Top Lithium Producer Reports First Quarter Earnings and Guidance

Last week the largest lithium producing company in the world, Sociedad Quimica y Minera de Chile S.A., or SQM (NYSE: SQM) released its first quarter earnings results for 2011. SQM reported gross revenues totaling $480 million for the first quarter, which represent a increase of 23.6 percent over the same period last year. The results show an  increase of 45.6 percent with respect to earnings from the first quarter of 2010, with net earnings of $111.4 million. These earnings results were situated in-line with the consensus street analysts’ estimate of $0.42 per share; however, the revenue for the quarter came in slightly ahead of the consensus estimate of $477 million.

In the press release, SQM’s Chief Executive Officer, Patricio Contesse, stated, “Robust demand in all of our business lines supported the solid earnings performance in the first quarter of 2011. Strong fertilizer market conditions drove growth in our SPN business line, and better pricing conditions in potash markets sustained our fertilizer business lines. Performance in our iodine and lithium segments was also strong, and current conditions in these markets should create unique opportunities to capture growth and increase our presence in the coming months.”

Segmented revenue analysis for the lithium business totaled $42.3 million during the first three months of this year, an increase of 24.8 percent from the same period last year.  Gross margin for this segment accounted for approximately 9 percent of SQM’s consolidated gross margin in the first quarter. The company disclosed that demand in the lithium market remained robust during the first three months of 2011 as “improved economic conditions continue to provide a firm foundation for market growth. Important improvement in demand for batteries, the historical demand driver for the lithium market, continued to support demand growth for this market. New Asian producers of lithium batteries have also served as important new drivers for the battery market.”

SQM offered optimistic guidance, “We anticipate healthy growth for the lithium market in 2011, with total demand potentially increasing by approximately 10 percent, higher than historical growth rates. As a result, our sales volumes for lithium and derivatives should increase over 10 percent and reach sales levels higher than those recorded in 2010. We anticipate that prices in this segment should be stable or slightly lower during the following months of 2011.”

The market has responded positively to the news as the share prices have appreciated from $57.53 to the current range of $62.05 for a gain of approximately 7.9 percent. With the company demonstrating two straight quarters of accelerated earnings per share (EPS) growth, the most recent results indicate its best such showing in nine quarters. For the current quarter, the consensus looks for a 15 percent improvement.

Last month, another large lithium producing company delivered some less optimistic commentary for its downstream consumers, with the announcement that beginning in June or as contracts permit, it will increase global pricing for all of its lithium bromide products by 15 percent for all standard and non-standard pricing. This announcement was seen as critical as the last few months seemed to generate inflationary pricing within key raw materials.

Upcoming events

On June 3 and 4 in Vancouver Cambridge House International Inc. is hosting a Critical Materials Investment Symposium as an endeavor to combine a multitude of stakeholders involved in finding solutions to the developing world crisis in the supply shortage of rare earth and strategic metals and strategic materials. Participants will include: senior management of mineral exploration companies, manufacturers and existing mining producers, analysts, media, investors and industry stakeholders.

Of significant note for lithium investors is a scheduled presentation from the Head of Global Research and lithium specialist at Byron Capital Markets Jon Hykawy.  Dr. Hykaway has offered some context for his presentation, “While I, personally, am not a peak oil theorist, I am also realistic enough to understand that feeding the Brazil, Russia, India and China beast with cheap oil will demand a neglect of the environment that not many oil-producing regions will sustain. We [Byron Capital Markets] believe that electrification of transport fleets and maximization of our electrical grids are important future areas of development. Electrifying cars will pull on materials such as rare earths (for their weight-saving and efficiency gains), lithium (for batteries), vanadium (for use in better and stronger metal alloys, as well as in next-generation batteries), graphite (lithium battery anodes), scandium (advanced aluminum alloys), and barium (for ultracapacitors). Maximizing the existing electrical grid demands storage and more generating capacity, so critical materials include uranium (in reactors), lithium and vanadium (for storage).”