrued
                liabilities
            
            
            13
            
            
            16,404
            
            
            23,750Withholdings
            
            
            
            
            
            11,386
            
            
            13,092Income
                taxes
            
            
            
            
            
            8,722
            
            
            20,675Deferred
                income taxes
            
            
            14
            
            
            4,088
            
            
            —Deferred
                income
            
            
            
            
            
            4,065
            
            
            1,262Other
                current liabilities
            
            
            
            
            
            1,378
            
            
            1,404Total
                current liabilities
            
            
            
            
            
            197,642
            
            
            428,268**Long-term
                liabilities**Long-term
                bank debt
            
            
            11
            
            
            180,000
            
            
            100,000Bonds
                payable
            
            
            12
            
            
            300,724
            
            
            —Deferred
                income taxes
            
            
            14
            
            
            47,361
            
            
            38,895Long-term
                accrued liabilities
            
            
            15
            
            
            19,464
            
            
            16,415Other
                long-term liabilities
            
            
            
            
            
            849
            
            
            1,065Total
                long-term liabilities
            
            
            
            
            
            548,398
            
            
            156,375**Minority
                interest**
            
            
            16
            
            
            39,213
            
            
            35,509**Commitments
                and contingencies**
            
            
            22
            
            
            —
            
            
            —**Shareholders'
                equity**Paid-in
                capital
            
            
            17
            
            
            477,386
            
            
            477,386Other
                reserves
            
            
            17
            
            
            155,190
            
            
            157,287Retained
                earnings
            
            
            17
            
            
            453,373
            
            
            385,743Total
                Shareholders' equity
            
            
            
            
            
            1,085,949
            
            
            1,020,416Total
                Liabilities and Shareholders' equity
            
            
            
            
            
            1,871,202
            
            
            1,640,568






The
      accompanying notes 1 to 29 form an integral part of these consolidated financial
      statements.


F-5
 *Table
          of Contents*




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


**Audited
        Consolidated Statements of Income**
 **(Expressed
        in thousands of US dollars, except as stated)**


**For
                the years ended December 31,****Note**
            
            **2006**
            
            **2005**
            
            **2004****ThUS$**
            
            **ThUS$**
            
            **ThUS$****Operating
                income**Sales
            
            
            
            
            
            1,042,886
            
            
            895,970
            
            
            788,516Cost
                of sales
            
            
            
            
            
            (753,336
            )
            
            (652,901
            )
            
            (608,744
            )Gross
                margin
            
            
            
            
            
            289,550
            
            
            243,069
            
            
            179,772Selling
                and administrative expenses
            
            
            
            
            
            (69,662
            )
            
            (61,878
            )
            
            (55,705
            )Operating
                income
            
            
            
            
            
            219,888
            
            
            181,191
            
            
            124,067**Non-operating
                income and expense**Non-operating
                income
            
            
            19
            
            
            19,293
            
            
            16,433
            
            
            20,829Non-operating
                expenses
            
            
            19
            
            
            (55,341
            )
            
            (50,755
            )
            
            (38,420
            )Non-operating
                loss
            
            
            
            
            
            (36,048
            )
            
            (34,322
            )
            
            (17,591
            )**Income
                before income taxes, minority interest and amortization of negative
                goodwill**
            
            
            
            
            
            183,840
            
            
            146,869
            
            
            106,476Income
                tax expense
            
            
            14
            
            
            (37,916
            )
            
            (32,527
            )
            
            (27,308
            )**Income
                before minority interest and amortization of negative
                goodwill**
            
            
            
            
            
            145,924
            
            
            114,342
            
            
            79,168Minority
                interest
            
            
            16
            
            
            (4,715
            )
            
            (1,039
            )
            
            (5,139
            )**Income
                before amortization of negative goodwill**
            
            
            
            
            
            141,209
            
            
            113,303
            
            
            74,029Amortization
                of negative goodwill
            
            
            9
            
            
            68
            
            
            203
            
            
            203**Net
                income for the year**
            
            
            
            
            
            141,277
            
            
            113,506
            
            
            74,232






The
      accompanying notes 1 to 29 form an integral part of these consolidated financial
      statements.




F-6
 *Table
          of Contents*




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


**Audited
        Consolidated Statements of Cash Flows**
 **(Expressed
        in thousands of US dollars, except as stated)**


**For
                the years ended December 31****Note**
            
            **2006**
            
            **2005**
            
            **2004****ThUS$**
            
            **ThUS$**
            
            **ThUS$****Cash
                flows from operating activities**Net
                income
            
            
            
            
            
            141,277
            
            
            113,506
            
            
            74,232**Charges
                (credits) to income not representing cash flows**Depreciation
                expense
            
            
            7
            
            
            90,354
            
            
            70,054
            
            
            62,690Amortization
                of intangible assets
            
            
            
            
            
            915
            
            
            498
            
            
            173Write-offs
                and accruals
            
            
            
            
            
            16,512
            
            
            17,034
            
            
            23,584Equity
                participation in net income of unconsolidated investees
            
            
            
            
            
            (2,314
            )
            
            (3,073
            )
            
            (4,897
            )Equity
                participation in net losses of unconsolidated
              investeesinininvesteesinves
            
            
            
            
            
            362
            
            
            477
            
            
            387Amortization
                of goodwill
            
            
            9
            
            
            2,229
            
            
            2,070
            
            
            1,073Amortization
                of negative goodwill
            
            
            9
            
            
            (68
            )
            
            (203
            )
            
            (203
            )(Gain)
                loss on sales of assets
            
            
            
            
            
            (809
            )
            
            216
            
            
            283Gains
                on sale of investment
            
            
            
            
            
            (732
            )
            
            —
            
            
            (8,820
            )Other
                credits to income not representing cash flows
            
            
            22
            
            
            (2,762
            )
            
            (10,109
            )
            
            (1,919
            )Other
                charges to income not representing cash flows
            
            
            22
            
            
            82,333
            
            
            87,689
            
            
            59,092Foreign
                currency exchange and price-level restatement, net
            
            
            
            
            
            2,263
            
            
            3,804
            
            
            475**Net
                changes in operating assets and liabilities:**Accounts
                receivable
            
            
            
            
            
            (240
            )
            
            (15,838
            )
            
            (9,447
            )Inventories
            
            
            
            
            
            (46,730
            )
            
            (58,807
            )
            
            (40,665
            )Other
                assets
            
            
            
            
            
            7,917
            
            
            (10,783
            )
            
            (770
            )Accounts
                payable
            
            
            
            
            
            (23,359
            )
            
            (6,520
            )
            
            (6,829
            )Interest
                payable
            
            
            
            
            
            2,968
            
            
            349
            
            
            (38
            )Net
                income taxes payable
            
            
            
            
            
            (49,515
            )
            
            (25,620
            )
            
            1,284Other
                accounts payable
            
            
            
            
            
            (10,840
            )
            
            (10,517
            )
            
            (2,935
            )VAT
                and taxes payable
            
            
            
            
            
            6,724
            
            
            (3,282
            )
            
            137Minority
                interest
            
            
            16
            
            
            4,715
            
            
            1,039
            
            
            5,139Net
                cash provided by operating activities
            
            
            
            
            
            221,200
            
            
            151,984
            
            
            152,026**Cash
                flows from financing activities**Proceeds
                from bank financing
            
            
            
            
            
            259,257
            
            
            185,000
            
            
            83,307Proceeds
                from issuance of bonds
            
            
            
            
            
            299,833
            
            
            —
            
            
            —Payments
                of dividends
            
            
            
            
            
            (74,566
            )
            
            (51,732
            )
            
            (25,706
            )Repayment
                of bank financing
            
            
            
            
            
            (406,282
            )
            
            (6,000
            )
            
            (192,696
            )Payment
                of expenses for the issuance and placement of bonds
                payable
            
            
            
            
            
            (6,629
            )
            
            —
            
            
            —Net
                cash provided by (used in) financing activities
            
            
            
            
            
            71,613
            
            
            127,268
            
            
            (135,095
            )**Cash
                flows from investing activities**Sales
                of property, plant and equipment
            
            
            
            
            
            10,289
            
            
            2,546
            
            
            741Sales
                of investments in related companies
            
            
            
            
            
            5,790
            
            
            —
            
            
            —Sales
                of permanent investments
            
            
            
            
            
            —
            
            
            —
            
            
            69,337Sales
                other investments
            
            
            
            
            
            —
            
            
            —
            
            
            210Other
                investing income
            
            
            
            
            
            500
            
            
            1,345
            
            
            877Additions
                to property, plant and equipment
            
            
            
            
            
            (175,788
            )
            
            (185,603
            )
            
            (51,758
            )Capitalized
                interest
            
            
            
            
            
            (10,948
            )
            
            (5,140
            )
            
            (1,708
            )Purchase
                of permanent investments, net of cash acquired of
              ThUS$
                24,311, 836 and 242 respectively
            
            
            
            
            
            (64,574
            )
            
            (12,026
            )
            
            (37,079
            )Investments
                in financial instruments
            
            
            
            
            
            —
            
            
            (2
            )
            
            (13
            )Other
                disbursements
            
            
            
            
            
            (504
            )
            
            (666
            )
            
            —Net
                cash used in investing activities
            
            
            
            
            
            (259,546
            )
            
            (199,546
            )
            
            (19,393
            )Effect
                of inflation on cash and cash equivalents
            
            
            
            
            
            2,720
            
            
            1,497
            
            
            (58
            )Net
                change in cash and cash equivalents
            
            
            
            
            
            35,987
            
            
            81,203
            
            
            (2,520
            )Beginning
                balance of cash and cash equivalents
            
            
            
            
            
            147,956
            
            
            66,753
            
            
            69,273**Ending
                balance of cash and cash equivalents**
            
            
            2
                e)
            
            
            **183,943**
            
            
            **147,956**
            
            
            **66,753**






The
      accompanying notes 1 to 29 form an integral part of these consolidated financial
      statements.




F-7
 *Table
          of Contents*
  **Sociedad
        Química y Minera de Chile S.A. and Subsidiaries**


**Audited
        Consolidated Statements of Cash Flows**
 **(Expressed
        in thousands of US dollars, except as stated)**


**For
                the years ended December 31****2006**
            
            **2005**
            
            **2004****ThUS$**
            
            **ThUS$**
            
            **ThUS$****Supplemental
                cash flow information:**Interest
                paid
            
            
            37,884
            
            
            20,315
            
            
            18,986Income
                taxes paid
            
            
            49,515
            
            
            22,330
            
            
            2,466Capital
                lease obligation
            
            
            274
            
            
            204
            
            
            222






The
      accompanying notes 1 to 29 form an integral part of these consolidated financial
      statements.




F-8
 *Table
          of Contents*




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


**Notes
      to the Audited Consolidated Financial
      Statements**


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






**Note
      1 - Company Background**





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





References
      herein to “Parent Company” are to Sociedad Química y Minera de Chile S.A. and
      references herein to the “Company” or “SQM” are to Sociedad Química y Minera de
      Chile S.A. together with its consolidated subsidiaries and the companies in
      which Sociedad Química y Minera de Chile S.A. holds significant equity
      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 US dollars
      in accordance with accounting principles generally accepted in Chile (“Chilean
      GAAP”) and the regulations of the SVS. Certain accounting practices applied by
      the Company that conform with Chilean GAAP do not conform with accounting
      principles generally accepted in the United States (“US GAAP”) or International
      Financial Reporting Standards (“IFRS”).





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




The
      preparation of financial statements in conformity with Chilean 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.




F-9
 *Table
            of Contents*




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


**Notes
        to the Audited Consolidated Financial Statements**
 **(Expressed
        in thousands US dollars, except as stated)**


**Note
      2 - Summary of Significant Accounting Policies (continued)**





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





The
      majority-owned subsidiaries of the SQM S.A. as of December 31, 2006, 2005 and
      2004 are as follows:





**Direct
                or indirect ownership****2006**
            
            **2005**
            
            **2004****Foreign
                subsidiaries:**
            
            **%**
            
            **%**
            
            **%**Nitrate
                Corp. of Chile Limited (United Kingdom)
            
            
            100.00
            
            
            100.00
            
            
            100.00Soquimich
                SRL (Argentina)
            
            
            100.00
            
            
            100.00
            
            
            100.00Nitratos
                Naturais do Chile Ltda. (Brazil)
            
            
            100.00
            
            
            100.00
            
            
            100.00SQM
                Europe NV (Belgium)
            
            
            100.00
            
            
            100.00
            
            
            100.00SQM
                North America Corp. (USA)
            
            
            100.00
            
            
            100.00
            
            
            100.00North
                American Trading Company (USA)
            
            
            100.00
            
            
            100.00
            
            
            100.00SQM
                Perú S.A.
            
            
            100.00
            
            
            100.00
            
            
            100.00SQM
                Corporation NV (Dutch Antilles)
            
            
            100.00
            
            
            100.00
            
            
            100.00S.Q.I.
                Corporation NV (Dutch Antilles)
            
            
            100.00
            
            
            100.00
            
            
            100.00Soquimich
                European Holding BV (Holland)
            
            
            100.00
            
            
            100.00
            
            
            100.00PTM
                - SQM Ibérica S.A. (Spain)
            
            
            100.00
            
            
            100.00
            
            
            100.00SQMC
                Holding Corporation LLP (USA)
            
            
            100.00
            
            
            100.00
            
            
            100.00SQM
                Ecuador S.A.
            
            
            100.00
            
            
            100.00
            
            
            100.00Cape
                Fear Bulk LLC (USA)
            
            
            51.00
            
            
            51.00
            
            
            51.00SQM
                Investment Corporation NV (Dutch Antilles)
            
            
            100.00
            
            
            100.00
            
            
            100.00SQM
                Brasil Ltda.
            
            
            100.00
            
            
            100.00
            
            
            100.00Royal
                Seed Trading Corporation AVV (Aruba)
            
            
            100.00
            
            
            100.00
            
            
            100.00SQM
                Japan K.K.
            
            
            100.00
            
            
            100.00
            
            
            100.00SQM
                Oceanía PTY Limited (Australia)
            
            
            100.00
            
            
            100.00
            
            
            100.00SQM
                France S.A.
            
            
            100.00
            
            
            100.00
            
            
            100.00RS
                Agro-Chemical Trading AVV (Aruba)
            
            
            100.00
            
            
            100.00
            
            
            100.00SQM
                Comercial de México S.A. de C.V.
            
            
            100.00
            
            
            100.00
            
            
            100.00SQM
                Indonesia
            
            
            80.00
            
            
            80.00
            
            
            80.00SQM
                Virginia LLC (USA)
            
            
            100.00
            
            
            100.00
            
            
            100.00Agricolima
                S.A. de C.V. (Mexico)
            
            
            100.00
            
            
            100.00
            
            
            100.00SQM
                Venezuela S.A.
            
            
            100.00
            
            
            100.00
            
            
            100.00SQM
                Italia SRL (Italy)
            
            
            100.00
            
            
            95.00
            
            
            95.00Comercial
                Caiman Internacional S.A. (Cayman Islands)
            
            
            100.00
            
            
            100.00
            
            
            100.00Mineag
                SQM Africa Limited (South Africa)
            
            
            100.00
            
            
            100.00
            
            
            100.00Fertilizantes
                Olmeca y SQM S.A. de C.V. (Mexico)
            
            
            —
            
            
            100.00
            
            
            100.00Administración
                y Servicios Santiago S.A. de C.V. (Mexico)
            
            
            100.00
            
            
            100.00
            
            
            100.00SQM
                Lithium Specialties LLC (USA)
            
            
            100.00
            
            
            100.00
            
            
            100.00SQM
                Nitratos México S.A. de C.V. (Mexico)
            
            
            51.00
            
            
            51.00
            
            
            51.00Fertilizantes
                Naturales S.A. (Spain) (1)
            
            
            66.67
            
            
            —
            
            
            50.00Iodine
                Minera B.V. (Holland)Fertilizantes
                Naturales S.A. (Spain) (1)
            
            
            100.00
            
            
            —
            
            
            —SQM
                Dubai - Fzco (United Arab Emirates).
            
            
            100.00
            
            
            100.00
            
            
            —





(1)
            Up
                to December 31, 2004 the Company exerted control over Fertilizantes
                Naturales S.A. and that entity was included in the consolidation
                for the
                year ended December 31, 2004. Beginning January 1, 2005, the Company
                lost
                the control over this entity and therefore it has been excluded from
                consolidation for the year ended December 31, 2005. During 2006 the
                Company acquired additional participation in the entity and included
                it in
                the consolidation for the year ended December 31, 2006.





F-10
 *Table
            of Contents*




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


**Notes
        to the Audited Consolidated Financial Statements**
 **(Expressed
        in thousands US dollars, except as stated)**


**Note
      2 - Summary of Significant Accounting Policies (continued)**





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





**Direct
                or indirect ownership****2006**
            
            **2005**
            
            **2004****Domestic
                subsidiaries:**
            
            **%**
            
            **%**
            
            **%**Servicios
                Integrales de Tránsitos y Transferencias S.A.
            
            
            100.00
            
            
            100.00
            
            
            100.00Soquimich
                Comercial S.A.
            
            
            60.64
            
            
            60.64
            
            
            60.64Isapre
                Norte Grande Limitada
            
            
            100.00
            
            
            100.00
            
            
            100.00Almacenes
                y Depósitos Limitada
            
            
            100.00
            
            
            100.00
            
            
            100.00Ajay
                SQM Chile S.A.
            
            
            51.00
            
            
            51.00
            
            
            51.00SQM
                Nitratos S.A.
            
            
            99.99
            
            
            99.99
            
            
            99.99Proinsa
                Limitada
            
            
            60.58
            
            
            60.58
            
            
            60.58SQM
                Potasio S.A.
            
            
            100.00
            
            
            100.00
            
            
            100.00SQMC
                International Limitada
            
            
            60.64
            
            
            60.64
            
            
            60.64SQM
                Salar S.A.
            
            
            100.00
            
            
            100.00
            
            
            100.00SQM
                Industrial S.A
            
            
            100.00
            
            
            100.00
            
            
            100.00Minera
                Nueva Victoria S.A.
            
            
            100.00
            
            
            —
            
            
            —Exploraciones
                Mineras S.A.
            
            
            100.00
            
            
            —
            
            
            —Sociedad
                Prestadora de Servicios de Salud Cruz del Norte S.A.
            
            
            100.00
            
            
            —
            
            
            —Comercial
                Hydro S.A.
            
            
            60.64
            
            
            60.64
            
            
            60.64





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





**b)**
            **Period
                presented**





These
      consolidated financial statements have been prepared as of December 31, 2006
      and
      2005 and for each of the three years in the period ended December 31, 2006.





F-11
 *Table
            of Contents*




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


**Notes
        to the Audited Consolidated Financial Statements**
 **(Expressed
        in thousands US dollars, except as stated)**


**Note
      2 - Summary of Significant Accounting Policies (continued)**





**c)**
            **Reporting
                currency and price-level
                restatement**





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





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





In
      accordance with Chilean GAAP the financial statements of domestic subsidiaries
      that maintain their accounting records in Chilean pesos have been restated
      to
      reflect the effects of variations in the purchasing power of Chilean pesos
      during the year. For this purpose, and in accordance with Chilean regulations,
      non-monetary assets and liabilities, equity and income statement accounts have
      been restated in terms of year-end constant pesos based on the change in the
      consumer price index during the year (2.1% and 3.6% in 2006 and 2005,
      respectively). The resulting net charge or credit to income arises as a result
      of the gain or loss in purchasing power from the holding of non-US dollar
      denominated monetary assets and liabilities exposed to the effects of
      inflation.





*Index-linked
      assets and liabilities*





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





**US$**December
                31, 2004
            
            
            31.07December
                31, 2005
            
            
            35.07December
                31, 2006
            
            
            34.44





F-12
 *Table
            of Contents*




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


**Notes
        to the Audited Consolidated Financial Statements**
 **(Expressed
        in thousands US dollars, except as stated)**


**Note
      2 - Summary of Significant Accounting Policies (continued)**





**d)**
            **Foreign
                currency**





**i)**
            **Foreign
                currency transactions**





Monetary
      assets and liabilities denominated in Chilean pesos and other currencies have
      been translated to US dollars at the observed exchange rates determined by
      the
      Central Bank of Chile as of each year-end. The observed exchange rates of
      Chilean pesos were Ch$ 532.39 per US$1 at December 31, 2006 and Ch$ 512.50
      per
      US$1 at December 31, 2005.





**ii)**
            **Translation
                of non-U.S. dollar financial
                statements**





In
      accordance with Chilean GAAP, the financial statements of foreign and domestic
      subsidiaries that do not maintain their accounting records in US dollars are
      translated from the respective local currencies to U.S. dollars in accordance
      with Technical Bulletin No. 64 and No. 72 of the Chilean Association of
      Accountants (“BT 64 and BT 72”) as follows:





·
            Domestic
                subsidiaries




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





-
            Balance
                sheet accounts are translated to US dollars at the year-end exchange
                rate
                without eliminating the effects of price-level restatement. The assets
                and
                liabilities were translated into US dollars at the exchange rates
                as of
                the respective balance sheet dates of Ch$ 532.39 and Ch$ 512.50 per
                US$ 1
                as of December 31, 2006 and 2005,
                respectively.





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





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








F-13
 *Table
            of Contents*




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


**Notes
        to the Audited Consolidated Financial Statements**
 **(Expressed
        in thousands US dollars, except as stated)**


**Note
      2 - Summary of Significant Accounting Policies (continued)**





**d)**
            **Foreign
                currency (continued)**





·
            Foreign
                subsidiaries





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





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





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





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





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





Foreign
      exchange differences for the period ended December 31, 2006, 2005 and 2004
      generated net loss of ThUS$ (2,263), ThUS$ (3,804) and ThUS$ (475) 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 at December 31, as
      follows:





**As
                of December 31,****2006**
            
            **2005**
            
            **2004****US$**
            
            **US$**
            
            **US$**Brazilian
                Real
            
            
            2.14
            
            
            2.34
            
            
            2.65New
                Peruvian Sol
            
            
            3.19
            
            
            3.34
            
            
            3.47Argentine
                Peso
            
            
            3.06
            
            
            3.03
            
            
            2.98Japanese
                Yen
            
            
            119.11
            
            
            118.07
            
            
            104.21Euro
            
            
            0.76
            
            
            0.85
            
            
            0.73Mexican
                Peso
            
            
            10.88
            
            
            10.71
            
            
            11.22Indonesian
                Rupee
            
            
            9,830.04
            
            
            9,290.00
            
            
            9,289.97Australian
                Dollar
            
            
            1.27
            
            
            1.36
            
            
            1.28Pound
                Sterling
            
            
            0.51
            
            
            0.52
            
            
            0.52Ecuadorian
                Sucre
            
            
            1.00
            
            
            1.00
            
            
            1.00South
                African Rand
            
            
            6.99
            
            
            6.33
            
            
            5.80





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





F-14
 *Table
            of Contents*




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


**Notes
        to the Audited Consolidated Financial Statements**
 **(Expressed
        in thousands US dollars, except as stated)**


**Note
      2 - Summary of Significant Accounting Policies (continued)**





**e)**
            **Cash
                and cash equivalents**





The
      Company considers all highly liquid investments with a remaining maturity of
      less than 90 days as of the closing date of the financial statements to be
      cash
      equivalents.





**As
                of December 31,****2006**
            
            **2005**
            
            **2004****ThUS$**
            
            **ThUS$**
            
            **ThUS$**Cash
            
            
            20,915
            
            
            13,273
            
            
            18,559Time
                deposits
            
            
            32,707
            
            
            1,483
            
            
            15,854Mutual
                funds
            
            
            130,321
            
            
            132,303
            
            
            30,797Repurchase
                agreements
            
            
            —
            
            
            897
            
            
            1,543Total
            
            
            183,943
            
            
            147,956
            
            
            66,753





**f)**
            **Time
                deposits**





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





**g)**
            **Allowance
                for doubtful accounts**





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





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





**h)**
            **Inventories
                and materials**





Inventories
      of finished products and work in process are valued at average production cost.
      Raw materials and goods for resale acquired from third parties are stated at
      average acquisition cost and materials-in-transit are valued at cost. These
      values do not exceed net realizable values.





Inventories
      of non-critical spare parts and supplies are classified as other current assets,
      except for those items for which the Company estimates a turnover period in
      excess of one year, which are classified as other long-term assets.





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





F-15
 *Table
            of Contents*




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


**Notes
        to the Audited Consolidated Financial Statements**
 **(Expressed
        in thousands US dollars, except as stated)**


**Note
      2 - Summary of Significant Accounting Policies (continued)**





**i)**
            **Income
                taxes and deferred income
                taxes**





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





The
      Company records deferred income taxes in accordance with Technical Bulletin
      No.
      60 (“BT 60”) and complementary technical bulletins thereto issued by the Chilean
      Association of Accountants, and with SVS Circulars No. 1466 and No. 1560,
      recognizing, using the liability method, the deferred tax effects of temporary
      differences between the financial and tax values of assets and liabilities.
      As a
      transitional provision at the date of adoption of BT 60, a contra asset or
      liability has been recorded offsetting the effects of the deferred tax assets
      and liabilities not recorded prior to January 1, 2000. Such contra asset or
      liability must be amortized to income over the estimated average reversal
      periods corresponding to the underlying temporary differences to which the
      deferred tax asset or liability relates calculated using the tax rates that
      will
      be in effect at the time of reversal.





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





**j)**
            **Property,
                plant and equipment**





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




**Estimated****years
                of useful life**Mining
                Concessions
            
            
            7
                - 13Building
                and infrastructure
            
            
            3
                - 80Machinery
                and equipment
            
            
            3
                - 35Other
            
            
            2
                - 30





F-16
 *Table
            of Contents*




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


**Notes
        to the Audited Consolidated Financial Statements**
 **(Expressed
        in thousands US dollars, except as stated)**










**Note
      2 - Summary of Significant Accounting Policies (continued)**





**j)**
            **Property,
                plant and equipment
                (continued)**





Property,
      plant and equipment acquired through financial lease agreements are accounted
      for at the present value of the minimum lease payments plus the purchase option
      based on the interest rate included in each contract. The Company does not
      legally own these assets and therefore cannot freely dispose of
      them.





