You
might
think
companies
extracting
lithium
from
mines
or
salt
lakes
are
currently
reaping
substantial
profits.
After
all,
lithium
is
a
central
component
in
cars
and
batteries.
The
energy
transition
needs
it.
Moreover,
the
supply
of
raw
lithium
is
limited
–
much
more
so
than
anticipated
demand.
The
reality
is
somewhat
more
muted.
Lithium
miners
are
in
a
poor
position,
not
just
in
terms
of
share
prices,
but
in
terms
of
real-world
profits.
Take
Albemarle.
The
North
Carolina-headquartered
company
is
the
world’s
largest
lithium
supplier.
Its
stock
price
has
plummeted
from
approximately
$237
(£189.90)
in
late
July
to
a
humble
$127
now.
The
situation
at
the
world’s
second-largest
lithium
miner,
Chile’s
Sociedad
Quimica
y
Minera
(SQM),
is
equally
bleak.
About
a
year
ago,
the
company
was
trading
on
the
New
York
Stock
Exchange
at
almost
$100
per
share.
It’s
now
halved
to
around
$51.
Why?
For
one,
lithium
producers
are
seriously
affected
by
low
lithium
prices.
In
December
2022,
lithium
was
still
trading
at
$75,000
per
tonne,
but
that’s
now
dropped
to
$23,000
due
to
declining
demand
and
destocking.
Change
will
take
time.
Morningstar
stock
analyst
Seth
Goldstein,
who
follows
lithium
miners
and
Tesla,
expects
prices
to
stabilise
towards
the
end
of
2023
and
start
to
rise
in
2024.
Digging
For
Disappointment
On
the
stock
markets,
the
prices
of
major
lithium
producers
have
continued
their
decline
after
Q3
earnings
this
month.
For
instance,
the
price
SQM
on
average
received
from
buyers
for
the
precious
metal
in
the
last
quarter
was
47%
lower
than
in
the
same
quarter
last
year.
For
SQM,
at
least,
this
led
to
a
whopping
53%
plunge
in
EBITDA
on
the
same
period
last
year
At
Albemarle,
EBITDA
was
even
62%
lower
than
in
Q3
2022.
The
company
is
now
forced
to
reduce
its
EBITDA
outlook
for
2023:
it
no
longer
assumes
a
range
of
$3.8
billion
to
4.4
billion,
but
rather
that
of
$3.2
billion
to
3.4
billion.
Goldstein
expects
$3.2
billio.
Its
EBITDA
in
2022
$3.5
billion.
Albemarle
expects
to
produce
and
sell
30%
more
lithium
this
year
than
last.
But
if
the
price
per
tonne
it
receives
remains
as
low
as
it
is
now
or
falls
even
further,
that
is
not
good
news.
Albemarle
itself
thinks
prices
will
rise
by
15%,
but
that
is
a
questionable
assumption.
If
its
new
inventory
comes
to
market
faster
than
demand
increases,
it
will
hit
profitability.
What
probably
didn’t
help
in
maintaining
Albemarle’s
stock
price
was
its
cancellation,
last
month,
of
its
acquisition
of
Australian
lithium
miner
Liontown.
Albemarle
was
prepared
to
put
$4.2
billion
on
the
table
and
analysts
responded
enthusiastically
to
the
announcement.
Liontown,
among
other
things,
operates
the
Kathleen
Valley
mine,
which
is
expected
to
yield
lithium
as
early
as
next
year.
A
More
Positive
Long-Term
View
On
this
issue
at
least,
Goldstein
doesn’t
share
the
gloomy
outlook
many
investors
maintain.
He
says
investors
are
too
focused
on
the
short
term,
which
is
only
a
small
part
of
the
overall
story.
The
question
is
not
“when
will
we
get
our
money?”,
it’s
“how
rapidly
demand
will
increase?”
Morningstar
now
expects
lithium
demand
to
increase
by
20%
per
year.
Production
should
increase
from
approximately
800,000
tonnes
last
year
to
2.5
million
tonnes
in
2030,
according
to
Goldstein,
who
also
anticipates
lithium
prices
will
have
stabilised
by
the
end
of
this
year.
