LAC:CC - Why did SQM plunge? Hard choices ahead as Chile seeks to bring lithium under state control

2023-04-21 18:20:20 ET

Shares of two of the world's biggest lithium miners, Sociedad Quimica y Minera de Chile ( NYSE: SQM ) and Albemarle ( NYSE: ALB ), fell sharply Friday after Chile's President Gabriel Boric unveiled plans to create a state-owned company to develop the country's lithium resources.

Boric said state-owned Codelco would hold talks with SQM ( SQM ) and Albemarle ( ALB ) to negotiate a deal for the state to take a stake in their operations before their contracts expire.

SQM ( SQM ), whose contract to extract lithium in Chile's Atacama salt flat expires in 2030, is most at risk; Albemarle ( ALB ), whose deal does not come due until 2043, said it expects "no material impact" on its operations for the government's plan.

SQM ( SQM ) closed Friday -18.5% and hit a 52-week low $60.21, while Albemarle ( ALB ) ended -10% and touched a 21-week intraday low $171.82.

Only SQM ( SQM ) and Albemarle ( ALB ) operate in Chile among U.S.-listed companies, but some other lithium names also fell on fears that other countries could follow Chile's path ; Livent ( LTHM ) -5.4% , ( SLI ) -2.8% , ( LAC ) -1.3% .

ETF: ( NYSEARCA: LIT )

Under Chile's new lithium development policy, SQM ( SQM ) has two choices : Keep full control of its operation for the rest of the current contract and risk losing it when it ends, or let the state take a majority stake with the understanding that it could keep operating longer.

Further complicating SQM's ( SQM ) decision: Chile will have two changes of government before 2030, which could mean a new lithium policy.

Albemarle ( ALB ) faces a similar choice, but it has 20 years left on its contract and is far less reliant than SQM on a single - albeit massive - salt flat in Chile.

While most commercial lithium extraction is from salt-flat brines and mineral ores, Seeking Alpha contributor Trend Investing explores who is leading in the race to achieve successful direct lithium extraction .

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