Chile Moves To Nationalize Lithium Production; Miners Slide

Chilean President Gabriel Boric plans to nationalize lithium production, sending stocks of miners lower.

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May 11, 2023 • 2 min read

Chilean President Gabriel Boric's announcement of plans to nationalize industry has caused a further drop in lithium stocks. SQM and Albemarle, which both have significant lithium extraction operations located in Chile both fell on the early Friday stock market.

Chile is the second largest lithium producer in the world, behind Australia. Chile is still No. According to the U.S. Geological Survey, lithium is found in abundance in Chile.

Boric outlined his nationalization plans in broad terms. Boric hopes to get approval from the Chilean Congress by the end of this year. However, it has blocked Boric's agenda in multiple ways.

Reuters reported that new contracts for lithium mining will be public-private partnership with state control. Existing contracts will not be cancelled. Boric told Reuters that he hoped companies would be willing to accept a role from the state even before their contracts expire.

SQM's contract ends in 2030 while Albemarle has mining rights to the Salar de Atacama salt deposits until 2043.

SQM fell 5% to 74.01 during premarket trading while ALB dropped 2.7% to 187.20.

Albemarle said to Reuters that this announcement would not have a "material impact" on its business and that it would continue planning further investments in Chile.

Morgan Stanley analyst Javier Martinez De Olcoz stated in a research report that the new regulatory structure was in general in line with expectations. He said that the "details" of what is to come are important in determining its impact.

SQM's stock has suffered from the uncertainty surrounding a contract extension. SQM's lithium operations generated $8.15 billion of its $10.7 billion revenue in 2022. SQM claims that its "contribution to the Chilean Treasury" reached $5.06billion, which included $3.27billion in lease payments and 1.79billion in income taxes.

SQM's revenue from lithium sales exploded by 770% in the last year. This was far more than the 55% rise in production, due to the surge of lithium prices.

The spot price of lithium carbonate has fallen 70% since its November peak but is still more than double what it was two years ago.

In a note released on Thursday, before the Chilean news broke, Deutsche Bank analyst Corinne Blanhard stated that she now expects to see a modest surplus of lithium in 2023 due to a rise in expectations for Chinese production. She still expects a shortage of lithium in the medium- to long-term. Blanchard lowered her price targets on lithium stocks rated buy, SQM and ALB.

Lithium stocks were already near their 52-week lows before Boric announced its nationalization. ALB's stock price has dropped 42% since its peak in November, while SQM's stock has declined 33%.