From a historical perspective, the ruling philosophy of the Chilean left-right government will indeed have a great impact on sqm and other private capital holding enterprises. In the last century, sqm realized nationalization and privatization respectively during the governance of the left and right governments. Especially under the background of lithium resources as a 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, the forced nationalization of private enterprises requires a comprehensive consideration of the country's macro-economy, global political environment, government financial strength and many other factors; On the other hand, we can follow the example of Australia to control resources by controlling the proportion of foreign capital. At the same time, we can obtain income by raising taxes and levying royalties.
The impact of nationalization on existing quotas may be limited, and it may have a greater impact on the granting of new quotas. According to the valuation report on the total equity value of shareholders of Chilean Chemical Corporation (SQM), sqm will have the right to develop, process and sell the quota equivalent to 2.2 million tons of lithium carbonate during the lease term (i.e. before December 31, 2030). However, in terms of the new quota grant, Byd Company Limited(002594) won the bid for the lithium mining project in Chile and won the quota of 80000 tons of lithium production, but it has been suspended by the Chilean court.
The uncertainty of global lithium ore supply in salt lakes has increased. According to SMM, Chile's lithium production capacity accounted for 24% of the world's total production capacity in 2021. It is the second largest lithium supplier in the world. Chile's state-owned capital efficiency still needs to be observed, or it may cause some disturbance to the supply side. Among them, the existing capacity of sqm is 120000 tons, accounting for about 16% of the global capacity and 34% of the global Salt Lake capacity. At the same time, the capacity of sqm is planned to expand from 120000 tons to 180000 tons in mid-2022, accounting for about 20% of the new capacity and 46% of the new salt lake capacity in that year. Nationalization may have limited impact on the existing capacity planning and may have an impact on the future capacity planning.
The state-owned capital has considerable green space and salt lake resources, among which the resources with development value may become a direction of nationalization at the resource end, and there is room for cooperative development: at present, Codelco and enami have some lithium resources, but they have not been put into production. For example, Codelco owns the franchise development right for the whole region of salardemaricunga and signed a non binding agreement with salarblanco to develop a joint lithium project. According to DFS, the project may achieve its first production in 2026, with an average annual output of 15200 tons of LCE.
Even if state-owned capital controls sqm, Tianqi Lithium Corporation(002466) still holds sqm21 Class B shares (9% after closing). In terms of equity, given that Pampa group, the existing largest shareholder, has achieved control over sqm, even if Chile's state-owned capital transfers equity to become the controlling shareholder of sqm, it will not affect the equity held by Tianqi Lithium Corporation(002466) , and Tianqi Lithium Corporation(002466) currently holds sqm23 75% equity. After the physical delivery of class B collar options, the equity ratio decreased to 21.9%. If Chile's Salt Lake is nationalized, the future investment philosophy and business policy may have an impact, but the impact may be limited based on the consideration of being conducive to the national economy and community development.
The uncertainty of copper mine supply in Chile increases, and the copper mine investment may be greatly affected. According to SMM, Chile's copper mine output accounted for 28.5% of the world's total output in 2020. It is the world's largest copper mine supplier. The production cost of about 14 large copper mines in the country exceeds US $2.50 per pound. Previously, royalties and tax policies may increase operating costs. If the copper mine investment is affected after nationalization.
Risk warning: the demand is less than expected, the supply release is more than expected, and the policy change is more than expected
