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SQM (NYSE: SQM, Sociedad Química y Minera de Chile S.A.) is the number one lithium mining company by production, with operations in Chile, Australia and China. A main advantage is that they have a very low production cost, being able to make a profit or stay afloat even when the price of lithium is down.
They see the demand for lithium growing by 20% this year, but due to the market’s dynamics, the price would remain stable.
SQM estimates CAPEX of $2.4 billion in 2024 and 2025, most of it being related to lithium expansion. If you look at the inventories and cash, they basically have all the money they need, so even if they won’t make a lot during this time, they should be able to finish these projects. Or, if they want to, they can also get a bit of debt, which as you can see in a second, is totally fine.
SQM has current assets of $5.8 billion, which is almost enough to cover all the liabilities, so they are in a very good financial shape.
So, based on the company’s estimations, the cash flow should most likely be negative because they are investing so much. But, in a normal year, they are going to need something like $250 million in maintenance, so even with lithium at half of the current price, they shouldn’t do so bad, but more on this in the valuation.
Again, like a majority of lithium companies, they invested a lot recently thanks to the higher prices. Following these investments, they should reach a production of around 260 thousand tonnes next year, still being the number one producer.
One thing that Albemarle has pointed out is that the current lithium production, even with a massive increase recently as everyone is investing, still won’t be enough to offset the demand. In such a scenario, lithium could even break the previous record. So, this can be very beneficial for the price, but on the other hand, it can incentivise a replacement. You know, I talked about this in more detail before but simply put, there is a lot of money put into researching more efficient batteries.
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0:00 SQM Stock Review
0:12 SQM Financial Analysis, Lithium Risk-Reward and more
5:04 SQM Stock Valuation, Price Target and Conclusions
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