The Best Way to Play the Adoption of Electric Vehicles

Narrow-moat

This development resolves the uncertainty around Albemarle’s ability to increase production at its low-cost Chilean asset. The new agreement, signed with the Chilean Economic Development Agency, or Corfo, has been fully reviewed and approved by all applicable Chilean authorities, including the Comptroller General and Nuclear Energy Commission. Albemarle’s prior agreement effectively limited the company to produce less than 25,000 metric tons of lithium per year through 2030. Under the new agreement, Albemarle can produce over 80,000 metric tons of lithium annually through 2044. While cash costs will also increase with higher royalties, we think this will be more than offset by higher lithium prices, which we expect will increase from roughly $7,000 per metric ton in 2016 to $10,000 by 2020. We expect Albemarle’s total lithium production (including Chile and Australia) to increase from 49,000 metric tons in 2015 to 117,000 by 2020 and 170,000 by 2025. Higher production and prices drive the company’s lithium exposure to increase from 28% of profits in 2015 to over 60% by 2020 and nearly 70% by 2025.

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