(Adds context in paragraph 3, analyst comment in paragraph 8)
By Cassandra Garrison and Melanie Burton
SANTIAGO/MELBOURNE, July 11 (Reuters) - Foreign backed-Salar Blanco, which is 50 percent-owned by Lithium Power International , has dropped a lawsuit against Chile to block state-run Codelco from exploiting a lithium deposit where both have claims, the Australian-listed smallcap announced.
Lithium Power International said that following three months of talks, Salar Blanco ended its legal proceedings against the Chilean government last week as the government said the firm could apply for a special operating license for its Maricunga project.
Chile's move to ease the way for a foreign mining group into its home territory is unusual in a country famously protective of its lithium. It may encourage other international developers into the underexplored but highly prospective region in Chile, home to half of the world's known reserves of the metal that is in hot demand for batteries.
"This permit - once approved and subject to the EIA approval - will be the final approval required to produce lithium under the present Chilean legislation," Lithium Power International said in a statement on Monday in a reference to Chile's environmental impact study on the project.
The company said it plans to submit its application for the special operating license in August.
Lithium is among the world's hottest commodities and a key ingredient in the rechargeable batteries that power everything from cellphones and tablets to electric vehicles.
The lawsuit, filed in March, had been monitored carefully by potential investors being courted by the country's new government.
"The termination of legal action against the government and the invitation to apply for a CEOL (Special Lithium Operation Contract) is a major move forward, in our view," said brokerage Canaccord in an report, referring to the move as "a major de-risking event." Canaccord has a buy rating for Lithium Power.
The little-known and remote Maricunga salt flat is far smaller than the expansive Salar de Atacama, where top lithium producers Albemarle and Chile's SQM rule supreme.
But the legal conflict at Maricunga under the conservative government of President Sebastian Pinera may prove a bellwether for foreign miners anxious to invest in Chile.
The skirmish had pitted Salar Blanco, which has smaller stakes held by Canada's Bearing Lithium and local capital, against state copper miner Codelco, in a country that is famously protective of its lithium. (Additional reporting by Fabian Cambero; editing by G Crosse and Dan Grebler)