State intervention has made this lithium company a bargain

This needs to be put into perspective. President Gabriel Boric’s focus on ‘majority state control’ is for assets considered to be of strategic importance to Chile, and relates primarily to the Atacama and Maricunga ‘Salars’ (salt flats), due to their lithium reserves, size and high levels of lithium concentration. By comparison, CleanTech’s assets are considerably smaller compared with Salar de Atacama, which has around 37 per cent of the world’s lithium reserves. Moreover, the company’s assets have lower levels of lithium concentration and, while still highly economic, they are not of the scale that could be considered assets of national strategic importance.

Furthermore, under the plans outlined by Boric, private companies with exploration licences that merit exploiting will have the option to invite state participation but will not be compelled to do so. Private companies developing non-strategic assets also have the right to apply for a special lithium operation contract. CleanTech has held discussions with state entities regarding their minority participation in the company’s assets as this may be beneficial in the development of its projects.

CleanTech’s de-rating overdone

• Chilean government focus on partnership rather than nationalisation
• CleanTech’s assets not subject to state control under the proposals

The focus of the government’s strategy is on partnership rather than nationalisation, with the aim of leveraging complementary skills and resources to support the development of Chile’s lithium industry. Based on prior discussions with government officials, the proposals as outlined, including public/private partnership and the creation of a national lithium company, are broadly in line with those expected by CleanTech’s board.

Importantly, CleanTech’s strategy is in keeping with the proposals in terms of responsible and sustainable lithium development. For instance, the company is at the forefront of using direct lithium extraction technology, which allows lithium to be produced with minimum environmental impact when used with renewable power and the reinjection of spent brine (with minimal water usage) to produce lithium carbonate. CleanTech has also established early and active engagement programmes with local communities, as well as local and regional authorities, to support wider participation and benefit.

Chief executive Aldo Boitano points out that “based on the advice and guidance we have been given, we have been reassured that CleanTech’s assets will not be subject to state control under these proposals”, adding that “we see the potential for significant benefit through partnership opportunities and a more certain investment climate”. Boitano rightly points out that as a leading lithium development company in Chile, CleanTech “is in a position to participate potentially in public-private partnerships to fast track development of state-owned salars".

In the meantime, CleanTech continues to make material progress with its three projects in the country. Before the end of June, shareholders can expect an upgraded resource estimate at both its Laguna Verde and Francisco Basin projects, and drilling results from Llamara. This should be highly supportive of the investment case.

Also, even though the lithium carbonate equivalent price has more than halved this year to $22,850 per tonne, it is still six times higher than Laguna Verde’s expected operating cost of $3,875 per tonne. This highlights the hefty returns to be made from the $384mn capital investment needed to get the 20,000-tonnes-a-year production project up and running.

So, although the shares are the laggard in my 2023 Bargain Share Portfolio, I feel that once the dust has settled and investors have regained their poise, bottom fishers should be rewarded. Buy.