Q3 2020 Livent Corp Earnings Call

[music].

Good afternoon, and welcome to <unk> third quarter 2020, <unk> earnings release Conference call for Lightbridge Corporation.

Full lines will be placed on listen only mode throughout the conference.

After the speaker's presentation, there will be a question and answer period.

Commision accelerating demand growth.

Lyons participation and participation in the new World Class lithium project in Canada and of course, the near term challenges that we continue to face as an industry.

I would say he basis to be flat in 2020 versus 2019, which speaks loudly to the underlying growth dynamics in demand for lithium.

There has been some.

Particularly impressive electric vehicle sales data around the world in the midst of this broader economic slowdown.

In China, which is further along in its core with 19 recovery than most other countries.

Okay.

To discuss how financial results and provide a business update.

Thank you Paul and good evening everyone.

License performance for the quarter continues to be negatively impacted by COVID-19 were later wish ruptured.

Extra ones light for.

And I'll work through the majority of the higher cost you can employ.

With respect to COVID-19, we have been committed to ensuring our manufactories sites continue to operate safely and with minimal disruption.

Continue work and engagement with local authorities since the onset with the virus, particularly in Argentina has allowed us to remain operation. However.

However in other to implement unnecessary safety protocols, we are in closing higher costs at all of our production sites.

Hi, guys additional third party company purchases.

This approach has contributed to our decision to pause to me too hydroxide production at our best more C. D facility in North Carolina for two months in the fourth quarter.

During the spirit move installing additional capabilities you know hydroxide unit.

Upper grades are being done to meet increasingly Titus.

Customer remains a clear leader in the industry and increasingly in the battery industry.

Vision technology roadmap on global investment plan that puts it at the forefront of easy adoption trends.

And so the.

Is.

And the expansion will development of lithium resources themselves.

I don't have stated in the past, while we remain fully committed to our long term capacity expansion plans they must be supported by a sufficient return on invested capital.

Let us to have differentiated conversations with our customers beyond traditional contracting terms, we can point to material differences in how our process balances carbon intensity on local water issues.

How we can localize key steps in the supply chain without creating carbon footprint of waste material issues.

On how we're making real measurable commitment to improve our performance in all areas and current and potential customers value. This.

While the shift to electrification is rooted in green principles. It does not mean, the lithium produces complete their revenue from sustainability initiatives.

When we have customers make their own commitments to carbon emission reductions they increasingly required suppliers, who are aligned with those objectives.

This will see new Nebraska, reorganize with a private company owned jointly by IQ and an entity control jointly by live in terms of Pommy Horse group.

Many of you are aware that live in has a long relationship with my master in a deep understanding of the specific opportunity that Nebraska offers.

This has always been one of the largest high-grade lithium deposits in the world and it would have access to important existing infrastructure, especially low cost zero carbon hydro electric power.

The Quebec government has long advocated for the region to play a leading role in the future of adoption details on his back to something with a demonstrated willingness to provide appropriate development capital.

Pleased to be working alongside IQ.

Restaurant harm if the government will Quebec to help achieve this entertainment unit Moscow.

That's part of the transaction structure Lightning has agreed to setting that's outstanding claims against the mascot in exchange for payment and agreed upon portion of the trunk $2 million trying to the new ownership group as a reminder, in 2017 livened provided in advance payments $10 million to Nebraska, that's part of a proposed lithium carbonate supply agreements.

No volumes wherever delivered under disagreement resulting in an additional 10 million dollar termination penalty plain.

We'll also better positioned live and some of the inevitable changes receiving receiving growing support in our industry and that we have frequently discussed.

The desire amongst multiple constituencies for greater security of supply change through increased regionalization and resource diversification positions positions need masco has an important legacy supply in the future for.

You have additional questions you can jump back into the queue.

To withdraw your question. Please press the pound key.

Will cost for just a moment to compile the Q&A roster.

Your first question comes from the line of Chris catch with Luke capital markets. The line is open.

