In December 2017, the citizens of Chile went to the polls to elect their next leader. After several years of sluggish economic growth under current President Michelle Bachelet, who raised corporate taxes and empowered labor unions, voters overwhelmingly chose billionaire Sebastian Pinera to be her successor. He was president from 2010 to 2014, campaigned most recently on a pro-business agenda, and is widely supported by the mining industry.

Seeing how Chile is the world's top exporter of copper, that last point is no small detail for investors. However, when Pinera was last president, copper prices exceeded $10,000 per metric ton (MT). During the election they hovered near $4,300 per MT, and today they're near $5,700 per MT. That shows that Chile's recent economic stagnation has roots beyond politics, and also hints that Pinera could find his next presidential stint significantly more difficult. 

Luckily for Pinera, there's good news elsewhere in the commodities universe: Chile's vast lithium reserves have made it the world's leading producer of the metal, and lithium's trading over $20,000 per MT right now. That suggests that this election result will be good news for the metal's producers, too, but only under the right circumstances. 

Food and beverage containers depicting the Chilean flag on a picnic table.

Image source: Getty Images.

Step aside, copper

Make no mistake, copper will be one of the most important exports from Chile for years to come, but they'll need to move over and make room for the country's most important metal export of the future: lithium. The big three lithium producers -- Albemarle (NYSE:ALB), FMC Corp. (NYSE:FMC), and Sociedad Quimica y Minera de Chile (NYSE:SQM) -- stand to gain from their long standing leadership positions in South America's Lithium Triangle. If you don't know what the Lithium Triangle is by now, you should.

That's the name given to a high-altitude region encompassing parts of Chile, Argentina, and Bolivia where some 80% of the planet's lithium production originates. The lithium is dissolved in vast underground reservoirs of brine. The liquid is pumped to the surface and held in giant pools, where sunlight evaporates most of the water, leaving behind concentrated white slurry. That's pumped to centralized processing facilities and purified into one of two battery-grade lithium compounds: lithium carbonate or lithium hydroxide.

But just because it's a "triangle" doesn't mean the lithium reserves in it are split into anything like equal thirds. In fact, Chile is estimated to hold over half of the world's known lithium reserves, and more than three times as much as Argentina. (Bolivia doesn't even make an appearance in most global rankings.) Chile has done its part to leverage those bountiful lithium deposits, but some argue it could be doing even more. They might be right. 

Pools of lithium-containing brine evaporating in the sun.

Pools of lithium-containing brine evaporating in the sun. Image source: Getty Images.

In the third quarter of 2017, Albemarle announced that it had developed a new production technology capable of boosting its lithium production in Chile to 125,000 MT per year without the need for additional brine pumping. However, decades-old laws prohibit the company from exceeding a strict quota set by Chile's Economic Development Agency, which sits at just 80,000 MT per year. Will Chile's new government give the world's leading lithium producer a boost?  

FMC Corp. hasn't gone into a similar level of details about its lithium production, but all of the company's output comes from Argentina and Chile. Investors will likely learn a great deal more once FMC Lithium is spun-out as a separately traded company in the second half of this year. It will be one of the only pure-play lithium stocks on the market, and by far the largest.

And of course, Sociedad Quimica y Minera de Chile, or SQM, calls Chile home, but don't necessarily expect it to get preferential treatment. It should still receive a boost from the new government, just more indirectly.

One thing to consider is that the world's largest potash fertilizer producer, Nutrien, owns a whopping 32% stake in the lithium producer. (Potash is a major byproduct of lithium brine processing.) Although it's been looking for buyers for quite some time, the election results made the asset all the more attractive for prospective buyers. Indeed, the company announced it's in talks right now to sell its stake in SQM. Depending on the buyer, that could set the stage for the lithium producer to enter its next phase of growth. 

In the near term, the expansion for SQM and the Lithium Triangle will help to put under-the-radar lithium stocks on the map for investors. Lithium Americas (NYSE:LAC), which just listed on the NYSE, is working with the Chilean miner on a 50,000 MT per year project in... Argentina. Close enough, but more importantly, the company and joint venture are well-funded and will prove integral for SQM shareholders.

Toy construction workers building successively taller stacks of coins.

Image source: Getty Images.

Are lithium stocks poised to win?

The good news for investors is that Chile's incoming government plans to maximize the value of its world-leading lithium reserves through a combination of attracting foreign investment and slashing red tape for existing producers. That bodes well for Albemarle, FMC Lithium, SQM, and other newcomers.

But there's a wild card here, too. A collection of academics, politicians, and labor groups have argued for the creation of state-owned lithium producer to fully exploit the opportunity for the nation, using state-owned copper giant Codelco as a model. Codelco was created in the 1970s, after the Chilean government seized the assets of several foreign-owned copper miners. 

While nationalizing foreign assets is unlikely in 2018 Chile, the government already owns vast reserves in the Lithium Triangle (including, ironically, lucrative lithium assets held by Codelco). But developing those wouldn't be cheap. The creation of a state-owned entity responsible for exploiting the government's lithium assets could spark a boom for the industry by creating a new potential partner that's completely aligned with the industry's interests.

In other words, Chile's new government figures to be one of the best things that has happened to the lithium industry. Just how good depends on which policies are adopted.

Maxx Chatsko has no position in any of the stocks mentioned. The Motley Fool has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy.