SQM posts record output, builds inventories

Mining personnel at an SQM lithium brine site in Chile's Atacama desert. Credit: SQM.

Chile’s SQM (NYSE: SQM), the world’s second-largest lithium producer, achieved record second-quarter output levels and saw sales volumes soar on renewed optimism about long-term demand for the metal used to power electric vehicle batteries and high-tech devices.

The company said it’s producing at record levels of 70,000 tonnes for the year, which has allowed it to build higher levels of inventory ahead of an expected demand boom.

“Given the demand growth expectations in coming years, we feel comfortable with the higher level of inventories that are being built,” it said.

SQM also sold more lithium in the second quarter than in the first quarter of the year, delivering 12,600 tonnes of the white metal, up 45% from the January-March period.

Weak lithium prices, however, impacted SQM’s bottom line. The Santiago-based miner saw net income fall to US$50.8 million, a 27.6% drop when compared to the same period last year.

“We believe that prices will be lower during the second half of the year compared to the prices observed in the first half of the year, although sales volumes should be higher,” chief executive Ricardo Ramos said in a statement.

While the company expects demand in 2020 to be similar to 2019, it remains optimistic about long-term demand growth because of increasing expectations for car sales, EV penetration rates and continued government incentives.

SQM produces lithium by pumping brine from beneath the Atacama desert, considered the world’s driest, which it concentrates through evaporation in pools.

In 2016, Chile’s environmental regulator SMA found that SQM had extracted more brine from the salt flat than permitted. A US$25 million compliance plan presented by the company was dismissed by a court in Antofagasta in December.

Despite the company’s appeal, SMA sided in early August with the regional court. The regulator is currently reevaluating SQM’s plan.

Water has become a bone of contention for the expansion plans of both SQM and top competitor Albemarle (NYSE: ALB), both of which operate in the Atacama desert, where more than a third of global lithium carbonate supply is sourced.

Chile, which holds about 52% of the world’s known lithium reserves, lost its top lithium producer crown to Australia in 2018.

The South American nation, however, is working on reversing that situation. It predicts that lithium will soon become its second-largest mining asset, behind copper. The commodity is currently the country’s fourth-biggest export.

SQM’s own expansion plans are on track to be completed by the end of 2021, the company said.

— This article first appeared in MINING.com.

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