CHEMICAL & MINING CO OF CHILE INC - SQM Report of Foreign Issuer (6-K) Notes to the Consolidated Financial Statements

The following is an excerpt from a 6-K SEC Filing, filed by CHEMICAL & MINING CO OF ... on 11/30/2004.

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Notes to the Consolidated Financial Statements
(A translation of the original in Spanish- see note 2 (a))

Note 1 - Company Background

Sociedad Qumica y Minera de Chile S.A. (the "Company") was registered with the Chilean Superintendency of Securities and Insurance ("SVS") on March 18, 1983.

Note 2 - Summary of Significant Accounting Policies

a) Basis for the preparation of the consolidated financial statements The accompanying consolidated financial statements have been prepared in U.S. dollars in accordance with accounting principles generally accepted in Chile ("Chilean GAAP") and the regulations of the SVS. For the convenience of the reader, the consolidated financial statements and their accompanying notes have been translated from Spanish into English. Certain accounting practices applied by the Company that conform with Chilean GAAP may not conform with generally accepted accounting principles in the United States ("US GAAP")

The consolidated financial statements include the accounts of Sociedad Qumica y Minera de Chile S.A. (the "Parent Company") and subsidiaries (companies in which the Parent Company holds a controlling participation, generally equal to direct or indirect ownership of more than 50%). The Parent Company and its subsidiaries are referred to as the "Company".

The preparation of financial statements 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.

In accordance with regulations set forth by the SVS in its Circular No. 1.697 and Technical Bulletins Nos. 64 and 72 of the Chilean Association of Accountants, the consolidated financial statements include the following subsidiaries:

SOCIEDAD QUIMICA Y MINERA DE CHILE S.A. Notes to the Consolidated Financial Statements (A translation of the original in Spanish- see note 2 (a))

Note 2 - Summary of Significant Accounting Policies (continued)

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

Direct or indirect ownership 2004 2003
% % Foreign subsidiaries:
Nitrate Corp. of Chile Limited (United Kingdom) 100.00 100.00 Soquimich SRL - Argentina 100.00 100.00 Nitratos Naturais do Chile Ltda. (Brazil) 100.00 100.00 SQM Europe NV (Belgium) 100.00 100.00 SQM North America Corp. (USA) 100.00 100.00 North American Trading Company (USA) 100.00 100.00 SQM Peru S.A. 100.00 100.00 SQM Corporation NV (Dutch Antilles) 100.00 100.00 S.Q.I. Corporation NV (Dutch Antilles) 100.00 100.00 Soquimich European Holding BV (Holland) 100.00 100.00 PTM - SQM Ibrica S.A. (Spain) 100.00 100.00 SQMC Holding Corporation LLP (USA) 100.00 100.00 SQM Ecuador S.A. 100.00 100.00 Cape Fear Bulk LLC (USA) 51.00 51.00 SQM Colombia Ltda. - 100.00 SQM Investment Corporation NV (Holland) 100.00 100.00 SQM Brasil Ltda. 100.00 100.00 Royal Seed Trading Corporation AVV (Aruba) 100.00 100.00 SQM Japan K.K. 100.00 100.00 SQM Oceana PTY Limited (Australia) 100.00 100.00 SQM France S.A. 100.00 100.00 Fertilizantes Naturales S.A. (Spain) 50.00 50.00 Rs Agro-Chemical Trading AVV (Aruba) 100.00 100.00 SQM Comercial de Mxico S.A. de C.V. 100.00 100.00 SQM Indonesia 80.00 80.00 SQM Virginia LLC (USA) 100.00 100.00 Agricolima S.A. de C.V. (Mexico) 100.00 100.00 SQM Venezuela S.A. 100.00 100.00 SQM Italia SRL (Italy) 95.00 95.00 Comercial Caiman Internacional S.A. (Cayman Islands) 100.00 100.00 Mineag SQM Africa Limited (South Africa) 100.00 100.00 Fertilizantes Olmeca y SQM S.A. de CV (Mexico) 100.00 100.00 Administracin y Servicios Santiago S.A. de C.V. 100.00 - SQM Nitratos Mxico S.A. de C.V. 51.00 - SQM Lithium Specialties LLP 100.00 -

SOCIEDAD QUIMICA Y MINERA DE CHILE S.A. Notes to the Consolidated Financial Statements (A translation of the original in Spanish- see note 2 (a))

Note 2 - Summary of Significant Accounting Policies (continued)

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

Direct or indirect ownership 2004 2003
% % Domestic subsidiaries:
Servicios Integrales de Trnsitos y Transferencias S.A. 100.00 100.00 Soquimich Comercial S.A. 60.64 60.64 Isapre Norte Grande Ltda. 100.00 100.00 Almacenes y Depsitos Ltda. 100.00 100.00 Ajay SQM Chile S.A. 51.00 51.00 SQM Nitratos S.A. 100.00 100.00 Proinsa Ltda. 60.58 60.58 SQM Potasio S.A. 100.00 100.00 SQMC International Limitada 60.64 60.64 SQM Salar S.A. 100.00 100.00 Comercial Hydro S.A. 60.84 60,84

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

As the Company exerts control over the subsidiary Fertilizantes Naturales S.A. it has been included in the consolidation for the period ended September 30, 2004 and 2003.

SOCIEDAD QUIMICA Y MINERA DE CHILE S.A. Notes to the Consolidated Financial Statements (A translation of the original in Spanish- see note 2 (a))

Note 2 - Summary of Significant Accounting Policies (continued)

b) Period

These consolidated financial statements have been prepared as of September 30, 2004 and 2003 and for the years then ended.

c) Reporting currency and monetary correction

The financial statements of the Company are prepared in U.S. dollars. As a significant portion of the Company's operations are transacted in U.S. dollars, the U.S. dollar is considered the currency of the primary economic environment in which the Company operates.

The Parent Company and those subsidiaries which maintain their accounting records in U.S. dollars are not required, or permitted, to restate the historical dollar amounts for the effects of inflation.

The financial statements of domestic subsidiaries, which maintain their accounting records in Chilean pesos have been restated to reflect the effects of variations in the purchasing power of Chilean pesos during the 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 (1.9% and 1.2% in 2004 and 2003, respectively). The resulting net charge or credit to income arises as a result of the gain or loss in purchasing power from the holding of non-U.S. dollar denominated monetary assets and liabilities exposed to the effects of inflation.

Prior period financial statements presented for comparative purposes have not been restated to reflect the change in the purchasing power of the Chilean pesos during the most recent year-end. In accordance with Chilean GAAP, amounts expressed in U.S. dollars, including amounts included in the consolidated financial statements as determined in prior years from the translation of financial statements of those Chilean subsidiaries which maintain their accounting records in Chilean pesos, are not adjusted for price-level changes.

SOCIEDAD QUIMICA Y MINERA DE CHILE S.A. Notes to the Consolidated Financial Statements (A translation of the original in Spanish- see note 2 (a))

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 U.S. dollars at the observed exchange rates determined by the Central Bank of Chile in effect at each year-end of Ch$608.90 per US$1 at September 30, 2004 and Ch$660.97 per US$1 at September 30, 2003.

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

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

a) 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 U.S. dollars at the year-end exchange rate without eliminating the effects of price-level restatement.
- Income statement accounts are translated to U.S. 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 U.S. 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. 1.697 of the SVS.

