Sociedad Quimica y Minera Stock Bullish on High Lithium Demand
What’s better than a stock that crushes the broader market? One that also helps fight inflation with growing, high-yield dividends. That’s exactly what you get with Sociedad Quimica y Minera de Chile (NYSE:SQM).
Sociedad Quimica y Minera is a global mining and chemical company that produces plant nutrients, iodine and iodine derivatives, potassium, solar salts, and industrial metals, including lithium and lithium derivatives. (Source: “We Are SQM,” Sociedad Quimica y Minera de Chile, last accessed September 26, 2022.)
Lithium is the cornerstone of electric vehicle (EV) batteries and other energy storage products. That’s a plus for Sociedad Quimica y Minera de Chile, since the company is one of the world’s largest producers of the wonder metal.
The demand for lithium is far outstripping supply, so much that analysts have warned of a “perpetual deficit.” The supply/demand imbalance has pushed lithium prices up by almost 500% over the last year. (Source: “The Trouble With Lithium,” Bloomberg, May 25, 2022.)
There’s no fear that Earth will run out of lithium, but it needs to be extracted from less-than-hospitable places like underground reserves and brine pools. Current mining methods can’t keep up with the soaring demand.
The demand for lithium is so high that Elon Musk, the bombastic CEO of Tesla Inc (NASDAQ:TSLA), tweeted in April: “Tesla might actually have to get into the mining & refining directly at scale, unless costs improve.” (Source: “Twitter post,” Elon Musk, April 8, 2022.)
Fast-forward to September 2022 and Tesla is exploring the possibility of building a lithium refinery in the Gulf of Texas.
The high demand for lithium has been juicing SQM stock. As of this writing, Sociedad Quimica y Minera stock is up by:
- 1.5% over the last month
- 19% over the last three months
- 52% over the last six months
- 125% year-to-date
- 115% year-over-year
And thanks to Sociedad Quimica y Minera de Chile’s increased lithium production and wonderful financial results, the company is able to provide its shareholders with high and growing dividends. SQM stock currently has an annual dividend of $11.15, for a yield of 11.2%.
Chart courtesy of StockCharts.com
About Sociedad Quimica y Minera de Chile
Sociedad Quimica y Minera de Chile’s five business lines are Specialty Plant Nutrition, Iodine and Derivatives, Lithium and Derivatives, Potassium, and Solar Salts. (Source: “We Are SQM,” Sociedad Quimica y Minera de Chile, op. cit.)
Specialty plant nutrients are fertilizers that help farmers improve crop yields and quality. Iodine and its derivatives are used in the X-ray contrast media and biocide industries, among others.
Sociedad Quimica y Minera de Chile’s crown jewel is its lithium and caliche ore assets. Its Salar de Atacama operation in Chile is the lowest-cost lithium deposit in the world. The company is in the midst of expanding its lithium carbonate production capacity to at least 250,000 metric tons (compared to 70,000 metric tons in 2019).
Sociedad Quimica y Minera de Chile is also investing in lithium hydroxide production in Australia through a joint venture with Wesfarmers Ltd (ASX:WES, OTCMKTS:WFAFF) and Covalent Lithium Pty Ltd. This project is expected to enter production in the mid-2020s, reaching its capacity in the second half of the decade.
Q2 Earnings Up 857%; Revenues Up 342%
For the second quarter ended June 30, Sociedad Quimica y Minera announced that its revenue increased by 342% year-over-year to $2.6 billion. (Source: “Corporate Presentation: Second Quarter 2022 Results,” Sociedad Quimica y Minera de Chile, August 17, 2022.)
The company’s second-quarter 2022 earnings soared by 857% year-over-year to $859.3 million, or $3.01 per share. Its second-quarter gross profit hit $1.3 billion, which is 598% above the $185.9 million recorded in the same period of last year.
For the first half of 2022, Sociedad Quimica y Minera de Chile announced that its revenue increased by 314% year-over-year to $4.6 billion. In 2021, it reported total revenue of $6.4 billion.
The company’s net income in the first half of 2022 was $1.7 billion, or $5.80 per share, more than a 940% increase over the $157.8 million, or $0.55 per share, reported for the first half of 2021. Its gross profit was $2.5 billion, or 53.3% of the company’s revenue. That’s 663% higher than the $322.5 million, or 28.9% of its revenue recorded in the first half of 2021.
Commenting on the results, Richard Ramos, Sociedad Quimica y Minera de Chile’s CEO, said, “More than financial contributions, we are content that we have been able to develop the Salar de Atacama in such a way that we have become a world-renowned, integrated producer of value-added lithium products in Chile that are directly used in cutting edge batteries all over the world creating value to the local surrounding communities.” (Source: “SQM Reports Earnings for the Six Months Ended June 30, 2022,” Cision PR Newswire, August 17, 2022.)
Ramos said Sociedad Quimica y Minera de Chile is close to reaching 180,000 metric tons of lithium carbonate capacity and is working on hitting 210,000 metric tons. The new capacity will let the company produce enough lithium products to power more than five million EVs.
Sociedad Quimica y Minera de Chile reported outstanding second-quarter financial results that were driven by higher lithium prices. Management noted that the company continues to transition more of its customers to index-based pricing, which allows it to realize lithium prices that are closer to spot prices.
The outlook for Sociedad Quimica y Minera de Chile is robust as EV sales increase. Analysts expect the global demand for lithium to grow by high-double-digit percentages. The company’s 2022 bottom line is expected to jump by 520% year-over-year to $12.72 per share. That’s great news for holders of Sociedad Quimica y Minera stock.