There was almost no need to look back. By far, SQM had the best three months in its history. Between January and March, the company obtained profits of US$ 796 million, more than ten times higher than the US$ 68 million of the same quarter of 2021. The figure, moreover, is greater than everything it had earned in the 12 months last year, when they were US$ 595 million.
Everything comes together in good news: lithium is experiencing a historic price moment, the share price is at a historical record, shareholders will receive dividends that they never had before and the State will receive a relevant portion of the boom. This is the scanner to the figures of SQM.
SQM, a multi-product company, is today a lithium company. At least in this historic 2022 for the company. In the first quarter, SQM reported revenues of US$2,019 million, four times it was billed between January and March 2021. Lithium contributed US$1,446 million -with an increase of 969%- of that total. Thus, it contributed 71% of the income. Ten years ago, in 2012, lithium represented only 9.1% of revenues. Ebitda reached US$1,186 million, much more than analysts expected, says a Citi report this morning. There, the rise was 618%.
Not only that, lithium represented 75% of SQM’s entire gross margin in the first quarter of this year. The remaining percentage came from iodine, specialty fertilizers and potassium nitrate, all businesses that also registered notable advances. Revenues from specialty plant nutrition grew 41%; those of iodine did it in 59% and those of potassium chloride and sulfate, in 59% But nothing like lithium.
What is the boom due to? To the advance of electric cars and the inexhaustible consumption of lithium batteries. Close to 80% of SQM’s lithium sales were made to China, whose electric car market is vigorous: in the first quarter, unit sales grew 125%. The growing global demand – much higher than supply – has made prices jump.
The average price of lithium at which SQM sold in the first quarter was US$38,000 per metric ton. In the fourth quarter of last year, the price had averaged US$14,600, SQM said in its balance sheets for the end of 2021. This was combined with the highest volumes ever sold by the company: 38,100 tons in just three months. Thus, the combination was beneficial to SQM: the price jumped 572% and the volumes, 59%, highlighted the Citi report.
And if the demand of the automakers – all manufacturers have already made the decision to enter the business strongly – has triggered the price of lithium, the supply has not grown at the same level. Except SQM. The company had an installed capacity in 2018 of 48 thousand tons per year. This year it will rise to 180 thousand tons. “This is the product of years of investment,” explains an SQM executive. In the statement in which they presented the results, Ricardo Ramos, the general manager of SQM, recalled that the company bought the lithium stake in 1993. “SQM assumed the risk,” he summarized.
Thus, only better quarters will come this year. With better prices, SQM will also sell more volume. If in 2021 it sold 101 thousand metric tons, the 2022 forecast is 140 thousand. The company expects the lithium market to grow another 30% this year. The firm, which has expansion projects in Australia, will invest even more in the business. “It is likely that we will increase the resources aimed at business development, both in Chile and abroad,” Ramos said Thursday.
The good result will benefit shareholders and the Chilean State.
First, the shareholders. The company governed by Pampa Calichera -the group led by Julio Ponce Lerou- and the Chinese Tianqi decided last night to distribute all the profits of the first quarter. “The company’s board of directors agreed to pay a provisional dividend equivalent to US$ 2.78716 per share, charged to the company’s 2022 profits,” says an essential fact sent to the financial market this Wednesday at 11:35 p.m. . The company has two series of shares, A and B, and in each of them it has 142 million shares. Total: 284 million shares. And total to distribute: US$ 791 million among the partners, almost the same figure earned in the first quarter. Calichera, Tianqi, AFP and foreign investors.
But the State will also win. SQM’s balance sheets reveal two things. First, the income tax expense, which in Chile amounts to 27%, will add US$314 million. But the firm also noted in its financial statements what Corfo takes: US$ 424 million for lease rights to the belongings of the Salar de Atacama. In the first quarter of 2021, that number was just $16 million. Total: US$ 738 million for the Treasury, to which must be added other annual payments that the firm makes to municipalities and communities of Atacama. Ricardo Ramos estimated the final amount at regarding US$ 800 million. “In total, the amount is similar to the accumulated results of all our businesses this quarter,” he said regarding the payments to the Treasury.
In the company, this amount stands out strongly: the figure paid for a quarter by SQM in the first quarter of the year is equivalent, they compare, to almost 1% of the National Budget, which this year exceeds US$ 80 billion. If the next three quarters are repeated, it will be close to 4%.
The increase in payments comes from the agreement between SQM and Corfo in 2018. The second government of Michelle Bachelet allowed an increase in the lithium production quota for SQM until 2030, but in exchange, it raised the rent to be charged by the State to a marginal rate 40% when the price exceeds US$ 10,000 per ton. And the average sale price of SQM in the first quarter of the year was US$ 38 thousand. The firm has only 20% of its sales at fixed prices.
Eduardo Bitrán, who directed Corfo at that time, thus analyzes the results of SQM. “The increase in SQM’s profits is mainly due to the jump in the international price, the spot price rising from US$ 6 thousand to more than US$ 80 thousand per ton of lithium carbonate. The great beneficiary is Corfo and the Treasury. Corfo, because the royalty is 40% on the value of incremental lithium sales, rises 25 times reaching US$400 million in just one quarter. The treasury, with the specific tax and the first category, also increases the collection extraordinarily. These results for the State show the convenience of the contract negotiated in 2017. It was structured so that the State appropriates the largest proportion of the economic rent from the exploitation of Lithium in the Salar de Atacama”, he tells Pulso.
The share price reflects all that good time for SQM. In 2022, its share price is up 79%. Last year it rented 27.58% and in 2020 it advanced 72%. SQM is today the most valuable company on the local Stock Exchange, with a stock market valuation of US$25,250 million.
SQM’s ADR has risen 84.9% this year and is close to US$100 per share, an old forecast by Julio Ponce, president of SQM between 1987 and 2015, one of the promoters of SQM’s entry into the lithium business. When it debuted on the New York Stock Exchange in 1993, the SQM ADR did so at a price of US$2.46. Yesterday, the ADR rose 5% and closed at US$95.23. In Chile, the stock rose 2.91% and ended the day at $79,551.
A Citi report this morning, following the results, puts the price target at $103. In early April, JP Morgan updated its price target for the ADR to $107 by the end of this year.
