Posts Tagged ‘lithium’

SQM – steady as she goes

sociedad-qumica-y-minera-de-chileSociedad Qumica y Minera de Chile or SQM for short, has not been in the news of late, so has been off of my radar.  Having had some spare time yesterday, I have been revisiting a few old friends & this stock has caught my eye for a couple of reasons.

  • Its the fourth largest holdings in the iShares MSCI Chile Index – ECH
  • That index has performed very well & looks to continue its steady upwards trace
  • At the end of April, SQM reported some surprising figures year on year (Q1 2009 v 2008) : net revenue increas of 33% on 2008, with the NYSE traded ADRs providing earnings of $0.33 per share, compared to $0.25 share in Q1 2008.
  • As if that wasn’t enough, to round off this bullish performance, SQM also showed a 39% increase in operating income.

For those that are not familiar with SQM, it is primarily a producer of fertiliser for agricultural, infield use. The company has however diversified into other lines in the past few years.

In fact, SQM is the largest producer of Iodine & Iodine derivatives globally, which has a number of non-agricultural applications, including medical & industrial. SQM to date, holds rights to the largest source of Caliche Ore in northern Chile.

At present, SQM is also the largest producer of lithium globally as it owns the production rights from the Atacama Salar deposits in the Andes. As the potential for Lithium hydroxide batteries for automotive use is becoming more apparent, SQM are set to be in pole position to exploit any upcoming technical breakthroughs.

The final string in the production bow, is that it has a very strong product line in nitrates for use in agriculture, industry & petrochemicals. SQM are also looking at solar power using Sodium & Potassium Nitrate as a heat transfer medium. With solar being very much in the public (& investor consciousness), this could be a key area for them in the very near future.

Now moving on from the “bleeding obvious” (7.48), if you have a browser, you can Google all of this in less than 10 minutes. What has really got me going is the latest charts that SQM has produced.

SQM

Since the large market correction im March, the stock has performed remarkably well, especially considering the recent volatility of its perceived peers : MON, AGU, POT etc have all been up & down like the proverbial tarts knickers. In the last month, even whilst others have been selling off & also under some pretty heavy selling volumes itself, SQM has managed to keep its head above water & is defiantly holding to a very narrow trading range between its 50 & 20 day SMA. Tough little blighter. Even more important for me is the RSI indicator, which is running reasonably flat & not trending up or down from the 50 mark since mid-June.

Turning to the P&F chart, we can see that SQM has had a definite upward trend for the last 6 months. Any drop in the current price looks as though it will soon correct to the upside & the Price Objective yielded is 53.00 which is a significant premium on Thursday’s close at 36.13.

SQM PFAm expecting to see some volume coming into the stock shortly & have a personal price target of 45 before I look at halfing out & looking for pullbacks.

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Bolivia’s Lithium quandary

battery-lithium-cr20321In one of the more remote regions on the planet, high in the Andes, lies the Salar de Uyuni, the famed salt flats stretch across more than 4,000 square miles in Potosi, Bolivia, well known for the fabulous wealth in silver extracted there by the Spanish in colonial times. Now a new age of mining could bring a 21st century El Dorado for the impoverished South American nation, as geologists believe that more than half the world’s reserves of lithium may  lie under the salt pans.

Government officials claim that Bolivia possesses the world’s biggest lithium reserves, and they also believe the country is poised to profit from car manufacturers which are driving to develop electric cars that will run on lithium ion batteries.

“Bolivia will become a big producer in six years of batteries,” Luis Alberto Echazu, the minister of mining and metallurgy, said in an interview. He ticked off three companies that he said have expressed interest in investing in the government’s lithium venture: Sumitomo, Mitsubishi and Bollore, a French company.

Lithium is the lightest metal and the least-dense solid. It’s typically extracted from beneath salt flats, currently about 70% of the world’s supplies come from Chile and Argentina. The U.S. Geological Survey says 5.4 million tons of lithium could potentially be extracted in Bolivia, compared with 3 million in Chile, 1.1 million in China. Independent geologists estimate that Bolivia may have further lithium deposits at Uyuni and its other salt deserts, though high altitudes and the quality of the reserves could make access & extraction difficult.

