INITIATING COVERAGE

SOCIEDAD QUIMICA Y MINERA DE CHILE S.A.

NYSE: SQM

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Lithium / Specialty Chemicals / Mining

March 3, 2026 | Agentic Finance Chile

Investment Summary

We initiate coverage on SQM (Sociedad Quimica y Minera de Chile S.A.) with a BUY rating and a 12-month price target of $48.00 per ADS, representing approximately 26% upside from current levels. SQM is the world's largest lithium producer by market capitalization (~$10.5 billion), operating from the Salar de Atacama — the highest-grade lithium brine deposit globally (~1,800 ppm lithium concentration). The company's dual-pillar earnings structure (Lithium: 50% of revenue, 45% of gross profit; Iodine: 23% of revenue, 42% of gross profit) provides a unique combination of cyclical upside and defensive stability unmatched by any pure-play lithium competitor.

Our conviction rests on five pillars: (1) best-in-class cost position enabling profitability across the lithium price cycle, (2) unique iodine-lithium diversification moat, (3) 62% volume growth catalyst as capacity expands to 340K mt by end-2026, (4) IRA/FTA structural advantage for US EV supply chain, and (5) 2060 resource visibility via the Codelco-SQM joint venture (NovaAndino Litio SpA). Our blended valuation (50% DCF / 50% comps) yields $48 per ADS, supported by base-case lithium carbonate prices of ~$20,000/t.

Investment Thesis

Thesis Pillar 1: Lowest-Cost Lithium Producer Globally

SQM's Salar de Atacama operations benefit from the world's highest lithium brine concentration at approximately 1,800 parts per million (ppm), which is 3-5x higher than most competing brine deposits. This concentration advantage translates directly into industry-leading cash costs of approximately USD 4,000-5,000 per tonne of lithium carbonate equivalent (LCE). The solar evaporation process requires zero energy input for the primary concentration step, as the intense Atacama sun provides all necessary thermal energy. This cost position ensures SQM remains profitable even at cyclical lithium price troughs — during the mid-2025 nadir when spot prices fell below USD 8,000/t, SQM maintained positive cash flow from operations while higher-cost producers (Chinese lepidolite operations, some Australian hard-rock mines) were forced to curtail production.

Thesis Pillar 2: Unique Iodine-Lithium Diversification

No other listed lithium producer offers the earnings stability that SQM's iodine business provides. In FY2025, iodine contributed 42% of total gross profit — more than any individual lithium segment — at record pricing levels. Iodine demand is driven by medical imaging (X-ray contrast media), electronics (LCD polarizing films), pharmaceuticals, and biocides — defensive end markets with minimal cyclical exposure and virtually no substitution risk. SQM holds approximately 30% of global iodine market share, extracted as a co-product of the lithium brine process, creating a structural cost advantage impossible for standalone iodine producers to replicate.

Thesis Pillar 3: Volume Growth Catalyst

SQM is executing a major capacity expansion program targeting 240,000 mt of lithium carbonate and 100,000 mt of lithium hydroxide by end-2026 — a combined 340,000 mt capacity representing approximately 62% growth from the current ~210,000 mt base. This expansion arrives at an inflection point in the lithium market: prices have recovered from trough levels and are trading in the USD 17,000-22,000/t range in early 2026, with the global surplus narrowing from 141,000 mt LCE in 2025 to an expected 109,000 mt in 2026. The combination of higher volumes into recovering prices creates significant operating leverage.

Thesis Pillar 4: IRA/FTA Structural Advantage

Chile's Free Trade Agreement with the United States means that SQM-sourced lithium qualifies for Inflation Reduction Act (IRA) tax credits for electric vehicles, unlike material sourced from China. As US and European auto OEMs accelerate supply chain diversification away from Chinese dependencies, SQM is positioned as a premier FTA-compliant lithium supplier. This creates a structural demand premium for SQM product that we expect to persist throughout the decade.

Thesis Pillar 5: 2060 Resource Visibility

The Codelco-SQM joint venture (NovaAndino Litio SpA, signed December 2023) eliminates the single largest investor concern — the CORFO lease expiration in 2030. Under the new framework, SQM retains operational control through 2030, transitions to a JV structure with Codelco holding 50%+1 from 2031-2060, and secures 35+ years of uninterrupted resource access. This is the longest resource visibility window in the global lithium industry. The JV targets an additional 300,000 mt LCE production in 2025-2030 and 280,000-300,000 mt/year from 2031-2060.

