SQM Investing in Argentina With Lithium Americas

The lithium world saw a bit of a shakeup this Easter Monday when Chile’s Sociedad Química y Minera de Chile (NYSE:SQM) announced it would be entering a joint venture with Lithium Americas (TSX:WLC).
Under the terms of the agreement, SQM will pay US$25 million for a 50 percent stake in Lithium Americas’s Cauchari-Olaroz lithium project in Jujuy, Argentina. The payment will go to Minera Exar, a wholly owned subsidiary of Lithium Americas that is currently developing the project.
US$15 million will go towards repaying intercompany loans between Minera Exar and Lithium Americas, while the remaining US$10 million will go towards development of the project. SQM and Lithium Americas are looking at completing an updated feasibility study for the project, which would contemplate a nameplate production capacity of 40,000 tons per year of lithium carbonate.

“SQM is the world leader in lithium production with decades of development and operating experience and a strong team of technical and commercial talent,” said Lithium Americas CEO Tom Hodgson in a statement. “It also has a track record of success as a partner in many global joint ventures.”
Certainly, securing a partnership with one of the world’s biggest lithium producers looks to be another big vote of confidence for Lithium Americas and Cauchari-Olaroz. However, analysts in the space were also interested in what the move means for SQM, with Joe Lowry of Global Lithium referring to a ‘lithium comeback’ for the company:

$SQM moving into Argentina for #lithium expansion. Validates our Great Game thesis. @LithiumAmericas

— Chris Berry (@cberry1) March 28, 2016

$SQM announces JV with $LAC. Now things get interesting. $ALB $FMC $GXY $PLS #lithium

— Joe Lowry (@globallithium) March 28, 2016

$SQM #lithium “comeback” begins. On the heels of their $LAC announcement, they head to China. #downbutnotoutforsure pic.twitter.com/kX3pXokOfi
— Joe Lowry (@globallithium) March 29, 2016

SQM, which is also a significant producer of potash and iodine, came under scrutiny last year as part of a probe into bribery and tax evasion by the Chilean government. It also butted heads with Chile’s Corfo over its leases in the Atacama.
The company has traditionally focused on lithium in Chile, and as Industrial Minerals (subscription) notes, this move marks SQMs first investment in lithium production outside of the country. However, SQM CEO Patricio de Solminihac stressed that the company is still focused on its operations in Chile.
“SQM is committed to the lithium business, both in Chile and abroad,” he said in Monday’s release. “The Salar de Caucharí is a great complement to our existing lithium operations in Chile, and it is located just a few hundred kilometers from the Salar de Atacama. We expect to have similar production processes at both sites, and as a result we should benefit from operating synergies.”
Franco Mignacco, President of Minera Exar, pointed to the agreement as an example of “success for all stakeholders and local communities from the policies of the new Argentine government in its desire to attract foreign investment.” Mauricio Macri was elected as president of Argentina late last year, bringing a political shift in the country that’s being seen as a win for the mining industry and for investment in the Argentina in general.

Lithium Americas, which recently changed its name from Western Lithium, was formed through the combination of two junior lithium companies last year. That merger put Western Lithium’s Kings Valley project in Nevada and Lithium Americas’ Cauchari-Olaroz project in Argentina under one umbrella.
Cauchari-Olaroz garnered plenty of attention earlier last year as market watchers focused on a budding relationship with Korean Steelmaker POSCO. Lithium Americas announced last May that it was in talks regarding the use of POSCO’s proprietary lithium extraction process in the development of Cauchari-Olaroz.
Shares of Lithium Americas were down 3.16 percent to $0.46 in Toronto on Tuesday, while shares of SQM were up roughly one percent.
 
Securities Disclosure: I, Teresa Matich, hold no direct investment interest in any company mentioned in this article.