Lithium stocks in Chile: The future looks cloudy, but there is still opportunity awaiting

Nick Sundich Nick Sundich, December 1, 2023

Lithium stocks in Chile, particularly on the ASX, are facing an uncertain future. Since the 1980s Chile has been a major producer of lithium and copper globally which has called the interests of many countries and investors around the world. Australia has emerged as one country to express their interests in both lithium and copper, this underlines the reasons why these metals are of such importance around the globe.

 

How Chile’s lithium industry came to be

What made the extraction of lithium so hard in Chile? In 1979, when Agusto Pinochet was ruling over the country, lithium was considered to be a nuclear interest which made it hard for mining companies to acquire the metal and it meant that mining industries had to find and explore new lithium deposits.

Finally, with the approval of SERNAGEOMIN (Servicio Nacional de Geologia y Mineria) and the first lithium mining industry in Chile, SQM (Sociedad Quimica y Minera) in the 1990s, Chile began its massive mining of lithium in the Atacama Desert (North of Chile). The country’s vast supplies of the metal were so big that it positioned the country as a key global supplier of lithium.

 

Don’t forget SQM

SQM is the most notable lithium company that has set up shop in Chile. It is well known for being the largest lithium producer in the world and it also operates in various industries that focus on human development and progress such as health nutrition, new technologies, and renewable energy. SQM became nationalized in 1971 but soon became private in 1983.

Since then, the industry expanded immensely with their first Atacama Desert contract in 1993 and finally led to the expansion of their business into the lithium mining industry in 1997. In the early 2000s, SQM focused on expanding their line into India, China and France. Few years later, they signed with Argentina an agreement to expand the lithium industry by using Argentinian soil and most recently SQM signed a contract with Australia to take a stake of the lithium projects being held in Western Australia in 2017. Since 2018 SQM has been state-led and has made huge revenue.

 

Chile’s lithium industry in the 21st century

Since the 21st century the rise of lithium has just skyrocketed as per electric vehicles are being produced massively around the world as the climate concerns keep rising.

Chile has had some major difficulties as a new constitution is being introduced. Not to mention the new socialist government of Gabriel Boric that has introduced a state-led plan which requires all lithium industries to partner with the government for all future mines.

This is not as bad for investors because it is not a total nationalisation of the industries, but it is also not good for investors as it brings many problems that could affect in the future such as:

  • Uncertainty: Sudden changes of policies, regulations and practises that affect the lithium industries and may not be the interest of private investors.
  • Risk of corruption: The severe economic power in the hands of the state have a higher risk of corruption which will dramatically affect on the investments.
  • Political interference: The political interference can cause many problems in the future as it is affected by political considerations rather than business or economic logic. These decisions could benefit more the political sector than the business area.

 

Nationalisation pending?

We also observe that even though this state-led plan has already been introduced, it has been said by President Boric that he will nationalise the country’s lithium, which will take on the industries of SQM and Albemarle as well as the future industries that may arise making them 100% state-owned industries.

What can be expected for the future of the lithium mining industries in Chile? SQM and Albemarle have both responded to the president of Chile’s comment about the nationalisation of lithium industries. While SQM’s contract ends in 2030, Albemarle’s contract in the mining of the Atacama Desert ends in 2048. However, Albemarle has responded that this decision will not impact in the business. As a result, after the statement of Gabriel Boric, Albemarle stock fell however it is nowadays starting to climb back up.

 

So, what is the current outlook for investments in Chile now?

As mentioned before, Chile has many investments that could skyrocket or could slowly rise, take lithium as an example. If the right decisions are made within the country and industries, then the future of inversions in Chile will be greater than any country in the continent. Eventually, it will take some time for stocks to increase as the country is still in the process of adaptation.

The bad news is that if nationalisation is to happen in Chilean lithium companies like SQM and Albemarle then the stocks may go down and investors would have to find other countries of investment like Argentina. On the other hand, electric vehicles are being developed at a higher rate, this means that the demand of the lithium is higher which is why Chile should really be focusing on this metal.

 

Chile is losing ground

As well as the investments that could sharply rise, there are some ways that these same investments could fail. As mentioned above, the current government has held a negative opinion over private mining industries for a long time that has resulted in the immediate effect of making these industries state-led which is not as bad as making them 100% state-owned.

Climate activists are also against the new projects that makes it hard for the country to maintain a constant rate over the production of lithium. This means that Chilean market is losing its ground over competitors like Australia and Argentina which are countries that are producing lithium at a fast rate.

 

Lithium stocks in Chile

Albemarle (NYSE:ALB) : Last year Albemarle presented a new project for the territory of Chile which simply consists that they will double the production of lithium using less water. The plant called La Negra III/IV has promised to be a more sustainable plant as it will reduce water consumption by 30% per metric ton. La Negra III/IV will expect to extract 40,000 tonnes of lithium carbonate per year.

Lithium Power International (ASX:LPI) The Maricunga project is taking place inside the lithium triangle adjacent to the Chile-Argentina highway. LPI has made this project 100% theirs with no government intervention. The Maricunga project is expected to generate 15,200 tonnes of lithium per year.

SQM (NYSE:SQM) SQM projects are based in the Salar de Atacama that has favourable conditions for the evaporation of water. The project is expected to expand up to 150kt/y. Unlike other industries, SQM is state-led.

Hot Chili (ASX:HCH) and Tesoro Gold (ASX:TSO) are two other resources stocks based in Chile, although they specialise in copper and gold, respectively.

 

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