Key Risks

Risk 1: Chilean Regulatory Uncertainty

The Codelco-SQM JV faces legal challenge from Tianqi Lithium (SQM's second-largest shareholder at ~22%), which argues the agreement lacks transparency and should require a shareholder vote. Chile's presidential transition in early 2026 introduces additional policy uncertainty. If courts delay or invalidate the JV, SQM would face the original CORFO lease expiration in 2030, compressing the resource visibility window and likely triggering a significant de-rating.

Risk 2: Lithium Price Volatility

SQM's lithium segment (50% of revenue) is highly sensitive to lithium carbonate prices. A return to mid-2024 trough levels (~USD 8,000/t) would compress EBITDA by approximately 40% from our base case, potentially returning the stock to the $28-32 range. The lithium market surplus, while narrowing, persists into 2026 and could widen if demand growth disappoints or if Argentine/Chinese supply expands faster than expected.

Risk 3: Argentine Supply Competition

Argentina is poised to nearly double lithium production between 2025-2027 under favorable regulatory conditions (Milei government). New Argentine brine projects from Arcadium (Rio Tinto), Ganfeng, and Eramet could add 100,000+ mt of annual LCE supply, pressuring prices and eroding SQM's market share. Argentine projects benefit from lower royalty rates and less state interference compared to Chile's nationalization framework.

Company Overview: SQM 101

Corporate Profile

Sociedad Quimica y Minera de Chile S.A. (SQM) was founded in 1968 as a public-private partnership to restructure Chile's nitrate industry. After nationalization in 1971 and privatization in 1983-1988, SQM evolved from a niche nitrate producer into a global leader in lithium and specialty chemicals. The company listed on the NYSE in 1993 and began lithium carbonate production in 1997. Today, SQM operates five business segments — Lithium & Derivatives, Iodine & Derivatives, Specialty Plant Nutrition (SPN), Potassium, and Industrial Chemicals — all sourced from the Atacama Desert in northern Chile.

Revenue by Product Segment

SQM's FY2025 revenue of USD 4,576 million was dominated by two segments: Lithium & Derivatives (USD 2,288M, 50% of total) and Iodine & Derivatives (USD 1,043M, 23%). Specialty Plant Nutrition contributed USD 940M (21%), while Potassium (USD 156M, 3%) and Industrial Chemicals (USD 75M, 2%) remain smaller but stable contributors. The critical insight is that while lithium drives the revenue narrative, iodine drives the profitability narrative — contributing 42% of gross profit versus lithium's 45%.

Revenue by Geography

SQM serves a globally diversified customer base, with Asia & Oceania representing approximately 33-35% of revenue (driven by Chinese and Korean battery manufacturers), Europe at 22-24% (European EV OEMs and chemical distributors), North America at 17-20% (growing rapidly due to IRA incentives), South America at 14-16%, and Rest of World at 9-10%. The geographic mix is shifting toward North America as IRA-compliant supply chain requirements increase demand for Chilean-sourced lithium.

Ownership and Governance

SQM's ownership is concentrated among three principal blocks: the Pampa Group (Julio Ponce Lerou family) with ~26%, Tianqi Lithium Corporation (Chinese) with ~22%, and public float at ~52%. The board comprises seven directors under Chilean class-vote rules, with representatives from Pampa, Tianqi, and independent directors from the public float. The Codelco-SQM JV introduces a state actor into operational governance, creating a separate structure from equity ownership.

Management Team

CEO Ricardo Ramos (since January 2019) previously served as CFO for 24 years, bringing deep institutional knowledge. CFO Gerardo Illanes manages the balance sheet through the lithium price cycle. Carlos Diaz leads the critical Lithium & Potassium division, overseeing the 340K mt capacity expansion. Pablo Altimiras heads the highly profitable Iodine & SPN division.