In
      conformity with Technical Bulletin No. 31 and 33 of the Chilean Association
      of
      Accountants, the Company capitalizes interest cost associated with the financing
      of new assets during the construction period of such assets.





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





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





**k)**
            **Investments
                in related companies**





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





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





Investments
      in which the Company has less than 20% participation, however, has the capacity
      to exert significant influence over the investment, because SQM’s nominee form
      part of its Board of Directors, have been valued using the equity
      method.





F-17
 *Table
            of Contents*




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


**Notes
        to the Audited Consolidated Financial Statements**
 **(Expressed
        in thousands US dollars, except as stated)**


**Note
      2 - Summary of Significant Accounting Policies (continued)**





**l)**
            **Goodwill
                and negative goodwill**





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





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





Both
      goodwill and negative goodwill are amortized based on the estimated period
      of
      investment return, which is generally 20 and 10 years for goodwill and negative
      goodwill, respectively.





**m)**
            **Intangible
                assets**





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





**n)**
            **Mining
                development cost**





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





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





**o)**
            **Staff
                severance indemnities**





The
      Company calculates the liability for staff severance indemnities based on the
      present value of the accrued benefits for the actual years of service worked
      based on average employee tenure of 24 years and a real annual discount rate
      of
      8% (9% in 2004).





**p)**
            **Vacations**





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





F-18
 *Table
            of Contents*




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


**Notes
        to the Audited Consolidated Financial Statements**
 **(Expressed
        in thousands US dollars, except as stated)**


**Note
      2 - Summary of Significant Accounting Policies (continued)**





**q)**
            **Reverse
                repurchase agreements**





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





**r)**
            **Dividends**





Dividends
      are generally declared in US dollars but are paid in Chilean pesos.





**s)**
            **Derivative
                Contracts**





The
      Company maintains derivative contracts to hedge against movements in foreign
      currencies, which are recorded in conformity with Technical Bulletin No. 57
      of
      the Chilean Association of Accountants. Such contracts are generally recorded
      at
      fair value with net gain or losses recognized in results.





**t)**
            **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.





**u)**
            **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 issued by the SVS, computer systems acquired
      by
      the Company are recorded at cost.





**v)**
            **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.





**w)**
            **Bonds
                payable**





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





F-19
 *Table
            of Contents*




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


**Notes
        to the Audited Consolidated Financial Statements**
 **(Expressed
        in thousands US dollars, except as stated)**


**Note
      2 - Summary of Significant Accounting Policies (continued)**





**x)**
            **Provisions
                for mine closure costs**





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





**y)**
            **Deferred
                income**





Deferred
      income relate to the recognition of documented sales, the delivery of which
      occurs subsequent to the closing date of the financial statements.








**Note
      3 - Changes in Accounting Estimates**





During
      the year ended December 31, 2005, the Company changed the discount rate used
      for
      the determination of staff severance indemnities provision from 9% applied
      in
      the year ended December 31, 2004 to 8%. This change gave rise to a higher charge
      to income for the year ended December 31, 2005 of ThUS$ 678.





During
      the year ended December 31, 2005, the subsidiary SQM Industrial S.A. (formerly
      PCS Yumbes SCM, that was acquired in December 2004) changed the method of
      depreciation of certain assets from the unit of production to the straight-line
      method based on the estimated remaining technical useful lives of the different
      classes of assets.





F-20
 *Table
            of Contents*




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


**Notes
        to the Audited Consolidated Financial Statements**
 **(Expressed
        in thousands US dollars, except as stated)**


**Note
      4 - Short-term and long-term Accounts Receivable**





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





**Between
                90 days**
            
            **Total****Up
                to 90 days**
            
            **and
                1 year**
            
            **Short-term
                (net)****2006**
            
            **2005**
            
            **2006**
            
            **2005**
            
            **2006**
            
            **2005****ThUS$**
            
            **ThUS$**
            
            **ThUS$**
            
            **ThUS$**
            
            **ThUS$**
            
            **ThUS$****Short-term**Trade
                accounts receivable
            
            
            95,111
            
            
            105,618
            
            
            41,743
            
            
            12,570
            
            
            136,854
            
            
            118,188Allowance
                for doubtful accounts
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            (7,419
            )
            
            (7,737
            )Notes
                receivable
            
            
            50,859
            
            
            34,950
            
            
            354
            
            
            13,894
            
            
            51,213
            
            
            48,844Allowance
                for doubtful accounts
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            (3,242
            )
            
            (3,459
            )Accounts
                receivable, net
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            177,406
            
            
            155,836Other
                accounts receivable
            
            
            5,582
            
            
            9,454
            
            
            407
            
            
            999
            
            
            5,989
            
            
            10,453Allowance
                for doubtful accounts
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            (1,132
            )
            
            (716
            )Other
                accounts receivable, net
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            4,857
            
            
            9,737Total
                short-term receivable
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            182,263
            
            
            165,573Long-term
                receivables
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            388
            
            
            379





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





**2006**
            
            **2005**
            
            **2004****ThUS$**
            
            **ThUS$**
            
            **ThUS$**At
                January 1,
            
            
            11,912
            
            
            10,891
            
            
            9,985Charged
                to expenses
            
            
            1,598
            
            
            1,741
            
            
            3,537Deductions
                (release)
            
            
            (542
            )
            
            (1,097
            )
            
            (2,937
            )Exchange
                rate differences
            
            
            (177
            )
            
            377
            
            
            306Business
                disposals and other
            
            
            (998
            )
            
            —
            
            
            —At
                December 31,
            
            
            11,793
            
            
            11,912
            
            
            10,891




F-21
 *Table
          of Contents*




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


**Notes
        to the Audited Consolidated Financial Statements**
 **(Expressed
        in thousands US dollars, except as stated)**


**Note
      4 - Short-term and long-term Accounts Receivable
      (continued)**





c)
            Consolidated
                Short-term and Long-term Receivables - by geographic location of
                customer
                are as follows:





**Europe,
                Africa and**
            **Asia
                and**
            **USA,
                Mexico**
            **Latin
                America****Chile**
            **the
                Middle East**
            **Oceania**
            **and
                Canada**
            **and
                the Caribbean**
            **Total****2006**
            **2005**
            **2006**
            **2005**
            **2006**
            **2005**
            **2006**
            **2005**
            **2006**
            **2005**
            **2006**
            **2005****ThUS$**
            **ThUS$**
            **ThUS$**
            **ThUS$**
            **ThUS$**
            **ThUS$**
            **ThUS$**
            **ThUS$**
            **ThUS$**
            **ThUS$**
            **ThUS$**
            **ThUS$**Net
                short-term trade accounts receivableBalance
            
            42,375
            35,860
            43,402
            26,345
            4,575
            7,069
            28,730
            27,433
            10,353
            13,744
            129,435
            110,451%
                of total
            
            32.74%
            32.47%
            33.53%
            23.85%
            3.53%
            6.40%
            22.20%
            24.84%
            8.00%
            12.44%
            100.00%
            100.00%Net
                short-term notes receivableBalance
            
            41,270
            38,016
            2,093
            2,826
            340
            563
            994
            357
            3,274
            3,623
            47,971
            45,385%
                of total
            
            86.03%
            83.76%
            4.36%
            6.23%
            0.71%
            1.24%
            2.08%
            0.79%
            6.82%
            7.98%
            100.00%
            100.00%Net
                short-term other accounts receivableBalance
            
            2,815
            4,631
            585
            1,504
            9
            11
            1,277
            3,064
            171
            527
            4,857
            9,737%
                of total
            
            57.96%
            47.56%
            12.04%
            15.45%
            0.19%
            0.11%
            26.29%
            31.47%
            3.52%
            5.41%
            100.00%
            100.00%Subtotal
                short-term accounts receivable, netBalance
            
            86,460
            78,507
            46,080
            30,675
            4,924
            7,643
            31,001
            30,854
            13,798
            17,894
            182,263
            165,573%
                of total
            
            47.44%
            47.42%
            25.28%
            18.53%
            2.70%
            4.62%
            17.01%
            18.62%
            7.57%
            10.81%
            100.00%
            100.00%Long-term
                accounts receivable, netBalance
            
            368
            322
            -
            -
            -
            42
            -
            -
            20
            15
            388
            379%
                of total
            
            94.85%
            84.96%
            -
            -
            -
            11.08%
            -
            -
            5.15%
            3.96%
            100.00%
            100.00%Total
                short and long-term accounts receivable, netBalance
            
            86,828
            78,829
            46,080
            30,675
            4,924
            7,685
            31,001
            30,854
            13,818
            17,909
            182,651
            165,952%
                of total
            
            47.54%
            47.50%
            25.23%
            18,48%
            2.70%
            4.63%
            16.96%
            18.60%
            7.57%
            10.79%
            100.00%
            100.00%




F-22
 *Table
          of Contents*




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


**Notes
      to the Audited Consolidated Financial Statements**


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




**Note
      5 - Balances and Transactions with Related Parties**





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





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





a)  Amounts
      included in balances with related parties as of December 31, 2006 and 2005
      are
      as follows:





**Short-term**
            
            **Long-term****2006**
            
            **2005**
            
            **2006**
            
            **2005****ThUS$**
            
            **ThUS$**
            
            **ThUS$**
            
            **ThUS$****Accounts
                receivable**Doktor
                Tarsa
            
            
            8,446
            
            
            12,688
            
            
            —
            
            
            —Fertilizantes
                Naturales S.A.
            
            
            —
            
            
            5,887
            
            
            —
            
            
            —Nutrisi
                Holding N.V.
            
            
            1,603
            
            
            1,432
            
            
            —
            
            
            —Generale
                de Nutrition Vegetale S.A.
            
            
            —
            
            
            132
            
            
            —
            
            
            —Ajay
                Europe S.A.R.L.
            
            
            8,617
            
            
            1,948
            
            
            —
            
            
            —Ajay
                North America LLC
            
            
            3,271
            
            
            2,420
            
            
            —
            
            
            —Abu
                Dhabi Fertilizer Ind. WLL
            
            
            3,732
            
            
            3,354
            
            
            2,000
            
            
            2,000Impronta
                SRL
            
            
            1,094
            
            
            5,042
            
            
            —
            
            
            —NU3
                B.V.
            
            
            413
            
            
            467
            
            
            —
            
            
            —Sales
                de Magnesio S.A.
            
            
            86
            
            
            72
            
            
            —
            
            
            —SQM
                Agro India
            
            
            113
            
            
            —
            
            
            —
            
            
            —Misr
                Specialty Fertilizers
            
            
            462
            
            
            —
            
            
            —
            
            
            —Socieded
                de Inversiones Pampa Calichera Ltda.
            
            
            8
            
            
            4
            
            
            —
            
            
            —Sac
                S.A.
            
            
            —
            
            
            4
            
            
            —
            
            
            —Kowa
                (Japan)
            
            
            8,609
            
            
            —
            
            
            —
            
            
            —PCS
                Sales Inc
            
            
            10
            
            
            —
            
            
            —
            
            
            —Yara
                AB
            
            
            2
            
            
            —
            
            
            —
            
            
            —Yara
                Benelux B.V
            
            
            78
            
            
            222
            
            
            —
            
            
            —Yara
                Hellas S.A.
            
            
            310
            
            
            116
            
            
            —
            
            
            —Yara
                International Australia PTY.
            
            
            642
            
            
            670
            
            
            —
            
            
            —Yara
                Poland Sp. z o.o.
            
            
            85
            
            
            103
            
            
            —
            
            
            —Yara
                UK Ltd.
            
            
            285
            
            
            132
            
            
            —
            
            
            —Yara
                CZECH Republic
            
            
            2
            
            
            —
            
            
            —
            
            
            —Yara
                GMBH & CO KG
            
            
            95
            
            
            148
            
            
            —
            
            
            —Yara
                Iberian S.A.
            
            
            1,317
            
            
            1,958
            
            
            —
            
            
            —Yara
                Argentina S.A.
            
            
            125
            
            
            43
            
            
            —
            
            
            —Yara
                Colombia Ltda.
            
            
            2,938
            
            
            1,480Adubo
                Trevo S.A. (Yara)
            
            
            252
            
            
            16
            
            
            —
            
            
            —Yara
                North America LLC
            
            
            6,331
            
            
            7,727
            
            
            —
            
            
            —Yara
                Fertilizantes Ltda (Brasil)
            
            
            715
            
            
            —
            
            
            —
            
            
            —Yara
                France BU Latin America
            
            
            1,794
            
            
            —
            
            
            —
            
            
            —Yara
                France BU Africa
            
            
            1,030
            
            
            1,025
            
            
            —
            
            
            —Yara
                Internacional ASA
            
            
            7,884
            
            
            7,098
            
            
            —
            
            
            —Yara
                International Asia Trade Pte Ltd
            
            
            1,227
            
            
            1,359
            
            
            —
            
            
            —Yara
                East Africa Limited
            
            
            504
            
            
            681
            
            
            —
            
            
            —Yara
                Fertilizers (Philippines)
            
            
            —
            
            
            60
            
            
            —
            
            
            —Yara
                Fertilizers (New Zealand)
            
            
            157
            
            
            171
            
            
            —
            
            
            —FOS
                (Yara)
            
            
            3,365
            
            
            —
            
            
            —
            
            
            —Yara
                Phosyn Ltda
            
            
            38
            
            
            —
            
            
            —
            
            
            —Total
            
            
            65,640
            
            
            56,459
            
            
            2,000
            
            
            2,000




F-23
 *Table
          of Contents*




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


**Notes
        to the Audited Consolidated Financial Statements**
 **(Expressed
        in thousands US dollars, except as stated)**


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





a)
            Amounts
                included in balances with related parties as of December 31, 2006
                and
                2005, continued:





**Short-term****2006**
            
            **2005****ThUS$**
            
            **ThUS$****Accounts
                payable**NU3
                N.V
            
            
            847
            
            
            813Charlee
                SQM Thailand Co.
            
            
            182
            
            
            88SQM
                East Med Turkey
            
            
            15
            
            
            —Yara
                AB
            
            
            —
            
            
            1Yara
                France S.A.
            
            
            —
            
            
            191Yara
                Fertilizantes Ltda. (Brazil)
            
            
            —
            
            
            575Yara
                France BU Latin America
            
            
            —
            
            
            1,502Yara
                Business Support
            
            
            4,363
            
            
            4,130Yara
                Nederland B.V.
            
            
            400
            
            
            —Yara
                Int. Wholesale Sudafrica (South Africa)
            
            
            —
            
            
            362Total
            
            
            5,807
            
            
            7,662





There
      were no outstanding long-term accounts payable with related parties as of
      December 31, 2006 and 2005.





F-24
 *Table
            of Contents*


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


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





a)
            During
                the years ended December 31, 2006, 2005 and 2004 principal commercial
                transactions with related parties were as follows
                (1):





**Amount
                of**
              **Transaction**
            
            **Impact
                in income**
              **(charge)
                credit****Company**
            
            **Relationship**
            
            **Type
                of Transaction**
            
            **2006**
            
            **2005**
            
            **2004**
            
            **2006**
            
            **2005**
            
            **2004****ThUS$**
            
            **ThUS$**
            
            **ThUS$**
            
            **ThUS$**
            
            **ThUS$**
            
            **ThUS$**NU3
                N.V.
            
            
            Investee
            
            
            Sales
                of products
            
            
            6,079
            
            
            5,018
            
            
            5,036
            
            
            2,008
            
            
            1,892
            
            
            1,521Doktor
                Tarsa
            
            
            Investee
            
            
            Sales
                of products
            
            
            8,868
            
            
            14,977
            
            
            6,718
            
            
            2,409
            
            
            3,872
            
            
            1,416Abu
                Dhabi Fertilizer WLL
            
            
            Investee
            
            
            Sales
                of products
            
            
            3,551
            
            
            3,834
            
            
            3,932
            
            
            992
            
            
            1,222
            
            
            1,126Impronta
                SRL
            
            
            Investee
            
            
            Sales
                of products
            
            
            4,887
            
            
            4,471
            
            
            4,282
            
            
            1,566
            
            
            1,613
            
            
            970Ajay
                Europe S.A.R.L.
            
            
            Investee
            
            
            Sales
                of products
            
            
            16,931
            
            
            8,017
            
            
            5,964
            
            
            6,424
            
            
            4,743
            
            
            2,937NU3
                B.V.
            
            
            Investee
            
            
            Sales
                of products
            
            
            7,212
            
            
            6,035
            
            
            5,904
            
            
            2,488
            
            
            2,846
            
            
            2,276Fertilizantes
                Naturales S.A. (2)
            
            
            Investee
            
            
            Sales
                of products
            
            
            —
            
            
            19,916
            
            
            —
            
            
            —
            
            
            6,663
            
            
            —Ajay
                North America LLC
            
            
            Investee
            
            
            Sales
                of products
            
            
            16,215
            
            
            12,401
            
            
            8,519
            
            
            7,605
            
            
            7,031
            
            
            4,009Sales
                de Magnesio Ltda.
            
            
            Investee
            
            
            Sales
                of products
            
            
            —
            
            
            —
            
            
            333
            
            
            —
            
            
            —
            
            
            152Yara
                UK Ltd.
            
            
            Shareholder
            
            
            Sales
                of products
            
            
            1,388
            
            
            1,276
            
            
            1,060
            
            
            403
            
            
            485
            
            
            315Yara
                International Asia Trade Pte Ltd.
            
            
            Shareholder
            
            
            Sales
                of products
            
            
            6,703
            
            
            6,782
            
            
            6,035
            
            
            2,061
            
            
            1,984
            
            
            1,284Yara
                France BU Africa .
            
            
            Shareholder
            
            
            Sales
                of products
            
            
            2,826
            
            
            8,748
            
            
            917
            
            
            661
            
            
            2,640
            
            
            253Yara
                Benelux B.V.
            
            
            Shareholder
            
            
            Sales
                of products
            
            
            7,081
            
            
            6,698
            
            
            5,593
            
            
            1,554
            
            
            2,385
            
            
            1,345Yara
                AB Sweden
            
            
            Shareholder
            
            
            Sales
                of products
            
            
            —
            
            
            808
            
            
            705
            
            
            —
            
            
            284
            
            
            184Yara
                International Australia Pty Ltd.
            
            
            Shareholder
            
            
            Sales
                of products
            
            
            2,688
            
            
            2,853
            
            
            2,530
            
            
            787
            
            
            999
            
            
            682Yara
                Iberian S.A.
            
            
            Shareholder
            
            
            Sales
                of products
            
            
            8,277
            
            
            8,900
            
            
            6,665
            
            
            2,767
            
            
            3,060
            
            
            1,638Yara
                Colombia Ltda.
            
            
            Shareholder
            
            
            Sales
                of products
            
            
            6,285
            
            
            5,004
            
            
            3,537
            
            
            1,982
            
            
            1,543
            
            
            777Yara
                Poland Sp. z o.o.
            
            
            Shareholder
            
            
            Sales
                of products
            
            
            1,752
            
            
            1,623
            
            
            1,525
            
            
            593
            
            
            703
            
            
            512Yara
                GMBH & Co Kg
            
            
            Shareholder
            
            
            Sales
                of products
            
            
            1,741
            
            
            1,603
            
            
            1,381
            
            
            548
            
            
            635
            
            
            417Yara
                France
            
            
            Shareholder
            
            
            Sales
                of products
            
            
            7,246
            
            
            7,622
            
            
            7,755
            
            
            2,091
            
            
            2,458
            
            
            1,908Yara
                Fertilizers Brazil
            
            
            Shareholder
            
            
            Sales
                of products
            
            
            8,489
            
            
            —
            
            
            —
            
            
            3,631
            
            
            —
            
            
            —Yara
                France S.A.
            
            
            Shareholder
            
            
            Sales
                of products
            
            
            —
            
            
            209
            
            
            1,729
            
            
            —
            
            
            73
            
            
            478Yara
                Hellas S.A.
            
            
            Shareholder
            
            
            Sales
                of products
            
            
            1,892
            
            
            1,448
            
            
            1,022
            
            
            530
            
            
            473
            
            
            252Yara
                France BU Latin America
            
            
            Shareholder
            
            
            Sales
                of products
            
            
            2,014
            
            
            1,192
            
            
            2,296
            
            
            595
            
            
            288
            
            
            680Yara
                Argentina S.A.
            
            
            Shareholder
            
            
            Sales
                of products
            
            
            10,912
            
            
            9,441
            
            
            7,724
            
            
            3,151
            
            
            2,658
            
            
            1,629Adubo
                Trevo S.A.
            
            
            Shareholder
            
            
            Sales
                of products
            
            
            1,573
            
            
            3,991
            
            
            5,564
            
            
            560
            
            
            1,746
            
            
            1,512PCS
                Yumbes SCM (3)
            
            
            Shareholder
            
            
            Sales
                of products
            
            
            —
            
            
            —
            
            
            7,221
            
            
            —
            
            
            —
            
            
            3,414Yara
                Internacional ASA
            
            
            Shareholder
            
            
            Sales
                of products
            
            
            32,296
            
            
            8,250
            
            
            340
            
            
            7,997
            
            
            2,120
            
            
            120Yara
                North America
            
            
            Shareholder
            
            
            Sales
                of products
            
            
            45,407
            
            
            43,386
            
            
            40,491
            
            
            12,422
            
            
            13,137
            
            
            8,317Yara
                International Wholesale
            
            
            Shareholder
            
            
            Sales
                of products
            
            
            —
            
            
            20,013
            
            
            —
            
            
            —
            
            
            5,733
            
            
            —Yara
                Business Support
            
            
            Shareholder
            
            
            Services
            
            
            4,364
            
            
            4,129
            
            
            2,761
            
            
            (4,364
            )
            
            (4,129
            )
            
            (2,761
            )Yara
                East Africa
            
            
            Shareholder
            
            
            Sales
                of products
            
            
            1,255
            
            
            1,311
            
            
            —
            
            
            344
            
            
            474
            
            
            —Kowa
                (Japan)
            
            
            Shareholder
            
            
            Sales
                of products
            
            
            8,019
            
            
            —
            
            
            —
            
            
            3,671
            
            
            —
            
            
            —





(1)
            Transactions
                with related parties involving acquisitions and disposals of
                participations in other entities are discussed in Note 8.


(2)
            As
                explained in Note 2a) up to December 31, 2004 the Company exerted
                control
                over Fertilizantes Naturales S.A. and that entity was included in
                the
                consolidation for the year ended December 31, 2004. Beginning January
                1,
                2005, the Company lost the control over this entity and therefore
                it has
                been excluded from consolidation for the year ended December 31,
                2005.
                During 2006 the Company acquired additional participation in the
                entity
                and included it in the consolidation for the year ended December
                31,
                2006.


(3)
            On
                December 23, 2004, SQM acquired 100% participation in PCS Yumbes
                SCM
                (currently SQM Industrial S.A.) (see Note 8) and consequently that
                entity
                ceased to be related party and instead is included in consolidated
                financial statements of SQM.





F-25
 *Table
            of Contents*




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


**Notes
        to the Audited Consolidated Financial Statements**
 **(Expressed
        in thousands US dollars, except as stated)**


**Note
      6 - Inventories**





Net
      inventories are summarized as follows:





**2006**
            
            **2005****ThUS$**
            
            **ThUS$**Finished
                products
            
            
            209,112
            
            
            207,195Work
                in process
            
            
            136,734
            
            
            102,187Supplies
            
            
            19,653
            
            
            17,850Total
            
            
            365,499
            
            
            327,232











F-26
 *Table
            of Contents*




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


**Notes
        to the Audited Consolidated Financial Statements**
 **(Expressed
        in thousands US dollars, except as stated)**


**Note
      7 - Property, Plant and Equipment**





Property,
      plant and equipment are summarized as follows:





**As
                of December 31,****2006**
            
            **2005****ThUS$**
            
            **ThUS$****Land**Land
            
            
            81,153
            
            
            20,003Mining
                concessions
            
            
            30,793
            
            
            44,784Subtotal
            
            
            111,946
            
            
            64,787**Buildings
                and infrastructure**Buildings
            
            
            155,542
            
            
            174,843Installations
            
            
            263,175
            
            
            173,326Ponds
            
            
            120,568
            
            
            114,192Construction-in-progress
            
            
            159,516
            
            
            136,225Railroad
            
            
            23,166
            
            
            23,148Other
            
            
            53,374
            
            
            39,801Subtotal
            
            
            775,341
            
            
            661,535**Machinery
                and Equipment**Machinery
            
            
            495,426
            
            
            445,683Equipment
            
            
            114,101
            
            
            121,086Project-in-progress
            
            
            5,236
            
            
            9,832Other
            
            
            18,893
            
            
            17,809Subtotal
            
            
            633,656
            
            
            594,410**Other
                fixed assets**Tools
            
            
            8,937
            
            
            8,804Furniture
                and office equipment
            
            
            29,958
            
            
            12,315Project-in-progress
            
            
            15,708
            
            
            14,180Other
            
            
            10,925
            
            
            7,653Subtotal
            
            
            65,528
            
            
            42,952**Amounts
                related to technical appraisal**Land
            
            
            7,839
            
            
            7,839Buildings
                and infrastructure
            
            
            41,439
            
            
            41,439Machinery
                and equipment
            
            
            12,048
            
            
            12,091Other
                assets
            
            
            53
            
            
            53Subtotal
            
            
            61,379
            
            
            61,422Total
                property, plant and equipment (cost)
            
            
            1,647,850
            
            
            1,425,106**Less:
                Accumulated depreciation**Buildings
                and infrastructure
            
            
            (308,192
            )
            
            (257,063
            )Machinery
                and equipment
            
            
            (358,008
            )
            
            (319,388
            )Other
                fixed assets
            
            
            (27,746
            )
            
            (18,466
            )Technical
                appraisal
            
            
            (36,976
            )
            
            (35,542
            )Total
                accumulated depreciation
            
            
            (730,922
            )
            
            (630,459
            )Net
                property, plant and equipment
            
            
            916,928
            
            
            794,647








F-27
 *Table
            of Contents*




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


**Notes
        to the Audited Consolidated Financial Statements**
 **(Expressed
        in thousands US dollars, except as stated)**








**Note
      7 - Property, Plant and Equipment (continued)**





Depreciation
      expense for the years ended December 31, 2006, 2005 and 2004 was as
      follows:





**For
                the year ended December 31,****2006**
            
            **2005**
            
            **2004****ThUS$**
            
            **ThUS$**
            
            **ThUS$**Buildings
                and infrastructure
            
            
            (41,259
            )
            
            (30,286
            )
            
            (26,547
            )Machinery
                and equipment
            
            
            (43,290
            )
            
            (37,108
            )
            
            (33,552
            )Other
                property, plant and equipment
            
            
            (4,328
            )
            
            (1,462
            )
            
            (1,300
            )Technical
                appraisal
            
            
            (1,477
            )
            
            (1,198
            )
            
            (1,291
            )Total
                depreciation
            
            
            (90,354
            )
            
            (70,054
            )
            
            (62,690
            )





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





**As
                of December 31,****2006**
            
            **2005****ThUS$**
            
            **ThUS$**Administrative
                office buildings
            
            
            1,988
            
            
            1,988Leased
                vehicles
            
            
            —
            
            
            98Accumulated
                depreciation
            
            
            (489
            )
            
            (525
            )Total
                assets in leasing
            
            
            1,499
            
            
            1,561





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.