SOCIEDAD QUIMICA Y MINERA DE CHILE S.A. Notes to the Consolidated Financial Statements (A translation of the original in Spanish- see note 2 (a))

Note 2 - Summary of Significant Accounting Policies (continued)

d) Foreign currency (continued)

b) The financial statements of those foreign subsidiaries that keep their accounting records in currencies other than the U.S. 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 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 September 30, 2004 and 2003 generated net earnings (loss) of ThUS$ (2,460) and ThUS$ 2,845, 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 September 30, as follows:

2004 2003

Brazilian Real 2.86 2.94 New Peruvian Sol 3.47 3.48 Argentine Peso 2.98 2.93 Japanese Yen 110.00 111.25 Euro 0.81 0.85 Mexican Peso 11.43 11.04 Indonesian Rupee 9,415.00 8,399.00 Australian Dollar 1.37 1.52 Colombian Peso - 2,850.30 Ecuadoran Sucre 1.00 1.00 Pound Sterling 0.58 0.60 Sudafrican Rand 6.68 7.22

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.

SOCIEDAD QUIMICA Y MINERA DE CHILE S.A. Notes to the Consolidated Financial Statements (A translation of the original in Spanish- see note 2 (a))

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.

f) Time Deposits

Time deposits are recorded at cost plus accrued interest.

g) Marketable securities

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

h) Allowance for doubtful accounts

The Company records an allowance for doubtful accounts based on estimated probable losses.

i) Inventories and materials

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

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

j) Income taxes and deferred income taxes

Prior to 2000, income taxes were charged to results in the same period in which the income and expenses were recorded and were calculated in accordance with the enacted tax laws in Chile and the other jurisdictions in which the Company operated.

SOCIEDAD QUIMICA Y MINERA DE CHILE S.A. Notes to the Consolidated Financial Statements (A translation of the original in Spanish- see note 2 (a))

Note 2 - Summary of Significant Accounting Policies (continued)

j) Income and deferred taxes (continued)

Under Chilean law, the Parent Company and its subsidiaries are required to file separate tax declarations.
Beginning January 1, 2000, the Company records deferred income taxes in accordance with Technical Bulletin Nos. 60, 69, 71 and 73 of the Chilean Association of Accountants, and with Circular No. 1466 issued on January 27, 2000 by the SVS, recognizing the deferred tax effects of temporary differences between the financial and tax values of assets and liabilities, using the liability method. The effect of the temporary differences at December 31, 1999 were recorded in complementary asset and liability accounts, which are recognized in the statement of operations over the estimated period in which they reverse.

k) Property, plant and equipment

Property, plant, equipment and property rights are recorded at cost, except for certain assets that were restated according to a technical appraisal in 1988. Depreciation expense has been calculated using the straight-line method based upon the estimated useful lives of the assets and is charged directly to expense.

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

In conformity with Technical Bulletin No. 31 and No. 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. Other than minor filing fees, the property rights are usually obtained without initial cost, and once obtained, are retained perpetually by the Company as long as the annual fees are paid. Such fees, which are paid annually in September, are recorded as prepaid assets to be amortized over the following twelve months. Values attributable to these original mining concessions are recorded in property, plant and equipment and are being amortized on a straight-line basis over 50 years.

SOCIEDAD QUIMICA Y MINERA DE CHILE S.A. Notes to the Consolidated Financial Statements (A translation of the original in Spanish- see note 2 (a))

Note 2 - Summary of Significant Accounting Policies (continued)

l) Investments in related companies

Investments in related companies over which the Company has significant influence, are included in other assets and are recorded using the equity method of accounting. Accordingly, the Company's proportional share in the net income or loss of each investee is recognized in the non-operating income and expense classification in the consolidated statements of income on an accrual basis, after eliminating any unrealized profits from transactions with the related companies.

The translation adjustment to U.S. dollars of investments in domestic subsidiaries, which maintain their accounting records and are controlled in Chilean pesos is recognized in the other reserves component of stockholders' equity. Direct and indirect investments in foreign subsidiaries or affiliates are controlled in U.S. dollars.

m) Goodwill and negative goodwill

Goodwill is calculated as the excess of the purchase price of companies acquired over their net book value, whereas negative goodwill occurs when the net book value exceeds the purchase price of companies acquired. Goodwill and negative goodwill resulting from equity method investments are maintained in the same currency in which the investment was made and are amortized based on the estimated period of investment return, generally 20 years for goodwill and negative goodwill, respectively.

n) Intangible assets

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

o) Mining development cost

Mining development costs are recorded in other long-term assets and are amortized utilizing the unit of production basis.

SOCIEDAD QUIMICA Y MINERA DE CHILE S.A. Notes to the Consolidated Financial Statements (A translation of the original in Spanish- see note 2 (a))

Note 2 - Summary of Significant Accounting Policies (continued)

p) Accrued employee severance

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 assuming an average employee tenure of 24 years and a real annual discount rate of 9%.

q) Vacations

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

r) Dividends

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

s) Derivative Contracts

The Company maintains derivative contracts to 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 recorded at fair value with net losses recognized on the accrual basis and gains recognized when realized.

t) Reclassifications

Certain reclassifications have been made in the 2003 numbers to conform to the current period presentation.

u) Revenue recognition

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

v) Computer software

In accordance with Circular No. 981 dated December 28, 1990 of the SVS, computer systems acquired by the Company are recorded at cost.

w) Research and development expenses

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

SOCIEDAD QUIMICA Y MINERA DE CHILE S.A. Notes to the Consolidated Financial Statements (A translation of the original in Spanish- see note 2 (a))

x) Transactions with buyback agreement

These transactions are recognized under Other Current Assets for the amount paid in the purchase. Beginning on the purchase date the respective interest is recorded in accordance with Circular No. 768 issued by the Chilean Superintendency of Securities and Insurance.

Note 3 - Changes in Accounting Principles

a) Accounting changes:

Until June 30, 2004 the financial statements of subsidiary SQM Lithium Specialities LLP were excluded from the consolidation due to this subsidiary being at the development stage. As of July 1, 2004 SQM Lithium Specialities LLP initiated its productive stage, therefore, as of September 30, 2004 its financial statements are included in the consolidation of SQM S.A.

During the period ended as of September 30, 2004, there were no other accounting changes in the application of generally accepted accounting principles compared to the previous period.

b) Restatement of 2003 Financial Statements

For comparison purposes only, the financial statements as of September 30, 2003 have been restated including assets and liabilities of SQM Lithium Specialties LLP. The assets and liabilities included are:

SQM Lithium Specialties LLP
ThUS$ Current Assets 949 Property, plant and equipment 25.518 Other Assets 786 Current Liabilities 861

SOCIEDAD QUIMICA Y MINERA DE CHILE S.A. Notes to the Consolidated Financial Statements (A translation of the original in Spanish- see note 2 (a))

Note 4 - Marketable Securities

As of September 30, marketable securities are detailed as follows:

2004 2003

ThUS$ ThUS$

Mutual funds 57,192 49,811
Total 57,192 49,811

Mutual funds consist of investments with Citifunds Institutional Liquid Reserve Limited in highly liquid funds invested in fixed-rate debt in the United States.