Industry Overview

Global Lithium Market

The global lithium-ion battery market reached approximately USD 135 billion in 2025 and is projected to grow at a 22-23% CAGR through 2035, reaching ~USD 888 billion. Global lithium demand is estimated at 1.8 million tonnes LCE in 2025, with Albemarle forecasting a doubling to 3.7 million tonnes by 2030. Electric vehicles represented 75% of battery demand in 2025, with Battery Energy Storage Systems (BESS) the fastest-growing segment at +51% year-on-year.

Market Sizing: TAM / SAM / SOM

The Total Addressable Market (TAM) encompasses the global Li-ion battery market at USD 135B. The Serviceable Addressable Market (SAM) focuses on lithium chemicals at ~USD 25B. SQM's Serviceable Obtainable Market (SOM) represents its current and near-term revenue capacity of ~USD 5-6 billion at mid-cycle pricing, including its specialty chemicals portfolio.

Competitive Landscape

SQM competes in a concentrated market dominated by six major producers: Albemarle (17% share), SQM (~14%), Ganfeng (~12%), Tianqi (~7%), Pilbara (~6%), and others. The industry is undergoing consolidation — Rio Tinto's $6.7B acquisition of Arcadium Lithium in 2025 created a new top-3 producer. Supply is concentrated in four countries: Australia (50%+), Chile (~25%), China (~12%), and Argentina (~10%). Argentina's rapid supply growth under favorable regulatory conditions represents the primary competitive threat to Chilean producers.

Financial Analysis

Revenue and Profitability

SQM's FY2025 revenue of USD 4,576M represented a marginal 1.0% increase from FY2024 (USD 4,529M), marking stabilization after the dramatic decline from the FY2022 peak of USD 10,711M. Gross profit reached USD 1,353M (29.6% gross margin), and EBITDA was approximately USD 1,450M (31.7% margin). Net income recovered to USD 588M after FY2024's loss, demonstrating the resilience of SQM's diversified earnings model — iodine and SPN stability offset lithium price headwinds.

Looking forward, we project revenue growing to USD 5,500M in FY2026E (+20% YoY), driven primarily by lithium volume growth (+30% from capacity expansion) partially offset by conservative price assumptions. By FY2030E, we project USD 7,972M in revenue as lithium prices recover toward mid-cycle levels and volumes mature at 340K mt capacity.

Cash Flow and Capital Allocation

SQM generated USD 1,054M in operating cash flow in FY2025, supporting USD 988M in capital expenditures (primarily the LiOH capacity expansion). Free cash flow was approximately USD 66M — tight, but reflecting the peak investment cycle. As CapEx normalizes from 2027 onward, we project FCF expanding significantly to USD 1,148M by 2028E and USD 2,030M by 2030E. The company maintains a balanced capital allocation between growth investment, debt management, and dividend payments.

Balance Sheet

SQM's balance sheet carries total debt of approximately USD 4,848M against shareholders' equity of USD 5,548M (debt/equity ~0.87x). Net debt of approximately USD 3,470M (net debt/EBITDA ~2.4x) is manageable for a company of SQM's scale and cash flow generation capacity. Total assets stood at USD 11.7B as of Q4 2025, with PP&E of USD 5.1B reflecting the ongoing capacity expansion.

Return Metrics

ROE recovered to approximately 10.6% in FY2025 from the negative reading in FY2024, and we project continued improvement toward 14-21% through FY2030E as earnings growth outpaces equity base expansion. The return profile normalizes as the capacity investment cycle completes and the revenue base catches up to the expanded asset base.

Scenario Analysis

We construct three scenarios reflecting the wide range of potential outcomes for SQM, driven primarily by lithium price assumptions and execution on capacity expansion:

Bull Case: $65 per ADS (+71% upside)

• Li2CO3 prices reach $28,000/t as surplus narrows sharply and BESS demand accelerates
• SQM achieves 340K mt capacity on schedule; lithium hydroxide commands premium pricing
• Codelco-SQM JV closes smoothly; Tianqi legal challenge dismissed
• Iodine prices remain at record levels; SPN stable
• 2026E Revenue: $6,200M | EBITDA: $2,108M | Net Income: $1,200M | EPS: $4.21

