National Lithium Strategy and effect on pension funds: specialists say it will be transitory

Manuel Viera, PhD in Mining Economics and CEO of Metaproject, addressed the impact of the announcement of the National Lithium Strategy on the stock market, not only on the shares of the Sociedad QuĆ­mica Minera de Chile (SQM or Soquimich) but also on the funds Chilean pension. The AFPs have an investment close to US$ 2,500 million in SQM. The share of the private mining company, meanwhile, registered losses close to 18% in its value after the announcement made on Thursday night on national television by President Gabriel Boric.

Manuel Viera, also former president of the Chilean Mining Chamber, views with concern that the presidential announcement has negatively affected the value of the private mining company’s shares on the stock market, but points out that they are likely to recover soon due to the strong position financial that the company has.

SQM’s shares have recorded sharp falls in value on Friday. In fact, in the last few hours, the non-metallic mining company posted the biggest daily drop in more than two decades. Likewise, the Selective Stock Price Index (IPSA) recorded its highest daily drop since the presidential runoff in December 2021.

pensions

The drop in SQM shares affects the profitability of the AFPs, which have invested millions of dollars in it (it is estimated to be close to US$2.5 billion), and although the situation is expected to improve soon, the finance doctor warns that a review of SQM’s current concessions with Corfo would be dramatic for the AFPs. For their part, it has emerged that the government authorities have ruled out outright reviewing the concessions that are underway and that they will be maintained until their expiration date in 2030. According to the academic Manuel Viera, in line with other specialists, a public-private agreement to develop lithium sustainably and equitably. If this does not happen, shares are likely to continue falling and AFPs will need to take action quickly.

Faced with announcements such as the National Lithium Strategy, which the academic defines as “bombastic”, the stock market is very sensitive. First, he explains why it is a direct impact on SQM’s production. Therefore, the shares fell, quite strongly, however, he assures “it will recover because it is a giant in lithium production in the world.”

“Most likely, in the next few days these shares will recover their capitalization,” says Manuel Viera, along with recalling that the announcement implies that the concession that SQM has on the properties that it is leasing to Corfo will be reviewed. In his opinion, this is the greatest risk and the greatest uncertainty that it generates for the equity of SQM shares. But, he insists, “I think the stock market will tend to rise again because SQM has a fairly strong financial position.”

Second, Viera points out that it is true that the AFPs have invested a large number of millions of dollars, between US$2,000 and US$3,000 million, and the fall in SQM shares clearly affects the profitability of the pension funds. However, “this is transitory because SQM continues to have leadership in the production of lithium carbonates and all its derivatives.”

“I believe that in the next few days this will be reversed and everything lost will be recovered again without any problem. Now, if the Government insists on reviewing the concessions that SQM has with Corfo, that would be dramatic with respect to the losses of the AFPs”, warns the academic.

other opinions

Regarding the announcement, in particular, Viera points out that the entire business world and technical experts are waiting for greater flexibility regarding the exploitation of lithium. In other words, make a public-private agreement in which lithium is developed with a sustainable sense and with a sense of equity. That has not happened, he criticizes, and, therefore, if this continues in this sense, “it is most likely that the shares will continue to fall and the different AFPs will have to take action on the matter as soon as possible.”

For its part, the investment bank LarrainVial, in one of the reports it sends to its clients and which was published on Friday, made a “neutral assessment” of the scenario, depending precisely on the details of the lease payments, and an increase of 9 % if they are lifted after 2031. LarraĆ­nVial points out that, on the one hand, after the announcement of the creation of a National Lithium Company, “SQM’s hand wins an extra card without being forced or rushed to negotiate.” Furthermore, it welcomes the fact that the government has formalized its need for public-private partnerships, especially if new extraction technologies are involved.

On the other hand, LarrainVial says that the negative side would be that the company could face “a renewed feeling of nationalization and social unrest”, when negotiating with a counterpart in a state-controlled structure that raises a “possible regulation of extraction methods , especially in the field of Direct Lithium Extraction (DLE)”.

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Source: Elmostrador

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