SOCIEDAD QUIMICA Y MINERA DE CHILE S.A. Notes to the Consolidated Financial Statements (A translation of the original in Spanish- see note 2 (a))

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

a) Short term and long-term accounts receivable and other accounts receivable as of September 30 are detailed as follows:

Between 90 days Total Up to 90 days and 1 year 2004 Short-term (net) 2004 2003 2004 2003 Subtotal 2004 2003

ThUS$ ThUS$ ThUS$ ThUS$ ThUS$ ThUS$ ThUS$ Short-term
Trade
accounts 119,538 108,444 20,264 24,399 139,802 139,802 132,843 receivable
Allowance for
doubtful (6,150 ) (6,608 ) accounts
Notes 23,245 20,424 16,658 15,500 39,903 39,903 35,924 receivable
Allowance for
doubtful (3,922 ) (3,090 ) accounts

Accounts
receivable, 169,633 159,069 net

Other
accounts 8,306 6,113 3,911 3,103 12,217 12,217 9,216 receivable
Allowance for
doubtful (857 ) (558 ) accounts

Other
accounts 11,360 8,658 receivable,
net

Long-term 277 3,820 receivables

SOCIEDAD QUIMICA Y MINERA DE CHILE S.A. Notes to the Consolidated Financial Statements (A translation of the original in Spanish- see note 2 (a))

Note 5 - Short-term and Long-term Accounts Receivable (continued)

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

Europe, Africa and Asia and USA, Mexico Latin America Chile the Middle East Oceania and Canada and the Caribbean Total 2004 2003 2004 2003 2004 2003 2004 2003 2004 2003 2004 2003
ThUS$ ThUS$ ThUS$ ThUS$ ThUS$ ThUS$ ThUS$ ThUS$ ThUS$ ThUS$ ThUS$ ThUS$

Net
short-term
trade
accounts
receivable
Balance 46,494 46,196 32,379 33,729 4,069 3,309 32,775 29,143 17,935 13,858 133,652 126,235 % of total 34.79 % 36.59 % 24.23 % 26.72 % 3.04 % 2.62 % 24.52 % 23.09 % 13.42 % 10.98 % 100.00 % 100.00 %

Net
short-term
notes
receivable
Balance 32,664 29,237 298 1,145 189 20 196 481 2,634 1,951 35,981 32,834 % of total 90.78 % 89.05 % 0.83 % 3.49 % 0.53 % 0.06 % 0.54 % 1.46 % 7.32 % 5.94 % 100.00 % 100.00 %

Net
short-term
other
accounts
receivable
Balance 3,526 4,699 2,057 1,281 9 3 5,575 2,451 193 224 11,360 8,658 % of total 31.04 % 54.27 % 18.11 % 14.80 % 0.08 % 0.03 % 49.07 % 28.31 % 1.70 % 2.59 % 100.00 % 100.00 % Subtotal
short-term
accounts
receivable,
net
Balance 82,684 80,132 34,734 36,155 4,267 3,332 38,546 32,075 20,762 16,033 180,993 167,727 % of total 45.68 % 47.78 % 19.19 % 21.56 % 2.36 % 1.98 % 21.30 % 19.12 % 11.47 % 9.56 % 100.00 % 100.00 %

Long-term
accounts
receivable,
net
Balance 192 2,957 70 69 - - - 779 15 15 277 3,820 % of total 69.31 % 77.41 % 25.27 % 1.81 % - - - 20.39 % 5.42 % 0.39 % 100.00 % 100.00 % Total short
and
long-term
accounts
receivable,
net
Balance 82,876 83,089 34,804 36,224 4,267 3,332 38,546 32,854 20,777 16,048 181,270 171,547 % of total 45.72 % 48.44 % 19.20 % 21.12 % 2.35 % 1.94 % 21.27 % 19.15 % 11.46 % 9.35 % 100.00 % 100.00 %

SOCIEDAD QUIMICA Y MINERA DE CHILE S.A. Notes to the Consolidated Financial Statements (A translation of the original in Spanish- see note 2 (a))

Note 6 - Balances and Transactions with Related Parties

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

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

a) Amounts included in balances with related parties as of September 30, 2004 and 2003 are as follows:

Short-term Long-term 2004 2003 2004 2003
Accounts receivable ThUS$ ThUS$ ThUS$ ThUS$

Ajay Europe S.A.R.L. 3,478 4,176 - - Nutrisi Holding N.V. 1,446 1,959 - - Generale de Nutrition Vegetale S.A. 174 171 - - Abu Dhabi Fertilizer Ind. WLL 3,925 4,367 - - Doktor Tarsa -SQM Turkey 3,030 2,481 - - Yara North America 237 7 - - Yara Iberian S.A. 2,291 1,627 - - PCS Yumbes - 224 - - Empresas Meln S.A. - - - 380 Sales de Magnesio S.A. 68 114 - - Ajay North America LLC 782 259 - - Yara Internacional ASA - 27 - - Yara France BU America Latina 1,430 1,141 - - Yara International Asia Trade Pte Ltd 1,676 893 - - Yara Poland SP 257 95 - - Yara Benelux B.V 161 129 - - Yara Hellas S.A. 408 61 - - Yara International Australia PTY. 1,250 465 - - Yara UK Ltd. 320 104 - - Yara GMBH & CO KG 293 167 - -
Yara AB 26 44 - - Yara Colombia Ltda.. 567 981 - - Yara Agri CZECH Republic SRO - 2 Yara France BU Africa 904 - NU3 B.V. 877 530 - - Yara Argentina S.A. 729 54 - - Adubo Trevo S.A. 16 16 - - Yara Italia SPA 65 - - - Impronta SRL 4,703 4,630 - Total 29,113 24,724 - 380

SOCIEDAD QUIMICA Y MINERA DE CHILE S.A. Notes to the Consolidated Financial Statements (A translation of the original in Spanish- see note 2 (a))

Note 6 - Balances and Transactions with Related Parties (continued)

a) Amounts included in balances with related parties as of September 30, 2004 and 2003, continued:

Short-term 2004 2003
ThUS$ ThUS$ Accounts payable

NU3 N.V. 1,294 707 Rotem Amfert Negev Limited 1,097 1,527 Yara Internacional ASA 646 - Yara Norge AS - 146 Yara Fertilizantes Ltda. 1,273 1,023 Yara France S.A. 465 2,406 Adm. y Servicios Santiago S.A. de C.V. - 58 PCS Yumbes SCM 7,119 - 11,894 5,867 Total

There were no outstanding long-term accounts payable with related parties as of September 30, 2004 and 2003

SOCIEDAD QUIMICA Y MINERA DE CHILE S.A. Notes to the Consolidated Financial Statements (A translation of the original in Spanish- see note 2 (a))

Note 6 - Balances and Transactions with Related Parties (continued)

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

Amount of Impact on income Company Relationship Type of Transaction (charge) credit transaction

