what happened?
According to Reuters news, Chilean President Gabriel Boric said on April 20 local time that he will nationalize the country's lithium industry and that future lithium mining contracts will only be awarded to state-controlled public-private partnerships.
Shares in lithium producer $美国雅保(ALB)$ were hammered intraday on Friday after the news and were still down 10% at the close. However, there is also good news for Albemarle investors.
how so?
Specifically, the good news is that while Albemarle may be hurt by Chile's lithium nationalization process, it isn't hurt as badly as Sociedad Quimica y Minera de Chile $智利矿业化工(SQM)$ , which is down almost as much as Albemarle today twice as much.
Both companies now face the risk that their lithium assets in Chile may be confiscated by the Chilean government, and the amount of compensation may be far from the real value of the assets, or not paid at all.
However, comparing the two, according to data from S&P Global Market Intelligence, SQM has 79% of its lithium assets in Chile, while Albemarle has only 26% of its lithium assets in Chile. That means Albemarle faces far less risk than SQM in the event.
how now?
Indeed, with most of its assets outside Chile, including in "safer" places (measured by political risk) such as the US and Australia, this week's announcement by the Chilean government risks making Albemarle appear more invested than SQM Attractiveness constitutes a long-term positive for stock prices.
As for other companies in the industry, such as $Lithium Americas Corp.(LAC)$ , which is mining operations in a less politically risky place like Nevada, balancing the risk of owning assets in Argentina (a riskier jurisdiction), and $Piedmont Lithium Ltd(PLL)$ , whose lithium assets are located in North Carolina, is better positioned than any other company to benefit from news of Chile's lithium nationalization. In fact, Piedmont Lithium shares still ended the day up 2.4%.
If you're investing in lithium stocks, now is the time to focus on companies that operate outside of Chile, in safe jurisdictions with low political risk, and steer clear of stocks like SQM $Sociedad Quimica y Minera de Chile SA(SQMRF)$ $智利矿业化工(SQM)$
Comments
.