SQM and Albemarle: Chile Lithium Nationalization Proposal Would Impact SQM With Little Change to ALB

SQM Stock at a Glance

• Fair Value Estimate: $100
• Star Rating: 4-stars
• Uncertainty Rating: High
• Economic Moat Rating: Narrow

Albemarle Corp Stock at a Glance

• Fair Value Estimate: $350
• Star Rating: 5-stars
• Uncertainty Rating: High
• Economic Moat Rating: Narrow

SQM and Albemarle Stock Update

Shares of the two Chilean lithium producers, SQM SQM and Albemarle ALB, fell 9% and 4%, respectively, at the time of writing, on Chilean President Gabriel Boric’s proposal to nationalize the Chilean lithium industry with a state-owned company eventually controlling a majority stake in all projects.

After reviewing the initial proposal, we reduce the fair value estimate on SQM stock to $100 per share from $110. Our narrow-moat rating is unchanged, but we raise our Uncertainty Rating to Very High from High. We maintain our Albemarle $350 per share fair value estimate, narrow-moat rating, and High Uncertainty Rating.

At current prices, we view both SQM and Albemarle as undervalued. However, we view Albemarle shares as more undervalued with the stock trading in 5-star territory. We also see less risk to the company from future Chilean government intervention. Accordingly, Albemarle is our top pick between the two Chilean lithium producers.

Under the plan, all new lithium resource exploration would be required to have the government control a majority stake in the project. The two existing leases for SQM and Albemarle would be allowed to continue operating as normal. We think any ownership stake transfer would most likely occur close to the expiration of each company’s lease.

We assume a 50% probability this moves forward as it will need congressional approval. For SQM, this would assume a majority 51% stake is sold at around asset value when its lease expires in 2030. This reduces our fair value estimate to $100 per share from $110. Our narrow-moat rating is unchanged, but we raise our Uncertainty Rating to Very High from High.

Albemarle’s lease runs until 2043. By 2032, the last year of our 10-year discounted cash flow model, we estimate the company’s Chilean lithium production will be only 19% of total volumes, putting less than 10% of volumes at stake in 2043. With no changes over the next 20 years, we see little valuation impact to Albemarle.