**Note
      8 - Investments in Related Companies**





a)  Information
      on foreign investments




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





The
      Company has not designated any instruments as net investment hedges of its
      foreign investments.





F-28
 *Table
            of Contents*




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


**Notes
        to the Audited Consolidated Financial Statements**
 **(Expressed
        in thousands US dollars, except as stated)**


**Note
      8 - Investments in Related Companies (continued)**





b)
            Significant
                events and transactions involving related parties and investments
                in the
                years 2004-2006





·
            On
                October 27, 2006, SQM Comercial de México S.A. de C.V. and SQM Industrial
                S.A. sold all the shares (100%) they had in Fertilizantes Olmeca
                y SQM
                S.A. de C.V. to Yara Nederland B.V. and Yara Holdings Netherlands
                B.V.
                (both
                being part of Yara Group, party related to SQM)for a sum of ThUS$ 4,888. The sale generated gain of ThUS$
                1,040.





·
            On
                September 14, 2006, Soquimich European Holding B.V. (SEH) sold to
                Yara
                Italia SPA (being part of Yara Group, party related to SQM) its entire
                participation (50% of rights) in Impronta SRL for a sum of ThUS$
                902. The
                transaction generated loss of ThUS$
                308.





·
            On
                May 9, 2006, SQM Industrial S.A. and SQM Potasio S.A. funded Prestadora
                de
                Servicios de Salud Cruz del Norte S.A. The entity’s paid-in capital
                amounts to ThCh$ 50,000 (approx. ThUS$ 97 in the moment of foundation
                of
                this entity) divided into 5,000 shares with no par value, no privileges
                or
                preferences, which are paid in full upon
                subscription.





·
            On
                January 24, 2006, Soquimich European Holding B.V. and Nutrisi Holding
                N.V.
                acquired 334 and 666 shares, respectively of Fertilizantes Naturales
                S.A.
                (“Fenasa”) in ThEuro 75,100 (approx. ThUS$ 91 in the moment of the
                transaction) thereby increasing total SQM Group ownership of Fenasa
                to
                66.67%.





Up
      to
      December 31, 2004, the financial statements of Fenasa in which SQM had at that
      time 50% participation were included in consolidation given that the Company
      maintained the control over that entity (managed its financial and operating
      policies) based on ability to appoint General Manager. Beginning January 2005,
      the Company lost its ability control Fenasa and consequently it has been
      excluded from consolidation. The Company accounted for its investment in that
      entity for the year ended December 31, 2005 using equity method. Following
      the
      acquisition of stake that give right to more than 50% in 2006, Fenasa was again
      included in the consolidation as of December 31, 2006.





·
            On
                January 19, 2006 Sociedad Química y Minera de Chile S.A. and some of its
                subsidiaries have acquired from DSM Group based in the Netherlands
                (third
                party), the total amount of shares of certain companies that participate
                in the markets of the production and commercialization of iodine
                and
                iodine derivatives in Chile (DSM Minera S.A. and Exploraciones Mineras
                S.A.) and abroad (DSM Minera B.V. based in Netherlands).





The
      purchase price paid in cash for Chilean operations was ThUS$ 100,067 and for
      DSM
      Minera B.V. was ThUS$ 13,840 in cash.





F-29
 *Table
            of Contents*




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


**Notes
        to the Audited Consolidated Financial Statements**
 **(Expressed
        in thousands US dollars, except as stated)**


**Note
      8 - Investments in Related Companies (continued)**





b)
            Significant
                events and transactions involving related parties and investments
                in the
                years 2004-2006 (continued)





The
      Company accounted for the investment applying purchase method in accordance
      with
      Technical Bulletin No. 72 issued by the Chilean Association of Accountants
      and
      rules established in Circular No. 1697 issued by the SVS. Accordingly the
      Company recorded acquired assets and assumed liabilities at their fair values.
      The transactions generated negative goodwill of ThUS$ 1,928 related to Chilean
      entities acquired and goodwill amounting to ThUS$ 11,373 related to acquisition
      of operations in Netherlands. Goodwill is going to be amortized over a period
      of
      20 years, while negative goodwill is going to be amortized over the estimated
      period of returns generated by mining concessions acquired.





Net
      assets acquired in their respective fair values as of December 31, 2006 are
      as
      follows:




**DSM**
            
            **Exploraciones**
            
            **DSM****Description**
            
            **Minera
                S.A.**
            
            **Mineras
                S.A.**
            
            **Minera
                B.V.****ThUS$**
            
            **ThUS$**
            
            **ThUS$**Current
                assets
            
            
            66,951
            
            
            400
            
            
            4,581Property,
                plant and equipment
            
            
            23,327
            
            
            31,567
            
            
            —Other
                assets
            
            
            7,220
            
            
            —
            
            
            —Current
                liabilities
            
            
            4,516
            
            
            7,126
            
            
            1,153Long-term
                liabilities
            
            
            5,718
            
            
            —
            
            
            —Equity
            
            
            112,105
            
            
            —
            
            
            3,428





After
      the
      acquisition DSM Minera S.A. changed its name to Minera Nueva Victoria S.A.
      and
      DSM Minera B.V. changed its name to Iodine Minera B.V.





·
            At
                the First General Extraordinary Shareholders’ Meeting of SQM Industrial
                S.A. held on January 9, 2006, its shareholders approved the merger
                of SQM
                Procesos S.A. into SQM Industrial S.A. through the dissolution of
                SQM
                Procesos S.A. and its incorporation into SQM Industrial S.A., which
                in
                effect acquires all assets and liabilities of SQM Procesos S.A.





·
            In
                September 2005, the subsidiary Soquimich European Holding B.V. and
                Charlee
                Industries Co, Ltd. (third party) incorporated Charlee SQM (Thailand)
                Co.
                Ltd. Soquimich European Holding B.V. contributed ThUS$ 800 for 40%
                participation in Charlee SQM (Thailand) Co. Ltd. This operation did
                not
                generate any negative goodwill or goodwill.





F-30
 *Table
            of Contents*




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


**Notes
        to the Audited Consolidated Financial Statements**
 **(Expressed
        in thousands US dollars, except as stated)**


**Note
      8 - Investments in Related Companies (continued)**





b)
            Significant
                events and transactions involving related parties and investments
                in the
                years 2004-2006 (continued)





·
            On
                August 9, 2005, SQM Nitratos S.A. and SQM S.A. acquired from third
                party
                99 and 1 shares, respectively of Kemira Emirates Fertilizar Company
                - Fzco
                for ThUS$ 9,282 paid in cash at the date of the acquisition. Acquired
                shares represent in total 100% of the capital of that entity. In
                accordance with the provisions of Technical Bulletin No. 72 issued
                by the
                Chilean Association of Accountants and Circular No. 1697 issued by
                the
                SVS, the preliminary valuation of identifiable assets and liabilities
                of
                Kemira Emirates Fertilizar Company - Fzco as of July 31, 2005 was
                performed. Such valuation indicated that those fair values do not
                significantly differ from assets’ and liabilities’ carrying amounts at
                that date. Goodwill determined on the acquisition amounted to ThUS$
                2,058
                is amortized over a period of 20 years. Subsequent to the acquisition
                Kemira Emirates Fertilizar Company - Fzco changed its name to SQM
                Dubai -
                Fzco.





·
            In
                April 2005, the subsidiary SQM Corporation N.V. acquired additional
                13%
                participation in its investee Abu Dhabi Fertilizers Industries WLL
                for a
                sum of ThUS $484 reaching total stake in that entity of 50%. In accordance
                with Technical Bulletin No. 72 issued by the Chilean Association
                of
                Accountants and Circular No. 1697 issued by the SVS the Company valued
                this investment in consideration of the book value of equity of Abu
                Dhabi
                Fertilizers Industries WLL as of December 31, 2004, which did not
                significantly differ from its fair value at that date. This operation
                gave
                rise to no goodwill or negative
                goodwill.





·
            In
                March 2005, the subsidiary Soquimich European Holding B.V. made a
                capital
                increase of ThUS$ 411 in its investee Misr Specialty Fertilizers.
                In
                accordance with Technical Bulletin No. 72 issued by the Chilean
                Association of Accountants and the regulations in Circular No. 1697
                issued
                by the SVS, the valuation was performed in consideration of the book
                value
                of the equity of Misr Specialty Fertilizers as of December 31, 2004,
                which
                did not differ significantly from its fair value determined at that
                date.
                This operation gave rise to no goodwill or negative
                goodwill.





·
            On
                December 23, 2004, SQM S.A. and SQM Nitratos S.A. acquired from
                subsidiaries of Potash Corp of Saskatchewan Inc., being party related
                to
                SQM, 43,733,165 and 2,000 shares, respectively (equivalent to 99.9954%
                and
                0.0046% participation, respectively), of PCS Yumbes SCM for ThUS$
                39,707.
                Subsequent to the acquisition (in December 2005) PCS Yumbes SCM changed
                its name to SQM Industrial S.A.





·
            In
                January, April and October 2004, the subsidiary Soquimich European
                Holding
                B.V. made a capital contributions totaling to ThUS$ 1,425 to its
                investee
                Misr Specialty Fertilizers. In accordance with BT 72 of the Chilean
                Association of Accountants and SVS Circular No. 1697, the investment
                in
                Misr Specialty Fertilizers was valued using the book value of net
                assets
                as of the dates of contributions, which did not differ significantly
                from
                the fair value determined as of those dates.





F-31
 *Table
            of Contents*




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


**Notes
        to the Audited Consolidated Financial Statements**
 **(Expressed
        in thousands US dollars, except as stated)**


**Note
      8 - Investments in Related Companies (continued)**





b)
            Significant
                events and transactions involving related parties and investments
                in the
                years 2004-2006 (continued)





·
            At
                the shareholders’ meeting of Empresas Melón S.A. (SQM’s investee at that
                time) 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 received the same ownership percentage in the new entity. On
                August
                13, 2004, SQM S.A. transferred all 653,748,837 shares held in Inmobiliaria
                San Patricio S.A. to Blue Circle South American Holding S.A. This
                transfer
                was performed in accordance with the contract for acquiring shares
                of
                Empresas Melón in 1998.





·
            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 on the Santiago Stock Exchange for ThUS$
                69,337.
                The proceeds were received in cash and a gain on sale of ThUS$ 8,179
                was
                recorded in income (includes also effect of the transfer of shares
                in
                Inmobiliaria San Patricio S.A. to Blue Circle South American Holding
                S.A.).





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





c)
            Investments
                with less than 20% participation





Investments
      in which the Company has less than 20% participation and the capacity to exert
      significant influence or control over the investment, because SQM forms part
      of
      its Board of Directors, have been valued using the equity method.




F-32
 *Table
          of Contents*




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


**Notes
        to the Audited Consolidated Financial Statements**
 **(Expressed
        in thousands US dollars, except as stated)**


**Note
      8 - Investments in Related Companies (continued)**





d)
            Detail
                of investments in related companies




**Company**
            
            
            
            **Currency**
            
            **Ownership
                interest**
              **as
                of December 31,**
            
            **Equity
                of**
              **investment
                as**
              **of
                December 31,**
            
            **Net
                income (loss)**
              **for
                the year ended**
            
            **Carrying
                value as****of**
              **December
                31,**
            
            **Equity
                participation**
              **in
                net income (loss) for**
              **the
                year December 31,****of
                origin**
            
            **2006**
            
            **2005**
            
            **2004**
            
            **2006**
            
            **2005**
            
            **2006**
            
            **2005**
            
            **2004**
            
            **2006**
            
            **2005**
            
            **2006**
            
            **2005**
            
            **2004****%**
            
            **%**
            
            **%**
            
            **ThUS$**
            
            **ThUS$**
            
            **ThUS$**
            
            **ThUS$**
            
            **ThUS$**
            
            **ThUS$**
            
            **ThUS$**
            
            **ThUS$**
            
            **ThUS$**
            
            **ThUS$**Ajay
                North America LLC
            
            
            USA
            
            
            US$
            
            
            49.00
            
            
            49.00
            
            
            49.00
            
            
            11,282
            
            
            13,372
            
            
            291
            
            
            2,810
            
            
            940
            
            
            3,998
            
            
            6,271
            
            
            142
            
            
            1,377
            
            
            461Nutrisi
                Holding N.V.
            
            
            Belgium
            
            
            US$
            
            
            50.00
            
            
            50.00
            
            
            50.00
            
            
            8,290
            
            
            6,658
            
            
            846
            
            
            1,609
            
            
            1,480
            
            
            4,025
            
            
            3,329
            
            
            425
            
            
            805
            
            
            724Doktor
                Tarsa
            
            
            Turkey
            
            
            Euros
            
            
            50.00
            
            
            50.00
            
            
            50.00
            
            
            5,813
            
            
            4,876
            
            
            1,291
            
            
            429
            
            
            590
            
            
            2,906
            
            
            2,438
            
            
            646
            
            
            214
            
            
            295Ajay
                Europe S.A.R.L.
            
            
            France
            
            
            US$
            
            
            50.00
            
            
            50.00
            
            
            50.00
            
            
            6,561
            
            
            5,086
            
            
            993
            
            
            1,063
            
            
            140
            
            
            1,915
            
            
            2,258
            
            
            497
            
            
            532
            
            
            70Misr
                Specialty Fertilizers
            
            
            Egypt
            
            
            US$
            
            
            47.49
            
            
            47.49
            
            
            47.49
            
            
            4,361
            
            
            4,504
            
            
            (446
            )
            
            (708
            )
            
            (789
            )
            
            2,071
            
            
            2,139
            
            
            (212
            )
            
            (336
            )
            
            (375
            )Abu
                Dhabi Fertilizer Industries WLLIndustries WLL
            
            
            UAE
            
            
            US$
            
            
            50.00
            
            
            50.00
            
            
            37.00
            
            
            3,886
            
            
            3,520
            
            
            366
            
            
            13
            
            
            84
            
            
            1,943
            
            
            1,760
            
            
            183
            
            
            6
            
            
            31Impronta
                SRL
            
            
            Italia
            
            
            Euros
            
            
            —
            
            
            50.00
            
            
            50.00
            
            
            —
            
            
            1,778
            
            
            —
            
            
            (281
            )
            
            342
            
            
            —
            
            
            889
            
            
            141
            
            
            (141
            )
            
            171Sales
                de Magnesio Ltda.
            
            
            Chile
            
            
            Ch$
            
            
            50.00
            
            
            50.00
            
            
            50.00
            
            
            946
            
            
            844
            
            
            428
            
            
            259
            
            
            480
            
            
            473
            
            
            422
            
            
            214
            
            
            130
            
            
            240SQM
                Eastmed Turkey
            
            
            Turkey
            
            
            Euros
            
            
            50.00
            
            
            50.00
            
            
            50.00
            
            
            184
            
            
            464
            
            
            (210
            )
            
            —
            
            
            —
            
            
            92
            
            
            232
            
            
            (105
            )
            
            —
            
            
            —Empresas
                Melón SA
            
            
            Chile
            
            
            —
            
            
            —
            
            
            —
            
            
            —
            
            
            —
            
            
            —
            
            
            —
            
            
            —
            
            
            —
            
            
            —
            
            
            —
            
            
            —
            
            
            —
            
            
            2,905Asociación
                Garantizadora de Pensiones
            
            
            Chile
            
            
            Ch$
            
            
            3.31
            
            
            3.31
            
            
            3.31
            
            
            874
            
            
            908
            
            
            —
            
            
            —
            
            
            —
            
            
            29
            
            
            30
            
            
            —
            
            
            —
            
            
            —Charlee
                SQM Thailand Co. Ltd.
            
            
            Thailand
            
            
            US$
            
            
            40.00
            
            
            40.00
            
            
            —
            
            
            2,167
            
            
            2,000
            
            
            167
            
            
            —
            
            
            —
            
            
            867
            
            
            800
            
            
            67
            
            
            —
            
            
            —Fertilizantes
                Naturales S.A.(1).
            
            
            Spain
            
            
            Euros
            
            
            —
            
            
            50.00
            
            
            —
            
            
            —
            
            
            430
            
            
            —
            
            
            37
            
            
            —
            
            
            —
            
            
            108
            
            
            —
            
            
            9
            
            
            —Inmobiliaria
                San Patricio S.A..
            
            
            Chile
            
            
            —
            
            
            —
            
            
            —
            
            
            —
            
            
            —
            
            
            —
            
            
            —
            
            
            —
            
            
            —
            
            
            —
            
            
            —
            
            
            —
            
            
            —
            
            
            (12
            )Agro
                India Ltda.
            
            
            India
            
            
            US$
            
            
            49.00
            
            
            —
            
            
            —
            
            
            19
            
            
            —
            
            
            (94
            )
            
            —
            
            
            —
            
            
            10
            
            
            —
            
            
            (46
            )
            
            —
            
            
            —Rui
                Xin Packaging Materials Sanhe Co.Ltd
            
            
            China
            
            
            US$
            
            
            25.00
            
            
            25.00
            
            
            25.00
            
            
            —
            
            
            —
            
            
            —
            
            
            —
            
            
            —
            
            
            —
            
            
            —
            
            
            —
            
            
            —
            
            
            **—**Total
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            18,329
            
            
            20,676
            
            
            1,952
            
            
            2,596
            
            
            4,510





(1)
            Up
                to December 2004, the Company exerted control over Fertilizantes
                Naturales
                S.A. and therefore that entity was included in the consolidation
                for the
                year ended December 31, 2004. Beginning January 1, 2005, the Company
                lost
                the control over this entity and therefore it has excluded from
                consolidation for the year ended December 31, 2005. During 2006 the
                Company acquired additional participation in the entity and included
                it in
                the consolidation for the year ended December 31,
                2006.






F-33
 *Table
          of Contents*




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


**Notes
          to the Audited Consolidated Financial Statements**
 **(Expressed
          in thousands US dollars, except as stated)**


**Note
      9 - Goodwill and Negative Goodwill**





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





a)
            Goodwill





**Amortization
                for the year ended December 31,**
            
            **Net
                Balance as of December 31,****Company**
            
            **2006**
            
            **2005**
            
            **2004**
            
            **2006**
            
            **2005****ThUS$**
            
            **ThUS$**
            
            **ThUS$**
            
            **ThUS$**
            
            **ThUS$**SQM
                Potassium S.A.
            
            
            144
            
            
            144
            
            
            144
            
            
            1,447
            
            
            1,591Comercial
                Hydro S.A.
            
            
            174
            
            
            176
            
            
            140
            
            
            1,153
            
            
            1,294SQM
                Industrial S.A.
            
            
            1,154
            
            
            1,072
            
            
            —
            
            
            20,029
            
            
            21,183Soquimich
                Comercial S.A.
            
            
            —
            
            
            122
            
            
            150
            
            
            —
            
            
            —SQM
                Salar S.A.
            
            
            —
            
            
            40
            
            
            43
            
            
            —
            
            
            —Doktor
                Tarsa
            
            
            —
            
            
            18
            
            
            76
            
            
            —
            
            
            —SQM
                México S.A. de C.V.
            
            
            56
            
            
            56
            
            
            56
            
            
            835
            
            
            891Comercial
                Caiman Internacional S.A.
            
            
            23
            
            
            23
            
            
            23
            
            
            131
            
            
            154Fertilizantes
                Olmeca S.A. de C.V.
            
            
            56
            
            
            56
            
            
            56
            
            
            —
            
            
            111Saftnits
                Pty Ltd.
            
            
            —
            
            
            290
            
            
            61
            
            
            —
            
            
            —SQM
                Dubai - FZCO
            
            
            101
            
            
            73
            
            
            —
            
            
            1,884
            
            
            1,985Empresas
                Melón S.A.
            
            
            —
            
            
            —
            
            
            324
            
            
            —
            
            
            —Iodine
                Minera B.V.
            
            
            521
            
            
            —
            
            
            —
            
            
            10,852
            
            
            —Total
            
            
            2,229
            
            
            2,070
            
            
            1,073
            
            
            36,331
            
            
            27,209





b)
            Negative
                Goodwill





**Amortization
                for the year ended December 31,**
            
            **Net
                Balance as of December 31,****Company**
            
            **2006**
            
            **2005**
            
            **2004**
            
            **2006**
            
            **2005****ThUS$**
            
            **ThUS$**
            
            **ThUS$**
            
            **ThUS$**
            
            **ThUS$**Minera
              Mapocho S.A.
            
            
            68
            
            
            203
            
            
            203
            
            
            —
            
            
            68Minera
              Nueva Victoria S.A.
            
            
            —
            
            
            —
            
            
            —
            
            
            1,928
            
            
            —Total
            
            
            68
            
            
            203
            
            
            203
            
            
            1,928
            
            
            68







F-34
 *Table
            of Contents*




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


**Notes
          to the Audited Consolidated Financial Statements**
 **(Expressed
          in thousands US dollars, except as stated)**


**Note
      10 - Other Long-term Assets**




Other
      long-term assets are summarized as follows:




**As
                of December 31,****2006**
            
            **2005****ThUS$**
            
            **ThUS$**Engine
                and equipment spare-parts, net
            
            
            13,222
            
            
            19,289Mine
                development costs
            
            
            26,545
            
            
            24,282Prepaid
                pension cost
            
            
            —
            
            
            1,133Salar-Baquedano
                road (1)
            
            
            1,290
            
            
            1,410Cost
                of issuance and placement of bonds
            
            
            5,737
            
            
            —Deferred
                loan issuance costs
            
            
            521
            
            
            323Others
            
            
            1,441
            
            
            1,722Total
            
            
            48,756
            
            
            48,159





(1)
            Amortized
                on a straight line basis over a period of 30-
                years.








**Note
      11 - Bank Debt**





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





**As
                of December 31,****2006**
            
            **2005****Bank
                or financial institution**
            
            **ThUS$**
            
            **ThUS$**Banco
                de Credito e Inversiones
            
            
            30,022
            
            
            65,017Banco
                Santander Santiago
            
            
            —
            
            
            20,005Corpbanca
            
            
            15,216
            
            
            —BBVA
                Banco Bilbao Vizcaya Argentaria
            
            
            10,475
            
            
            —Fortis
                Bank
            
            
            1,150
            
            
            —CAM
                Caja Ahorros Mediterraneo
            
            
            633
            
            
            —Banesto
            
            
            369
            
            
            —Deutshe
                Bank España S.A.
            
            
            256
            
            
            —Caixa
                Penedes de España
            
            
            185
            
            
            —HSBC
                Bank Middle East Ltd
            
            
            44
            
            
            —Total
            
            
            58,350
            
            
            85,022Annual
                average interest rate
            
            
            5.32
            %
            
            4.65
            %








F-35
 *Table
            of Contents*




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


**Notes
          to the Audited Consolidated Financial Statements**
 **(Expressed
          in thousands US dollars, except as stated)**


**Note
      11 - Bank Debt (continued)**





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





**As
                of December 31,****2006**
            
            **2005****Bank
                or financial institution**
            
            **ThUS$**
            
            **ThUS$**Union
                Bank of Switzerland (1)
            
            
            —
            
            
            204,577BBVA
                Banco Bilbao Vizcaya Argentaria (2)
            
            
            100,412
            
            
            100,303ING
                Bank (3)
            
            
            80,416
            
            
            —Total
            
            
            180,828
            
            
            304,880Less:
                Current portion
            
            
            (828
            )
            
            (204,880
            )Long-term
                debt
            
            
            180,000
            
            
            100,000





(1)
            U.S.
                dollar-denominated loan without guarantee, interest rate of 7.7%
                per
                annum, paid semi-annually. The principal was due on December 15,
                2006.


(2)
            U.S.
                dollar-denominated loan without guarantee, interest rate of Libor
                + 0.325%
                per annum, quarterly payment. The principal is due on March 3,
                2010.


