Judging from the historical review, the ruling philosophy of Chile's left-right government will indeed have a great impact on private capital holding enterprises such as SQM. In the last century, SQM was nationalized and privatized during the administration of left-right governments. Especially in the context of lithium resource as strategic resource of new energy vehicles, the voice of resource nationalization also appeared in many countries and regions such as Australia and Mexico. However, we believe that the current Chilean plan has limited impact on the actual operation of SQM. On the one hand, forced nationalization of private enterprises requires comprehensive consideration of the country's macro-economy, global political environment, government financial strength and many other factors. On the other hand, Australia can control resources by controlling the proportion of foreign investment, and gain profits by raising taxes and levying royalties.
Nationalization may have limited impact on existing quotas and may have greater impact on new quotas. SQM will have the right to develop, process and sell the equivalent of 2.2 million tonnes of lithium carbonate quota during the lease period (i.e. 31 December 2030), according to the Valuation Report of the Total equity value of SQM shareholders. As for the new quota, BYD won an 80,000 ton production quota for a Chilean lithium mining project that was suspended by a Chilean court.
Global salt lake lithium supply uncertainty increases. In 2021, Chile's lithium mineral resources accounted for 24% of the world's total production capacity, making it the second largest supplier of lithium minerals in the world. The efficiency of Chile's state-owned capital still needs to be observed, which may cause some disturbance to the supply side. Among them, the existing capacity of SQM is 120,000 tons, accounting for 16% of global capacity and 34% of global salt lake capacity. Meanwhile, SQM capacity is planned to expand from 120,000 tons to 180,000 tons in mid-2022, accounting for 20% of new capacity and 46% of new salt lake capacity in that year. Nationalization may have limited impact on existing capacity planning. It may affect future capacity planning.
State-owned capital owns considerable greenbelt salt lake resources, among which resources with development value may become a direction of nationalization of resource end, and there is room for cooperative development: At present, Codelco and Enami have some lithium resources, but they have not yet put into production. If Codelco owns the entire Salar de Maricunga concession and has signed a non-binding agreement with Salar Blanco to develop a joint lithium project, according to THE DFS, first production could occur by 2026, The average annual output is 15,200 tons LCE.
Tianqi Lithium still holds 21.9% of SQM (after the delivery of Class B shares) even if the state-owned capital forms control over SQM. In terms of equity, as the largest shareholder Pampa Group has achieved control over SQM, the equity held by Tianqi Lithium will not be affected even if the state-owned capital of Chile becomes the controlling shareholder of SQM. Currently, Tianqi Lithium holds 23.75% equity of SQM, and the equity proportion will be reduced to 21.9% after the physical delivery of class B share lead option. After the nationalization of Chile salt Lake, the investment philosophy and management policy may have an impact in the future, but the impact may be limited based on considerations conducive to national economy and community development.
Chile copper supply uncertainty increases, copper investment or greater impact. Chile accounted for 28.5 percent of the world's copper output in 2020, making it the world's largest copper supplier, according to SMM. The country has about 14 large copper mines with production costs of more than $2.50 per pound.
Reprinted from Buck Copper Group news.