Base Case: $48 per ADS (+26% upside) — OUR TARGET

• Li2CO3 prices average ~$20,000/t; surplus narrows but persists
• Capacity expansion on track; volumes grow 30% in 2026
• JV progresses with minor delays; regulatory framework stable
• 2026E Revenue: $5,500M | EBITDA: $1,650M | Net Income: $850M | EPS: $2.98

Bear Case: $28 per ADS (-26% downside)

• Li2CO3 prices fall back below $12,000/t; Argentine supply floods market
• Capacity expansion delayed; LiOH commissioning issues
• Tianqi litigation delays JV; Chilean political transition disrupts policy
• Sodium-ion battery adoption reduces lithium demand growth
• 2026E Revenue: $4,800M | EBITDA: $1,152M | Net Income: $400M | EPS: $1.40

Valuation Analysis

Methodology

Our $48 price target is derived from a blended valuation: 50% weighted to DCF analysis (split equally between perpetuity growth and exit multiple methods) and 50% weighted to comparable company analysis (EV/EBITDA and P/E). This blended approach mitigates the sensitivity of any single methodology to cyclical lithium price assumptions.

DCF Analysis

Our DCF uses a WACC of 8.4% (reflecting Chile's country risk premium of 1.5%, equity risk premium of 5.5%, and levered beta of 1.15) with a terminal growth rate of 2.5%. Under the perpetuity growth method, we derive an enterprise value of USD 24.5 billion and equity value of USD 21.0 billion ($73.82 per ADS). Under the exit multiple method (10.0x terminal EBITDA), we derive $70.43 per ADS. The average DCF value of $72 is moderated by the comps-derived value to arrive at our blended $48 target.

Comparable Company Analysis

SQM trades at 7.8x 2026E EV/EBITDA versus the peer median of 9.5x, and 12.8x 2026E P/E versus the peer median of 18.0x — a meaningful discount reflecting Chilean sovereign risk and the Tianqi litigation overhang. Applying peer median multiples to SQM's 2026E financials yields an implied EV/EBITDA value of $42.82 and P/E value of $53.64, averaging to $48.23.

Valuation Football Field

The football field visualization below summarizes the range of implied valuations across all methodologies. Our $48 target sits at the intersection of DCF base cases and comps medians, providing a balanced view of intrinsic value.

Historical Valuation Context

SQM's historical valuation multiples have ranged dramatically: from a trough of 2.7x EV/EBITDA at the 2022 earnings peak (when the market correctly anticipated earnings normalization) to 9.8x at the 2024 earnings trough. The current 9.5x represents a mid-cycle level. As earnings recover, we expect the multiple to compress toward 7-8x on higher absolute EBITDA, with the stock price rising on the underlying earnings growth rather than multiple expansion.

Key Catalysts

• Codelco-SQM JV final regulatory approvals (expected H1 2026) — removes sovereign risk overhang
• Tianqi Lithium court ruling — resolution (positive or negative) reduces uncertainty premium
• Chile presidential transition — policy continuity confirmation
• Li2CO3 price breakout above $25,000/t — earnings upgrade cycle
• LiOH capacity commissioning milestones — 100K mt target by end-2026
• Argentine project timeline slippage — supply reduction = price support
• IRA contracting announcements — structural demand visibility for FTA lithium

Appendix

A. Revenue History (Long-Term)

B. Historical Revenue by Segment (Stacked)

C. Geographic Revenue Mix

Disclaimer

This equity research report has been prepared for informational and educational purposes only. It does not constitute investment advice, a recommendation, or an offer to buy or sell any security. The analyst(s) who prepared this report do not hold positions in SQM or any of the securities mentioned. All information is sourced from publicly available company filings, regulatory documents, and reputable industry research. Forward-looking statements are based on current expectations and are subject to material risks and uncertainties. Past performance is not indicative of future results. Investors should conduct their own due diligence before making investment decisions.

Sources: SQM FY2025 Earnings Release, SQM Q4 2025 Earnings Call Transcript, SQM Annual Report 2023, USGS Mineral Commodity Summaries 2025, Cochilco, Benchmark Mineral Intelligence, S&P Global, Goldman Sachs Research, Bloomberg, StockAnalysis.com, Yahoo Finance, Investing News Network, Americas Quarterly, Rio Tinto press releases.

Prepared by Agentic Finance Chile | March 3, 2026