(3)
            U.S.
                dollar-denominated loan without guarantee, interest rate of Libor
                + 0.300%
                per annum, semi-annually payment. The principal is due on November
                28,
                2011.





c)
            Maturity
                of the long-term bank debt is as
                follows:





**As
                of December 31,****2006**
            
            **2005****Years
                to maturity**
            
            **ThUS$**
            
            **ThUS$**Current
                portion
            
            
            828
            
            
            204,8801
                to 2 years
            
            
            —
            
            
            —2
                to 3 years
            
            
            —
            
            
            —3
                to 5 years
            
            
            180,000
            
            
            100,000Total
            
            
            180,828
            
            
            304,880




F-36
 *Table
            of Contents*




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


**Notes
          to the Audited Consolidated Financial Statements**
 **(Expressed
          in thousands US dollars, except as stated)**


**Note
      12 - Bonds Payable**





On
      January 25, 2006, the Company issued on the Chilean market Series C bonds for
      an
      amount of UF 3,000,000 (approx. ThUS$ 103,973 at the moment of issuance) at
      an
      annual interest rate of 4.00%.





On
      April
      5, 2006, SQM placed in the US market a bond, of US$ 200 million with an annual
      interest rate of 6.125%. The interest will be paid semi-annually and the capital
      will be paid in a single payment in April 2016.





As
      of
      December 31, 2006, the short-term portion of the bonds payable represents
      accrued interest of ThUS$ 5,540. The long-term portion represents bonds
      payable.





Detail
      of
      the bonds payable is presented in the table below:





**Number
                of registration of the instrument**
            
            **Series**
            
            **Nominal
                Amount**
            
            **Currency
                or indexation unit**
            
            **Interest
                Rate**
            
            **Matures
                on**
            
            **Payment
                of interest**
            
            **Repayment
                of principal**
            
            **Balance
                as of Dec 31,****2006**
            
            **Balance
                as of Dec 31,****2005****ThUS$**
            
            **ThUS$**Current
                portion of long-term bonds payable:446
            
            
            C
            
            
            75,000
            
            
            UF
            
            
            4.00
            %
            
            Jun
                1, 2007
            
            
            Semi-annual
            
            
            Semi-annual
            
            
            2,920
            
            
            —184
            
            
            Single
            
            
            —
            
            
            ThUS$
            
            
            6.125
            %
            
            Oct
                15, 2006
            
            
            Semi-annual
            
            
            Semi-annual
            
            
            2,620
            
            
            —Total
            
            5,540
            
            
            —Long-term
                bonds payable:446
            
            
            C
            
            
            2,925,000
            
            
            UF
            
            
            4.00
            %
            
            Dec
                1, 2026
            
            
            Semi-annual
            
            
            Semi-annual
            
            
            100,724
            
            
            —184
            
            
            Single
            
            
            200,000
            
            
            ThUS$
            
            
            6.125
            %
            
            Apr
                15, 2016
            
            
            Semi-annual
            
            
            Semi-annual
            
            
            200,000
            
            
            —Total
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            300,724
            
            
            —







F-37
 *Table
            of Contents*




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


**Notes
          to the Audited Consolidated Financial Statements**
 **(Expressed
          in thousands US dollars, except as stated)**


**Note
      13 - Accrued Liabilities**





As
      of
      December 31, 2006 and 2005, current accrued liabilities are summarized as
      follows:





**As
                of December 31,****2006**
            
            **2005****ThUS$**
            
            **ThUS$**Accrued
                royalty payments Corfo
            
            
            2,358
            
            
            1,855Provision
                for employee compensation and legal costs
            
            
            504
            
            
            7,145Taxes
                and monthly income tax installment payments
            
            
            3,309
            
            
            2,909Vacation
                accrual
            
            
            8,478
            
            
            8,126Accrued
                employee benefits
            
            
            —
            
            
            186Marketing
                expenses
            
            
            109
            
            
            246Other
                accruals
            
            
            1,646
            
            
            3,283Total
            
            
            16,404
            
            
            23,750






**Note
      14 - Current and Deferred Income Taxes**





a)
            Refundable
                dividend tax credits





At
      December 31, 2006 and 2005 the Company has the following consolidated balances
      for retained tax earnings, income not subject to taxes, tax loss carry-forwards
      and credit for shareholders:





**As
                of December 31,****2006**
            
            **2005****ThUS$**
            
            **ThUS$**Accumulated
                tax basis retained earnings with tax credit
            
            
            278,515
            
            
            206,777Accumulated
                tax basis retained earnings without tax credit
            
            
            97,140
            
            
            93,732Tax
                loss carry-forwards (1)
            
            
            171,249
            
            
            232,644Credit
                for shareholders (2)
            
            
            56,759
            
            
            42,046





(1)
            Tax
                losses in Chile can be carried forward
                indefinitely.


(2)
            Corresponds
                to credit to income taxes that have shareholders in relation to
                distribution of dividends.





The
      Company has recognized deferred income tax assets for tax loss carry-forwards
      and the related valuation allowance, where applicable, in accordance with
      Technical Bulletin No. 60 issued by the Chilean Association of
      Accountants.





F-38
 *Table
            of Contents*


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


**Note
      14 - Income and Deferred Taxes (continued)**





b)
            Deferred
                taxes





The
      deferred taxes as of December 31, 2006 and 2005 represented a net liability
      of
      ThUS$ 51,449 and ThUS$ 36,367, respectively, and consisted of:





**As
                of December 31, 2006**
            
            **Deferred
                tax asset**
            
            **Deferred
                tax liability****Short-term**
            
            **Long-term**
            
            **Short-term**
            
            **Long-term****ThUS$**
            
            **ThUS$**
            
            **ThUS$**
            
            **ThUS$****Temporary
                differences**Allowance
                for doubtful accounts
            
            
            1,814
            
            
            594
            
            
            —
            
            
            —Vacation
                accrual
            
            
            1,411
            
            
            —
            
            
            —
            
            
            —Unrealized
                gain on sale of products
            
            
            13,308
            
            
            —
            
            
            —
            
            
            —Provision
                for obsolescence of non current assets
            
            
            —
            
            
            2,283
            
            
            —
            
            
            —Production
                expenses
            
            
            —
            
            
            —
            
            
            18,613
            
            
            —Accumulated
                depreciation
            
            
            —
            
            
            —
            
            
            —
            
            
            61,046Exploration
                expenses
            
            
            —
            
            
            —
            
            
            —
            
            
            4,712Capitalized
                interest
            
            
            —
            
            
            —
            
            
            —
            
            
            7,052Staff
                severance indemnities
            
            
            —
            
            
            —
            
            
            —
            
            
            1,796Fair
                value of fixed assets
            
            
            —
            
            
            841
            
            
            —
            
            
            —Provision
                for claim expense
            
            
            —
            
            
            88
            
            
            —
            
            
            —Capitalized
                expenses
            
            
            —
            
            
            —
            
            
            —
            
            
            1,055Tax
                loss carry-forwards
            
            
            —
            
            
            31,969
            
            
            —
            
            
            —Accrued
                gain from exchange insurance
            
            
            —
            
            
            —
            
            
            182
            
            
            —Deferred
                revenue
            
            
            144
            
            
            —
            
            
            —
            
            
            —Provision
                for energy tariff difference
            
            
            765
            
            
            —
            
            
            —
            
            
            —Accrued
                interest
            
            
            159
            
            
            —
            
            
            —
            
            
            —Provision
                capital expenditure
            
            
            610
            
            
            —
            
            
            —
            
            
            —Shrinks
                of inventories
            
            
            —
            
            
            3,786
            
            
            —
            
            
            —Other
            
            
            481
            
            
            169
            
            
            —
            
            
            497Total
                gross deferred taxes
            
            
            18,692
            
            
            39,730
            
            
            18,795
            
            
            76,158Total
                complementary accounts
            
            
            —
            
            
            —
            
            
            (566
            )
            
            (20,551
            )Valuation
                allowance
            
            
            (4,551
            )
            
            (31,484
            )
            
            —
            
            
            —Total
                deferred taxes
            
            
            14,141
            
            
            8,246
            
            
            18,229
            
            
            55,607Deferred
                tax asset/liability, net
            
            
            —
            
            
            —
            
            
            4,088
            
            
            47,361








F-39
 *Table
            of Contents*




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


**Notes
          to the Audited Consolidated Financial Statements**
 **(Expressed
          in thousands US dollars, except as stated)**


**Note
      14 - Income and Deferred Taxes (continued)**





b)
            Deferred
                taxes (continued)





**As
                of December 31, 2005**
            
            **Deferred
                tax asset**
            
            **Deferred
                tax liability****Short-term**
            
            **Long-term**
            
            **Short-term**
            
            **Long-term****ThUS$**
            
            **ThUS$**
            
            **ThUS$**
            
            **ThUS$****Temporary
                differences**Allowance
                for doubtful accounts
            
            
            1,345
            
            
            620
            
            
            —
            
            
            —Vacation
                accrual
            
            
            1,322
            
            
            —
            
            
            —
            
            
            —Unrealized
                gain on sale of products
            
            
            15,053
            
            
            —
            
            
            —
            
            
            —Provision
                for obsolescence
            
            
            —
            
            
            2,075
            
            
            —
            
            
            —Production
                expenses
            
            
            —
            
            
            —
            
            
            18,123
            
            
            —Accelerated
                depreciation
            
            
            —
            
            
            —
            
            
            —
            
            
            58,031Exploration
                expenses
            
            
            —
            
            
            —
            
            
            —
            
            
            5,375Capitalized
                interest
            
            
            —
            
            
            —
            
            
            —
            
            
            6,040Staff
                severance indemnities
            
            
            —
            
            
            —
            
            
            —
            
            
            2,448Fair
                value accumulated depreciation
            
            
            —
            
            
            2,535
            
            
            —
            
            
            —Capitalized
                expenses
            
            
            —
            
            
            —
            
            
            —
            
            
            147Tax
                loss carry-forwards
            
            
            —
            
            
            40,624
            
            
            —
            
            
            —Accrued
                interest
            
            
            149
            
            
            —
            
            
            —
            
            
            —Provision
                legal expenses
            
            
            595
            
            
            —
            
            
            —
            
            
            —Provision
                capital expenditure
            
            
            85
            
            
            —
            
            
            —
            
            
            —Shrinks
                of inventories
            
            
            —
            
            
            2,134Other
            
            
            782
            
            
            1,700
            
            
            —
            
            
            182Total
                gross deferred taxes
            
            
            19,331
            
            
            49,688
            
            
            18,123
            
            
            72,223Total
                complementary accounts
            
            
            —
            
            
            (4,692
            )
            
            (1,508
            )
            
            (23,850
            )Valuation
                allowance
            
            
            (188
            )
            
            (35,518
            )
            
            —
            
            
            —Total
                deferred taxes
            
            
            19,143
            
            
            9,478
            
            
            16,615
            
            
            48,373Deferred
                tax asset/liability, net
            
            
            2,528
            
            
            —
            
            
            —
            
            
            38,895





c)  Income
      tax expense is summarized as follows:





**2006**
            
            **2005**
            
            **2004****ThUS$**
            
            **ThUS$**
            
            **ThUS$**Provision
                for current income tax
            
            
            (24,797
            )
            
            (37,428
            )
            
            (14,435
            )Effect
                of deferred tax assets and liabilities
            
            
            (13,447
            )
            
            10,844
            
            
            (6,613
            )Adjustment
                for tax expense (previous year)
            
            
            238
            
            
            (945
            )
            
            (144
            )Effect
                of amortization of complementary accounts
            
            
            (4,021
            )
            
            (3,084
            )
            
            (6,022
            )Effect
                on deferred tax assets and liabilities due to changes in valuation
                allowance
            
            
            4,420
            
            
            (1,350
            )
            
            —Other
                tax charges and credits
            
            
            (309
            )
            
            (564
            )
            
            (94
            )Total
                income tax expense
            
            
            (37,916
            )
            
            (32,527
            )
            
            (27,308
            )





F-40
 *Table
            of Contents*




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


**Notes
          to the Audited Consolidated Financial Statements**
 **(Expressed
          in thousands US dollars, except as stated)**


**Note
      15 - Long-term Accrued Liabilities**





a)
            Long-term
                accrued liabilities are composed as
                follows:





**As
                of December 31,****2006**
            
            **2005****ThUS$**
            
            **ThUS$**Staff
                severance indemnities
            
            
            17,472
            
            
            16,415Provision
                for closure of mining sites
            
            
            1,992
            
            
            —Total
            
            
            19,464
            
            
            16,415





b)
            Staff
                severance indemnities





Changes
      in the balance of staff severance indemnities for the years ended December
      31,
      2006, 2005 and 2004 are summarized as follows:





**2006**
            
            **2005**
            
            **2004****ThUS$**
            
            **ThUS$**
            
            **ThUS$**Opening
                balance
            
            
            16,415
            
            
            11,875
            
            
            10,127Increases
                in obligation
            
            
            3,253
            
            
            5,193
            
            
            3,301Benefits
                paid
            
            
            (1,546
            )
            
            (3,379
            )
            
            (2,245
            )Foreign
                currency translation
            
            
            (640
            )
            
            1,000
            
            
            692Other
                changes
            
            
            (10
            )
            
            1,726
            
            
            —Total
            
            
            17,472
            
            
            16,415
            
            
            11,875






**Note
      16 - Minority Interest**





Minority
      shareholders’ participation in the Shareholders’ equity and results of the
      Company’s subsidiaries as of each year-end is as follows:





**Participation
                in equity as of**
              **December
                31,**
            
            **Participation
                in income (loss) for the years ended**
              **December
                31,****2006**
            
            **2005**
            
            **2006**
            
            **2005**
            
            **2004****ThUS$**
            
            **ThUS$**
            
            **ThUS$**
            
            **ThUS$**
            
            **ThUS$**Soquimich
                Comercial S.A.
            
            
            35,138
            
            
            32,234
            
            
            (3,500
            )
            
            (84
            )
            
            (4,442
            )Ajay
                SQM Chile S.A.
            
            
            3,717
            
            
            3,200
            
            
            (912
            )
            
            (827
            )
            
            (488
            )Cape
                Fear Bulk LLC
            
            
            219
            
            
            93
            
            
            (248
            )
            
            (118
            )
            
            (144
            )SQM
                Italia S.R.L
            
            
            —
            
            
            23
            
            
            —
            
            
            (3
            )
            
            2SQM
                Nitratos México S.A. de C.V.
            
            
            45
            
            
            (39
            )
            
            (84
            )
            
            (7
            )
            
            (37
            )Fertilizantes
                Naturales S.A.
            
            
            120
            
            
            —
            
            
            2
            
            
            —
            
            
            (32
            )SQM
                Indonesia S.A.
            
            
            (31
            )
            
            (2
            )
            
            29
            
            
            —
            
            
            2SQM
                Potasio S.A.
            
            
            5
            
            
            —
            
            
            (2
            )
            
            —
            
            
            —Total
            
            
            39,213
            
            
            35,509
            
            
            (4,715
            )
            
            (1,039
            )
            
            (5,139
            )




F-41
 *Table
          of Contents*




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


**Notes
          to the Audited Consolidated Financial Statements**
 **(Expressed
          in thousands US dollars, except as stated)**


**Note
      17 - Shareholders’ Equity**





a)
            Changes
                in shareholders’ equity in the years ended December 31, 2006, 2005 and
                2004 were as follows:





**Other**
            
            **Accumulated
                deficit of****accumulated**
            
            **subsidiaries
                in****Number**
            
            **Paid-in**
            
            **comprehensive**
            
            **development**
            
            **Retained**
            
            **Net****of
                shares**
            
            **capital**
            
            **income**
            
            **stage**
            
            **earnings**
            
            **income**
            
            **Total****ThUS$**
            
            **ThUS$**
            
            **ThUS$**
            
            **ThUS$**
            
            **ThUS$**
            
            **ThUS$**Balance
                as of January 1, 2004
            
            
            263,196,524
            
            
            477,386
            
            
            141,420
            
            
            (6,519
            )
            
            230,932
            
            
            46,753
            
            
            889,972Transfer
                of the 2003 net income to retained earnings
            
            
            —
            
            
            —
            
            
            —
            
            
            —
            
            
            46,753
            
            
            (46,753
            )
            
            —Declared
                dividends 2004
            
            
            —
            
            
            —
            
            
            —
            
            
            —
            
            
            (23,192
            )
            
            —
            
            
            (23,192
            )Accumulated
                deficit from subsidiaries in development stage
            
            
            —
            
            
            —
            
            
            —
            
            
            (1,851
            )
            
            —
            
            
            —
            
            
            (1,851
            )Other
                comprehensive income
            
            
            —
            
            
            —
            
            
            9,467
            
            
            —
            
            
            —
            
            
            —
            
            
            9,467Net
                income for the year
            
            
            —
            
            
            —
            
            
            —
            
            
            —
            
            
            —
            
            
            74,232
            
            
            74,232Balance
                as of December 31, 2004
            
            
            263,196,524
            
            
            477,386
            
            
            150,887
            
            
            (8,370
            )
            
            254,493
            
            
            74,232
            
            
            948,628Balance
                as of January 1, 2005
            
            
            263,196,524
            
            
            477,386
            
            
            150,887
            
            
            (8,370
            )
            
            254,493
            
            
            74,232
            
            
            948,628Transfer
                of the 2004 net income to retained earnings
            
            
            —
            
            
            —
            
            
            —
            
            
            —
            
            
            74,232
            
            
            (74,232
            )
            
            —Declared
                dividends 2005
            
            
            —
            
            
            —
            
            
            —
            
            
            —
            
            
            (48,118
            )
            
            —
            
            
            (48,118
            )Other
                comprehensive income
            
            
            —
            
            
            —
            
            
            6,400
            
            
            —
            
            
            —
            
            
            —
            
            
            6,400Net
                income for the year
            
            
            —
            
            
            —
            
            
            —
            
            
            —
            
            
            —
            
            
            113,506
            
            
            113,506Balance
                as of December 31, 2005
            
            
            263,196,524
            
            
            477,386
            
            
            157,287
            
            
            (8,370
            )
            
            280,607
            
            
            113,506
            
            
            1,020,416Balance
                January 1,2006
            
            
            263,196,524
            
            
            477,386
            
            
            157,287
            
            
            (8,370
            )
            
            280,607
            
            
            113,506
            
            
            1,020,416Transfer
                of the 2005 net income to retained earnings
            
            
            —
            
            
            —
            
            
            —
            
            
            —
            
            
            113,506
            
            
            (113,506
            )
            
            —Declared
                dividends 2006
            
            
            —
            
            
            —
            
            
            —
            
            
            —
            
            
            (73,647
            )
            
            —
            
            
            (73,647
            )Other
                comprehensive loss
            
            
            —
            
            
            —
            
            
            (2,097
            )
            
            —
            
            
            —
            
            
            —
            
            
            (2,097
            )Net
                income for the year
            
            
            —
            
            
            —
            
            
            —
            
            
            —
            
            
            —
            
            
            141,277
            
            
            141,277Balance
                as of December 31, 2006
            
            
            263,196,524
            
            
            477,386
            
            
            155,190
            
            
            (8,370
            )
            
            320,466
            
            
            141,277
            
            
            1,085,949




F-42
 *Table
          of Contents*




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


**Notes
      to the Audited Consolidated Financial Statements**


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




**Note
      17 - Shareholders’ Equity (continued)**





b)
            The
                composition of other comprehensive (loss)/income and accumulated
                other
                comprehensive (loss)/income is as
                follows:





**Other
                comprehensive income (loss)**
              **For
                the year ended December 31,**
            
            **Accumulated
                other comprehensive income**
              **As
                of December 31,****Description**
            
            **2006**
            
            **2005**
            
            **2004**
            
            **2006**
            
            **2005****ThUS$**
            
            **ThUS$**
            
            **ThUS$**
            
            **ThUS$**
            
            **ThUS$**Technical
                appraisal
            
            
            —
            
            
            —
            
            
            —
            
            
            151,345
            
            
            151,345Changes
                in other comprehensive income related to investments:Soquimich
                Comercial S.A. (1)
            
            
            (871
            )
            
            5,522
            
            
            3,242
            
            
            5,398
            
            
            6,268Isapre
                Norte Grande Limitada (1).
            
            
            —
            
            
            —
            
            
            14
            
            
            (83
            )
            
            (83
            )Inversiones
                Augusta S.A. (1)
            
            
            —
            
            
            —
            
            
            —
            
            
            (761
            )
            
            (761
            )SQM
                Ecuador S.A. (2)
            
            
            —
            
            
            —
            
            
            —
            
            
            (271
            )
            
            (271
            )Almacenes
                y Depósitos Limitada (1)
            
            
            —
            
            
            78
            
            
            34
            
            
            22
            
            
            22Asociación
                Garantizadora de Pensiones (1)
            
            
            (1
            )
            
            2
            
            
            2
            
            
            (12
            )
            
            (11
            )Empresas
                Melón S.A. (1)
            
            
            —
            
            
            —
            
            
            6,190
            
            
            —
            
            
            —Sales
                de Magnesio Ltda. (1)
            
            
            (7
            )
            
            7
            
            
            —
            
            
            52
            
            
            59SQM
                North America Corp. (3)
            
            
            (1,218
            )
            
            792
            
            
            (15
            )
            
            (1,218
            )
            
            —Other
                entities (1)
            
            
            —
            
            
            (1
            )
            
            —
            
            
            718
            
            
            719Total
            
            
            (2,097
            )
            
            6,400
            
            
            9,467
            
            
            155,190
            
            
            157,287





(1)
            Corresponds
                to translation adjustments and price-level restatements.


(2)
            Corresponds
                to the translation adjustment produced by the application of a law
                enacted
                by the Ecuadorian Government


(3)
            Relates
                to valuation differences generated in the pensions plan of the subsidiary
                SQM North America Corp.





c)
            Paid-in
                capital





Capital
      consists of 263,196,524 fully authorized, subscribed and paid shares with no
      par
      value, divided into 142,819,552 Series A shares and 120,376,972 Series B shares.
      The preferential voting rights of each series are as follows:





Series
                A:
            
            If
                the election of the president of the Company results in a tied vote,
                the
                Company's directors may vote once again, without the vote of the
                director
                elected by the Series B
                shareholders.





Series
                B:
            (1)
            A
                general or extraordinary shareholders' meeting may be called at the
                request of shareholders representing 5% of the Company's Series B
                shares.


(2)
            An
                extraordinary meeting of the Board of Directors may be called with
                or
                without the agreement of the Company's president, at the request
                of a
                director elected by Series B
                shareholders.