Yeah. Good afternoon. Thanks on the mask can you just remind us what the scale of that project is and does your agreement specify what percentage of the anticipated production, you'll have effectively a call on and then and if there's any clarity on.

The timeline and where you anticipate that would be sort of on your on a cash cost basis relative to your existing.

Existing backward integration into Argentina.

Okay, Let me try to tackle some of those other I'm not sure I have all the answers for Ya So issue with a nurse and they match the historic fancy was when you're going to take a look at it it wasn't entirely clear to be honest. The the proposed scale of that operation was appropriate for the mining capabilities, there's an optimal my.

And climbed which really should guide capacity he had not how much you can sell too I'll take is one of the key questions that we and policies are starting to talk a little tackle is what is it like mine plan. What is the most efficient mining plan that allows those type of constant stable stream of sports you mean concentrate Ah how big is that in basketball, we will have a view.

Exactly what the size of the chemical conversion subtlety would be.

And I'm sure you know that you know some of the biggest costs that you have with regard to cost competitiveness ultimately with these minds is the quality and the grade of the of the lifting the Spongebob concentrate on the spot you mean or itself as well as energy costs and so I think in both of those it's clear that the Nebraska, we so she's a good solid.

You know advantage are we supposed to just go pretty high.

Concentrate to start with.

And making sure that the mining plant is designed to take advantage of that he is all machine important.

And with the hydro electric power and a low cost power that comes in that basis. It's also gonna be well placed on the energy side as well.

Think also fundamentally being relatively close from the chemical plant next to the mine also helps suddenly efficient since you would've gone to shipping and transportation et cetera, we wouldn't be doing this if we didn't think this would be a cost attractive asset getting the answers to those questions. Though is what the optimization study is about.

And we definitely want to do it as quickly as possible, but it needs to be done pretty thoroughly and so one of the reasons that we don't believe they will be pretty sure there'll be no more capital needed into this into this project.

The next six to nine months and maybe a little longer is it'll take us probably that long to actually compete the optimization study at that point, we will have a clear idea of the answers to some of those questions that you just asked cliff.

Okay, well then the follow up would be HM.

Hmm.

Is that recall that project, it's kind of you know there was but the the carbonate project and then there was the conversion facility what your reference and I think that was a bit of a science project and you were gonna get the the agreement I think in this may have that even predated by then you know.

P O, but they were gonna if I, if I remember correctly, you're gonna get <unk>.

Hydroxide converted back to carbonate before you then converted to your you know to hydroxide in your facility. So I.

I guess the question is the is the intent to still go forward with the conversion the downstream conversion part of this overall, new new math and then will that do you anticipate the commitment to this project or influence the timeline do you anticipate of your you know further expansion they argue.

Teen project. Thanks.

You know the the the the process that the older mascot management team, they're trying to put in place there's not one that we would've put in place look frankly, I wouldn't describe it as a science project, but we weren't as confident as they would that they would be able to produce usable lithium hydroxide until because that process created anything hydroxide solution. First we said look before you actually create the hydroxide and and and and.

You know usual powder from the company and we'll take carbonate instead, because frankly that was more used to us than poor quality or unusual lithium hydroxide that is not the time that we have today, we believe that the right thing to do with this project is defined he reliable predictable process by which lithium chemicals can be produced.

Thank you.

Sure so long ago, Okay, but I mean to be quick Okay. I think you know.

It's a difficult one right because there is a lot less than an automotive OEM has to resolve in order to successfully launch.

And the electric vehicle and I think some of the comments from.

Leadership some of these Oems reflect channels that they face a lot of the schools. They built up over many many decades aren't necessarily relevant here.

But where they do have skills they tend to apply them, even as a history of sales.

Sourcing resources in a in a particular particular way and so the starting point tends to to be aligned with that approach our historical approach to resource for most not for everybody but for most.

And I think they therefore have to go through the purchase of understanding why just simply allowing market forces to initiate and trigger lithium production. It is unlikely to be successful whether it's the ship pace of growth what is the the lack of capital that we actually have to do that as an industry across the board or whether it's other factors that are at work and so.