2004 2003 2004 2003
ThUS$ ThUS$ ThUS$ ThUS$

NU3 N.V. (Belgium) Indirect Sales of 4,368 3,376 818 912 products Doktor Tarsa Indirect Sales of 4,351 1,679 1,034 471 products Abu Dhabi Fertilizer Indirect Sales of 1,389 1,523 205 298 WLL products Ajay Europe S.A.R.L. Indirect Sales of 4,565 4,804 2,166 1,659 products NU3 B.V. Indirect Sales of 4,327 3,380 394 1,329 products Ajay North America Indirect Sales of 6,160 5,468 2,783 1,730 LLC products Yara UK Ltd. Shareholder Sales of 922 723 89 216 products Yara International Shareholder Sales of 4,363 3,516 775 781 Asia Trade Pte products Ltd..
Yara France S.A. Shareholder Sales of 1,282 5,214 355 1,202 products Yara Benelux B.V. Shareholder Sales of 4,885 4,849 824 983 products Yara AB Sweden Shareholder Sales of 659 - 51 - products Yara International Shareholder Sales of 2,022 1,195 274 317 Australia Pty products Ltd.
Yara Iberian S.A. Shareholder Sales of 4,810 - 1,101 - products Yara Colombia Ltda. Shareholder Sales of 2,811 1,815 821 586 products Yara Poland SP Shareholder Sales of 1,483 1,156 249 464 products Yara GMBH & Co Kg Shareholder Sales of 1,212 936 163 265 products Yara France Shareholder Sales of 6,316 - 1,236 - products Yara Hellas S.A. Shareholder Sales of 949 1,129 199 253 products Yara Argentina S.A. Shareholder Sales of 7,135 6,076 1,703 1,526 products Adubo Trevo S.A. Shareholder Sales of 5,564 5,148 1,753 1,220 products PCS Yumbes SCM Shareholder Sales of 6,120 8,755 2,942 5,562 products Purchases of 21,574 14,815 - - products Impronta SRL Indirect Sales of 4,010 - 949 - products Yara France BU Africa Shareholder Sales of 577 - 60 - products Yara France BU Latino Shareholder Sales of 2,180 - 613 - America products Yara North America Shareholder Sales of 28,933 - 6,878 - products

SOCIEDAD QUIMICA Y MINERA DE CHILE S.A. Notes to the Consolidated Financial Statements (A translation of the original in Spanish- see note 2 (a))

Note 7 - Inventories

Net inventories are summarized as follows:

2004 2003

ThUS$ ThUS$

Finished products 145,405 127,543
Work in process 105,495 88,983
Supplies 9,701 11,317

Total 260,601 227,843

SOCIEDAD QUIMICA Y MINERA DE CHILE S.A. Notes to the Consolidated Financial Statements (A translation of the original in Spanish- see note 2 (a))

Note 8 - Property, Plant and Equipment

Property, plant and equipment are summarized as follows:

2004 2003
ThUS$ ThUS$ Land
Land 20,003 20,003 Mining Concessions 42,798 43,467 Total 62,801 63,470

Buildings and infrastructure
Buildings 161,509 160,246 Installations 311,203 294,080 Construction-in-progress 35,960 37,746 Other 4,870 4,320 Total 513,542 496,392

Machinery and Equipment
Machinery 412,901 401,297 Equipment 106,978 104,692 Project-in-progress 14,019 16,939 Other 18,440 18,048 Total 552,338 540,976

Other fixed assets
Tools 7,930 7,631 Furniture and office equipment 14,322 13,582 Project-in-progress 5,335 13,987 Other 11,315 9,896 Total 38,902 45,096

SOCIEDAD QUIMICA Y MINERA DE CHILE S.A. Notes to the Consolidated Financial Statements (A translation of the original in Spanish- see note 2 (a))

Note 8 - Property, Plant and Equipment (continued)

2004 2003
ThUS$ ThUS$ Amounts relating to technical revaluation of fixed assets Land 9,143 8,651 Buildings and infrastructure 40,627 40,627 Machinery and equipment 12,091 12,109 Other assets 53 53 61,914 61,440
Total property, plant and equipment 1,229,497 1,207,374

Less: Accumulated depreciation
Buildings and infrastructure (205,148 ) (178,049 ) Machinery and equipment (290,791 ) (265,129 ) Other fixed assets (27,915 ) (26,025 ) Technical appraisal (34,021 ) (32,636 ) Total accumulated depreciation (557,875 ) (501,839 ) Net property, plant and equipment 671,622 705,535

2004 2003
Depreciation for the year ended September 30: ThUS$ ThUS$

Buildings and infrastructure (19,608 ) (18,768 ) Machinery and equipment (23,662 ) (23,810 ) Other fixed assets (1,216 ) (1,239 ) Technical revaluation (969 ) (1,307 ) Total depreciation (45,455 ) (45,124 )

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

2004 2003

ThUS$ ThUS$

Administrative office buildings 2,115 2,086 Accumulated depreciation (457 ) (401 ) Total assets in leasing 1,658 1,685

SOCIEDAD QUIMICA Y MINERA DE CHILE S.A. Notes to the Consolidated Financial Statements (A translation of the original in Spanish- see note 2 (a))

Note 9 - 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 its foreign investments as net investment hedges.

b) Transactions executed in 2004

In January 2004, the subsidiary Soquimich European Holding B.V. made a capital contribution of ThUS$ 475 on its affiliate Misr Specialty Fertilizers.

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

In April 2004, the subsidiary Soquimich European Holding B.V. increased capital by ThUS$ 475 in its affiliate Misr Specialty Fertilizers.

On August 13, 2004, SQM S.A. transferred, 653,748,837 shares from Inmobiliaria San Patricio to Blue Circle South American Holding S.A. equivalent to all the shares held by SQM S.A. which represent 14.05% participation in this company. This transfer was carried out in accordance with the contract signed for the acquisition of Empresas Meln shares during 1998. The effect on income is shown forming part of the net income recognized in the sale of Empresas Meln.

On August 18, 2004 653,748,837 shares of Empresas Meln S.A. equivalent to all the shares held by SQM S.A., representing 14.05% participation in this company, were sold at a public auction held at the Santiago Stock Exchange, for ThUS$69,337. The agreed price was paid in cash on the same date. As a result of this sale, as of September 30, 2004 income before income tax amounted to ThUS$8,179.

On August 20, 2004, SQM Potasio S.A. decreased its capital in RS Agro Chemical Trading A.V.V., by ThUS$ 25,000 leaving its participation at 99.98% and that of SQM S.A. at 0.02%. In this operation no goodwill or negative goodwill was produced.

SOCIEDAD QUIMICA Y MINERA DE CHILE S.A. Notes to the Consolidated Financial Statements (A translation of the original in Spanish- see note 2 (a))

c) Transactions executed in 2003

On January 27, 2003, SQM Comercial de Mxico S.A. de C.V. and SQM Nitratos S.A. acquired 8,750 shares of the related company Fertilizantes Olmeca y SQM S.A. de C.V. which represented 50% of its share capital. Consequently, Fertilizantes Olmeca y SQM S.A. de C.V. became a subsidiary of SQM S.A. This transaction generated goodwill of ThUS$279.

Subsequently, SQM Nitratos S.A. acquired from SQM Comercial de Mxico S.A. de C.V. 8,749 shares in Fertilizantes Olmeca y SQM S.A. de C.V. This transaction did not produce goodwill.

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

On March 30, 2003, Fertilizantes Olmeca y SQM S.A. de C.V. increased its capital by ThUS$2,000 through the issuance of 431.200 shares, which were subscribed in full by SQM Nitratos S.A. As a result, SQM Nitratos S.A. had an ownership interest of 78.29% and SQM Comercial de Mexico had an ownership interest of 21.71%.