F-43
 *Table
            of Contents*




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


**Notes
          to the Audited Consolidated Financial Statements**
 **(Expressed
          in thousands US dollars, except as stated)**


**Note
      18 - Derivative Instruments**





Derivative
      instruments are recorded at their fair value at year-end. Changes in fair value
      are recognized in income with the corresponding asset or liability recorded
      in
      Other current assets or liabilities. Losses from options relate to fees paid
      by
      the Company to enter into such contracts. As of December 31, 2006 and the
      Company’s derivative instruments are as follows:





**2006**
            
            **Notional
                or**
              **Notional
                or**
            
            
            
            
            
            **Position**
            
            **Accounts
                affected****Type
                of**
            
            **covered**
            
            
            
            
            
            **Purchase/Sale**
            
            **(Liability)
                Asset**
            
            **Income****derivative**
            
            **amount**
            
            **Expiration**
            
            **Risk
                type**
            
            **(P/S)**
            
            **amount**
            
            **(loss)
                effect****ThUS$**
            
            
            
            
            
            
            
            **ThUS$**
            
            **ThUS$**Currency
                option
            
            
            6,436
            
            
            1stquarter of 2007
            
            
            Exchange
                rate
            
            
            P
            
            
            (150
            )
            
            -US
                dollar forward
            
            
            7,079
            
            
            1stquarter of 2007
            
            
            Exchange
                rate
            
            
            P
            
            
            (69
            )
            
            -US
                dollar forward
            
            
            10,000
            
            
            1stquarter of 2007
            
            
            Exchange
                rate
            
            
            P
            
            
            100
            
            
            -Swap
            
            
            102,630
            
            
            1stquarter of 2007
            
            
            Interest
                rate
            
            
            P
            
            
            5,398
            
            
            564126,145
            
            
            
            
            
            
            
            
            
            
            
            5,279
            
            
            564








**2005**
            
            **Notional
                or**
              **Notional
                or**
            
            
            
            
            
            **Position**
            
            **Accounts
                affected****Type
                of**
            
            **covered**
            
            
            
            
            
            **Purchase/Sale**
            
            **(Liability)Asset**
            
            **Income****derivative**
            
            **amount**
            
            **Expiration**
            
            **Risk
                type**
            
            **(P/S)**
            
            **amount**
            
            **(loss)
                effect****ThUS$**
            
            
            
            
            
            
            
            **ThUS$**
            
            **ThUS$**Currency
                option
            
            
            31,279
            
            
            1stquarter of 2006
            
            
            Exchange
                rate
            
            
            P
            
            
            62
            
            
            62Currency
                option
            
            
            5,747
            
            
            1stquarter of 2006
            
            
            Exchange
                rate
            
            
            P
            
            
            (49
            )
            
            (49
            )US
                dollar forward
            
            
            7,726
            
            
            1stquarter of 2006
            
            
            Exchange
                rate
            
            
            P
            
            
            (176
            )
            
            (176
            )44,752
            
            
            
            
            
            
            
            
            
            
            
            (163
            )
            
            (163
            )




F-44
 *Table
          of Contents*




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


**Notes
          to the Audited Consolidated Financial Statements**
 **(Expressed
          in thousands US dollars, except as stated)**
  **Note
          19- Non-Operating Income and Expenses**





Amounts
      included in non-operating income and expenses are summarized as
      follows:





a)
            Non-operating
                income





**For
                the year ended December 31,****2006**
            
            **2005**
            
            **2004****ThUS$**
            
            **ThUS$**
            
            **ThUS$**Interest
                income
            
            
            11,410
            
            
            5,530
            
            
            3,650Equity
                participation in net income of unconsolidated investees
            
            
            2,314
            
            
            3,073
            
            
            4,897Insurance
                recoveries
            
            
            307
            
            
            213
            
            
            546Write-off
                of liabilities
            
            
            —
            
            
            2,204
            
            
            388Reversal
                of allowance for doubtful accounts
            
            
            238
            
            
            —
            
            
            —Sale
                of mining concessions
            
            
            499
            
            
            298
            
            
            635Sale
                of materials and services
            
            
            75
            
            
            438
            
            
            190Sale
                of Antucoya project
            
            
            753
            
            
            —
            
            
            —Gain
                on sale of investments in related companiesinversiones empresas relac. Companies
            
            
            732
            
            
            —
            
            
            8,179Rental
                of property, plant and equipment
            
            
            1,023
            
            
            1,015
            
            
            774Compensation
                obtained from third parties
            
            
            —
            
            
            737
            
            
            —Payment
                discounts obtained from suppliers
            
            
            690
            
            
            1,026
            
            
            452Fines
                collected from third parties
            
            
            159
            
            
            —
            
            
            —Other
                income
            
            
            1,093
            
            
            1,899
            
            
            1,118Total
            
            
            19,293
            
            
            16,433
            
            
            20,829





b)
            Non-operating
                expenses





**For
                the year ended December 31,****2006**
            
            **2005**
            
            **2004****ThUS$**
            
            **ThUS$**
            
            **ThUS$**Interest
                expense
            
            
            27,593
            
            
            16,663
            
            
            18,782Net
                foreign currency exchange loss and price-level restatementand
                price-level restatement
            
            
            2,263
            
            
            3,804
            
            
            475Non-capitalized
                exploration project expenses and provisions for damages and liquidation
                of
                assets
            
            
            11,387
            
            
            13,489
            
            
            9,262Equity
                participation in net losses of unconsolidated investees
            
            
            362
            
            
            477
            
            
            387Amortization
                of goodwill
            
            
            2,229
            
            
            2,070
            
            
            1,073Work
                disruption expenses
            
            
            2,534
            
            
            584
            
            
            568Increase
                in provision for employee compensation and legal costs
            
            
            —
            
            
            7,986
            
            
            533Change
                of discount rate for staff severance indemnities provision
            
            
            —
            
            
            678
            
            
            —Allowances
                for materials, spare parts and supplies
            
            
            2,685
            
            
            1,188
            
            
            1,628Allowance
                for doubtful accounts
            
            
            129
            
            
            151
            
            
            2,500Non-recoverable
                taxes
            
            
            508
            
            
            647
            
            
            531Consulting
                services
            
            
            —
            
            
            314
            
            
            175Donations
            
            
            —
            
            
            896
            
            
            533Penalties
            
            
            —
            
            
            238
            
            
            161Provision
                for legal expenses and litigations
            
            
            1,010
            
            
            —
            
            
            —Accrued
                expenses related to energy tariff adjustments
            
            
            2,500
            
            
            —
            
            
            —Other
                expenses
            
            
            2,141
            
            
            1,570
            
            
            1,812Total
            
            
            55,341
            
            
            50,755
            
            
            38,420





F-45
 *Table
            of Contents*




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


**Notes
          to the Audited Consolidated Financial Statements**
 **(Expressed
          in thousands US dollars, except as stated)**


**Note
      20 - Price-level Restatement**





Amounts
      charged or credited to income relating to price-level restatement are summarized
      as follows:





**(Charge)
                to income for the year ended December 31,****2006**
            
            **2005**
            
            **2004****ThUS$**
            
            **ThUS$**
            
            **ThUS$**Property,
                plant and equipment
            
            
            142
            
            
            239
            
            
            173Other
                assets
            
            
            144
            
            
            194
            
            
            (419
            )Other
                liabilities
            
            
            —
            
            
            199
            
            
            110Shareholders’
                equity
            
            
            (1,734
            )
            
            (2,846
            )
            
            (1,577
            )Subtotal
                price-level restatement
            
            
            (1,448
            )
            
            (2,214
            )
            
            (1,713
            )Net
                adjustment of assets and liabilities denominated in UF
            
            
            141
            
            
            (641
            )
            
            —Net
                price-level restatement
            
            
            (1,307
            )
            
            (2,855
            )
            
            (1,713
            )








**Note
      21 - Assets and Liabilities Denominated in Foreign
      Currency**





**As
                of December 31,****2006**
            
            **2005****Assets**
            
            **ThUS$**
            
            **ThUS$**Chilean
                pesos
            
            
            100,614
            
            
            81,583US
                dollars
            
            
            1,636,721
            
            
            1,433,629Euros
            
            
            37,092
            
            
            24,742Japanese
                Yen
            
            
            975
            
            
            6,466Brazilian
                Real
            
            
            330
            
            
            304Mexican
                pesos
            
            
            4,783
            
            
            11,331UF
            
            
            55,108
            
            
            57,906South
                African Rand
            
            
            13,374
            
            
            9,321Dirhams
            
            
            14,225
            
            
            11,954Other
                currencies
            
            
            7,980
            
            
            3,332**Current
                liabilities**Chilean
                pesos
            
            
            75,190
            
            
            65,355US
                dollars
            
            
            101,549
            
            
            347,141Euros
            
            
            9,925
            
            
            5,369Japanese
                Yen
            
            
            93
            
            
            133Brazilian
                Real
            
            
            1,662
            
            
            1,245Mexican
                pesos
            
            
            3,196
            
            
            3,230UF
            
            
            3,541
            
            
            3,544South
                African Rand
            
            
            1,698
            
            
            1,792Dirhams
            
            
            671
            
            
            411Other
                currencies
            
            
            117
            
            
            48**Long-term
                liabilities**Chilean
                pesos
            
            
            17,340
            
            
            16,358US
                dollars
            
            
            429,324
            
            
            138,950Japanese
                Yen
            
            
            152
            
            
            —UF
            
            
            101,573
            
            
            1,065Other
                currencies
            
            
            9
            
            
            2





F-46
 *Table
            of Contents*




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


**Notes
          to the Audited Consolidated Financial Statements**
 **(Expressed
          in thousands US dollars, except as stated)**


**Note
      22 - Cash Flow Statement**





a)
            Amounts
                included in other credits to income not representing cash flows are
                as
                follows:





**For
                the year ended December 31,****2006**
            
            **2005**
            
            **2004****Description**
            
            **ThUS$**
            
            **ThUS$**
            
            **ThUS$**Deferred
                income taxes benefit for tax loss
            
            
            —
            
            
            (5,602
            )
            
            —Adjustment
                of provision included in other financial income
            
            
            (238
            )
            
            (2,203
            )
            
            (389
            )Adjustment
                of investees’ equity
            
            
            —
            
            
            (1,143
            )
            
            (413
            )Discounts
                obtained from suppliers
            
            
            (690
            )
            
            (598
            )
            
            (482
            )Reversal
                of the provision for damages caused by heavy rains
            
            
            (1,000
            )
            
            —
            
            
            —Other
                minor credits to income not representing cash flows
            
            
            (834
            )
            
            (563
            )
            
            (635
            )Total
            
            
            (2,762
            )
            
            (10,109
            )
            
            (1,919
            )





b)
            Amounts
                included in other charges to income not representing cash flows are
                as
                follows:





**For
                the year ended December 31,****2006**
            
            **2005**
            
            **2004****Description**
            
            **ThUS$**
            
            **ThUS$**
            
            **ThUS$**Provision
                for Corfo royalty payments
            
            
            2,358
            
            
            1,855
            
            
            1,360Deferred
                income taxes benefit for tax loss
            
            
            8,500
            
            
            —
            
            
            12,635Provision
                for legal expenses for GNV lawsuit and other legal
                expenses
            
            
            —
            
            
            5,000
            
            
            873Provision
                for marketing expenses
            
            
            4,364
            
            
            4,130
            
            
            2,761Provision
                for employee incentive plans
            
            
            3,160
            
            
            8,215
            
            
            3,942Adjustment
                of provision for severance indemnities
            
            
            3,882
            
            
            8,199
            
            
            5,389Provision
                for income taxes
            
            
            28,204
            
            
            38,427
            
            
            13,938Adjustment
                of provision for vacation
            
            
            5,333
            
            
            4,447
            
            
            3,501Refund
                of 10% custom duties pursuant lo Law 18480
            
            
            —
            
            
            —
            
            
            672Non-capitalizable
                exploration project expense and provisions for damages and liquidation
                assets
            
            
            11,825
            
            
            12,156
            
            
            7,664Accrued
                expenses related to energy tariff adjustments
            
            
            4,500
            
            
            —
            
            
            —Amortization
                of prepaid insurance expenses
            
            
            3,189
            
            
            1,838
            
            
            2,246Remuneration
                of Board of Directors
            
            
            1,800
            
            
            1,557
            
            
            1,316Provision
                for mine closure
            
            
            1,000
            
            
            —
            
            
            —Adjustment
                and other expenses of inventories
            
            
            1,297
            
            
            —
            
            
            —Other
                charges to income not representing cash flows
            
            
            2,920
            
            
            1,865
            
            
            2,795Total
            
            
            82,333
            
            
            87,689
            
            
            59,092





F-47
 *Table
            of Contents*




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


**Notes
          to the Audited Consolidated Financial Statements**
 **(Expressed
          in thousands US dollars, except as stated)**


**Note
      23 - Commitments and Contingencies**





a)
            Material
                lawsuits or other legal actions of which the Company is party to





1.   
              Plaintiff
            :  
                Compañía Salitre y Yodo Soledad
                S.A.


Defendants
            :  
                Sociedad Química y Minera de Chile
                S.A.


Date of lawsuit
            :  
                December 1994


Court
            :  
                Civil Court of Pozo Almonte


Cause
            :  
                Partial annulment of mining property, Cesard 1 to 29


Instance
            :  
                Evidence provided


Nominal amount
            :  
                ThUS$ 211





2.   
              Plaintiff
            :  
                Compañía Productora de Yodo y Sales
                S.A.


Defendants
            :  
                SQM Químicos S.A.


Date of lawsuit
            :  
                November 1999


Court
            :  
                Civil Court of Pozo Almonte


Cause
            :  
                Partial annulment of mining property, Paz II 1 to
                25


Instance
            :  
                Evidence provided


Nominal amount
            :  
                ThUS$ 162





3.   
              Plaintiff
            :  
                Compañía Productora de Yodo y Sales
                S.A.


Defendants
            :  
                SQM Químicos S.A.


Date of lawsuit
            :  
                November 1999


Court
            :  
                Civil Court of Pozo Almonte


Cause
            :  
                Partial annulment of mining property, Paz III 1 to
                25


Instance
            :  
                Evidence provided


Nominal amount
            :  
                ThUS$ 204





4.   
              Plaintiff
            :  
                Compañía Salitre y Yodo Soledad
                S.A.


Defendants
            :  
                Sociedad Química y Minera de Chile
                S.A.


Date of lawsuit
            :  
                November 1999


Court
            :  
                Civil Court of Pozo Almonte


Cause
            :  
                Partial annulment of mining property, Paz IV 1 to
                30


Instance
            :  
                Evidence provided


Nominal amount
            :  
                ThUS$ 193





5.   
              Plaintiff
            :  
                Miguel Negrete Ubeda


Defendants
            :  
                Marco Antonio Ortiz Castillo y SQM Nitratos S.A. and itsinsurers


Date of lawsuit
            :  
                May 2004


Court
            :  
                First Civil Court of Antofagasta


Cause
            :  
                Work accident


Instance
            :  
                First instance sentence. The appeal is
                pending.


Nominal amount
            :  
                ThUS$ 150





F-48
 *Table
            of Contents*




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


**Notes
          to the Audited Consolidated Financial Statements**
 **(Expressed
          in thousands US dollars, except as stated)**


**Note
      23 - Commitments and Contingencies (continued)**





a)
            Material
                lawsuits or other legal actions of which the Company is party to
                (continued)





6.   
              Plaintiff
            :  
                Gabriela Véliz Huanchicay


Defendants
            :  
                Gilberto Mercado Barreda and subsidiary and jointly and severallySQM
                Nitratos S.A. and its insurers


Date of lawsuit
            :  
                August 2005


Court
            :  
                4th Civil Court of Santiago


Cause
            :  
                Work accident


Instance
            :  
                Observations to the evidence


Nominal amount
            :  
                ThUS$ 1,350





7.   
              Plaintiff
            :  
                Electroandina S.A.


Defendants
            :  
                Sociedad Química y Minera de Chile
                S.A.


Date of lawsuit
            :  
                September 2005


Court
            :  
                Court of arbitration


Cause
            :  
                Early termination or partial modification or temporarysuspension
                ofthe
                Electrical Supply Agreement entered onFebruary
                12, 1999 byvirtue
                of supposedly unforeseen events that would result in an increasein
                the cost of or restricted the supply of natural gas from
                Argentina


Instance
            :  
                Evidentiary stage


Nominal amount
            :  
                The amount has not been determined
                yet





8.   
              Plaintiff
            :  
                Juana Muraña Quispe


Defendants
            :  
                Intro Ingenieria Limitada and subsidiary and jointly andseverally
                SQM S.A. and its insurers


Date of lawsuit
            :  
                October 2005


Court
            :  
                25th Civil Court of Santiago


Cause
            :  
                Work accident


Instance
            :  
                Evidentiary stage


Nominal amount
            :  
                ThUS$ 1,500





9.   
              Plaintiff
            :  
                Norgener S.A.


Defendant
            :  
                Sociedad Química y Minera de Chile
                S.A.


Date of lawsuit
            :  
                April 2006


Court
                :  
                    Arbitration Court


Cause
            : 
                Modification of the price of energy sold and of theindexation
                systemindicated
                in the Electrical Energy Supply Agreement entered on January 13,
                1998, byVirtue
                of that indicated, in the plaintiff’s opinion, in this
                agreement.


Instance
            :  
                Rejoinder


Nominal amount
            :  
                Amount not determined.





F-49
 *Table
            of Contents*




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


**Notes
          to the Audited Consolidated Financial Statements**
 **(Expressed
          in thousands US dollars, except as stated)**


**Note
      23 - Commitments and Contingencies (continued)**





a)
            Material
                lawsuits or other legal actions of which the Company is party to
                (continued)





10. 
              Plaintiff
            :  
                Marina Arnéz Valencia


Defendant
            :  
                SQM S.A. and its insurance
                companies


Date of lawsuit
            :  
                April 2006


Court
            :  
                2nd Civil Court of Santiago


Cause
            :  
                Work accident


Instance
            :  
                Conciliation audience


Nominal amount
            :  
                ThUS$ 500





11. 
              Plaintiff
            :  
                Empresa de Servicios de Montaje
                Ltda.


Defendant
            :  
                SQM S.A.


Date of lawsuit
            :  
                May 2006


Court
            :  
                4th Civil Court of Antofagasta


Cause
            :  
                Divergences related to the agreement for the improvement ofcompressors
                and of assembly of capacitors inPedro
                de Valdiviacrystallization
                plant and compensation for damage.


Instance
            :  
                Response


Nominal amount
            :  
                ThUS$ 270





12. 
              Plaintiff
            :  
                ESAOL Limitada


Defendant
            :  
                Sociedad Química y Minera de Chile
                S.A.


Date of lawsuit
            :  
                September 2006


Court
            :  
                Arbitration Court of Antofagasta


Cause
            :  
                Fees allegedly owed for urban cleaning services at Maria Elena
                plant.


Instance
            :  
                Order for appearance, filing of
                commitment


Nominal amount
            :  
                ThUS$ 170





13. 
              Plaintiff
            :  
                Sociedad de Servicios Tacora
                Limitada


Defendants
            :  
                SQM Nitratos S.A.


Date of lawsuit
            :  
                December 2006


Court
            :  
                25th Civil Court of Antofagasta


Cause
            :  
                Collection of securities which SQM Nitratos S.A., by virtue of amandate
                conferred in its favor, used to pay the plaintiff’semployeeswho
                have not received their salary pay and contributions for transportation
                and machinery services rendered indirectly to SQM Nitratos
                S.A.


Instance
            :  
                Response


Nominal amount
            :  
                ThUS$ 266








F-50
 *Table
            of Contents*




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


**Notes
          to the Audited Consolidated Financial Statements**
 **(Expressed
          in thousands US dollars, except as stated)**


**Note
      23 - Commitments and Contingencies (continued)**





b)
            Other
                lawsuits




The
      Company and its subsidiaries are involved in various litigation in the ordinary
      course of business, including those described in a) above. Based on the advice
      of counsel, the Company has accrued provisions that are adequate to cover any
      probable risk and therefore management believes the litigation will not have
      a
      material effect on the consolidated financial statements .





c)
            Commitments





The
      subsidiary SQM Salar S.A. maintains an agreement with a government agency
      (Corfo), whereby it must make annual royalty payments until 2030 determined
      on
      the basis of the Company’s annual sales. This royalty is being paid since 1996,
      when the Company entered into the agreement with Corfo. Amounts paid in the
      years 2006, 2005 and 2004 were ThUS$ 9,193, ThUS$ 6,752 and ThUS$
      4,910.





d)
            Debt
                covenants





Bank
      debt
      of SQM S.A. and its subsidiaries has no restrictions or terms other than those
      that might usually be found in identical debt in the financial markets, such
      as
      maximum indebtedness and minimum equity among others. Specifically the loan
      covenants in force are the following: (i) shareholders’ equity of SQM S.A.
      should not be lower than ThUS$984,522.00, (ii) the net financial debt to EBITDA
      ratio should not be greater than 3:1, and (iii) the ratio between financial
      debt
      of operating subsidiaries and the consolidated current assets should not be
      greater than 0.3:1.




**Note
      24 - Guarantees**





a)
            Guarantees
                given





As
      of
      December 31, 2006 and 2005 the Company has the following indirect guarantees
      outstanding:





**Debtor**
            
            **Balances
                outstanding****Beneficiary**
            
            **Name**
            
            **Relationship**
            
            **2006**
            
            **2005****ThUS$**
            
            **ThUS$**BBVA
                Banco Bilbao Vizcaya Argentaria
            
            
            Royal
                Seed Trading Corp. A.V.V.
            
            
            Subsidiary
            
            
            100,412
            
            
            100,303ING
                Bank
            
            
            Royal
                Seed Trading Corp. A.V.V.
            
            
            Subsidiary
            
            
            80,416
            
            
            —





b)
            Guarantees
                received





Tattersall
      Comercial S.A. has made several guarantees of up to ThUS$ 1,000 to assure
      compliance of its obligations related to commercial mandate agreement for the
      distribution and sale of fertilizers with Soquimich Comercial
      S.A.


F-51
 *Table
            of Contents*




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


**Notes
          to the Audited Consolidated Financial Statements**
 **(Expressed
          in thousands US dollars, except as stated)**





**Note
      25 - Sanctions**





During
      the years ended December 31, 2006, 2005 and 2004, the SVS did not apply
      sanctions to the Company, its directors or managers.




**Note
      26 - Environmental Projects**





Disbursements
      incurred by the Company as of December 31, 2006 relating to its investments
      in
      production processes and compliance with regulations related to industrial
      processes and facilities are as follows:





**2006**
            
            **2005**
            
            **2004****ThUS$**
            
            **ThUS$**
            
            **ThUS$****Project**Environmental
                department
            
            
            748
            
            
            596
            
            
            544Risk
                and security management
            
            
            —
            
            
            424
            
            
            —Improvements
                in María Elena Camp - streets
            
            
            296
            
            
            —
            
            
            —Dust
                emission control
            
            
            823
            
            
            962
            
            
            —Light
                normalization
            
            
            919
            
            
            378
            
            
            —Improvement
                of mining operations
            
            
            —
            
            
            220
            
            
            —Environmental
                studies - Region I of Chile project
            
            
            605
            
            
            —
            
            
            —María
                Elena archeology
            
            
            870
            
            
            —
            
            
            —Normalization
                of lighting at FFCC yard, PV Mill
            
            
            123
            
            
            —
            
            
            —Equipment
                washing system
            
            
            184
            
            
            —
            
            
            **—**The
                Environment MOP/SOP 2
            
            
            142
            
            
            —
            
            
            —Boratos
                sewage treatment plant
            
            
            —
            
            
            —
            
            
            281Tocopilla
                project
            
            
            —
            
            
            —
            
            
            615Engineering
                and building of Maria Elena piles
            
            
            —
            
            
            —
            
            
            2,667Treatment
                plant MOP
            
            
            —
            
            
            —
            
            
            208Construction
                of facilities for workers
            
            
            279
            
            
            —
            
            
            —Atacama
                salt deposit hydrological model
            
            
            176
            
            
            —
            
            
            —Environmental
                commitments in Region I of Chile
            
            
            152
            
            
            —
            
            
            —Elimination
                of PCB equipment
            
            
            304
            
            
            —
            
            
            —Others
            
            
            1,221
            
            
            811
            
            
            1,242Total
            
            
            6,842
            
            
            3,391
            
            
            5,557





Protecting
      the environment, both in regards to the Company’s productive processes and the
      manufactured goods, is a constant concern for SQM.





SQM
      is
      currently implementing an Environmental Management System, which is based on
      the
      ISO 14000 standard, with which the Company will improve its environmental
      performance. The implementation program stipulates that all the operations
      maintained by the Company in Regions I and II of Chile, will have a fully
      implemented Environmental Management System by late 2007.





Processes
      where sodium nitrate is used as a raw material are carried out in geographical
      areas such as the desert with favorable weather conditions for drying solid
      materials and evaporating liquids used in solar energy. The extraction of
      minerals in open pit mines, given their low waste-to-mineral ratio, gives rise
      to waste deposits that have little impact on the environment. The extraction
      process and ore crushing produce particles that are consistent with the industry
      of operation.





F-52
 *Table
            of Contents*




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


**Note
      26 - 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 María Elena
      Plant exceeded the level allowed for air quality and, consequently, affected
      the
      nearby city of María Elena. Particles mainly come from dust that results from
      processing the sodium 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, was intended to meet air quality
      standards by April 1, 2006. On December 31, 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.
      The project will commence its activities during 2007.





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.





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 resources 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.





SQM
      togheter with other mining companies participate also actively in the Joint
      Study of Monitoring of the Atacama Saltpeter Deposit Basin.








**Note
      27 - Significant Events**





·
            On
                January 17, 2006, the Company informed the SVS that Mr. Bernard Descazeaux
                Aribit resigned from his position of General Manager of Soquimich
                Comercial S.A. and assumed responsibility for the operations of SQM
                S.A.
                in Mexico and Central America. The Board of Directors accepted his
                resignation. At the Ordinary Board of Directors’ Meeting held on January
                16, 2006, the Directors accepted the appointment of Mr. Juan Carlos
                Barrera Pacheco as new General Manager of Soquimich Comercial S.A.
                The
                changes were effective beginning on March 1,
                2006.








F-53
 *Table
            of Contents*




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


**Note
      27 - Significant Events (continued)**





·
            On
                January 19, 2006 the Company informed SVS that it acquired, on the
                same
                date from DSM Group based in the Netherlands, the total amount of
                shares
                of certain companies that participate in the markets of the production
                and
                commercialization of iodine and iodine derivatives in Chile (DSM
                Minera
                S.A. and Exploraciones Mineras S.A.) and abroad (DSM Minera B.V.
                based in
                Netherlands) (see also Note 8b).





·
            On
                January 24, 2006, Sociedad Química y Minera de Chile S.A has placed in the
                Chilean market an unguaranteed bond for the nominal amount of UF
                3 million
                with a term of 21 years and an annual interest rate of 4.18% to refinance
                liabilities and fund investment projects for the year
                2006.





·
            On
                March 29, 2006, the Company informed the SVS that Sociedad Química y
                Minera de Chile S.A. is negotiating the possible placement abroad
                of a new
                bond issuance for an approximate amount of US$ 200 million that will
                be
                repayable in a single installment at the expiration of the ten-years
                period and which will be used to pay liabilities for the same sum
                which
                expire in September 2006. On April 15, 2006, SQM communicated to
                the SVS
                that it placed in the US market a bond, of US$ 200 million with an
                annual
                interest rate of 6.125%. The interest will be paid semi-annually
                and the
                capital will be paid in a single amortization in April 2016.





·
            On
                March 29, 2006, the Company informed the SVS that the Board of Directors
                of Sociedad Química y Minera de Chile (SQM), at its meeting held on April
                28, 2006, unanimously agreed to propose the payment of a final dividend
                of
                US$ 0.27981 per share.





·
            On
                September 15, 2006, the Company informed the SVS that Soquimich European
                Holdings B.V. (SEH), a subsidiary of Sociedad Química y Minera de Chile
                S.A. and Yara Italia S.P.A., a subsidiary of Yara International ASA,
                the
                entity that forms part of the Controlling Group of SQM, have entered
                in
                Italy into Right Transfer Agreement through which SEH has sold to
                Yara all
                its rights (50% participation) in the Italian company Impronta
                SRL.





·
            On
                October 30, 2006, the Company informed the SVS that SQM Comercial
                de
                México S.A. de C.V. (SQMM) and SQM Industrial S.A. (SQMI), both
                subsidiaries of Sociedad Química y Minera de Chile S.A. and Yara Nederland
                B.V. (YN) and Yara Holdings Netherlands B.V. (YH), both subsidiaries
                of
                Yara International ASA, the entity that forms part of the Controlling
                Group of SQM, have entered on October 27, 2006 in Mexico into Share
                Purchase and Sale Agreement through which SQMM and SQMI sold to YN
                and to
                YH all the shares (in total 100%) which SQMM and SQMI had in Fertilizantes
                Olmeca y SQM S.A. de C.V.





·
            On
                November 28, 2006, the Company informed the SVS that Royal Seed Trading
                Corp. A.V.V., a subsidiary of Sociedad Química y Minera de Chile S.A. and
                the banks ING Bank N.V., Curacao Branch, Banco Bilbao Vizcaya Argentaria
                S.A., BNP Paribas and Santander Overseas Bank Inc., entered on November
                22, 2006 into a 5 year loan agreement for a sum of ThUS$ 80,000 with
                the
                initial annual interest rate of Libor + 0.3% that may vary depending
                on
                the possible future changes in the classification of the guarantor’s
                (Sociedad Química y Minera de Chile S.A.) external debt, with no actual
                guarantees and with semi-annual payments of
                interest.








