Changes are happening - please bear with us while we update our site.

Changes are happening - please bear with us while we update our site.

Own Pilbara Minerals (ASX:PLS) shares? You need to read this

Sociedad Quimica y Minera de Chile (NYSE: SQM) is the world’s second-largest producer of lithium chemicals. Its 2Q23 report stunned the market by missing analyst profit expectations by ~20%, sending its shares lower.

The miss was driven almost entirely by lower-than-expected realised lithium prices, as the market has experienced a significant level of volatility in recent months.

Aside from the profit result, the presentation included interesting discussion points on the supply and demand dynamics of the sector going forward.

Here are our key takeaways for all lithium investors

Jurisdiction is key

SQM’s report highlights the importance of understanding the impact of jurisdictional risk for equity investors. The company’s flagship projects are located in Chile, which has some of the most onerous royalty laws globally.

The chart below reflects the forecast cost curve for the lithium industry in 2023 which emphasizes this risk, as royalties represent 74% of the total operating cost.

Local peers IGO Limited (ASX: IGO) and Pilbara Minerals (ASX: PLS) reported cash margins in the same quarter in excess of 80%. Compared to SQM around 50%.

Simply put, the company’s upside is hampered significantly, and this will detract from further investment in the region despite it having one of the largest endowments in the world.

Source: CapIQ

Lithium production is hard

Another key takeaway is that project execution in the space remains highly challenging.

Expansion projects have been delayed a further 6 months, and some have been put on hold entirely. This has been a sector-wide issue, with almost every producer reporting delays in recent years.

Some investors may be familiar with the Mt Holland lithium project which SQM jointly owns with Wesfarmers (ASX: WES).

The company believes it will be producing lithium chemicals jointly in 2025, however, we view this forecast as optimistic given the challenges IGO recently experienced with its hydroxide facility in Kwinana (which is yet to reach commercial scale after almost 12 months of production). 

The Bottom Line

Retail investors love the lithium industry (and for good reason), but there are significant risks and challenges in the space. 

Investors need to carefully conduct their due diligence to avoid taking on unnecessary risks and incurring losses.

Lessons should be learnt from the challenges of companies such as Core Lithium (ASX: CXO), AVZ Minerals (ASX: AVZ) and Lake Resources (ASX: LKE). 

Our team at Stock Doctor have been providing bottom-up, high-quality equity research to self-directed Australian investors for decades and we’re offering you FREE access to our platform for 14 days.

We are currently in the trenches of reporting season and will be providing tons of content for those investors who are struggling to find opportunities in this market.

Finally, for those who like the personal touch… any RASK Media reader who creates a free trial (see below) this reporting season will get direct access to our equity research team.

In other words, get a free account and you can chat directly with me about these companies! I’d love to hear from you and talk about our detailed ASX valuation research. 

Get a FREE account simply by clicking HERE or the button below. 

Complimentary Stock Doctor membership – Lincoln Indicators

Information warning: The information on this website is published by The Rask Group Pty Ltd (ABN: 36 622 810 995) is limited to factual information or (at most) general financial advice only. That means, the information and advice does not take into account your objectives, financial situation or needs. It is not specific to you, your needs, goals or objectives. Because of that, you should consider if the advice is appropriate to you and your needs, before acting on the information. If you don’t know what your needs are, you should consult a trusted and licensed financial adviser who can provide you with personal financial product advice. In addition, you should obtain and read the product disclosure statement (PDS) before making a decision to acquire a financial product. Please read our Terms and Conditions and Financial Services Guide before using this website. The Rask Group Pty Ltd is a Corporate Authorised Representative (#1280930) of AFSL #383169.


At the time of publishing, the author or their clients may have a financial interest, for or against, any of the companies mentioned in this article.

Powered by

Skip to content