Shares of Chilean lithium mining stock Sociedad Quimica y Minera (SQM -0.12%) melted down on Monday, down 13% as of 10:30 a.m. ET.
You can blame Bank of America for that -- and the voters of the nation of Chile.
Yesterday, in a historic upset, former Chilean student activist Gabriel Boric was elected Chile's new president -- and at just 35 years of age, the youngest and least experienced president in Chilean history.
In a note responding to the vote, Bank of America warned that Boric's election upsets the apple cart of investors who had previously counted on conservative candidate Jose Antonio Kast to win the election. Boric hails from the far-left Apruebo Dignidad party, points out BofA in a note covered by StreetInsider.com. In particular, Boric's desire to create a "state-owned ... National Lithium Corporation ... that will be in charge of developing the Lithium industry" poses a threat to Sociedad Quimica y Minera (SQM).
What form will this threat take? Bank of America muses that investors in SQM could suffer if Boric champions a legislative program of, for example, higher taxes on lithium mining profits, or if he "interferes" with (code for cancels) concessions that have been awarded to SQM to mine lithium in the country.
Granted, BofA didn't come right out and use the "E" word -- expropriation of SQM's assets to benefit the new state-owned entity. But considering that the new president's coalition includes the Communist Party of Chile, investors can't rule out that extreme possibility, either. Reflecting the new risks, BofA downgraded shares of SQM to a rating of underperform (i.e., sell). The bank also cut its price target on SQM shares by more than 25%, to just $50 a share.
The good news is that this new price target is at least above where SQM stock is trading today. The bad news is that, apparently, investors don't think BofA is worrying enough.