Our target price of US$51/share is based on two valuations: (i) a 7-year DCF that includes a scenario with the main aspects of the Partnership Agreement, using a nominal WACC of 8.0%; and (ii) a consolidated multiple-based valuation with a target 12-month forward EV/EBITDA multiple of ~8.5x. Regarding the valuation of Covalent, the 50:50 lithium JV between Wesfarmers and SQM that consists of the Mt Holland mine supply in Western Australia and an integrated Kwinana hydroxide refinery, we use as proxy the valuation derived by Citi's Australia/NZ Diversified Metals & Mining research team for Wesfarmers' stake in the project. This adds US$5.5/share to our base case.

We assign a High Risk rating to SQM due to underlying lithium price volatility that translates into high earnings volatility. The main risks to the stock achieving our target price are:

Price/Commodity Price Volatility – The prices of SQM’s products are linked to international prices, which vary significantly due to supply/demand dynamics.

Environmental Laws/Approvals – Changes in environmental laws or loss of environmental approvals could result in higher production costs, liabilities, or affect claims and mining approvals and/or production volumes, which could compromise SQM’s performance and our estimates. In addition, failure in the future to obtain environmental approvals could limit the company’s ability to expand its productions/sales volumes, a key pillar of our investment thesis.

Concessions & Rights – SQM operations are mainly based on concession agreements with the Chilean government including mining exploitation & exploration as well as water use rights. Expirations or restrictive legislation could impact SQM’s earnings. The rights to explore lithium and potash are pursuant to a lease agreement with Corfo, a Chilean government agency, in the Salar de Atacama.

Royalty Taxes – A change in royalty tax could affect earnings positively/negatively.

If the impact on the company from any of these factors is greater/less than we anticipate, the stock may underperform or outperform our target price.