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

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

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

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

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

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

SOCIEDAD QUIMICA Y MINERA DE CHILE S.A. Notes to the Consolidated Financial Statements (A translation of the original in Spanish- see note 2 (a))

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

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

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

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

d) Investments with less than 20% participation

Companies with less than 20% participation which SQM has the capacity to significantly influence or control, since it is part of their Board of Directors, have been valued using the equity method.

SOCIEDAD QUIMICA Y MINERA DE CHILE S.A. Notes to the Consolidated Financial Statements (A translation of the original in Spanish- see note 2 (a))

Note 9 - Investments in and Receivables from Related Companies (continued)

d) Detail of investments in related companies

Book value of Equity participation Country Ownership interest Equity of companies investment Net income (loss) in net income (loss) Tax Registration of Controlling Number --------------------- ----------------------- ---------------- --------------------- --------------------- Number Company origin currency of shares 2004 2003 2004 2003 2004 2003 2004 2003 2004 2003
% % ThUS$ ThUS$ ThUS$ ThUS$ ThUS$ ThUS$ ThUS$ ThUS$

93390000-2 Empresas Meln Chile - S.A.. 653,748,837 14.05 14.05 - 302,335 - 42,478 - 21,893 2,905 3,076 0-E Ajay North USA US$ America LLC - 49.00 49.00 11,373 11,416 5,449 5,594 207 924 164 453 0-E Nutrisi Belgium US$ Holding N.V. - 50.00 50.00 4,904 3,296 2,532 1,648 1,264 1,511 778 756 0-E Ajay Europe France US$ S.A.R.L. - 50.00 50.00 4,120 3,350 2,060 1,675 - - - - 0-E Misr Egipto US$ Specialty
Fertilizers - 47.00 25.00 3,287 - 2,075 - - - - - 0-E Abu Dhabi
Fertilizer
Industries UAE US$ WLL - 37.00 37.00 3,227 3,177 1,194 1,175 84 174 31 64 0-E Doktor Tarsa Turkey Euros - 50.00 50.00 2,170 1,588 1,085 794 590 123 295 61 0-E Impronta SRL Italia Euros - 50.00 50.00 877 1,131 448 566 276 696 141 348 77557430-5 Sales de Chile - Magnesio
Ltda. - 50.00 50.00 346 266 219 133 158 72 125 36 O-E Rui Xin
Packaging
Materials China US$ Sanhe Co.Ltd - 25.00 25.00 482 482 121 121 - - - - 81767200-0 Asoc. Chile - Garantizadora
Pensiones - 3.31 3.31 732 704 25 23 - - - - O-E Mineag SQM South US$ Africa frica Limited - - 100.00 - (217 ) - - - (309 ) - - 99551480-K Inmobiliaria Chile - San Patricio
S.A. 653,748,837 14.05 - - - - - - - (12 ) - Total 15,208 54,207

SOCIEDAD QUIMICA Y MINERA DE CHILE S.A. Notes to the Consolidated Financial Statements (A translation of the original in Spanish- see note 2 (a))

Note 10 - Goodwill and Negative Goodwill

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

a) Goodwill

September 30, 2004 September 30, 2003 Amount amortized during Amount amortized the Goodwill during the Goodwill Tax RegistrationNumber Company period balance period balance
ThUS$ ThUS$ ThUS$ ThUS$

0-E Doktor Tarsa 56 41 62 90 Soquimich
79768170-9 Comercial 113 159 113 310 S.A.
93390000-2 Empresas Meln 324 - 363 7,759 S.A.
79626800-K SQM Salar 32 50 32 93 S.A.
0-E SQM Mxico 42 961 42 1,017 S.A. de C.V.
96864750-4 SQM Potassium 108 1,771 108 1,916 S.A.

Comercial 0-E Caiman 17 183 17 205 Internacional
S.A.
0-E Fertilizantes 42 181 42 237 Olmeca
0-E PTM SQM - - - 88 Iberica S.A.
0-E Impronta - - - 141 Italia S.R.L.
96801610-5 Comercial 107 1,223 65 1,229 Hydro S.A.

Total 841 4,569 844 13,085

b) Negative Goodwill

September 30, 2004 September 30, 2003 Amount amortized during Negative Negative Tax Registration the goodwill Amount amortized goodwill Number Company period balance during the period balance
ThUS$ ThUS$ ThUS$ ThUS$

79626800-K SQM Salar - - 157 18 S.A.
96575300-1 Minera 153 322 153 525 Mapocho S.A.

Mineag SQM 0-E Africa - - 110 - Limited

Total 153 322 420 543

SOCIEDAD QUIMICA Y MINERA DE CHILE S.A. Notes to the Consolidated Financial Statements (A translation of the original in Spanish- see note 2 (a))

Note 11 - Other Long-term Assets

Other long-term assets are summarized as follows:

2004 2003

ThUS$ ThUS$

Engine and equipment spare-parts, net 25,678 31,929 Mine development costs 22,621 19,313 Pension plan 1,137 1,137 Construction of Salar-Baquedano road 1,680 1,800 Deferred loan issuance costs 1,155 2,669 Other 1,190 1,825 Total 53,461 58,673

Note 12 - Bank Debt

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

2004 2003
Bank or financial institution ThUS$ ThUS$

SCH Overseas Bank 12,026 - Scotiabank 13,032 - Citibank 6,039 - HSBC Banc Chile 5,003
Banco de Chile 16,045
Other banks 2,189 1,274 Total 54,334 1,274

Annual average interest rate 1.78 % 3.04 %

SOCIEDAD QUIMICA Y MINERA DE CHILE S.A. Notes to the Consolidated Financial Statements (A translation of the original in Spanish- see note 2 (a))

Note 12 - Bank Debt (continued)

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

2004 2003
Bank or financial institution ThUS$ ThUS$

Union Bank of Switzerland (1) 200,642 200,642 Royal Bank of Canada (2) - 60,318 Bank of America (3) - 80,723 Total 200,642 341,683

Less: Current portion (642 ) (33,683 ) Long-term portion 200,000 308,000

(1) U.S. dollar-denominated loan without guarantee, interest rate of 7.7% per annum, paid semi-annually. The principal is due on September 15, 2006.

(2) U.S. dollar-denominated loan without guarantee, interest rate of 2.23% per annum, paid semi-annually. The principal is divided into five equal semi-annual partial installments, beginning in November 2003 with the final installment ending in November 2005

(3) U.S. dollar-denominated loan without guarantee, repaid in full on November 28, 2003

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

2004 2003

ThUS$ ThUS$
Years to maturity
Current portion 642 33,683
1 to 2 years - 32,000
2 to 3 years 200,000 276,000
4 to 5 years - -

Total 200,642 341,683

SOCIEDAD QUIMICA Y MINERA DE CHILE S.A. Notes to the Consolidated Financial Statements (A translation of the original in Spanish- see note 2 (a))

Note 13 - Accrued Liabilities

As of September 30, 2004 and 2003, accrued liabilities are summarized as follows:

2004 2003

ThUS$ ThUS$

Provision for royalties 1,369 1,494 Quarterly bonus 240 372 Provision for employee compensation and legal costs 1,556 1,100 Taxes and monthly income tax installment payments 949 579 Vacation accrual 5,897 5,492 Accrued employee benefits 2,888 1,248 Marketing expenses 3,400 2,100 Other accruals 3,052 3,668 Total current liabilities 19,351 16,053

