On Monday, BMO Capital Markets sustained its positive outlook on Sociedad Quimica y Minera (NYSE: SQM), a leading global lithium producer. The firm reiterated its Outperform rating and maintained a price target of $65.00 for the company's shares. The affirmation follows the near-finalization of a joint venture (JV) agreement between SQM and Codelco, known as "Newco."
The terms of the JV are largely in line with the Memorandum of Understanding (MOU) from December, with additional details now emerging. Notably, SQM's royalty and lease payments to the Chilean Economic Development Agency (CORFO) for the period of 2024 to 2030 are expected to be lower than previously anticipated. This reduction is attributed to approximately 50 kilotonnes per year of legacy lithium carbonate equivalent (LCE) quota being taxed at an approximate rate of 6.8%.
As a result of the newly disclosed terms, BMO Capital has adjusted its estimates upward for SQM. Despite acknowledging that SQM presents a complex case for lithium market exposure, BMO Capital expresses a constructive stance on the company.
The firm anticipates that lithium prices will rise and that the uncertainties surrounding SQM, including its dynamics with Tianqi Lithium, will gradually diminish over time.
SQM, which is traded on the New York Stock Exchange, is poised to benefit from the revised JV terms with Codelco. The JV is set to advance SQM's position in the lithium market, a critical component in the manufacturing of batteries for electric vehicles and other technologies. With the joint venture nearing completion, SQM is expected to continue playing a significant role in the global lithium supply chain.
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