SQM weighs hard choices in Chile amid $3.7bn share wipeout

Soquimich (SQM) lithium mine on the Atacama salt flat, the world’s second largest salt flat and the largest lithium deposit currently in production, with over a quarter of the world’s known reserves, in northern Chile. (Image courtesy of SQM)

The Chilean government’s announcement of a new lithium model is giving the nation’s biggest producer some hard choices, and its shareholders a reason to sell.

SQM, the fertilizer-turned-lithium giant, runs the planet’s biggest and most profitable brine operation in Chile’s northern desert under a contract that expires in 2030.

Under President Gabriel Boric’s new lithium-development policy, SQM has two choices: Keep full control of the operation for the rest of the current contract and risk then losing it when it ends or let the state take a majority stake with the understanding that it could keep operating longer. Complicating the decision further is the fact Chile will have two changes of government before that date, which may bring with it a new lithium policy.

“I would look for SQM to strike an agreement fairly quickly,” said Joe Lowry, an industry consultant.

To be sure, the only other producer in Chile, Albemarle Corp., is facing similar choices. But the US firm has about 20 years left on its contract and is far less reliant than SQM on a single, albeit massive, salt flat in Chile.

SQM says it’s analyzing the government’s plan. There’s plenty still up in the air. For example, it’s unclear how the state would finance its share of existing operations and investments and what role it would play in decision making. It’s also unknown whether SQM would be compensated were it forced to walk away after 2030, BTG Pactual analyst Cesar Perez-Novoa said. His back-of-the-envelope replacement value is about $5 billion.

SQM’s shares were already trading as if the contract wouldn’t be renewed, Perez-Novoa said. But on Friday, the stock tumbled a record 19%, wiping out $3.7 billion in market value.

(By James Attwood)


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