Note 14 - Income and Deferred Taxes

a) At September 30, 2004 and 2003 the Company has the following consolidated balances for retained tax earnings, income not subject to taxes, tax loss carry-forwards and credit for shareholders:

2004 2003

ThUS$ ThUS$

Accumulated tax basis retained earnings
with tax credit 54,132 23,997 Accumulated tax basis retained earnings
without tax credit 54 - Tax loss carry-forwards (1) 21,960 92,099 Credit for shareholders 7,844 4,539

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

SOCIEDAD QUIMICA Y MINERA DE CHILE S.A. Notes to the Consolidated Financial Statements (A translation of the original in Spanish- see note 2 (a))

Note - 14 Income and Deferred Taxes (continued)

The deferred taxes as of September 30, 2004 and 2003 represented a net liability of ThUS$ 40,028 and ThUS$ 23,965. respectively, and consisted of:

2004 Deferred tax asset Deferred tax liability Short-term Long-term Short-term Long-term

ThUS$ ThUS$ ThUS$ ThUS$ Temporary differences
Allowance for doubtful accounts 1,320 397 - - Vacation accrual 964 - - - Unrealized gain on sale of 6,070 - - - products
Provision for obsolescence - 1,947 - - Production expenses - - 20,043 - Accelerated depreciation - - - 58,482 Exploration expenses 1,530 - - 4,288 Capitalized interest - - - 5,883 Staff severance indemnities - 476 - 1,916 Capitalized expenses - - - 393 Tax loss carry-forwards - 5,594 - - Losses from derivative 120 - - - transactions
Accrued interest 164 - - - Other 693 2,028 86 138 Total gross deferred taxes 10,861 10,442 20,129 71,100 Total complementary accounts - (1,212 ) (2,858 ) (28,791 ) Valuation allowance - (539 ) - - Total deferred taxes 10,861 8,691 17,271 42,309

SOCIEDAD QUIMICA Y MINERA DE CHILE S.A. Notes to the Consolidated Financial Statements (A translation of the original in Spanish- see note 2 (a))

Note 14 - Income and Deferred Taxes
(continued)

2003 Deferred tax asset Deferred tax liability Short-term Long-term Short-term Long-term

ThUS$ ThUS$ ThUS$ ThUS$ Temporary differences
Allowance for doubtful accounts 901 308 - - Unearned income 204 Vacation accrual 338 - - - Unrealized gain on sale of 5,065 - - - products
Provision for obsolescence - 1,988 - - Production expenses - - 11,317 - Accelerated depreciation - - - 60,049 Exploration expenses - - - 4,321 Capitalized interest - - - 6,260 Staff severance indemnities - - - 1,077 Accrued expenses - - - 425 Capitalized expenses - - - 665 Tax loss carry-forwards - 15,634 - - Losses from derivative 45 - - 73 transactions
Accrued interest 111 - - - Other 286 28 130 Total gross deferred taxes 6,950 17,930 11,345 73,000 Total complementary accounts - (701 ) (2,530 ) (33,671 ) Valuation allowance - - - - Total deferred taxes 6,950 17,229 8,815 39,329

SOCIEDAD QUIMICA Y MINERA DE CHILE S.A. Notes to the Consolidated Financial Statements (A translation of the original in Spanish- see note 2 (a))

Note 14 - Income and Deferred Taxes (continued)

c) Income tax expense is summarized as follows:

2004 2003

ThUS$ ThUS$

Tax expense adjustment ( prior year) (118 ) - Provision for current income tax (9,218 ) (2,978 ) Effect of deferred tax assets and liabilities (6,354 ) (5,011 ) Effect of amortization of complementary accounts (4,378 ) (4,066 ) Other tax charges and credits 241 (249 ) Total income tax expense (19,827 ) (12,304 )

Note 15 - Staff Severance Indemnities

Staff severance indemnities are summarized as follows:

2004 2003

ThUS$ ThUS$

Opening balance 10,127 9,143 Increases in obligation 2,571 2,411 Payments (1,929 ) (2,355 ) Exchange difference (207 ) 679 Balance as of September 30 10,562 9,878

SOCIEDAD QUIMICA Y MINERA DE CHILE S.A. Notes to the Consolidated Financial Statements (A translation of the original in Spanish- see note 2 (a))

Note 16 - Minority Interest

Minority interest is summarized as follows:

Equity Net Income/(Loss) 2004 2003 2004 2003

ThUS$ ThUS$ ThUS$ ThUS$

Soquimich Comercial S.A. 27,541 22,433 (3,611 ) (2,154 ) Ajay SQM Chile S.A. 3,219 3,084 (331 ) (144 ) Cape Fear Bulk LLC 134 109 (83 ) (54 ) Fenasa 269 409 (62 ) (119 ) SQM Nitratos Mxico S.A. de (61 ) - (22 ) - C.V.
SQM Italia S.R.L 17 12 4 7 SQM Indonesia S.A. (10 ) (11 ) 10 11 Total 31,109 26,036 (4,095 ) (2,453 )

SOCIEDAD QUIMICA Y MINERA DE CHILE S.A. Notes to the Consolidated Financial Statements (A translation of the original in Spanish- see note 2 (a))

Note 17 - Shareholders' Equity

a) Changes to shareholders' equity consisted of:

Accumulated deficit of subsidiaries in Paid-in Other development Retained Net Number capital reserves stage earnings income Total of shares ThUS$ ThUS$ ThUS $ ThUS$ ThUS$ ThUS$
Balance as of
January 1,
2003 263,196,524 477,386 125,111 (3,661 ) 210,624 40,202 849,662 Transfer 2002
net income to
retained
earnings - - - - 40,202 (40,202 ) - Declared
dividends
2003 - - - - (19,894 ) - (19,894 ) Accumulated
deficit from
subsidiaries
in
development
stage (1) - - - (1,564 ) - - (1,564 ) Other
comprehensive
income (2) - - 7,025 - - - 7,025 Net income
for the year - - - - - 36,107 36,107 Balance as of
September 30,
2003 263,196,524 477,386 132,136 (5,225 ) 230,932 36,107 871,336 Balance
January
1,2004 263,196,524 477,386 141,420 (6,519 ) 230,932 46,753 889,972 Transfer 2003
net income to
retained
earnings - - - - 46,753 (46,753 ) - Declared
dividends
2004 - - - - (23,192 ) - (23,192 ) Accumulated
deficit from
subsidiaries
in
development
stage (1) - - - (1,851 ) - - (1,851 ) Other
comprehensive
income (2) - - 5,768 - - - 5,768 Net income
for the year - - - - - 55,602 55,602 Balance as of
September 30,
2004 263,196,524 477,386 147,188 (8,370 ) 254,493 55,602 926,299

(1) Until June 30, 2004 the only subsidiary in a development stage is SQM Lithium Specialties Limited.
(2) Other comprehensive income includes translation adjustments and the effect of changes in the valuation of the Company's under-funded pension as of September 30, 2003 and 2004.

