Two Lithium Miners’ Weakness on Chile Nationalization News May Be Overdone

The shares of two major lithium producers — Albemarle Corp. (US:ALB) and Chile’s Sociedad Quimica (US:SQM) — have tumbled over the last week, partly on fears that Chile will nationalize the companies’ mines located in the South American country.

But, due to the political situation in Chile and the details of the nationalization proposal, the pullbacks appear to be way overdone. Consequently, long-term investors may want to consider buying ALB stock and SQM stock on weakness.

Also noteworthy is that, according to data compiled by Fintel since the nationalization proposal surfaced on April 20, only several institutional investors have sold large amounts of ALB stock or SQM stock. Moreover, a few large investors have bought significant amounts of each of the stocks since April 20.

Nationalization Proposal and Its Chances of Passing

Chile’s President Gabriel Boric on April 20 announced that his government would “participate in the [whole [lithium] production cycle” through a state-owned company. Under the proposal, the government would form partnerships with private firms, and the government would own majority stakes in those ventures.

The president asked ALB and SQM to allow the government to become involved in their operations within the country before their current mining concessions expire. Boric added, however, that the companies’ existing arrangements would be honored. Albemarle’s concession lasts until 2043, while Sociedad’s deal expires in 2030.

But it appears that the president may not be able to convince the country’s Congress to pass his nationalization initiative. That’s because he does not control a majority in the legislature, which must approve the plan. And in a sign that Congress is far from a rubber stamp for Boric, the legislative body has already defeated his tax reform proposal, the Financial Times reported.

Also significant is that Finance Minister Mario Marcel is significantly more right wing on business matters than Boric and leads a faction of the president’s governing coalition. Consequently, Boric may not be able to push too hard for concessions from Albemarle and Sociedad Quimica because doing so could cause his coalition to splinter.

Little Institutional Reaction to the News

Between April 20 and April 25, only five institutions sold 30,000 or more shares of SQM stock. Four of the five institutional investors that did unload at least 30 million retained the vast majority of their stakes.

Specifically,  American Funds Developing World Growth & Income Fund (US:DWGAX) sold 112,103 shares on April 26 but retained over 86% of its shares, while Neuberger Berman Emerging Markets Equity Fund (US:NEMAX) unloaded nearly 46,000 shares but kept nearly 85% of its stake. Finally, Blackrock Commodity Strategies Fund (US:BICSX) sold almost 35,000 shares on April 25 but retained almost 91% of its stake, and Federated International Growth Fund (US:PIGDX) dropped nearly 85,000 shares but maintained almost 96.5% of its shares.

Two funds — Avantis, Quaero Capital — bought at least 30,000 shares in the wake of the news.

Similarly, for Albemarle, six institutions unloaded 15,000 or more shares of the name during the period. However, all six of those institutions retained at least 85% of their stakes in the company.

Daymark Wealth Partners unloaded 17,8000 shares but retained over 95% of its stake,  Swedish institutional Forsta AP-fonden dropped 22,900 shares but kept 85% of its stake, GHP Investment Advisors gave up nearly 20,000 shares but kept over 98% of its stake, BNY Mellon Sustainable U.S. Equity Fund (US:DTCAX) sold 31,200 shares but retained more than 99% of its stake.

Also notable is a purchase by Schwab U.S. Large Cap Growth ETF (US:SCHX), which snapped up 107,238 shares on April 24.

This article originally appeared on Fintel

By Larry Ramer