Tianqi purchase of SQM stock sends lithium companies soaring $SQM.us

Tianqi Lithium Industries Inc. (SHE:002466) announced it would buy 2.1 per cent of Sociedad Quimica y Minera de Chile (ADR)(NYSE:SQM) for $38 a share — more than a 50 per cent premium to the company’s share price — sending many Canadian junior lithium explorers to new highs this week.

Tianqi is a direct competitor to SQM, and establishing a foothold in the company’s shares might be a precursor to the Chinese entity’s drive to gain control over Chile’s No. 1 lithium producer. Paying such a high premium over market suggests there is a great deal of strategic value to Tianqi in the acquisition.

The situation in Chile is further complicated by the fact that Corfo, which is the government body that administers leases on the country’s lithium salars, is in a dispute with SQM over discrepancies in what is owed versus what was paid by SQM in past years. The dispute is before an arbitration panel presently, but SQM has expressed confidence that a resolution is near.

Reuters reported that SQM would invest US$30 million to upgrade lithium hydroxide production capacity to 13,500 tonnes annually from its current level of 6,000 tonnes per annum. Lithium hydroxide has traditionally been used primarily in heavy-duty lubricants but future demand is being driven primarily by growth in lithium-ion battery consumption.

Wealth Minerals Ltd. (CVE:WML) shares, which have risen by over 100 per cent in the last few months, is the only junior Canadian mining company that has a lithium project portfolio in Chile, largely the result of CEO Hank Van Alphen’s association with Marcelo Awad, former CEO of Antofagasta PLC (LON:ANTO), Chile’s second largest copper producer.

After the Tianqi’s announcement, shares of Wealth traded as high as $1.50 per share, making it one of the best performing lithium juniors on the TSX Venture exchange.

The competition among junior companies has been heating up lately, with the market-wide consensus now uniformly indifferent to what had been the original excitement in the new lithium bull market in Nevada’s Clayton Valley.

Lithium market expert consultant Joe Lowry opined that the Clayton Valley was a “non-event” in a recent tweet.

Lithium explorer Millennial Lithium Corp (CVE:ML), focuses on lithium salars in Argentina and saw its share price jump by 25 per cent after the news of Tianqi’s acquisition of SQM shares.

SQM entered into a joint venture with Lithium Americas Corp. (TSE:LAC) by investing US$25 million into Lithium Americas’ Cauchari-Olaroz project in Jujuy province in the north of Arentina on the Chilean border. The move is seen by many industry observers as a tactic to improve its position in arbitration with Corfo, implying that SQM need not rely on its Chilean production exclusively to grow its share of the lithium pie.

SQM at one time produced over 50 per cent of the world’s lithium, a position that has been whittled down to just over 24 per cent by competitors such as Albemarle Corporation (NYSE:ALB) and Tianqi.

James West is an investor and the author of the Midas Letter, an investing research report focused on Canadian markets. The views expressed here are his own and are presented for general informational purposes only — they should not be construed as advice to invest in any securities mentioned.

James West and/or associated funds do not own shares in any securities mentioned in this article. For the full Midas Letter disclosure policy, click here. Postmedia and Midas Letter have a revenue sharing arrangement.

Source: http://business.financialpost.com/midas-letter/tianqi-purchase-of-sqm-stock-sends-lithium-companies-soaring