SOCIEDAD QUIMICA Y MINERA DE CHILE S.A. Notes to the Consolidated Financial Statements (A translation of the original in Spanish- see note 2 (a))

Note 17 - Shareholders' Equity (continued)

The composition of other comprehensive income as of September 30, 2004 is as
b) follows:

For the year As of ended September September 30, 2004 30, 2004
Detail ThUS$ ThUS$

Technical appraisal - 151,345 Changes to other comprehensive income from equitymethod investments:
Soquimich Comercial S.A. (1 ) (408 ) (2,905 ) Isapre Note Grande Ltda. (1 ) (1 ) (98 ) Inversiones Augusta S.A. (1 ) - (761 ) SQM Ecuador S.A. (3 ) - (271 ) Almacenes y Depsitos Ltda. (1 ) (10 ) (100 ) Asociacin Garantizadora de Pensiones (1 ) (1 ) (15 ) Empresas Meln S.A. (1 ) 6,109 - Sales de Magnesio Ltda. (1 ) (2 ) 51 SQM North America Corp. (2 ) - (777 ) Other Companies (1 ) - 719 Total other comprehensive income 5,687 147,188

(1) Corresponds to translation adjustments and monetary correction
(2) Corresponds to a change in the valuation of the Company's under-funded pension scheme
(3) Corresponds to the translation adjustment produced by the application of a new law implemented by the Ecuadorian Government

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

The preferential voting rights of each series are as follows:

Series A: If the election of the president of the Company results in a tied vote, the Company's directors may vote once again, without the vote of the director elected by the Series B shareholders.

Series B: 1) A general or extraordinary shareholders' meeting may be called at the request of shareholders representing 5% of the Company's Series B shares.

2) An extraordinary meeting of the Board of Directors may be called with or without the agreement of the Company's president, at the request of a director elected by Series B shareholders.

SOCIEDAD QUIMICA Y MINERA DE CHILE S.A. Notes to the Consolidated Financial Statements (A translation of the original in Spanish- see note 2 (a))

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 liability recorded in other current liabilities. Losses from options relate to fees paid by the Company to enter into such contracts. As of September 30, 2004 the Company's derivative instruments are as follows:

2004 Notional or Description Income Type of covered of the contract Position (Liability) (loss) derivative amount Expiration type purchase/sale Asset amount recorded ThUS$ ThUS$ ThUS$ US dollar 214 1st quarter Exchange rate S 9 9 Forward of 2005
US dollar 361 2st quarter Exchange rate P 6 (6 ) Forward of 2005
US dollar 361 2st quarter Exchange rate S 6 6 Forward of 2005
US dollar 24,166 4nd quarter Exchange rate P 1,075 (1,075 ) Forward of 2004
US dollar 8,201 4nd quarter Exchange rate S 369 369 Forward of 2004
US dollar 13,505 4nd quarter Exchange rate S 171 (171 ) Forward of 2004
US dollar 9,186 4nd quarter Exchange rate P 68 68 Forward of 2004
Option 17,222 4nd quarter Exchange rate P - - of 2004
Option 17,222 4nd quarter Exchange rate S - - of 2004
US dollar 214 1st quarter Exchange rate P 9 (9 ) Forward of 2005

90,652 (809 )

SOCIEDAD QUIMICA Y MINERA DE CHILE S.A. Notes to the Consolidated Financial Statements (A translation of the original in Spanish- see note 2 (a))

Note 19 - Non-Operating Income and Expenses

Amounts included in non-operating income and expenses are summarized as follows:

a) Non-operating income

2004 2003

ThUS$ ThUS$

Interest income 2,597 2,450 Reversal of allowance for doubtful accounts 391 426 Net foreign exchange gains - 2,845 Insurance recoveries 546 154 Sales of materials and services 114 833 Equity participation in net income of unconsolidated subsidiaries 4,439 4,794 Income from sale of investments in related comp. 8,179 - Other income 2,070 1,199 Total 18,336 12,701

a) Non-operating expenses

2004 2003

ThUS$ ThUS$

Write-off of investments 6,996 6,014 Interest expense 14,441 16,392 Equity participation in net losses of unconsolidated subsidiaries 12 - Amortization of goodwill 841 844 Net foreign exchange losses 2,460 - Work disruption expenses 421 1,476 Increase in provision for employee compensation and legal costs 622 1,375 Allowance for doubtful accounts 2,500 632 Other expenses 2,808 2,673 Provision for sales of materials, spare-parts and supplies 1,300 - Total 32,401 29,406

SOCIEDAD QUIMICA Y MINERA DE CHILE S.A. Notes to the Consolidated Financial Statements (A translation of the original in Spanish- see note 2 (a))

Note 20 - Price-level Restatement

Amounts charged or credited to income relating to price-level restatement are summarized as follows:

(Charge) credit to income from operations 2004 2003

ThUS$ ThUS$

Property, plant and equipment 127 83 Other assets and liabilities 50 (16 ) Shareholders' equity (1,091 ) (608 ) Subtotal price-level restatement (914 ) (541 ) Net readjustment of assets and liabilities 49 213 denominated in UF

Net price-level restatement (865 ) (328 )

Note 21 - Assets and Liabilities Denominated in Foreign Currency

2004 2003
ThUS$ ThUS$ Assets
Chilean pesos 115,989 161,269 US dollars 1,185,802 1,098,684 Euros 22,596 60,584 Japanese Yen 4,351 2,995 Brazilian Real 365 1,115 Mexican pesos 5,385 17,098 UF 18,330 7,481 South African Rand 8,991 6,249 Other currencies 1,609 5,662

Current liabilities
Chilean pesos 48,832 55,480 US dollars 87,828 48,245 Euros 12,025 10,814 Japanese Yen 194 361 Brazilian Real 707 719 Mexican pesos 8,175 4,721 UF 155 235
South African Rand 1,899 120 Other currencies 328 711

Long-term liabilities
Chilean pesos 56 5,189 US dollars 235,753 334,520 Japanese Yen 72 72 UF 10,274 3,075 Other currencies 1 -

SOCIEDAD QUIMICA Y MINERA DE CHILE S.A. Notes to the Consolidated Financial Statements (A translation of the original in Spanish- see note 2 (a))

Note 22 - Cash Flow Statement

Amounts included in other investing income are summarized as follows:

2004 2003

ThUS$ ThUS$

Sale of mining concessions 600 - Repayment of employee loans 48 2,977 Cash balance in new subsidiaries (1 ) 8 4,343 Total 656 7,320

(1) Corresponds to the consolidation of the new subsidiaries Mineag SQM Africa Limited, Fertilizantes Olmeca and SQM S.A. de C.V. during 2003, and SQM Lithium Specialities LLP in 2004.

SOCIEDAD QUIMICA Y MINERA DE CHILE S.A. Notes to the Consolidated Financial Statements (A translation of the original in Spanish- see note 2 (a))

Note 23 - Commitments and Contingencies

I. Contingencies:

(a) Material lawsuits or other legal actions of which the Company is party to:

1 Plaintiff : SQM Salar S.A.
Defendants : ACE Seguros S.A. (formerly - Cigna Compaa de Seguros (Chile) S.A.) and Chubb de Chile Compaa de Seguros Generales S.A. Date of lawsuit : April 2001
Matter : Arbitration
Status : Collection of compensation for insured claim Instance : Evidence verification Nominative value : ThUS$ 36,316

2 Plaintiffs : Compagnie Du Guano de Poisson Angibaud S.A. and Generale de Nutrition Vegetale SAS Defendants : Soquimich European Holdings B.V., NU3 N.V. and SQM France S.A.
Date of lawsuit : December 2002
Court : Court of Arbitration in France Matter : Termination of the company relationship and liquidation of the company Generale de Nutrition Vegetale SAS
Status : The lawsuit is being contested Nominative value : ThEuro$ 30,295

