China is reportedly nationalizing Lithium mines. Last Friday, April 21, Chile increased its state control on the lithium industry. The country is seizing the opportunity. The U.S. government is phasing out gas-powered vehicles and offers subsidies and tax breaks for the electric vehicle industry.
The asymmetrical increase in demand for raw materials needed for clean energy is a financial windfall for miners. SQM (SQM) and Albemarle (ALB) lost 19.9% and 14.8%, respectively for the week. Lithium Americas (LAC), which rallied to $24 when General Motors (GM) announced its investment, closed at $19.
Chilean mining firms SQM and Albemarle are no longer investable. Although SQM has a lithium contract in China that expires in 2030, the government may renegotiate it. Albemarle’s contract does not expire until 2043.
The market sensed the risks of nationalization in Latin America months before last Friday’s news. Value investors who thought they bought ALB stock on sale at $220 now have paper losses. The current P/E of 7.6 times fooled investors into looking at the deep value.
Once political risks enter the equation, investors should run. The government may clarify its position to ease investor fears. However, it may escalate its plans by fast-forwarding its schedule. This will cause lithium mining stocks to fall even more.