F-54
 *Table
            of Contents*




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


**Note
      28 - Subsequent Events**





Management
      is not aware of any other significant subsequent events that have occurred
      after
      December 31, 2006 and that may affect the Company’s financial position or the
      interpretation of these financial statements.








**Note
      29 - Differences between Chilean and United States Generally Accepted Accounting
      Principles**





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





The
      principal differences Between Chilean GAAP and US GAAP are described below
      together with explanations, where appropriate, of the 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 2j), certain property, plant and equipment are reported in
      the
      financial statements at amounts determined in accordance with a technical
      appraisal performed in 1988. US GAAP does not allow the revaluation of property,
      plant and equipment. The effects of the reversal of this revaluation, as well
      as
      of the related accumulated depreciation and depreciation charge for each year
      are set-forth under paragraph I n) below.





F-55
 *Table
            of Contents*




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


**Note
      29 - Differences between Chilean and United States Generally Accepted Accounting
      Principles (continued)**





**b)**
            **Deferred
                income taxes**





On
      January 1, 2000 the Company began applying Technical Bulletin No. 60 (“BT 60”),
      and related amendments, of the Chilean Association of Accountants concerning
      deferred income taxes. These regulations require the recognition of deferred
      income taxes for all temporary differences arising after January 1, 2000, using
      the liability method. Prior to implementation of BT 60 and related amendments,
      no deferred income taxes were recorded under Chilean GAAP if the related timing
      differences were expected to be offset in the year that they were projected
      to
      reverse by new timing differences of a similar nature. In order to mitigate
      the
      effects of not recording deferred income taxes under the prior deferred income
      tax accounting standard, BT 60 provided for a period of transition whereby
      a
      transitional provision, a contra asset or liability (referred to as
“complementary”) was recorded, offsetting the effects of the deferred tax assets
      and liabilities not recorded prior to January 1, 2000. Such contra assets or
      liabilities 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.





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.





The
      primary differences between Chilean GAAP and US GAAP relates to the reversal
      of
      complementary accounts and their amortization recorded in accordance with the
      transition provisions of BT 60 as well as to the recognition of the deferred
      income tax effect of US GAAP adjustments, the effect of which is set-forth
      under
      paragraph I n) below. Additional disclosures required under SFAS 109 are set
      forth under paragraph II b) below.





**c)**
            **Translation
                of foreign currency financial statements and price-level
                restatement**





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





For
      the
      purposes of reconciling to US GAAP, the Company applies SFAS 52 *Foreign
      Currency Translation* (“SFAS
      52”), which requires a functional currency translation approach. Under SFAS 52
      the Company has determined that the US dollar is the functional currency of
      all
      domestic and foreign subsidiaries. Accordingly, financial statements of
      subsidiaries, which do not maintain their accounting records in US dollars,
      are
      remeasured into US dollars, after the elimination of price-level adjustments,
      if
      any, as follows:





(i)
            Balance
                sheet accounts:





·
            Monetary
                assets and liabilities are translated at the year-end exchange rate;
                and


·
            Non-monetary
                assets and liabilities and shareholders' equity are translated at
                historical exchange rates.





F-56
 *Table
            of Contents*




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


**Notes
          to the Audited Consolidated Financial Statements**
 **(Expressed
          in thousands US dollars, except as stated)**





**Note
      29 - Differences between Chilean and United States Generally Accepted Accounting
      Principles (continued)**





**c)**
            **Translation
                of foreign currency financial statements and price-level restatement
                (continued)**





(ii)
            Income
                statement accounts:




·
            Depreciation
                and amortization expense and other accounts derived from non-monetary
                assets and liabilities are translated at historical rates;
                and


·
            All
                other accounts are translated at monthly-average exchange rates,
                which
                approximate the actual rates of exchange at the date the transactions
                occurred.





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





As
      described in the Note 2c) under Chilean GAAP financial statements of domestic
      subsidiaries that maintain their records in Chilean pesos include effects of
      the
      inflation (price-level restatement) in Chile. Under US GAAP Chile does not
      meet
      definition of highly inflationary economy and consequently effects of inflation
      accounting needs to be reversed.





The
      effect of eliminating price-level restatement and the effects of translation
      of
      financial statements of subsidiaries that maintain their records in currencies
      other than US dollar are included in paragraph I n) below.





**d)**
            **Investment
                in Empresas Melón S.A.**





During
      1998, the Company purchased a 14.05% participation in Empresas Melón S.A.,
      (“Melón”) cement manufacturing company. Pursuant to a shareholders agreement,
      until August of 2004 the Company exerted significant influence over Melón and
      thus it accounted for this investment for both Chilean GAAP and US GAAP under
      the equity method. As mentioned in Note 8 this investment was sold during 2004.
      Significant adjustments between Chilean GAAP and US GAAP relating to the
      investment in Melón are described below.





**d-1)**
            **Purchase
                accounting adjustments**





At
      the
      time of acquisition of participation in Melón, under Chilean GAAP, the Company
      recorded goodwill on the transaction, calculated as the difference between
      the
      purchase price and the proportionate share in the net assets acquired at their
      book values. Such goodwill was being amortized over a period of 20 years.





Under
      US
      GAAP, the Company calculated goodwill as the difference between the purchase
      price and the proportionate participation in the fair values of the assets
      acquired and liabilities assumed. As a result proportionate share in the Melón’s
      net assets measured at fair values exceeded acquisition cost. In accordance
      with
      US GAAP such difference was allocated to property, plant and equipment acquired,
      reducing the accounting base, and consequently the depreciation of those assets.





The
      effects of reversing goodwill and its related amortization recorded under
      Chilean GAAP and the recognition of the new basis of assets and liabilities
      and
      subsequent depreciation are set forth in paragraph I n) below.





F-57
 *Table
            of Contents*




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


**Notes
          to the Audited Consolidated Financial Statements**
 **(Expressed
          in thousands US dollars, except as stated)**


**Note
      29 - Differences between Chilean and United States Generally Accepted Accounting
      Principles (continued)**





**d)**
            **Investment
                in Empresas Melón S.A.
                (continued)**





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





Within
      the period in which SQM exerted significant influence over Melón it recognized
      its participation of income (loss) and net assets of that entity using equity
      method. For the purposes of the Company’s US GAAP reconciliation US GAAP
      information of Melón was prepared. The principle differences between Chilean
      GAAP and US GAAP in Melón related to deferred taxes and the elimination of
      price-level restatement.





In
      addition under US GAAP the financial statements of Melón were 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 and after conversion to US dollars in accordance with SFAS 52 is set forth
      in paragraph I n) below.





**d-3)**
            **Sale
                of investment in Melón on US GAAP
                basis**





As
      discussed above in 2004 the Company sold its participation in Melón. As a result
      of differences in purchase accounting and subsequent measuring of income from
      the investment as discussed in points d-1) and d-2) above value of investment
      sold was different for Chilean GAAP and for US GAAP. Consequently adjustment
      to
      the result of the sale of participation in Melón is included in the
      reconciliation to US GAAP in paragraph I n) below.





**e)**
            **Consolidation
                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 consolidated income
      statement. For purposes of US GAAP, these subsidiaries must be consolidated
      and
      their results should be recorded in the income statement. Until June 30, 2004,
      SQM Lithium Specialties LLP was the development stage company. The effects
      of
      recognizing its net loss for the year ended December 31, 2004 is set forth
      in
      paragraph I n) below.





**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 before amortization of negative goodwill for each year as
      determined in accordance with Chilean GAAP, unless and except to the extent
      the
      Company has unabsorbed prior year losses. Since the payment of the 30% dividend
      out of each year’s income is a legal requirement in Chile, a provision has been
      made in the accompanying US GAAP reconciliation in paragraph I o) below to
      recognize the corresponding decrease in net equity at December 31 for each
      year
      for the difference between 30% of net income and interim dividends paid during
      the year.




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





F-58
 *Table
            of Contents*




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


**Notes
          to the Audited Consolidated Financial Statements**
 **(Expressed
          in thousands US dollars, except as stated)**


**Note
      29 - Differences between Chilean and United States Generally Accepted Accounting
      Principles (continued)**





**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 balance of such loans,
      amounting to ThUS$ 253 and ThUS$ 288 at December 31, 2006 and 2005,
      respectively, has been treated as a reduction of shareholders' equity under
      paragraph I n) below.





**h)**
            **Staff
                Severance Indemnities**





The
      Company has negotiated certain collective bargaining agreements with employees
      for staff severance indemnities. Under Chilean GAAP the liability has been
      recorded at the present value of the accrued benefits which are calculated
      by
      applying a real discount rate to the benefit accrued over the estimated average
      remaining service period.





Under
      US
      GAAP, termination indemnity employee benefits are accounted for in accordance
      with SFAS 87 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 n) below. Additional
      disclosure requirements are presented in paragraph II m) below.





**i)**
            **Derivatives
                and hedging**





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





The
      Company enters into forward exchange and currency option contracts principally
      to mitigate the risk associated with maintaining certain accounts receivable
      in
      foreign currencies. The purpose of the Company's foreign currency-hedging
      activities is to protect the Company from the risk that cash flows will be
      adversely affected by changes in exchange rates resulting from the collection
      of
      receivables from international customers. The effects of changes in fair value
      of forward contracts and options are recorded both under Chilean GAAP and US
      GAAP in income.





F-59
 *Table
            of Contents*




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


**Notes
          to the Audited Consolidated Financial Statements**
 **(Expressed
          in thousands US dollars, except as stated)**





**Note
      29 - Differences between Chilean and United States Generally Accepted Accounting
      Principles (continued)**





**i)**
            **Derivatives
                and hedging (continued)**





The
      Company periodically uses interest rate and currency swap agreements to manage
      interest rate risk on its floating rate debt as well as foreign currency risk
      exposure. The Company entered into one of such contracts during 2006 in order
      to
      hedge its risk exposure related to bonds denominated in UF. Under Chilean GAAP
      the swap was designated as a hedging instrument and the change in the fair
      value
      of the contract was deferred on the balance sheet. Under US GAAP the Company
      did
      not meet the strict documentation and effectiveness testing requirements to
      qualify for hedge accounting. Consequently change in the fair value of the
      swap
      contract was included in income under US GAAP. The effect of this difference
      on
      the net income and shareholders’ equity of the Company is included in paragraph
      I n) below.





In
      addition the Company entered during 2006 into some forward contracts to hedge
      its exposure to fluctuations between US dollars and Chilean pesos associated
      with purchases of certain property, plant and equipment on the Chilean market.
      Under Chilean GAAP, the Company recorded this forward contract at fair value
      and
      the related unrealized losses were capitalized as additional cost of property,
      plant and equipment. For US GAAP purposes, the Company did not apply hedge
      accounting and in consequence, the unrealized loss on the forward contract
      has
      been recorded in current earnings. The effect of this difference is included
      in
      paragraph I n) below.





**j)**
            **Business
                combinations and Goodwill**





Under
      Chilean GAAP, goodwill is amortized over the estimated period of return of
      the
      investment made. Impairment tests are only performed if there is an evidence
      of
      impairment. No impairment has been recognized for any of the periods presented
      under either Chilean GAAP or US GAAP.





For
      US
      GAAP purposes, the Company adopted SFAS 142 *Goodwill
      and Other Intangible Assets* (“SFAS
      142”), as of January 1, 2002, and did not amortize goodwill related to
      acquisitions made after June 30, 2001.





The
      Company has performed the required annual impairment test, which did not result
      in any impairment.





The
      effect of reversing the amortization of goodwill under Chilean GAAP is set
      forth
      under paragraph I n) below.





F-60
 *Table
            of Contents*





**Note
      29 - Differences between Chilean and United States Generally Accepted Accounting
      Principles (continued)**





**k)**
            **Negative
                goodwill**




Under
      Chilean GAAP until December 31, 2003, negative goodwill was calculated as the
      excess of the net assets acquired in a business combination over the respective
      acquisition cost. Beginning January 1, 2004, the Company adopted Technical
      Bulletin No. 72 of the Chilean Association of Accountants that changes the
      basis
      for accounting for negative goodwill, introducing the fair value of the acquired
      net assets as the basis to be compared with purchase price in order to determine
      goodwill or negative goodwill.





Negative
      goodwill recognized under Chilean GAAP was generated on the acquisitions of
      SQM
      Salar S.A., Minera Mapocho S.A. and Minera Nueva Victoria (former DSM Minera
      SCM). 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 n)
      below
      as follows:




k-1:
            The
                reversal of negative goodwill amortization recorded under Chilean
                GAAP.


k-2:
            The
                effects of reducing depreciation expense, due to the allocation of
                the
                excess purchase price to property, plant and
                equipment;





**l)**
            **Capitalized
                interest**





In
      accordance with Chilean GAAP, only those legal entities that have financial
      expenses may capitalize interests on debt related to property, plant, equipment
      under construction and other projects. Prior to 2003 the Company did not
      capitalize interest to acquisition cost of property, plant and equipment.





Under
      US
      GAAP, the capitalization of interest on qualifying assets under construction
      is
      required, regardless of whether interest is associated with debt directly
      related to a project. The accounting differences between Chilean and US GAAP
      for
      capitalization of interest costs prior to 2003 and the related depreciation
      expense are included in the reconciliation to US GAAP under paragraph I n)
      below. ****





**m)**
            **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 n) below.





F-61
 *Table
            of Contents*




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


**Notes
          to the Audited Consolidated Financial Statements**
 **(Expressed
          in thousands US dollars, except as stated)**


**Note
      29 - Differences between Chilean and United States Generally Accepted Accounting
      Principles (continued)**





**n)**
            **Effects
                of conforming to US GAAP**





The
      adjustments to reported net income required to conform to US GAAP are as
      follows:




**For
                the years ended December 31,****2006**
            
            **2005**
            
            **2004****ThUS$**
            
            **ThUS$**
            
            **ThUS$****Net
                income in accordance with Chilean GAAP**
            
            
            **141,277**
            
            
            **113,506**
            
            
            **74,232**Revaluation
                of property, plant and equipment (paragraph a)
            
            
            4,174
            
            
            2,132
            
            
            4,367Deferred
                income taxes (paragraph b)
            
            
            4,021
            
            
            2,236
            
            
            6,022Translation
                of foreign currency financial statements (paragraph c)
            
            
            (576
            )
            
            8,994
            
            
            5,318Purchase
                accounting adjustments - Empresas Melón S.A. (paragraph
                d-1)
            
            
            —
            
            
            —
            
            
            (34
            )Accounting
                for participation in Melón on US GAAP basis (paragraph
                d-2)
            
            
            —
            
            
            —
            
            
            (467
            )Cost
                of sale of Empresas Melón S.A. onUS
                GAAP basis (paragraph d-3)
            
            
            —
            
            
            —
            
            
            2,336Consolidation
                of subsidiaries in the development stage (paragraph e)
            
            
            —
            
            
            —
            
            
            (1,851
            )Staff
                severance indemnities (paragraph h)
            
            
            (484
            )
            
            (836
            )
            
            (618
            )Derivatives
                (paragraph i)
            
            
            4,432
            
            
            1,483
            
            
            (1,483
            )Goodwill
                (paragraph j)
            
            
            1,950
            
            
            1,718
            
            
            749Negative
                goodwill (paragraph k)k-1:
                Reversal of negative goodwill amortization
            
            
            (68
            )
            
            (203
            )
            
            (213
            )k-2:
                Depreciation of property, plant and equipment
            
            
            113
            
            
            113
            
            
            123Capitalized
                interest (paragraph l)
            
            
            (91
            )
            
            (91
            )
            
            (91
            )Minority
                interest (paragraph m)
            
            
            172
            
            
            (3,576
            )
            
            (2,115
            )Deferred
                income tax effect of the above US GAAP adjustments(paragraph
                b)
            
            
            (656
            )
            
            (272
            )
            
            551**Net
                income under US GAAP**
            
            
            **154,264**
            
            
            **125,204**
            
            
            **86,826**Other
                comprehensive income (loss), net of tax:Minimum
                pension liability adjustment
            
            
            —
            
            
            792
            
            
            (15
            )Translation
                adjustment
            
            
            (24
            )
            
            —
            
            
            6,460**Total
                comprehensive income under US GAAP**
            
            
            **154,240**
            
            
            **125,996**
            
            
            **93,271**





F-62
 *Table
            of Contents*




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


**Notes
          to the Audited Consolidated Financial Statements**
 **(Expressed
          in thousands US dollars, except as stated)**


**Note
      29 - Differences between Chilean and United States Generally Accepted Accounting
      Principles (continued)**





**n)**
            **Effects
                of conforming to US GAAP
                (continued)**





The
      adjustments required to conform shareholders' equity amounts under Chilean
      GAAP
      to US GAAP are as follows:





**As
                of December 31,****2006**
            
            **2005****ThUS$**
            
            **ThUS$****Shareholders’
                equity in accordance with Chilean GAAP**
            
            
            **1,085,949**
            
            
            **1,020,416**Revaluation
                of property, plant and equipment: (paragraph a)a-1:
                Property, plant and equipment
            
            
            (133,309
            )
            
            (133,768
            )a-2:
                Accumulated depreciation
            
            
            103,444
            
            
            99,729Deferred
                income taxes (paragraph b)
            
            
            (22,627
            )
            
            (26,648
            )Translation
                of foreign currency financial statements (paragraph c)c-1:
                Property, plant and equipment
            
            
            (2,160
            )
            
            (2,377
            )c-2:
                Accumulated depreciation
            
            
            1,104
            
            
            921c-3:
                Inventory
            
            
            (364
            )
            
            (728
            )c-4:
                Goodwill, net
            
            
            (335
            )
            
            (408
            )Minimum
                dividend (paragraph f)
            
            
            (42,383
            )
            
            (34,053
            )Employer
                loans used to purchase shares (paragraph g)
            
            
            (253
            )
            
            (288
            )Staff
                severance indemnities (paragraph h)
            
            
            (5,409
            )
            
            (4,926
            )Derivatives
                (paragraph i)
            
            
            4,432
            
            
            -Goodwill
                (paragraph j)
            
            
            5,763
            
            
            3,813Negative
                goodwill: (paragraph k)k-1:
                Property, plant and equipment
            
            
            (5,084
            )
            
            (3,156
            )k-1:
                Accumulated depreciation of property, plant and equipment
            
            
            1,910
            
            
            1,796k-2:
                Negative goodwill
            
            
            5,084
            
            
            3,156k-2:
                Accumulated amortization of negative goodwill
            
            
            (3,156
            )
            
            (3,088
            )Capitalized
                interest (paragraph l)l-1:
                Property, plant and equipment
            
            
            1,643
            
            
            1,643l-2:
                Amortization of capitalized interest
            
            
            (274
            )
            
            (182
            )Effect
                of minority interest on US GAAP adjustments (paragraph n)
            
            
            614
            
            
            1,001Deferred
                income tax effect of the above US GAAP adjustments(paragraph
                b)
            
            
            (67
            )
            
            589**Shareholders'
                equity in accordance with US GAAP**
            
            
            **994,522**
            
            
            **923,442**





F-63
 *Table
            of Contents*




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


**Notes
          to the Audited Consolidated Financial Statements**
 **(Expressed
          in thousands US dollars, except as stated)**


**Note
      29 - Differences between Chilean and United States Generally Accepted Accounting
      Principles (continued)**





**o)**
            **Effects
                of conforming to US GAAP,
                continued**





The
      changes in the Shareholders’ equity accounts determined under US GAAP are
      summarized as follows:





**ThUS$****Balance
                at January 1, 2004**
            
            
            **794,698**Reversal
                of accrued minimum dividend at December 31, 2003
            
            
            14,026Distribution
                of final 2003 dividend
            
            
            (23,192
            )Accrued
                minimum dividend at December 31, 2004
            
            
            (22,270
            )Employer
                loans used to purchase shares
            
            
            338Other
                comprehensive income
            
            
            6,445Net
                income for the year
            
            
            86,826**Balance
                at December 31, 2004**
            
            
            **856,871**Reversal
                of accrued minimum dividend at December 31, 2004
            
            
            22,270Distribution
                of final 2004 dividend
            
            
            (48,118
            )Accrued
                minimum dividend at December 31, 2005
            
            
            (34,053
            )Employer
                loans used to purchase shares
            
            
            476Other
                comprehensive income
            
            
            792Net
                income for the year
            
            
            125,204**Balance
                at December 31, 2005**
            
            
            **923,442**Reversal
                of accrued minimum dividend at December 31, 2005
            
            
            34,053Distribution
                of final 2005 dividend
            
            
            (73,647
            )Accrued
                minimum dividend at December 31, 2006
            
            
            (42,383
            )Employer
                loans used to purchase shares
            
            
            35Other
                comprehensive loss
            
            
            (1,242
            )Net
                income for the year
            
            
            154,264**Balance
                at December 31, 2006**
            
            
            **994,522**








F-64
 *Table
            of Contents*




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


**Notes
          to the Audited Consolidated Financial Statements**
 **(Expressed
          in thousands US dollars, except as stated)**


**Note
      29 - 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:




**2006**
            
            **2005**
            
            **2004****(Expressed
                in US dollars)**Basic
                and diluted earnings per share under Chilean GAAP
            
            
            0.54
            
            
            0.43
            
            
            0.28Basic
                and diluted earnings per share under US GAAP
            
            
            0.59
            
            
            0.48
            
            
            0.33Dividends
                declared per share (1)
            
            
            0.35
            
            
            0.28
            
            
            0.18Weighted
                average number of common shares outstanding (thousands)
            
            
            263,197
            
            
            263,197
            
            
            263,197





(1)
            Represents
                dividends declared and paid in accordance with Chilean
                GAAP,




The
      earnings per share data shown above is determined by dividing net income for
      both Chilean GAAP and US GAAP purposes by the weighted average number of shares
      of common stock outstanding during each year. For the years presented the
      Company did not have convertible securities outstanding.





**b)**
            **Income
                taxes**





The
      provision for income taxes differs from the amount of income tax determined
      by
      applying the applicable Chilean statutory income tax rate to pretax accounting
      income on a US GAAP basis as a result of the following differences:





**2006**
              **ThUS$**
            
            **2005**
              **ThUS$**
            
            **2004**
              **ThUS$**Consolidated
                pretax income under US GAAP
            
            
            193,358
            
            
            160,382
            
            
            114,815Statutory
                tax rate
            
            
            17
            %
            
            17
            %
            
            17
            %Theoretical
                tax at statutory rate
            
            
            32,871
            
            
            27,265
            
            
            19,519Non-deductible
                items
            
            
            5,853
            
            
            892
            
            
            91Difference
                in tax rates in foreign jurisdictions
            
            
            247
            
            
            1,056
            
            
            553Valuation
                allowance
            
            
            (4,420
            )
            
            1,350
            
            
            572Total
                income tax under US GAAP
            
            
            34,551
            
            
            30,563
            
            
            20,735




F-65
 *Table
          of Contents*




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


**Notes
          to the Audited Consolidated Financial Statements**
 **(Expressed
          in thousands US dollars, except as stated)**


**Note
      29 - 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.:





**2006**
              **ThUS$**
            
            **2005**
              **ThUS$****Deferred
                Tax Assets**Allowance
                for doubtful debts
            
            
            2,408
            
            
            1,965Vacation
                accrual
            
            
            1,411
            
            
            1,322Unrealized
                gains on sales of products
            
            
            13,308
            
            
            15,053Provision
                for obsolescence
            
            
            2,283
            
            
            2,075Losses
                from derivative transactions
            
            
            
            
            
            —Tax
                loss carryforwards (1)
            
            
            31,969
            
            
            40,624Fair
                value acquisition adjustments
            
            
            841
            
            
            2,535Other
            
            
            6,202
            
            
            5,445Gross
                deferred tax assets
            
            
            58,422
            
            
            69,019Valuation
                allowance
            
            
            (36,035
            )
            
            (35,706
            )Total
                deferred tax assets
            
            
            22,387
            
            
            33,313**Deferred
                Tax Liabilities**Production
                expenses
            
            
            (18,613
            )
            
            (18,123
            )Accelerated
                depreciation
            
            
            (61,046
            )
            
            (58,031
            )Staff
                severance indemnities
            
            
            (876
            )
            
            (1,611
            )Exploration
                expenses
            
            
            (4,712
            )
            
            (5,375
            )Capitalized
                interest
            
            
            (7,284
            )
            
            (6,288
            )Gain
                from derivative transactions
            
            
            (935
            )
            
            —Other
            
            
            (1,552
            )
            
            (329
            )Total
                deferred tax liabilities
            
            
            (95,018
            )
            
            (89,757
            )





(1)
            The
                Company’s tax loss carryforwards 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, 2006, 2005 and 2004
                the
                Company realized benefits from the use of tax loss carry forwards
                amounting to ThUS$ 9,037, ThUS$ 3,541 and ThUS$ 9,324, respectively.