Next
year
they
should
then
rise
again.
In
addition,
he
expects
lithium
prices
will
exceed
$12,000
per
tonne
until
2030.
He
projects
a
long
term
average
price
of
around
$30,000
per
ton.
Will
Albermarle
Win?
Albemarle
is
poised
to
benefit
from
this
trend,
Goldstein
argues,
given
that
its
production
costs
are
lower
than
those
of
other
lithium
producers.
This
advantage
stems
from
the
exploitation
rights
Albemarle
holds
for
the
Salar
de
Atacama,
an
immense
salt
lake
in
Chile,
where
lithium
is
extracted
by
evaporating
brine.
Situated
in
one
of
the
driest
areas
on
earth
with
minimal
rainfall,
the
region
boasts
the
highest
lithium
concentration
in
the
world.
This
is
a
long-term
view,
too.
He
has
long
held
a
positive
view
of
Albemarle,
partly
due
to
its
robust
financial
health.
Net
debt
and
gross
profit
ratios
(before
interest,
tax,
and
depreciation)
are
healthy,
indicating
it
can
meet
its
financial
obligations
while
continuing
to
pay
dividends.
Albemarle’s
financial
strength
remains
intact
despite
its
substantial
planned
investments
aimed
at
increasing
production
at
existing
locations
too.
It
can
largely
fund
these
through
its
earnings,
requiring
minimal
external
borrowing.
Moreover,
the
company
could
utilise
its
cash
reserves
for
new
acquisitions;
investment
bankers
foresee
a
wave
of
mergers
and
acquisitions
in
the
next
years.
SQM:
Nationalisation
Plan
SQM,
like
Albemarle,
benefits
from
exploiting
salt
lakes.
Extracting
lithium
from
brine
is
much
quicker
and
leads
to
better
profitability,
compared
to
mining
lithium,
which
is
an
expensive
operation.
However,
SQM’s
license
for
Salar
de
Atacama
expires
much
earlier
than
Albemarle’s
–
in
2030.
This
poses
a
risk
because
of
a
Chilean
government
plan,
announced
last
spring,
to
gradually
nationalise
lithium
extraction.
Goldstein
thinks
the
likelihood
of
the
government
succeeding
is
as
high
as
the
possibility
of
it
not
happening,
given
the
Chilean
Congress’s
conservative
leanings.
In
addition,
SQM
is
not
solely
reliant
on
income
from
Chile;
it
is,
for
example
also
involved
in
lithium
extraction
from
an
Australian
mine
through
a
joint
venture
with
Wesfarmers.
The
costs
of
this
project
is
relatively
low,
but
higher
than
at
Salar
de
Atacama.
Both
Companies
Are
Undervalued
Finally,
a
glance
at
the
stock
valuations.
Both
stocks
are
undervalued
on
the
stock
market,
but
Albemarle
more
so
than
SQM.
On
November
17,
the
closing
price
for
SQM
was
$50.66,
compared
to
a
fair
value
of
$95.
For
Albemarle,
these
figures
are
$127.39
versus
$300.
And
the
extra
good
news
for
Albemarle
shareholders?
Its
status
as
a
dividend
aristocrat.
Since
1995,
it
has
consistently
paid
a
higher
dividend
per
share
each
year.
Goldstein
expects
this
to
remain
a
priority
for
the
company’s
management.
SQM’s
price,
meanwhile,
fluctuates
around
$50,
versus
a
Fair
Value
of
$95,
and
Goldstein
left
his
Fair
Value
unchanged
after
the
most
recent
quarterly
figures.
With
Albemarle,
Goldstein
has
lowered
the
Fair
Value
from
$350
to
$300
to
reflect
the
short-term
effects
of
the
lithium
price
decline.
But
even
after
that
reduction,
the
Fair
Value
is
still
significantly
higher
than
the
current
price
of
around
$127.
Rentsje
de
Gruyter
is
a
freelancer
writing
for
Morningstar
EMEA
Editorial
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