While estimates vary widely, some geologists say electric-car manufacturers could draw on Bolivia’s lithium deposits for decades. More importantly, the US is estimated to have less than 400,000 metric tonnes available for expoloitation within its borders. While lithium batteries don’t currently power hybrid vehicles, analysts think that the fuel-efficient electric cars of the future likely will use them. With an estimated 20,000 tons of lithium carbonate expected yearly from the salt flats, a rising demand for lithium for electric car batteries, and with the price of a ton of lithium up from $350 in 2003 to $3,000 this year, a potential bonanza beckons for socialist President Evo Morales. 

“There are salt lakes in Chile and Argentina, and a promising lithium deposit in Tibet, but the prize is clearly in Bolivia,” Oji Baba, an executive in Mitsubishi’s Base Metals Unit, said in La Paz. “If we want to be a force in the next wave of automobiles and the batteries that power them, then we must be here.”

Mitsubishi is not alone in planning to produce cars using lithium-ion batteries. Ailing car manufacturers in the United States are pinning their hopes on lithium. General Motors (NYSE – GM)  plans to roll out its Volt in 2010,  pairing a lithium-ion battery along with a petrol engine. Nissan, Ford and BMW, among other carmakers, have similar projects.

Demand for lithium, has climbed as makers of batteries for BlackBerrys, iPhones, laptops & other electronic devices use the mineral. But the automotive industry holds the biggest untapped potential for lithium, analysts say. Since it weighs less than nickel, which is also used in batteries, it would allow electric cars to store more energy and be driven longer distances.

However, President Evo Morales & Bolivias powerful popular movement are suspicious of foreign companies & have a track record of arbritary dealings with foreign concerns, as Brazil found out in 2006, when Morales nationalised all natural gas concerns in Bolivia, including operations by UK producer BP (NYSE – BP). The end result being that foreign companies have halted all investment in Bolivian opportunities.

“There are fairly significant barriers to developing the resource in Bolivia,” said Timothy McKenna, vice president of investor relations at Rockwood Holdings, one of the three major lithium producers in Latin America.

At the La Paz headquarters of Comibol, the state agency that oversees mining projects, Mr. Morales’s vision of combining socialism with advocacy for Bolivia’s Indians is prominently on display. Copies of Cambio, a new state-controlled daily newspaper, are available in the lobby, while posters of Che Guevara, the leftist icon killed in Bolivia in 1967, appear at the entrance to Comibol’s offices.

“The previous imperialist model of exploitation of our natural resources will never be repeated in Bolivia,” said Saúl Villegas, head of a division in Comibol that oversees lithium extraction. “Maybe there could be the possibility of foreigners accepted as minority partners, or better yet, as our clients.”

A potential model may already be in place, India’s Jindal Steel & Power signed a $2.1 billion deal in 2008 for the exploitation of iron reserves in south-eastern Bolivia, near the border with Brazil. This will allow Jindal, India’s leading steel producer, to develop 50% of El Mutun, widely believed to be the biggest untapped iron ore deposit in the world, along with steel making facilities. With an estimated 40 billion tons of iron ore reserve, El Mutun is expected to generate $200 million a year for Bolivia, plus up to 21,000 jobs when the commercial production of steel begins in 2010. It is heavily rumoured that Jindal won the concession due to its environmental track record. In 2007, Jindal was awarded India’s National Energy Conservation Award in the Integrated Steel Plants Sector for its success in protecting the environment by adopting eco-friendly processes and activities.

The opportunity to enrich the nation is there & a careful balance between foreign technological & financial assistance in developing the deposits, whilst providing an economical & ecological bias for Bolivia is obviously required. The real question is can Morales walk the tight rope between populist politics & reality ? My opinion, he will get there, as has recently been seen, collapsing oil prices have had a major negative effect on Venezuela  & Hugo Chavez influence in the region & beyond. So one route for Foreign Direct Investment looks to be closed. Morales is a sharp operator & I can see him letting foreign firms into partnership with Comibol, but definitely on Bolivian terms.