February 22, 2018
With FMC having announced earnings last week, we are now turning our attentions to SQM and Albemarle, who are set to report over the next week. Here, we take you through what we are keeping an eye out for in their calls.
First up is Albemarle (ALB), who reports on February 27, 2018 after the market close, with an earnings call the following morning at 9:00 am ET.
- Lithium pricing/margins: Albemarle is notoriously mum on details regarding the lithium business. But that doesn’t mean we can’t keep hoping for Luke (CEO of ALB) and the boys to slip up and give a few extra details surrounding lithium pricing and margins.
- SQM rivalry: Much has been made about SQM’s recent announcement, but we have not yet heard from their biggest rival in the lithium space. There’s a high likelihood that somebody raises a question about the SQM/Corfo deal on the call regardless of whether management addresses it in their prepared remarks. We are interested to see how they handle this question, paying particularly close attention to the seriousness with which they approach the situation. If management brushes it off, and gives the air of nothing having changed, then it would not bode well for the stock, as many investors are already spooked about their long term ability to compete with SQM (as evidenced by the recent peak to trough selloff of >25%). As such, investors will be looking for a solid answer, which brings us to our next point.
- Capacity expansions/M&A: The company has continued to talk up expansion plans surrounding their existing flagship projects- Atacama, and Greenbushes. On this front, we are simply looking for updates to see how they are progressing. Furthermore, the company has also been teasing about the potential for M&A in the lithium sector. With the recent selloff in the space, combined with the aforementioned uneasiness shown by ALB investors, we are looking out for any commentary surrounding the potential for M&A. We’ve previously discussed whether the easy rally in lithium is over. With the uncertainty that has come over the market, we believe management is on the hot seat, and pressure will continue to build for them to do some sort of deal, whether it’s in the form of purchasing land assets, partnering or setting up JVs with junior miners, or outright acquiring one of the more prominent, advanced stage juniors.
SQM is set to release earnings after the market close on February 28, 2018, the same days as ALB’s call. They will host their earnings call the following morning at 10:00 am ET.
- Commentary on the Corfo deal: There are a lot of unknowns surrounding their new deal with Corfo. While many investors are concerned about a potential oversupply, it will be years before new supply comes online, and even still the new royalty rates might erode their low cost competitive advantage. This will be SQM’s first public comments since the deal, so it will definitely be something to listen to.
- Updates on JVs: SQM has entered into two very high profile joint ventures with junior miners over the last year: Kidman Resources, and Lithium Americas (LAC). In addition to updates on how the projects are progressing, we will be looking for any clues as to how the JVs fit into their longer term plans, given the expanded quotas they received in Chile. Obviously, we aren’t expecting SQM to throw money spent on the JVs down the drain, especially since they are both high quality projects, and more importantly, located outside of Chile where the royalty rates aren’t as onerous. Nonetheless, we look forward to their commentary surrounding long term plans with these two high-profile lithium projects. Furthermore, given that LAC recently completed their listing on a US stock exchange, it will be interesting to see what effect SQMs comments have on their stock price, if any at all.
- Third Project: Back in September for their investor day in NYC, one of the biggest announcements was that the company was seeking a third project/JV partnership. Given the update on the Cofro Deal and an increased potential amount of supply in the future, will the company still seek a third project? Will they look to find additional supply for the short term (2-3 years) before their longer term supply increase kicks in? We expect this to be addressed as well on the call with management.
Finally, for both companies, we expect questions surrounding battery preferences (such as 811 vs. other battery chemistries) and preferences along the production chain such as carbonate vs. hydroxide and brine vs. spodumene. Especially given the recent comments regarding spodumene from FMC, it’ll be really interesting to see if either company talks about the great increase in hard rock (spodumene) supply that is needed to help alleviate the current market tightness!
So stay tuned via email, as we’ll have post-earnings recaps and analyses for each company!