By Louis Juricic
SQM (NYSE:SQM) and Albemarle (NYSE:ALB) shares declined Friday morning, falling 8% and 3%, respectively, after the government in Chile announced plans to nationalize the country's lithium industry over time.
Under the plan, the state will partner with companies in projects to take advantage of the company's massive reserves of the battery metal, said Chile President Gabriel Boric in a speech on Thursday. Boric called the move one of the best opportunities for Chile to move toward a sustainable and developed economy.
New contracts would be approved only if they were controlled by the state. Existing contracts with SQM and Albemarle to mine the Salar de Atacama salt flat will not be terminated, but the state will seek to take a stake in the contracts. SQM's contract expires in 2030 and Albemarle's expires in 2043.
"At first, we think investors would react negatively to the possibility of SQM not having the control of the operations post 2030. However, there are still many open questions that need to be answered to understand the economics of this potential scenario," wrote JPMorgan analysts.
Deutsche Bank analysts said, "We do not expect major changes to current contracts, as from what we understand, the government would not terminate current contracts. That being said, the government is also hoping SQM/ALB would be open to state participation before license expiration, which we could see especially for SQM given the ongoing renewal process. ..we expect a negative stock price reaction today for SQM and Albemarle."