Chile's National Lithium Strategy Creates Opportunity for Mining ETF

A Reuters report recently noted Chile’s strategy to move its largest representatives of the lithium industry, Albemarle and SQM, to a state-owned company. It’s a similar move that Mexico made as the demand for electric vehicles (EVs) is expected to ramp up as nations try to reduce their carbon footprint to achieve their net-zero goals.

“Are we interested in being leaders? Of course we are. But what interests us most is for more lithium to be produced because the world needs it. Obviously, we are also interested in placing it well in the markets,” said Chilean Mining Minister Marcela Hernando in a La Prensa Latina report.

It’s an ambitious move, but Chilean leaders understand the importance of capitalizing on its lithium supply. Whether this move expedites or slows down the process for other countries to obtain contracts remains to be seen.

Some market experts think it could dissuade the procurement of contracts with the Chilean government more involved. Additionally, it could force nations to seek other sources of lithium in countries like Australia.

“When or if battery makers renew their contracts with lithium firms in Chile, contract conditions would likely become more difficult than what they saw in the past when there was no state involvement,” said Cho Hyunryul, an analyst at Samsung Securities.

“Policy stability is very important for any mining project … Mining-friendly jurisdictions like Australia would be places where incremental funds get invested,” said Harsh Bardia, an analyst at National Australia Bank’s private wealth arm JBWere.

Nonetheless, given Chile’s position as the second largest producer, it could force nations to work with state-owned firms to meet growing demand. As such, mining for lithium will also be a necessity.

An ETF to consider that offers investors opportunities in Chile is the Sprott Lithium Miners ETF (LITP A). Looking at its country diversification in terms of holdings, the fund also includes exposure to Chile. It also includes other parts around the globe that can capitalize on this tremendous growth opportunity.

LITP seeks to provide investment results corresponding to the total return performance of the Nasdaq Sprott Lithium Miners Index. That index is designed to track the performance of a selection of global securities in the lithium industry. This includes producers, developers, and explorers. The fund features 44 holdings as of May 23, offering investors broad exposure to the industry’s ancillary services.

“Strong demand growth in an undersupplied market should generally result in prices remaining above the peak of 2018′s boom, albeit lower than the 2022 peak,” wrote Seth Goldstein in a Morningstar article. “We forecast lithium prices will average over $36,000 per metric ton from 2023 through 2030. That would lead to solid profits for low-cost producers. With the current stock prices implying prices around $20,000, much of the bad news is already priced in.”

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