Tax
      loss
      carryforwards relate to the following countries as of December 31:





**2006**
            
            **2005****ThUS$**
            
            **ThUS$**Chile
            
            
            29,180
            
            
            38,385Other
            
            
            2,789
            
            
            2,239Total
            
            
            31,969
            
            
            40,624





F-66
 *Table
            of Contents*




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


**Notes
          to the Audited Consolidated Financial Statements**
 **(Expressed
          in thousands US dollars, except as stated)**


**Note
      29 - Differences between Chilean and United States Generally Accepted Accounting
      Principles (continued)**





**b)**
            **Income
                taxes (continued)**





The
      classification of the net deferred tax assets and liabilities detailed above
      is
      as follows:




**2006**
            
            **2005****ThUS$**
            
            **ThUS$**Short-term
            
            
            (5,406
            )
            
            1,020Long-term
            
            
            (67,225
            )
            
            (57,464
            )Net
                deferred tax liabilities
            
            
            (72,631
            )
            
            (56,444
            )





The
      provision for income taxes in accordance with US GAAP is as
      follows:




**2006**
              **ThUS$**
            
            **2005**
              **ThUS$**
            
            **2004**
              **ThUS$**Income
                tax expense under Chilean GAAP (Note 13)
            
            
            37,916
            
            
            32,527
            
            
            27,308Additional
                deferred tax under US GAAP
            
            
            656
            
            
            272
            
            
            (551
            )Reversal
                of complementary accounts
            
            
            (4,021
            )
            
            (2,236
            )
            
            (6,022
            )Total
                tax provision US GAAP
            
            
            34,551
            
            
            30,563
            
            
            20,735





US
      GAAP
      before tax income related to Chile and foreign operations for the years ended
      December 31 is as follows:




**2006**
            
            **2005**
            
            **2004****ThUS$**
            
            **ThUS$**
            
            **ThUS$**Chile
            
            
            215,036
            
            
            134,411
            
            
            113,683Foreign
            
            
            (21,678
            )
            
            25,971
            
            
            1,132Total
            
            
            193,358
            
            
            160,382
            
            
            114,815





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:





**2006**
            
            **2005**
            
            **2004****Deferred**
            
            **Current**
            
            **Total**
            
            **Deferred**
            
            **Current**
            
            **Total**
            
            **Deferred**
            
            **Current**
            
            **Total****ThUS$**
            
            **ThUS$**
            
            **ThUS$**
            
            **ThUS$**
            
            **ThUS$**
            
            **ThUS$**
            
            **ThUS$**
            
            **ThUS$**
            
            **ThUS$**Chile
            
            
            9,469
            
            
            22,263
            
            
            31,732
            
            
            (5,777
            )
            
            33,537
            
            
            27,760
            
            
            5,045
            
            
            14,001
            
            
            19,046Foreign
            
            
            285
            
            
            2,534
            
            
            2,819
            
            
            (1,088
            )
            
            3,891
            
            
            2,803
            
            
            1,255
            
            
            434
            
            
            1,689Total
            
            
            9,754
            
            
            24,797
            
            
            34,551
            
            
            (6,865
            )
            
            37,428
            
            
            30,563
            
            
            6,300
            
            
            14,435
            
            
            20,735





F-67
 *Table
            of Contents*




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


**Notes
          to the Audited Consolidated Financial Statements**
 **(Expressed
          in thousands US dollars, except as stated)**





**Note
      29 - Differences between Chilean and United States Generally Accepted Accounting
      Principles (continued)**





**c)**  **Other
      Comprehensive Income**





In
      accordance with SFAS No. 130 *Reporting
      Comprehensive Income* ,
      the
      Company reports a measure of all changes in shareholders’ equity that result
      from transactions and other economic events of the period other than
      transactions with owners (“comprehensive income”). Comprehensive income is the
      total net income and other non-owner equity transactions that result in changes
      in net equity,





The
      following represents accumulated other comprehensive income balances, net of
      tax, as of December 31, 2004, 2005 and 2006:




**Year
                ended December 31, 2004****Before-tax
                amount**
            
            **Tax
                (expense)**
              **or
                benefit**
            
            **Net-of-tax
                amount****ThUS$**
            
            **ThUS$**
            
            **ThUS$**Beginning
                balance
            
            
            (7,710
            )
            
            473
            
            
            (7,237
            )Translation
                adjustment
            
            
            6,460
            
            
            —
            
            
            6,460Minimum
                pension liability adjustment
            
            
            (24
            )
            
            9
            
            
            (15
            )Net
                change
            
            
            6,436
            
            
            9
            
            
            6,445Ending
                balance
            
            
            (1,274
            )
            
            482
            
            
            (792
            )




**Year
                ended December 31, 2005****Before-tax
                amount**
            
            **Tax
                (expense) or benefit**
            
            **Net-of-tax
                amount****ThUS$**
            
            **ThUS$**
            
            **ThUS$**Beginning
                balance
            
            
            (1,274
            )
            
            482
            
            
            (792
            )Translation
                adjustment
            
            
            —
            
            
            —
            
            
            —Minimum
                pension liability adjustment
            
            
            1,274
            
            
            (482
            )
            
            792Net
                change
            
            
            1,274
            
            
            (482
            )
            
            792Ending
                balance
            
            
            —
            
            
            —
            
            
            —





**Year
                ended December 31, 2006****Before-tax
                amount**
            
            **Tax
                (expense) or benefit**
            
            **Net-of-tax
                amount****ThUS$**
            
            **ThUS$**
            
            **ThUS$**Beginning
                balance
            
            
            —
            
            
            —
            
            
            —Translation
                adjustment
            
            
            (24
            )
            
            —
            
            
            (24
            )Minimum
                pension liability adjustment
            
            
            (1,218
            )
            
            —
            
            
            (1,218
            )Net
                change
            
            
            (1,242
            )
            
            —
            
            
            (1,242
            )Ending
                balance
            
            
            (1,242
            )
            
            —
            
            
            (1,242
            )








F-68
 *Table
            of Contents*




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


**Notes
          to the Audited Consolidated Financial Statements**
 **(Expressed
          in thousands US dollars, except as stated)**


**Note
      29 - Differences between Chilean and United States Generally Accepted Accounting
      Principles (continued)**





**d)**
            **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
      to
      US$ 622 million and US$ 554 million at December 31, 2006 and 2005, respectively.
      There was US$ 564 million and US$ 469 million available as of December 31,
      2006
      and 2005, respectively. The Company pays no commitment fees on such credit
      lines
      and the average rate was LIBOR plus 0.40%.





**e)**
            **Lease
                commitments**




The
      Company leases office facilities by way of a capital lease payable in
      installments through 2011, with a bargain purchase option at the end of the
      lease.




Minimum
      lease payments under the capital lease are recorded in Other accounts payable
      and are as follows:





**Minimum****lease****payments****Year
                ended December 31,**
            
            **ThUS$**2007
            
            
            2742008
            
            
            2742009
            
            
            2742010
            
            
            2752011
            
            
            160Thereafter
            
            
            —Total
                future minimum lease payments
            
            
            1,257Interest
            
            
            (212
            )Present
                value of net minimum lease payments
            
            
            1,045





F-69
 *Table
            of Contents*




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


**Notes
          to the Audited Consolidated Financial Statements**
 **(Expressed
          in thousands US dollars, except as stated)**


**Note
      29 - Differences between Chilean and United States Generally Accepted Accounting
      Principles (continued)**





**e)**
            **Lease
                commitments (continued)**





SQM
      Salar
      S.A., a consolidated subsidiary of the Company, entered into a contract with
      a
      government agency (Corfo) for the rental of land for the purpose of exploration
      and exploitation of certain minerals. Rental payments are stated in US dollars
      and are determined based on actual mineral sales through 2030 in accordance
      with
      specified rates in the agreement. Based on the agreement the Company paid ThUS$
      9,193, ThUS$ 6,752 and ThUS$ 4,910 in 2006, 2005 and 2004 respectively,
      including the minimum annual rental, which was ThUS$ 4,547, ThUS$ 4,172 and
      ThUS$ 3,477 for 2006, 2005 and 2004, respectively. Future estimated minimum
      annual rentals are as follows:





**Minimum****annual****rentals****Year
                ended December 31,**
            
            **ThUS$**2007
            
            
            4,4582008
            
            
            4,4582009
            
            
            4,4582010
            
            
            4,4582011
            
            
            4,458Thereafter
            
            
            84,701Total
            
            
            106,991





As
      of
      December 31, 2006, SQM Salar S.A. has accrued for the royalty fee payment of
      ThUS$ 2,358 related to the rental agreement maintained with Corfo.





**f)**
            **Concentration
                of credit risk**




Financial
      instruments, which potentially subject the Company to significant concentrations
      of credit risk, consist principally of cash, investments and trade accounts
      receivable.





The
      Company maintains cash and cash equivalents, marketable securities, and certain
      other financial instruments with various financial institutions. These financial
      institutions are located in Chile and other parts of the world, and the
      Company’s policy is designed to limit exposure to any one institution. The
      Company performs periodic evaluations of the relative credit standing of these
      financial institutions as part of the Company's investment
      strategy.





Concentrations
      of credit risk with respect to trade accounts receivable are limited because
      of
      the large number of entities comprising the Company's customer base and their
      dispersion around the world. The Company’s policy is to require collateral (such
      as letters of credit, guarantee clause or others) and/or maintain credit
      insurance for certain accounts as deemed necessary by management.





F-70
 *Table
            of Contents*




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


**Notes
          to the Audited Consolidated Financial Statements**
 **(Expressed
          in thousands US dollars, except as stated)**


**Note
      29 - Differences between Chilean and United States Generally Accepted Accounting
      Principles (continued)**





**g)**
            **Foreign
                exchange gain and losses**





For
      US
      GAAP presentation purposes, the net foreign exchange gains and losses on
      transactions in foreign currencies and UF amounted to ThUS$ (2,839), ThUS$
      5,391
      and ThUS$ 3,000 in 2006, 2005 and 2004, respectively.





**h)**
            **Advertising
                and Research and development
                costs**





Advertising
      costs are expensed as incurred and amounted to ThUS$ 1,699, ThUS$ 1,389 and
      ThUS$ 1,719 for the years ended December 31, 2006, 2005 and 2004,
      respectively.





Research
      and development costs are expensed as incurred and amounted to ThUS$ 2,429,
      ThUS$ 2,480 and ThUS$ 1,803 for the years ended December 31, 2006, 2005 and
      2004.





**i)**
            **Business
                combinations and goodwill**





As
      described in paragraph I j) above the Company adopted SFAS 142 as of January
      1,
      2002, SFAS 142 applies to all goodwill and identified intangible assets acquired
      in a business combination.





Changes
      in goodwill under US GAAP in the years ended December 31, 2005 and 2006 are
      summarized as follows:





**ThUS$****Balance
                at 31, 2004**
            
            
            **17,756**Reassessment
                of PCS Yumbes goodwill
            
            
            9,621Goodwill
                on acquisition of SQM Dubai - Fzco
            
            
            2,058Impairment
                of Safnits investment
            
            
            (386
            )Translation
                adjustment
            
            
            54**Balance
                at December 31, 2005**
            
            
            **29,103**Goodwill
                on acquisition of DSM business.
            
            
            11,373Sale
                of Fertilizantes Olmeca
            
            
            (279
            )Translation
                adjustment
            
            
            52**Balance
                at December 31, 2006**
            
            
            **40,249**








F-71
 *Table
            of Contents*




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


**Notes
          to the Audited Consolidated Financial Statements**
 **(Expressed
          in thousands US dollars, except as stated)**


**Note
      29 - Differences between Chilean and United States Generally Accepted Accounting
      Principles (continued)**





**j)**
            **Reclassification
                differences between Chilean GAAP and US
                GAAP**





(i)
            Non-operating
                income and expense under US GAAP calculated in accordance with Chilean
                GAAP





The
      following reclassifications are required to conform to the presentation of
      Chilean GAAP income statement information to that required under US GAAP. The
      reclassification amounts are determined in accordance with Chilean
      GAAP.





**2006**
            
            **2005**
            
            **2004****ThUS$**
            
            **ThUS$**
            
            **ThUS$**Non-operating
                income under Chilean GAAP
            
            
            19,293
            
            
            16,433
            
            
            20,829Less:Sale
                of mining concessions
            
            
            1,252
            
            
            298
            
            
            635Sale
                of material and services
            
            
            75
            
            
            438
            
            
            190Insurance
                recoveries
            
            
            307
            
            
            213
            
            
            546Write-off
                of liabilities
            
            
            238
            
            
            2,204
            
            
            388Payment
                discount obtained from suppliers
            
            
            690
            
            
            1,026
            
            
            452Rental
                of property, plant and equipment
            
            
            1,023
            
            
            1,015
            
            
            774Compensation
                obtained from third parties
            
            
            1
            
            
            737
            
            
            —Other
                income
            
            
            1,251
            
            
            1,899
            
            
            1,118Non-operating
                income as classified under US GAAP, but calculated in accordance
                with
                Chilean GAAP
            
            
            14,456
            
            
            8,603
            
            
            16,726Non-operating
                expenses under Chilean GAAP
            
            
            55,341
            
            
            50,755
            
            
            38,420Less:Sales
                of material and services
            
            
            630
            
            
            —
            
            
            —Work
                disruption expenses
            
            
            1,534
            
            
            584
            
            
            568Increase
                in allowance for doubtful debts
            
            
            129
            
            
            151
            
            
            2,500Non-capitalizable
                exploration project expenses
            
            
            12,087
            
            
            13,489
            
            
            9,262Unrecoverable
                taxes
            
            
            542
            
            
            647
            
            
            531Provision
                for compensation and legal costs
            
            
            1,010
            
            
            7,986
            
            
            533Change
                of discount rate for staff severance indemnities provision
            
            
            —
            
            
            678
            
            
            —Allowances
                for materials, spare parts and supplies
            
            
            2,055
            
            
            1,188
            
            
            1,628Consulting
                services
            
            
            281
            
            
            314
            
            
            175Donations
            
            
            458
            
            
            896
            
            
            533Penalties
            
            
            2,500
            
            
            238
            
            
            161Other
                expenses
            
            
            1,668
            
            
            1,570
            
            
            1,812Non-operating
                expense as classified under US GAAP, but calculated in accordance
                with
                Chilean GAAP
            
            
            32,447
            
            
            23,014
            
            
            20,717


F-72
 *Table
            of Contents*




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


**Notes
          to the Audited Consolidated Financial Statements**
 **(Expressed
          in thousands US dollars, except as stated)**


**Note
      29 - Differences between Chilean and United States Generally Accepted Accounting
      Principles (continued)**





**j)**
            **Reclassification
                differences between Chilean GAAP and US GAAP
                (continued)**





(ii)
            Condensed
                financial statements under US GAAP





The
      following are summarized balance sheets of the Company using a US GAAP
      presentation and amounts determined in accordance with US GAAP:





**1.**
            
            **As
                of December 31,****2.**
            
            **2006**
            
            **2005****Assets**
            
            **ThUS$**
            
            **ThUS$**Current
                assets
            
            
            849,958
            
            
            743,692Property,
                plant and equipment
            
            
            1,507,568
            
            
            1,287,448Accumulated
                depreciation
            
            
            (623,768
            )
            
            (528,195
            )Property
                plant and equipment, net
            
            
            883,800
            
            
            759,253Goodwill
            
            
            40,249
            
            
            29,103Other
                assets
            
            
            72,019
            
            
            76,947Total
                assets
            
            
            1,846,026
            
            
            1,608,995**Liabilities
                and shareholders’ equity**Current
                liabilities
            
            
            241,210
            
            
            464,852Long-term
                liabilities
            
            
            571,695
            
            
            186,193Minority
                interest
            
            
            38,599
            
            
            34,508Shareholders’
                equity
            
            
            994,522
            
            
            923,442Total
                liabilities and shareholders’ equity
            
            
            1,846,026
            
            
            1,608,995





F-73
 *Table
            of Contents*




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


**Notes
          to the Audited Consolidated Financial Statements**
 **(Expressed
          in thousands US dollars, except as stated)**


**Note
      29 - Differences between Chilean and United States Generally Accepted Accounting
      Principles (continued)**





**j)**
            **Reclassification
                differences between Chilean GAAP and US GAAP
                (continued)**





The
      condensed consolidated statements of income for the years ended December 31
      under US GAAP and classified in accordance with US GAAP are presented as
      follows:





**For
                the years ended December 31,****2006**
            
            **2005**
            
            **2004****Operating
                income**
            
            **ThUS$**
            
            **ThUS$**
            
            **ThUS$**Sales
            
            
            1,042,886
            
            
            895,970
            
            
            788,516Cost
                of sales
            
            
            (767,679
            )
            
            (670,213
            )
            
            (618,211
            )Gross
                margin
            
            
            275,207
            
            
            225,757
            
            
            170,305Selling
                and administrative expense
            
            
            (69,662
            )
            
            (61,878
            )
            
            (55,705
            )Operating
                income
            
            
            205,545
            
            
            163,879
            
            
            114,600Non-operating
                income and expense, net
            
            
            (14,139
            )
            
            (6,093
            )
            
            (1,620
            )Income
                taxes
            
            
            (34,551
            )
            
            (30,563
            )
            
            (20,735
            )Minority
                interest
            
            
            (4,543
            )
            
            (4,615
            )
            
            (7,254
            )Equity
                participation in income (loss) of related companies, net
            
            
            1,952
            
            
            2,596
            
            
            1,835Net
                income
            
            
            **154,264**
            
            
            **125,204**
            
            
            **86,826**Other
                comprehensive income (loss), net of tax:Minimum
                pension liability adjustment
            
            
            —
            
            
            792
            
            
            (15
            )Translation
                adjustment
            
            
            (24
            )
            
            **—**
            
            
            6,460Deferred
                gain from sale of swap
            
            
            **—**
            
            
            **—**
            
            
            **—**Total
                comprehensive income under US GAAP
            
            
            **154,240**
            
            
            **125,996**
            
            
            **93,271**








F-74
 *Table
            of Contents*




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


**Notes
          to the Audited Consolidated Financial Statements**
 **(Expressed
          in thousands US dollars, except as stated)**


**Note
      29 - Differences between Chilean and United States Generally Accepted Accounting
      Principles (continued)**





**k)**
            **Industry
                segment and geographic area
                information**





The
      Company provides disclosures in accordance with SFAS 131, *Disclosures
      About Segments of an Enterprise and Related Information* (“SFAS
      131”), which establishes standards for reporting information about operating
      segments in annual financial statements as well as related disclosures about
      products and services and geographic areas. Operating segments are defined
      as
      components of an enterprise about which separate financial statement information
      available is evaluated regularly by the chief operating decision maker in making
      decisions about allocating resources and assessing performance. In accordance
      with SFAS 131, the Company has five segments, which are split into geographical
      areas: Chile, Latin America and Caribbean except Chile, Europe, USA and Asia
      and
      other. In addition, the Company evaluates also its performance by the following
      group of products: Specialty plant nutrition, Iodine and derivatives, Lithium
      and derivatives, Industrial chemicals and Others. The accounting policies of
      each segment are the same as those described in the “Summary of Significant
      Accounting Policies” (Note 2). The following segment information is presented in
      accordance with US GAAP reporting requirements; however, the amounts have been
      determined in accordance with Chilean GAAP.





(i)
            Sales
                by product type and by geographic area for the years ended December
                31,
                2006, 2005 and 2004





**Year
                ended December 31, 2006**
            
            **Chile**
            
            **Latin
                America and Caribbean (1)**
            
            **Europe**
            
            **North**
              **America**
            
            **Asia**
              **and
                other**
            
            **Eliminations**
            
            **Total****ThUS$**
            
            **ThUS$**
            
            **ThUS$**
            
            **ThUS$**
            
            **ThUS$**
            
            **ThUS$**
            
            **ThUS$****Total
                sales:**Specialty
                plant nutrition
            
            
            114,144
            
            
            114,838
            
            
            203,172
            
            
            201,906
            
            
            78,545
            
            
            (209,762
            )
            
            502,843Iodine
                and derivatives
            
            
            165,814
            
            
            6,965
            
            
            159,783
            
            
            155,992
            
            
            68,651
            
            
            (339,468
            )
            
            217,737Lithium
                and derivatives
            
            
            46
            
            
            1,422
            
            
            95,342
            
            
            49,651
            
            
            83,786
            
            
            (101,359
            )
            
            128,888Industrial
                chemicals
            
            
            3,675
            
            
            12,795
            
            
            57,361
            
            
            83,616
            
            
            11,555
            
            
            (97,718
            )
            
            71,284Others
                (2)
            
            
            301,673
            
            
            9,064
            
            
            9,686
            
            
            69,459
            
            
            8,155
            
            
            (275,903
            )
            
            122,134Total
            
            
            585,352
            
            
            145,084
            
            
            525,344
            
            
            560,624
            
            
            250,692
            
            
            (1,024,210
            )
            
            1,042,886**Transfers
                between geographic areas:**Specialty
                plant nutrition
            
            
            25,902
            
            
            11,487
            
            
            66,206
            
            
            70,757
            
            
            35,410
            
            
            (209,762
            )
            
            —Iodine
                and derivatives
            
            
            163,943
            
            
            —
            
            
            66,927
            
            
            74,934
            
            
            33,664
            
            
            (339,468
            )
            
            —Lithium
                and derivatives
            
            
            —
            
            
            8
            
            
            39,339
            
            
            17,771
            
            
            44,241
            
            
            (101,359
            )
            
            —Industrial
                chemicals
            
            
            1,206
            
            
            3,144
            
            
            29,623
            
            
            52,584
            
            
            11,161
            
            
            (97,718
            )
            
            —Others
                (2)
            
            
            229,481
            
            
            1,904
            
            
            —
            
            
            36,363
            
            
            8,155
            
            
            (275,903
            )
            
            —Total
            
            
            420,532
            
            
            16,543
            
            
            202,095
            
            
            252,409
            
            
            132,631
            
            
            (1,024,210
            )
            
            —**Sales
                to unaffiliated customers:**Specialty
                plant nutrition
            
            
            88,242
            
            
            103,351
            
            
            136,966
            
            
            131,149
            
            
            43,135
            
            
            
            
            
            502,843Iodine
                and derivatives
            
            
            1,871
            
            
            6,965
            
            
            92,856
            
            
            81,058
            
            
            34,987
            
            
            
            
            
            217,737Lithium
                and derivatives
            
            
            46
            
            
            1,414
            
            
            56,003
            
            
            31,880
            
            
            39,545
            
            
            
            
            
            128,888Industrial
                chemicals
            
            
            2,469
            
            
            9,651
            
            
            27,738
            
            
            31,032
            
            
            394
            
            
            
            
            
            71,284Others
                (2)
            
            
            72,192
            
            
            7,160
            
            
            9,686
            
            
            33,096
            
            
            —
            
            
            
            
            
            122,134Total
            
            
            164,820
            
            
            128,541
            
            
            323,249
            
            
            308,215
            
            
            118,061
            
            
            
            
            
            1,042,886





(1)
            In
                all tables in the segment information this region excludes
                Chile.


(2)
            Includes
                revenues from imported fertilizers distributed in Chile and Mexico
                and
                potassium chloride.





