LPI - The Next Lithium Producer in Chile, page-3248

Look at this weird thing I found published on a Chile Media website

Company	Hospital	runner	Previous Recommendation	Current Recommendation	target price	Date
Chemical and Mining Society of Chile SA	SQM-B	LarrainVial Studios	overweight	overweight	109.000 » 109.000	21/04/2023
Abstract
We consider the president's announcement for SQM neutral We view the Chairman's announcement as neutral for SQM, particularly if royalties are maintained, and estimate a 9% increase in valuation if executed without them (assuming an uncontrolled JV and no lease payments from 2031).At the very least, the company incorporates another alternative into its scope, and we do not rule out a reapplication via international bidding in 2027. As always, the devil is in the details, and talks about JV alternatives (considering the state-controlled target) it could well be balanced by additional fees.We highlight that the Del Carmen plant in Antofagasta is not covered by the CORFO lease and will play a key role in the upcoming negotiations.Our take on the announcement We anticipate a tough discussion ahead in an effectively balanced Congress, particularly with the provision on state-owned joint ventures likely to be included.We are also awaiting implementation details, as the need for technical knowledge (recently publicly stated), and probably an operator, may clash with obtaining a minority stake in return.Another potential sticking point is direct lithium extraction (DLE), which still has critical unresolved issues such as undisturbed brine reinjection and freshwater consumption.The latter is particularly critical if the government seeks to take full advantage of lithium price rises in the short to medium term.Effects on SQM Our estimates suggest a neutral valuation (vs our “double lease” base case), pending details on lease payments and +9% if they are lifted after 2031. Positive side: (i) SQM's hand wins an extra card while you are not obligated or in a hurry to negotiate;(ii) The government made official its need for public-private partnerships, particularly when it comes to new extraction technologies.Negative side: (i) The company could face a renewed feeling of nationalization and social unrest;(ii) Negotiate with a counterparty established in a structure controlled by the State;(iii) Potential regulation of extraction methods, particularly in DLE settings.National Lithium Strategy - Key Issues 1. Creation of the National Lithium Company,it is expected to be presented to Congress in 2H23, once the dialogue with local communities has concluded.2. Public-private partnerships aimed at developing the exploration, extraction and generation of added value of lithium.3. New extraction technologies aimed at reducing environmental impact, with a special focus on R+D+i with the creation of the "Instituto del Litio y las Salinas".4. Community participation, involving local settlements and starting with the Cabildo de Atacama.5. Encourage the production of lithium-based value-added products.Particularities of Atacama Regarding the Atacama salt flat, the announcement focused on incorporating Codelco (by CORFO mandate) as the main shareholder of two potential JVs, thus avoiding the legislative process for the creation of the National Lithium Company.The president did emphasize that the current contracts will be fulfilled in full, which requires a two-party agreement to advance the expiration date.Other points discussed The government will limit expenses against lithium revenues, as recommended by the Autonomous Fiscal Council.Thus, the Ministry of Finance should include a structural income formula to account for lithium at the end of April.Enami and Codelco will receive exploration and production permits, partnering with private companies if necessary.In this line, Maricunga appears as a logical candidate given its development progress and the shared concessions in the area.The remaining salares will be submitted to bidding processeswhich requires a two-party agreement to advance the expiration date.Other points discussed The government will limit expenses against lithium revenues, as recommended by the Autonomous Fiscal Council.Thus, the Ministry of Finance should include a structural income formula to account for lithium at the end of April.Enami and Codelco will receive exploration and production permits, partnering with private companies if necessary.