CHEMICAL & MINING CO OF CHILE INC annual report, Q4 FY2021

Business context and reporting period

Sociedad Química y Minera de Chile S.A. (SQM; NYSE: SQM) filed this audited Form 20-F for the fiscal year ended December 31, 2021. It reports annual results, not a standalone fourth-quarter income statement. SQM produces lithium and derivatives, specialty plant nutrients, iodine, potassium products and industrial chemicals, with operations concentrated in northern Chile and sales in about 110 countries. Financial statements are in U.S. dollars and prepared under IFRS as issued by the IASB.

Financial performance and position

Revenue and profit rose primarily with higher prices across major product lines and greater sales volumes in lithium, iodine, potassium and specialty plant nutrients. Lithium revenue rose 144.2% to US$936.1 million; potassium revenue rose 99.0% to US$416.6 million; iodine revenue rose 30.9% to US$437.9 million; and specialty plant nutrition revenue rose 29.5% to US$908.8 million. Industrial chemicals revenue declined 17.8% to US$132.0 million, mainly due to lower sales volumes. The filing reports fourth-quarter lithium sales of approximately 31,100 metric tons at an average price of about US$14,600 per metric ton.

Cash and cash equivalents were US$1.515 billion and other current financial assets were US$919.0 million at year-end. The company separately reported US$2.434 billion in cash, cash equivalents and time deposits, a current ratio of 4.62, and net financial debt of US$204.7 million under its stated measure. Financial debt was US$2.589 billion, compared with US$1.900 billion in 2020. Total equity was US$3.216 billion; total liabilities to equity was 1.19. Financing cash flow included US$1.100 billion from a share issue and US$700 million of long-term borrowing; dividends paid were US$571.7 million.

Material changes versus the prior year

• Cost of sales increased 32.8%, slower than revenue growth, lifting gross margin to 38.1% from 26.6%.
• Lithium sales volumes increased about 57% and average prices about 56% year over year. The lithium business became SQM’s largest revenue line.
• Cash from operations increased to US$822.5 million from US$182.2 million. Investing activities used US$1.007 billion, principally reflecting investment and financial-asset movements; property and equipment purchases were US$464.7 million.
• Debt rose following new borrowing, including a US$700 million bond issue in September 2021, while the April 2023 US$300 million note was identified as the next significant debt maturity.
• A US$1.1 billion equity capital increase was completed in April 2021. EPS was lower despite higher total profit; the filing reports more Series B shares outstanding after the offering.
• Corfo-related costs included in cost of sales rose to US$247.6 million from US$74.4 million, reflecting the sales-linked lease payment structure and related commitments.

Outlook, risks and unusual items

Management expected 2022 lithium sales volumes to approach 140,000 metric tons, with average prices materially above 2021 levels. It expected Chilean installed capacity to reach approximately 180,000 metric tons per year of lithium carbonate and 30,000 of lithium hydroxide in the first half of 2022. The filing also describes a further Chile expansion to about 210,000 and 40,000 metric tons, respectively, with timing stated as 2023 in one section and by 2024 in another. Investors should confirm the current schedule. Management estimated 2022 capital expenditures of approximately US$900 million. The broader 2021–2024 investment plan was US$2.25 billion.

Key operating and regulatory exposure includes the Salar de Atacama lease, which expires December 31, 2030 and generated products representing 47% of 2021 consolidated revenue; lithium extraction limits; environmental approval and monitoring requirements; and uncertainty around Chilean mining, water, tax and constitutional changes. The filing notes a proposed environmental compliance plan for Salar de Atacama was under review. Other risks include volatile commodity prices, energy and logistics costs, shipping constraints, currency movements, competition, labor disruption, climate and water availability, and the COVID-19 pandemic. The filing also discusses Russia’s invasion of Ukraine, which began after year-end, as a potential source of market and supply-chain volatility.

Unusual legal matters include a US$48.1 million judgment against SQM North America in the Pomona groundwater case, recorded as a 2021 charge; SQMNA appealed and sought a new trial. A separate U.S. securities class-action settlement required a US$62.5 million payment and received final court approval in April 2021; the expense was recognized in 2020. SQM’s Deferred Prosecution Agreement concluded with dismissal of charges in January 2021 after successful completion. Auditors issued unqualified opinions on the IFRS financial statements and internal control over financial reporting. They identified bulk-inventory volume estimates and environmental, tax and legal contingencies as critical audit matters.

Most important facts for investors to verify

• Track lithium pricing, realized sales volumes, Corfo’s variable lease payments and progress toward capacity targets.
• Confirm the timing, permitting, funding and returns expected from the US$900 million 2022 capex program and Mt. Holland project.
• Review the full debt maturity schedule and liquidity measure definitions, including the 2023 note maturity and the distinction between financial debt and net financial debt.
• Check developments in the Pomona appeal, the pending Salar de Atacama environmental compliance review, related tax disputes and the Corfo lease extension outlook.
• Reconcile the filing’s differing target dates for the further Chilean lithium capacity expansion (2023 versus by 2024).