F-75
 *Table
            of Contents*




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


**Notes
          to the Audited Consolidated Financial Statements**
 **(Expressed
          in thousands US dollars, except as stated)**


**Note
      29 - Differences between Chilean and United States Generally Accepted Accounting
      Principles (continued)**





**k)**
            **Industry
                segment and geographic area information
                (continued)**





(i)
            Sales
                by product type and by geographic area for the years ended December
                31,
                2006, 2005 and 2004 (continued)





**Year
                ended December 31, 2005**
            
            **Chile**
            
            **Latin
                America and Caribbean**
            
            **Europe**
            
            **North**
              **America**
            
            **Asia**
              **and
                other**
            
            **Eliminations**
            
            **Total****ThUS$**
            
            **ThUS$**
            
            **ThUS$**
            
            **ThUS$**
            
            **ThUS$**
            
            **ThUS$**
            
            **ThUS$****Total
                sales:**Specialty
                plant nutrition
            
            
            135,864
            
            
            114,055
            
            
            267,572
            
            
            194,050
            
            
            55,468
            
            
            (279,205
            )
            
            487,804Iodine
                and derivatives
            
            
            84,220
            
            
            8,114
            
            
            115,634
            
            
            115,032
            
            
            43,615
            
            
            (217,511
            )
            
            149,104Lithium
                and derivatives
            
            
            379
            
            
            1,213
            
            
            72,271
            
            
            37,917
            
            
            21,128
            
            
            (51,548
            )
            
            81,360Industrial
                chemicals
            
            
            6,627
            
            
            12,245
            
            
            79,612
            
            
            88,545
            
            
            1,526
            
            
            (118,073
            )
            
            70,482Others
            
            
            207,321
            
            
            8,164
            
            
            10,336
            
            
            59,177
            
            
            46
            
            
            (177,824
            )
            
            107,220Total
            
            
            434,411
            
            
            143,791
            
            
            545,425
            
            
            494,721
            
            
            121,783
            
            
            (844,161
            )
            
            895,970**Transfers
                between geographic areas:**Specialty
                plant nutrition
            
            
            47,722
            
            
            9,155
            
            
            131,279
            
            
            72,551
            
            
            18,498
            
            
            (279,205
            )
            
            —Iodine
                and derivatives
            
            
            82,766
            
            
            460
            
            
            60,481
            
            
            56,318
            
            
            17,486
            
            
            (217,511
            )
            
            —Lithium
                and derivatives
            
            
            12
            
            
            52
            
            
            38,180
            
            
            12,132
            
            
            1,172
            
            
            (51,548
            )
            
            —Industrial
                chemicals
            
            
            1,931
            
            
            4,229
            
            
            53,372
            
            
            57,337
            
            
            1,204
            
            
            (118,073
            )
            
            —Others
            
            
            145,894
            
            
            1,708
            
            
            3,817
            
            
            26,376
            
            
            29
            
            
            (177,824
            )
            
            —Total
            
            
            278,325
            
            
            15,604
            
            
            287,129
            
            
            224,714
            
            
            38,389
            
            
            (844,161
            )
            
            —**Sales
                to unaffiliated customers:**Specialty
                plant nutrition
            
            
            88,142
            
            
            104,900
            
            
            136,293
            
            
            121,499
            
            
            36,970
            
            
            —
            
            
            487,804Iodine
                and derivatives
            
            
            1,454
            
            
            7,654
            
            
            55,153
            
            
            58,714
            
            
            26,129
            
            
            —
            
            
            149,104Lithium
                and derivatives
            
            
            367
            
            
            1,161
            
            
            34,091
            
            
            25,785
            
            
            19,956
            
            
            —
            
            
            81,360Industrial
                chemicals
            
            
            4,696
            
            
            8,016
            
            
            26,240
            
            
            31,208
            
            
            322
            
            
            —
            
            
            70,482Others
            
            
            61,427
            
            
            6,456
            
            
            6,519
            
            
            32,801
            
            
            17
            
            
            —
            
            
            107,220Total
            
            
            156,086
            
            
            128,187
            
            
            258,296
            
            
            270,007
            
            
            83,394
            
            
            —
            
            
            895,970








F-76
 *Table
            of Contents*




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


**Notes
          to the Audited Consolidated Financial Statements**
 **(Expressed
          in thousands US dollars, except as stated)**


**Note
      29 - Differences between Chilean and United States Generally Accepted Accounting
      Principles (continued)**





**k)**
            **Industry
                segment and geographic area information
                (continued)**





(i)
            Sales
                by product type and by geographic area for the years ended December
                31,
                2006, 2005 and 2004 (continued)





**Year
                ended December 31, 2004**
            
            **Chile**
            
            **Latin
                America and Caribbean**
            
            **Europe**
            
            **North**
              **America**
            
            **Asia**
              **and
                other**
            
            **Eliminations**
            
            **Total****ThUS$**
            
            **ThUS$**
            
            **ThUS$**
            
            **ThUS$**
            
            **ThUS$**
            
            **ThUS$**
            
            **ThUS$****Total
                sales:**Specialty
                plant nutrition
            
            
            131,090
            
            
            95,162
            
            
            258,149
            
            
            171,130
            
            
            17,929
            
            
            (244,723
            )
            
            428,737Iodine
                and derivatives
            
            
            58,479
            
            
            6,505
            
            
            69,705
            
            
            80,398
            
            
            42,460
            
            
            (147,052
            )
            
            110,495Lithium
                and derivatives
            
            
            736
            
            
            397
            
            
            50,245
            
            
            26,124
            
            
            32,699
            
            
            (47,579
            )
            
            62,622Industrial
                chemicals
            
            
            2,238
            
            
            13,351
            
            
            82,806
            
            
            77,997
            
            
            309
            
            
            (109,851
            )
            
            66,850Others
            
            
            168,596
            
            
            6,882
            
            
            12,968
            
            
            53,716
            
            
            102
            
            
            (122,452
            )
            
            119,812Total
            
            
            361,139
            
            
            122,297
            
            
            473,873
            
            
            409,365
            
            
            93,499
            
            
            (671,657
            )
            
            788,516**Transfers
                between geographic areas:**Specialty
                plant nutrition
            
            
            50,672
            
            
            6,091
            
            
            129,098
            
            
            58,488
            
            
            374
            
            
            (244,723
            )
            
            —Iodine
                and derivatives
            
            
            57,851
            
            
            47
            
            
            31,842
            
            
            36,918
            
            
            20,394
            
            
            (147,052
            )
            
            —Lithium
                and derivatives
            
            
            303
            
            
            —
            
            
            24,209
            
            
            7,336
            
            
            15,731
            
            
            (47,579
            )
            
            —Industrial
                chemicals
            
            
            1,450
            
            
            3,436
            
            
            54,690
            
            
            50,098
            
            
            177
            
            
            (109,851
            )
            
            —Others
            
            
            92,017
            
            
            1,657
            
            
            5,746
            
            
            23,019
            
            
            13
            
            
            (122,452
            )
            
            —Total
            
            
            202,293
            
            
            11,231
            
            
            245,585
            
            
            175,859
            
            
            36,689
            
            
            (671,657
            )
            
            —**Sales
                to unaffiliated customers:**Specialty
                plant nutrition
            
            
            80,418
            
            
            89,071
            
            
            129,051
            
            
            112,642
            
            
            17,555
            
            
            —
            
            
            428,737Iodine
                and derivatives
            
            
            628
            
            
            6,458
            
            
            37,863
            
            
            43,480
            
            
            22,066
            
            
            —
            
            
            110,495Lithium
                and derivatives
            
            
            433
            
            
            397
            
            
            26,036
            
            
            18,788
            
            
            16,968
            
            
            —
            
            
            62,622Industrial
                chemicals
            
            
            788
            
            
            9,915
            
            
            28,116
            
            
            27,899
            
            
            132
            
            
            —
            
            
            66,850Others
            
            
            76,579
            
            
            5,225
            
            
            7,222
            
            
            30,697
            
            
            89
            
            
            —
            
            
            119,812Total
            
            
            158,846
            
            
            111,066
            
            
            228,288
            
            
            233,506
            
            
            56,810
            
            
            —
            
            
            788,516








F-77
 *Table
            of Contents*




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


**Notes
          to the Audited Consolidated Financial Statements**
 **(Expressed
          in thousands US dollars, except as stated)**







**Note
      29 - Differences between Chilean and United States Generally Accepted Accounting
      Principles (continued)**





**k)**
            **Industry
                segment and geographic area information
                (continued)**





(ii)
            Other
                segment information as of and for the years ended December 31, 2006,
                2005
                and 2004:





**As
                of and for the year ended December 31, 2006**
            
            **Chile**
            
            **Latin
                America and Caribbean**
            
            **Europe**
            
            **North
                America**
            
            **Asia**
              **and
                other**
            
            **Eliminations**
            
            **Total****ThUS$**
            
            **ThUS$**
            
            **ThUS$**
            
            **ThUS$**
            
            **ThUS$**
            
            **ThUS$**
            
            **ThUS$****Production
                facilities (1):**Pedro
                de Valdivia
            
            
            75,280
            
            
            —
            
            
            —
            
            
            —
            
            
            —
            
            
            —
            
            
            75,280María
                Elena
            
            
            147,080
            
            
            —
            
            
            —
            
            
            —
            
            
            —
            
            
            —
            
            
            147,080Coya
                Sur
            
            
            93,320
            
            
            —
            
            
            —
            
            
            —
            
            
            —
            
            
            —
            
            
            93,320Pampa
                Blanca
            
            
            3,410
            
            
            —
            
            
            —
            
            
            —
            
            
            —
            
            
            —
            
            
            3,410Nueva
                Victoria
            
            
            112,880
            
            
            —
            
            
            —
            
            
            —
            
            
            —
            
            
            —
            
            
            112,880Salar
                de Atacama
            
            
            239,640
            
            
            —
            
            
            —
            
            
            —
            
            
            —
            
            
            —
            
            
            239,640Salar
                del Carmen
            
            
            48,110
            
            
            —
            
            
            —
            
            
            —
            
            
            —
            
            
            —
            
            
            48,110Others
            
            
            4,169
            
            
            —
            
            
            —
            
            
            23,035
            
            
            6,707
            
            
            —
            
            
            33,911Sub-total
                production facilities
            
            
            723,889
            
            
            —
            
            
            —
            
            
            23,035
            
            
            6,707
            
            
            —
            
            
            753,631Port
                facility (1)
            
            
            21,692
            
            
            —
            
            
            —
            
            
            —
            
            
            —
            
            
            —
            
            
            21,692Other
                property, plant and equipment
            
            
            130,250
            
            
            —
            
            
            —
            
            
            —
            
            
            —
            
            
            —
            
            
            130,250Assets
                of commercial locations
            
            
            6,614
            
            
            64,282
            
            
            3,115
            
            
            2,413
            
            
            555
            
            
            (62,627
            )
            
            14,352Investments
                in related companies
            
            
            835,915
            
            
            15,603
            
            
            18,962
            
            
            48,202
            
            
            —
            
            
            (900,353
            )
            
            18,329Goodwill(3)
            
            
            25,348
            
            
            131
            
            
            10,852
            
            
            —
            
            
            —
            
            
            —
            
            
            36,331Other
                non-current assets (2)(3)
            
            
            876,655
            
            
            —
            
            
            53,669
            
            
            1,751
            
            
            
            
            
            (881,333
            )
            
            50,742Total
                long-lived assetslong
            
            
            2,620,363
            
            
            80,016
            
            
            86,598
            
            
            75,401
            
            
            7,262
            
            
            (1,844,313
            )
            
            1,025,327**Expenditures
                on long-lived assets**
            
            
            284,639
            
            
            90
            
            
            14,083
            
            
            802
            
            
            318
            
            
            —
            
            
            299,932**Export
                by region**
            
            
            —
            
            
            122,394
            
            
            183,873
            
            
            187,781
            
            
            133,016
            
            
            —
            
            
            627,064





(1)
            The
                Company’s principal production facilities are located near its mines and
                extraction facilities in northern Chile. The following table sets
                forth
                the principal production facilities as of December 31, 2006, 2005
                and
                2004:





**Location:**
            
            **Products:**Pedro
                de Valdivia
            
            Nitrate,
                sulfate and iodine productionMaría
                Elena
            
            Nitrate,
                sulfate and iodine productionCoya
                Sur
            
            Nitrate,
                sulfate and iodine productionPampa
                Blanca
            
            Concentrated
                nitrate salts and iodine productionNueva
                Victoria
            
            Iodine
                productionSalar
                de Atacama
            
            Potassium
                chloride, lithium chloride, potassium sulfate and boric
                acidSalar
                del Carmen
            
            Lithium
                carbonate and lithium hydroxide production, Boron
                productionTocopilla
            
            Port
                facilities





(2)
            In
                all tables in the segment disclosure this category includes principally
                assets that may not be assigned to production facilities and investments
                hold by holding entities within the
                group.







F-78
 *Table
            of Contents*




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


**Notes
          to the Audited Consolidated Financial Statements**
 **(Expressed
          in thousands US dollars, except as stated)**


**Note
      29 - Differences between Chilean and United States Generally Accepted Accounting
      Principles (continued)**





**k)**
            **Industry
                segment and geographic area information
                (continued)**





(ii)
            Other
                segment information as of and for the years ended December 31, 2006,
                2005
                and 2004:





**As
                of and for the year ended December 31, 2005**
            
            **Chile**
            
            **Latin
                America and Caribbean**
            
            **Europe**
            
            **North**
              **America**
            
            **Asia**
              **and
                other**
            
            **Eliminations**
            
            **Total****ThUS$**
            
            **ThUS$**
            
            **ThUS$**
            
            **ThUS$**
            
            **ThUS$**
            
            **ThUS$**
            
            **ThUS$****Production
                facilities:**Pedro
                de Valdivia
            
            
            73,910
            
            
            —
            
            
            —
            
            
            —
            
            
            —
            
            
            —
            
            
            73,910María
                Elena
            
            
            103,260
            
            
            —
            
            
            —
            
            
            —
            
            
            —
            
            
            —
            
            
            103,260Coya
                Sur
            
            
            60,220
            
            
            —
            
            
            —
            
            
            —
            
            
            —
            
            
            —
            
            
            60,220Pampa
                Blanca
            
            
            180
            
            
            —
            
            
            —
            
            
            —
            
            
            —
            
            
            —
            
            
            180Nueva
                Victoria
            
            
            92,380
            
            
            —
            
            
            —
            
            
            —
            
            
            —
            
            
            —
            
            
            92,380Salar
                de Atacama
            
            
            243,140
            
            
            —
            
            
            —
            
            
            —
            
            
            —
            
            
            —
            
            
            243,140Salar
                del Carmen
            
            
            41,080
            
            
            —
            
            
            —
            
            
            —
            
            
            —
            
            
            —
            
            
            41,080Others
            
            
            1,477
            
            
            —
            
            
            —
            
            
            24,641
            
            
            7,289
            
            
            —
            
            
            33,407Sub-total
                production facilities
            
            
            615,647
            
            
            —
            
            
            —
            
            
            24,641
            
            
            7,289
            
            
            —
            
            
            647,577Port
                facility
            
            
            19,776
            
            
            —
            
            
            —
            
            
            —
            
            
            —
            
            
            —
            
            
            19,776Other
                property, plant and equipment
            
            
            112,759
            
            
            —
            
            
            —
            
            
            —
            
            
            —
            
            
            —
            
            
            112,759Assets
                of commercial locations
            
            
            6,842
            
            
            47,379
            
            
            3,613
            
            
            6,519
            
            
            237
            
            
            (1,852
            )
            
            62,738Investments
                in related companies
            
            
            684,214
            
            
            24,122
            
            
            19,991
            
            
            53,949
            
            
            —
            
            
            (761,600
            )
            
            20,676Goodwill(3)
            
            
            27,055
            
            
            154
            
            
            —
            
            
            —
            
            
            —
            
            
            —
            
            
            27,209Other
                non-current assets(3)
            
            
            884,143
            
            
            140
            
            
            6
            
            
            1,807
            
            
            —
            
            
            (879,046
            )
            
            7,050Total
                long-lived assetslong
            
            
            2,350,436
            
            
            71,795
            
            
            23,610
            
            
            86,916
            
            
            7,526
            
            
            (1,642,498
            )
            
            897,785**Expenditures
                on long-lived assets**
            
            
            199,242
            
            
            102
            
            
            2,159
            
            
            1,268
            
            
            —
            
            
            —
            
            
            202,771**Export
                by region**
            
            
            —
            
            
            116,427
            
            
            243,964
            
            
            172,060
            
            
            51,908
            
            
            —
            
            
            584,359








F-79
 *Table
            of Contents*




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


**Notes
          to the Audited Consolidated Financial Statements**
 **(Expressed
          in thousands US dollars, except as stated)**


**Note
      29 - Differences between Chilean and United States Generally Accepted Accounting
      Principles (continued)**





**k)**
            **Industry
                segment and geographic area information
                (continued)**





(ii)
            Other
                segment information as of and for the years ended December 31, 2006,
                2005
                and 2004:





**As
                of and for the year ended December 31, 2004**
            
            **Chile**
            
            **Latin
                America and Caribbean**
            
            **Europe**
            
            **North
                America**
            
            **Asia**
              **and
                other**
            
            **Eliminations**
            
            **Total****ThUS$**
            
            **ThUS$**
            
            **ThUS$**
            
            **ThUS$**
            
            **ThUS$**
            
            **ThUS$**
            
            **ThUS$****Production
                facilities:**Pedro
                de Valdivia
            
            
            45,320
            
            
            —
            
            
            —
            
            
            —
            
            
            —
            
            
            —
            
            
            45,320María
                Elena
            
            
            101,420
            
            
            —
            
            
            —
            
            
            —
            
            
            —
            
            
            —
            
            
            101,420Coya
                Sur
            
            
            46,210
            
            
            —
            
            
            —
            
            
            —
            
            
            —
            
            
            —
            
            
            46,210Pampa
                Blanca
            
            
            1,480
            
            
            —
            
            
            —
            
            
            —
            
            
            —
            
            
            —
            
            
            1,480Nueva
                Victoria
            
            
            25,330
            
            
            —
            
            
            —
            
            
            —
            
            
            —
            
            
            —
            
            
            25,330Salar
                de Atacama
            
            
            244,450
            
            
            —
            
            
            —
            
            
            —
            
            
            —
            
            
            —
            
            
            244,450Salar
                del Carmen
            
            
            39,130
            
            
            —
            
            
            —
            
            
            —
            
            
            —
            
            
            —
            
            
            39,130Others
            
            
            2,038
            
            
            —
            
            
            —
            
            
            26,318
            
            
            —
            
            
            —
            
            
            28,356Sub-total
                production facilities
            
            
            505,378
            
            
            —
            
            
            —
            
            
            26,318
            
            
            —
            
            
            —
            
            
            531,696Port
                facility
            
            
            21,146
            
            
            —
            
            
            —
            
            
            —
            
            
            —
            
            
            —
            
            
            21,146Other
                property, plant and equipment
            
            
            126,683
            
            
            —
            
            
            —
            
            
            —
            
            
            —
            
            
            —
            
            
            126,683Assets
                of commercial locations
            
            
            6,372
            
            
            5,849
            
            
            1,433
            
            
            9,650
            
            
            228
            
            
            (7,140
            )
            
            16,392Investments
                in related companies
            
            
            897,291
            
            
            9,515
            
            
            9,941
            
            
            58,032
            
            
            —
            
            
            (958,792
            )
            
            15,987Goodwill(3)
            
            
            16,952
            
            
            177
            
            
            341
            
            
            —
            
            
            —
            
            
            —
            
            
            17,470Other
                non-current assets(3)
            
            
            913,464
            
            
            —
            
            
            —
            
            
            1,940
            
            
            —
            
            
            (858,856
            )
            
            56,548Total
                long-lived assetslong
            
            
            2,487,286
            
            
            15,541
            
            
            11,715
            
            
            95,940
            
            
            228
            
            
            (1,824,788
            )
            
            785,922**Expenditures
                on long-lived assets**
            
            
            87,309
            
            
            132
            
            
            2,488
            
            
            616
            
            
            13
            
            
            —
            
            
            90,558**Export
                by region**
            
            
            —
            
            
            102,266
            
            
            171,861
            
            
            142,970
            
            
            43,124
            
            
            —
            
            
            460,221





F-80
 *Table
            of Contents*




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


**Notes
          to the Audited Consolidated Financial Statements**
 **(Expressed
          in thousands US dollars, except as stated)**


**Note
      29 - Differences between Chilean and United States Generally Accepted Accounting
      Principles (continued)**





**l)**
            **Estimated
                Fair Value of Financial Instruments and Derivative Financial
                Instruments**





The
      accompanying tables provide disclosure of the estimated fair value of financial
      instruments owned by the Company. Various limitations are inherent in the
      presentation, including the following:




-
            The
                data excludes non-financial assets and liabilities, such as property,
                plant and equipment, and goodwill.




-
            While
                the data represents management’s best estimates, the data is subjective
                and involves significant estimates regarding current economic and
                market
                conditions and risk
                characteristics,




The
      methodologies and assumptions used depend on the terms and risk characteristics
      of the various instruments and include the following:




-
            Cash
                and time deposits approximate fair value because of the short-term
                maturity of these instruments.




-
            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.




The
      following is a detail of the Company’s financial instruments’ Chilean GAAP
      carrying amount and estimated fair value:





**As
                of December 31,****2006**
            
            **2005****US
                GAAP**
              **Carrying
                Amount**
            
            **Estimated**
              **Fair****Value**
            
            **US
                GAAP**
              **Carrying
                Amount**
            
            **Estimated**
              **Fair****Value****ThUS$**
            
            **ThUS$**
            
            **ThUS$**
            
            **ThUS$****Assets:**Cash
                and cash equivalents
            
            
            183,943
            
            
            183,943
            
            
            147,956
            
            
            147,956Short-term
                accounts receivable
            
            
            247,650
            
            
            247,650
            
            
            222,032
            
            
            222,032Long-term
                accounts receivable
            
            
            2,388
            
            
            2,388
            
            
            2,379
            
            
            2,379Derivative
                instruments
            
            
            5,498
            
            
            5,498
            
            
            —
            
            
            —**Liabilities:**Short-term
                bank debt
            
            
            58,350
            
            
            58,350
            
            
            85,022
            
            
            85,022Short-term
                notes and accounts payable
            
            
            87,164
            
            
            87,164
            
            
            78,990
            
            
            78,990Derivative
                instruments
            
            
            219
            
            
            219
            
            
            163
            
            
            163Current
                and long-term portions of long-term bank debt
            
            
            484,981
            
            
            495,761
            
            
            304,881
            
            
            304,835Long-term
                other accounts payable
            
            
            849
            
            
            849
            
            
            1,065
            
            
            1,065





F-81
 *Table
            of Contents*




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


**Notes
          to the Audited Consolidated Financial Statements**
 **(Expressed
          in thousands US dollars, except as stated)**





**Note
      29 - Differences between Chilean and United States Generally Accepted Accounting
      Principles (continued)**





**m)**
            **Post-retirement
                obligations and staff severance
                indemnities**





The
      Company’s subsidiary SQM North America Corporation has a defined benefit,
      noncontributory pension plan covering substantially all employees who qualify
      as
      to age and length of service. Plan benefits are based on years of service and
      the employee’s highest five-year average compensation during the last ten years
      of employment. The plan’s assets consist primarily of equity mutual funds and
      group annuity contracts.





In
      September 2002, the Board of Directors of SQM North America Corporation voted
      to
      suspend the plan and as a result after December 31, 2002, participants do not
      earn additional benefits for future services. Such action resulted in a
      curtailment loss (equal to the amount of unrecognized prior service cost) of
      approximately US$1.3 million for the year ended December 31, 2002.





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





**2006**
            
            **2005**Weighted-average
                discount rate
            
            
            7.0%
            
            
            7.5%Rate
                of increase in compensation levels
            
            
            0.0%
            
            
            0.0%Long-term
                rate of return on plan assets
            
            
            8.5%
            
            
            8.5%





The
      long-term rate of return on assets was determined based upon past investment
      experience and the expectation for future experience.





F-82
 *Table
            of Contents*




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


**Notes
          to the Audited Consolidated Financial Statements**
 **(Expressed
          in thousands US dollars, except as stated)**





**Note
      29 - Differences between Chilean and United States Generally Accepted Accounting
      Principles (continued)**





**m)**
            **Post-retirement
                obligations and staff severance indemnities
                (continued)**





The
      following table sets forth the plan’s funded status and amounts recognized in
      the consolidated balance sheet as of December 31:





**2006**
            
            **2005**
            
            **2004****ThUS$**
            
            **ThUS$**
            
            **ThUS$**Change
                in benefit obligation:Benefit
                obligation at beginning of year
            
            
            5,184
            
            
            5,080
            
            
            4,831Service
                cost
            
            
            17
            
            
            16
            
            
            15Interest
                cost
            
            
            381
            
            
            369
            
            
            362Actuarial
                loss
            
            
            359
            
            
            (37
            )
            
            115Benefits
                paid
            
            
            (245
            )
            
            (244
            )
            
            (243
            )Benefit
                obligation at end of the year
            
            
            5,696
            
            
            5,184
            
            
            5,080Change
                in plan assets:Fair
                value of plan assets at beginning of year
            
            
            5,223
            
            
            4,967
            
            
            4,713Employer
                contributions
            
            
            18
            
            
            —
            
            
            82Actual
                return (loss) on plan assets
            
            
            625
            
            
            500
            
            
            414Benefits
                paid
            
            
            (245
            )
            
            (244
            )
            
            (243
            )Fair
                value of plan assets at end of year
            
            
            5,621
            
            
            5,223
            
            
            4,966Funded
                status
            
            
            (75
            )
            
            39
            
            
            (114
            )Unrecognized
                transitional asset
            
            
            
            
            
            —
            
            
            —Unrecognized
                net actuarial loss
            
            
            1,133
            
            
            1,133
            
            
            1,165Adjustment
                to recognize minimum pension liability
            
            
            (1,208
            )
            
            (1,094
            )
            
            (1,279
            )Accrued
                pension (liability)/ prepaid pension cost
            
            
            (75
            )
            
            39
            
            
            (114
            )





Net
      periodic pension expense was comprised of the following components for the
      years
      ended December 31, 2004, 2005 and 2006:





**2006**
            
            **2005**
            
            **2004****ThUS$**
            
            **ThUS$**
            
            **ThUS$**Service
                cost or benefits earned during the period
            
            
            17
            
            
            16
            
            
            15Interest
                cost on benefit obligation
            
            
            381
            
            
            369
            
            
            362Actual
                return on plan assets
            
            
            (625
            )
            
            (500
            )
            
            (414
            )Amortization
                of unrecognized transitional asset
            
            
            —
            
            
            —
            
            
            —Other
            
            
            236
            
            
            147
            
            
            91Net
                periodic pension expense
            
            
            9
            
            
            32
            
            
            54





F-83
 *Table
            of Contents*




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


**Notes
          to the Audited Consolidated Financial Statements**
 **(Expressed
          in thousands US dollars, except as stated)**


**Note
      29 - Differences between Chilean and United States Generally Accepted Accounting
      Principles (continued)**





**m)**
            **Post-retirement
                obligations and staff severance indemnities
                (continued)**





The
      plan’s asset allocations by asset category as of December 31 are as follows:





**2006**
            
            **2005**Growth
                securities
            
            
            53
            %
            
            68
            %Treasury
                securities
            
            
            —
            
            
            1
            %International
                securities
            
            
            21
            %
            
            15
            %Growth
                & income securities
            
            
            25
            %
            
            15
            %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, 2003, 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.





As
      of
      December 31, 2006 the pension plan benefits expected to be paid in the future
      are as follows:





**ThUS$**2007
            
            
            2532008
            
            
            2742009
            
            
            3402010
            
            
            3562011
            
            
            396Years
                2012-2015
            
            
            2,504





**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 of 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.





F-84
 *Table
            of Contents*




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


**Notes
          to the Audited Consolidated Financial Statements**
 **(Expressed
          in thousands US dollars, except as stated)**


**Note
      29 - Differences between Chilean and United States Generally Accepted Accounting
      Principles (continued)**





**o)**
            **Restricted
                assets**





The
      amount of consolidated retained earnings that represents undistributed earnings
      of 50% or less investees accounted for by the equity method amounts to ThUS$
      1,494, as of December 31, 2006.





**p)**
            **Recently
                issued accounting
                pronouncements**





*FIN
      48 “Accounting for Uncertainty in Income Taxes”*





In
      July
      2006, the FASB issued FASB Interpretation No. 48 (“FIN 48”), “ *Accounting
      for Uncertainty in Income Taxes* ”.
      FIN 48
      is an interpretation of SFAS No. 109, “ *Accounting
      for Income Taxes* ,”
and
      seeks to reduce the diversity in practice associated with certain aspects of
      measurement and recognition in accounting for income taxes. FIN 48 clarifies
      the
      accounting for income taxes by prescribing a minimum threshold a tax position
      is
      required to meet before being recognized in the financial statements. In
      addition, FIN 48 provides guidance on derecognition, classification, interest
      and penalties, accounting in interim periods and requires expanded disclosure
      with respect to the uncertainty in income taxes. FIN 48 is effective as of
      the
      beginning of our 2007 fiscal year. The cumulative effect, if any, of applying
      FIN 48 is to be reported as an adjustment to the opening balance of retained
      earnings in the year of adoption. Management is currently evaluating the effect
      of this interpretation on the Company’s results of operations and financial
      condition.




F-85