3 Plaintiffs : SQM S.A.
Defendants : Empresa Minera de Mantos Blancos S.A. Date of lawsuit : June 2004
Court : Arbitration Court Cause : Noncompliance with promise agreement Instance : Reply
Nominative value : ThUS$ 7,000

SOCIEDAD QUIMICA Y MINERA DE CHILE S.A. Notes to the Consolidated Financial Statements (A translation of the original in Spanish- see note 2 (a))

Note 23 - Commitments and Contingencies (continued)

I. Contingencies (continued):

(b) Models for the Production of the Mara Elena site

The Company is currently reviewing the "Models for the Production of the Mara Elena site" which may be implemented as a result of the Decontamination Plan (see note 26). The different alternatives for production and technology development for the Maria Elena site, which are a part of the above-mentioned "Production Models" do not proactively generate significant changes in the present ore reserves or forecasted sales volumes. These options include possibilities to use new production methods and are related to the "leaching piles" and implementing a mixed system, which would be comprised of the use of the aforementioned technology and the current production methods. Advantages and disadvantages of the different options relate to the extension of the transition periods of new technology, the investments that will be required, production costs, changes in technologies and in productive processes and the effects on certain of the Company's assets and their value. The possible effects on the valuation of assets are not yet determinable.

SOCIEDAD QUIMICA Y MINERA DE CHILE S.A. Notes to the Consolidated Financial Statements (A translation of the original in Spanish- see note 2 (a))

Note 23 - Commitments and Contingencies (continued)

The Company and its subsidiaries are involved in litigation in the ordinary course of business. Based on the advice of counsel, management believes the litigation will not have a material effect on the consolidated financial statements.

II. Commitments:

(a) The subsidiary SQM Salar S.A. maintains an agreement with a government agency, whereby the Company must make annual payments until 2030 based on the Company's annual sales. This amount, which has been paid since the beginning of the agreement in 1996, amounted to ThUS$ 3,548 in 2004 (ThUS$ 3,419 in 2003).

(b) The Company has certain indirect guarantees, which relate to agreements with no remaining payments pending. These guarantees are still in effect and have been approved by the Company's Board of Directors; however, they have not been used by the subsidiaries.

(c) 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.

Note 24 - Third Party Guarantees

As of September 30, 2004 and 2003 the Company has the following indirect guarantees outstanding:

Debtor Balances outstanding
Beneficiary Name Relationship 2004 2003 ThUS$ ThUS$ Phelps Dodge Corporation SQM Potasio S.A. Subsidiary 1,926 2,784 Bank of America N.A. RS Agro-Chemical Trading A.V.V. Subsidiary - 80,723

Note 25 - Sanctions

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

Note 26 - Environmental Projects

Disbursements incurred by the Company as of September 30, 2004 relating to its investments in production processes and compliance with regulations related to industrial processes and facilities are as follows:

Future 2004 Disbursements
ThUS$ ThUS$ Project
Environmental department 365 196 Boratos sewage treatment plant 256 38 Tocopilla project 615 - Engineering and building of Mara Elena piles 2,425 914 Treatment plant MOP 208 - Other 873 708 Total 4,742 1,856

Protecting the environment is a constant concern for SQM, regarding both the Company's productive processes and the manufactured goods.

SQM is currently implementing an Environmental Management System, which is based on the ISO 14000 standard, with which, the Company's environmental performance will be improved through the effective application of the Environmental Policy of SQM. The implementation program stipulates that late in 2004, all the operations maintained by the Company in Regions I and II of Chile, will have a fully implemented Environmental Management System.

Note 26 - Environmental Projects (continued)

Technological processes are intended to be environmentally friendly in order to reduce residual materials and improve technical conditions to ensure effective protection of the environment. An example of this is ongoing conversion of oil to natural gas used in the Company's plants.

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 the drying of solid materials and the evaporation of 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.

On August 10, 1993, the Ministry of Health published a resolution under the Sanitary Code that established that the levels of breathable particles present at Maria Elena Plant exceeded the level allowed for the quality of air and, which affected the nearby city of Maria Elena. Particles mainly come from dust that results from processing the sodium nitrate, particularly at the crushing process prior to leaching. The decontamination plan presented by the Company to reduce the level of particles was approved with certain modifications by means of Decree No. 164. As a result of the investments and processes implemented according to the approved plan, the Company has substantially reduced the levels of particles in the air. Resolution No. 384, made public on May 16, 2000, authorized the review and a new draw up of the decontamination plan for the city of Maria Elena. The Supreme Decree containing the final Decontamination Plan should be made public within months. It is not possible to assure that within such period the Company will be free from warnings, fines or even eventual temporary closing of the crushing plant in Maria Elena. The Company is continuously researching techniques, processes and systems relating to the processing of sodium nitrate that could even further reduce the level of particles in the city of Maria Elena.

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

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

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

Note 26 - Environmental Projects (continued)

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 watershed.

Note 27 - Share purchase PCS Yumbes S.C.M.

On October 24, 2003 the Company's Board of Directors authorized SQM S.A.'s management to begin negotiations to acquire all the shares of the Chilean Company PCS Yumbes S.C.M., a subsidiary of Potash Corporation of Saskatchewan Inc.

On November 20, 2003, SQM S.A. and its subsidiary SQM Nitratos S.A., subscribed to a share purchase agreement under which they are committed to purchase all of the outstanding shares of the company PCS Yumbes from Inversiones PCS Chile Limitada and 628550 Saskatchewan Ltd., both subsidiaries of Potash Corporation of Saskatchewan Inc.. The final price of the share purchase will be ThUS$35,000, subject to certain adjustments at the date the final agreement is signed. The purchase will comprise all of the fixed assets, mining concessions, water rights and other assets of PCS Yumbes S.C.M. and will exclude all liabilities and contractual obligations.

Note 28 - Significant Events

On march 19, 2004, the company informed the Superintendency of Securities and Insurance that the Board of Directors of SQM, at its meeting dated march 16, 2003 unanimously agreed to propose the payment of final dividend of US$ 0.08811 per share in favor of those SQM's shareholders which were registered in the respective registry during the fifth working day prior to the payment of this dividend.

This proposal, upon approval by the next company's shareholders' meting which will be held on April 30, 2004, will allow the company to pay and distribute, as stated in the respective Dividend Policy, and annual dividend equivalents to 50% of the net profits which can be distributed and are obtained during 2003.

On April 30, 2004, the company held its shareholders' meeting. At this meeting, the majority of the company's shareholders, among others agreed the following:

a) The shareholders approved the distribution and payment of a final and total dividend of ch$ 55.05465 per share. The payment of this dividend was agreed in one single installment, beginning on may 12, 2004 and with a charge to 2003 income.

b) The shareholders approved the payment of UF 50 (fifty UF) in favor of each member of the Directors Committee, regardless of the number of meetings that this Committee holds during the respective month. In addition, they approved the implementation of an annual budget for the operating expenses of this Committee and of their advisors for an amount of UF 1,800 (one thousand and eight hundred UF).

c) The shareholders approved remuneration to be paid to the Company's directors during the next twelve month.

Note 29 - Subsequent Events

Company management are not aware of any significant subsequent events occurred between September 30, 2004 and the date of issuance of these consolidated financial statement (November 02, 2004), which may affect the presentation of these financial statements.