The lowest possible price, while we can regardless of the consequences, it's not gonna send the industry well pregnant.

That's very helpful and just have a quick follow up could you remind us.

And when you the games and projects to make that decision can you just remind us of what capex requirement.

That's gonna require potentially 21, and just just abroad thought process.

For 22 is that progressively Rams would be incredibly helpful. Thank you very much.

As we sit here today, Chris I don't I don't expect that there'll be any capital to plugged in 2021 time, they talk and piano I I don't think the pricing environment, It's gonna support I'm not sure that.

They all continued political environment will be much clearer during 2021 now I'd say this today in November 2020, and and maybe six seven months from now on everybody a different perspective.

And if I do the go that we would be destroying a lot of capital that quick team to Argentina I just do not think that is the most likely outcome today, we don't sitting here looking at multiple ways to start giving me. This is a program and upon being an existing resource but.

We have lots of options as to how we do it in the case that we do it we could frankly rolled together two-phase isn't go bigger we could phase it in stage it more in Unstopped, maybe increase production of I'll see he's in various forms chloride for example, clothes can carbonate to follow.

All of that is on the table, but as long as they're going to be a reflection of the Argentine environment and the support that we have down there in Argentina as well as how comfortable we are with regard to price even volume commitments from customers.

Very helpful. Thank you so much.

Your next question comes from the line to Jackson with BMO capital your line or something.

Hi, Hi, Paul.

Oh, you know I know, the Nebraska story quite incidentally Unfortunately.

I do have been there. So obviously you had a claim against them you got the stakes I'm Gonna remember that claim I I understand.

Is this basically go back to the drawing board and say okay.

No hydride plan, we don't think that works, we're gonna go back over I'll Optionality here, maybe we'll do just like a Chinese conversions aren't there so to ask for a cough at the new Environmental studies go right back to the beginning put the plantains and in what Bucci nausea went again like I mean, it is that the way to think about it if it's totally let's go back to <unk>.

Scratch go back to square one she she even get value out of it.

Not quite sure I want like I I don't think for one moment that wasn't a mass covid was all entirely useless I think they actually did a lot of really good look and they've made some valuable investments isn't that but I I think I think Nebraska had a couple of issues behind it trying to Joel I think the military to be blunt, but first issue I think that they had was the financial structure clearly and that's what drove them into.

To this position I think the second and stuff and maybe link so that they allow themselves to be overambitious as to what that mindless actually capable of intend to production and so we ended up with a mind time that was crane higher capital spending a whole bunch of issues with regard to you. It's it's functional capabilities all quite reliably into mind ticket in and.

To be harsh environment up the the theater it was.

Entire strategy with regard to the chemical conversion content I don't for one minute think the hydramine capability of technology is not something that could work. It could we absolutely would love it to work if we can make it work, but we have to get confident that it is going to.

At an operating costs that makes sense, it's certainly more capital intensive.

But it does have some pretty significant environmental benefits.

Also say just to give you an idea as to the challenges is to is to that that process. It almost certainly doesn't feel like the location that they'd selected is actually going to work for a whole bunch of geological engineering reasons, and so it may be that unless we change the technology couldn't even though it shouldn't even if we wanted it to.

And so there's a lot of questions that have to be honest. It's the one that's not quite a blank sheet of paper, it's ugly not taking the existing plan and tweaking it it it will be a much more fundamental reassessment than that.

Okay. Thank you for that.

So Paul you know obviously lifting prices have been really got this year, we're sitting on the cost curve, we're seeing a lot of pain and we're seeing I'll turn receiver sure, we're seeing or a kobe a negative margin listening live in.

Basically near their earnings you know in the third quarter here and so when you look at your business model and what you are and at this low the low part of the cycle liven, It basically near zero or losing my does that make you think about you know you have to reorganize here. So as you know lithium prices go through the cycle overtime.