A Long Look at Lithium: Chile's SQM Poised for Growth

Sociedad Quimica y Minera (SQM), headquartered in Chile, looks poised for solid returns as global markets demand more lithium-ion battery energy and agricultural resources. SQM is a leading producer of key resources such as potassium nitrate, iodine and lithium carbonate. It also produces specialty plant nutrition products, iodine and lithium derivatives, and certain industrial chemicals, including industrial nitrates. SQM is well positioned as the world population adds 700 million new middle class people (examples, China 350 million and India 100 million respectively) by 2022.

Of particular interest is the Chilean-based SQM’s 30% global market share of Lithium derivates used for electric vehicle (EV) lithium-ion batteries.

Its primary competitor, Rockwood Holdings' Chemestall Division (ROC), has 28% global Lithium market share. However, Rockwood -- exposed widely among several sectors -- reported a 21% decrease in net sales for Q2 2009 with debt issues and poor earnings per share results.

SQM is financially better positioned long-term, given low debt and Lithium plays with contributing plant nutrition (agriculture) and iodine (medical) revenues, despite its just announced 11% earnings decrease for Q2 2009.

Deposits of lithium are found in South America throughout the Andes mountain chain. Chile is the leading lithium metal producer, followed by Argentina. Both countries recover the lithium from brine pools. In the United States lithium is recovered from brine pools in Nevada. Over the past five years, foreign direct investment inflows into politically stable Chile have quadrupled to some $17 billion in 2008.

However, nearly half the world's known lithium reserves are located in Bolivia, a politically unstable nation sitting along the central eastern slope of the Andes. Most recently, Bolivia has negotiated with Japanese and French firms to begin extraction. The US Geological Survey estimates Bolivia's Uyuni Desert has 5.4 million tons of lithium, which can be used to make batteries for hybrid and electric vehicles. This is the largest amount of lithium in any country, compared to Chile's 3 million tons and the United States’ 760,000 tons.

Additionally, China's proven lithium reserves (converted into pure lithium) have reached 3.35 million tons, meaning China ranks the fourth in terms of salt lake brine lithium reserves and lithium ore resources. There is potential production of up to 64,000 tons per year if projects in Qinghai province and Tibet proceed.

The total recoverable lithium worldwide has been estimated at 35 million tons, which includes 15 million tons of the known global lithium reserve base. The National Research Council panel estimated lithium resources at 10.6 million tons for the Western World. With the inclusion of Russian and Chinese resources as well as new discoveries in Australia, Serbia, Argentina and the United States, the total had nearly tripled by 2008.

As the global economy recovers, it should be moving towards a mix of alternative energy such as electric lithium based and renewable energy sources that are only found in specific regional locations. These factors, combined with SQM's low debt ratios and solid gross margins, should continue to generate significant earnings per share returns by 2010.

Note the EV battery C02 emissions results below:

We also foresee that global demand for SQM's industrial nitrates for thermal energy storage in solar energy plants will significantly increase consumption (mixture of sodium nitrate and potassium nitrate).