I have considered several times to go long with LPI due to the potential of Maricunga as well as its Australian Lithium assets.At this time I continue to be in a holding stage.Recently, I have done a great deal of analysis regarding Chile where I lived for 8 years. I will share my outlook with this forum because I feel that the LPI's presentations omit a frank discussion about Chile's current country risk. This post attempts to fill this void.
Before the recent elections, Chile's elevated country risk revolved around three institutional unknowns:
1). What happens if the extreme left (Boric) candidate wins the Presidential election?
2) What happens if the Parliament continues to be dominated by the Left?
3). What happens if Chile's Constitutional Convention (which is dominated by the Left) tries to re-define the country and guarantees a very broad list of rights and-nice-to-have benefits that cannot be financed and implements further restrictions to foreign investment.
It is important to recognize that current Chile's social malaise has been incubating over the years despite significant and sustained economic growth.The country's political, business and social leaders did not see it coming or downplayed its destabilizing potential because it was felt that the macroeconomic indexes and many areas of progress (the so called Chilean miracle) were enough. Unfortunately, these masked problems were cleverly exploited by the extreme left to provoke massive citizen protest that would later lead to violence and organized/generalized burning of Metro stations, supermarkets and private and state property throughout the country. This reaction caused hundreds of millions of dollars losses and established an environment of fear, insecurity and instability. As a result, a new Constitution assembly was approved by a national referendum. Its purpose is to recommend a new Constitution due early next year. The risk with this effort is that the Chileans see it as a cure for all their problems. A this time, it has taken the form of an unworkable document aimed at making everyone happy. It includes all type of changes including as in the case of Venezuela, even changing the country's name, the flag, the national anthem, etc. There are still open issues such as the duration of the presidential period. It is suspected that if the conservative candidate wins the presidential period will be shortened.
Prior to the elections of 21/11, I wrote a long post about the need in Latin America for initial and ONGOING DD incorporating Country Risk evaluation prior to making an investment because the risk in Chile of having in the future an omnipotent state, strongly centralized and collectivist, intolerant and controlling individual decisions was at that time a real possibility.
Since my post,( hotcopper.com.au/threads/general-discussion-agy.5895259/page-2424?post_id=56856811 ) the 11/21 national elections gave us two very positive outcomes:
1) The conservative candidate (Kast) was one of the two finalist for the second electoral Presidential round scheduled for next week and
2) The Center / right parities obtained 50% of the seats in the Senate as well as in the House of Deputies.
This unexpected positive electoral results ensures a potential legislative balance and should prevent that (if Boric gets is elected) his coalition carries out a government program that would include controls over the mining industry that may include participation by the Government. Still, regarding Chile's country risk investors still face two unanswered questions:
1)WHO WILL WIN THE PRESIDENCY THIS DECEMBER 19?I'm afraid no one knows the answer. Surveys are all over the place although Kast holds a slim advantage.
2)WHAT CAN BE THE FINAL OUTCOME OF THE CONSTITUTIONAL?Again no one knows. IMO, the worst case scenario could be a document that insures a Cuban/Venezuelan model, which will try to control all the economy's sectors.If that happens, in my opinion, it would be be the beginning of the end of Chile as we know it and cause a collapse of foreign investment.
Again, do your own DD.
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