Q2 2021 Sociedad Quimica y Minera de Chile SA Earnings Call
Should you need assistance. Please signal a conference specialist by pressing Star then zero. After today's presentation, there will be an opportunity to ask questions to ask a question. You May Press Star then one on a touchtone phone to withdraw your question. Please press Star then two please note. This event is being recorded I would now like to turn the call.
<unk> over to Kelly O'brien head of Investor Relations. Please go ahead.
Good morning. Thank you for joining <unk> second quarter 2021 earnings Conference call. This conference call will be recorded and is being webcast live. Following this call you will be able to access the webcast at our website Www Dot ask you on dot com and our earnings press release and presentation.
With the summary of the results have been uploaded to our website, where you can also find a link to the webcast speaking on the call today will be Ricardo Ramos CEO, Bernardo Yummy, CFO and Philippe Smith, commercial Vice President lithium and iodine Asia Pacific.
They will all be available to help answer questions. After the prepared remarks before we begin let me remind you that statements in this conference concerning the company's business outlook future economic performances anticipated profitability revenue expenses or other financial items anticipated cost synergies and product or service line growth together with other statements.
That are not historical facts are forward looking statements as the term is defined under the federal securities laws.
These forward looking statements are estimates, reflecting the best judgment based on currently available information and involve a number of risks uncertainties and other factors that could cause actual results to differ materially from those stated income statements, including our ability to successfully implement it.
The minimal development plan.
Certainties and factors that could affect the accuracy of such forward looking statements are identified in our public filings made with the U S.
United States Securities and Exchange Commission and in our earnings release issued today.
These forward looking statements should be considered in light of those factors, we assume no obligation to update such statements whether as a result of new information future developments or otherwise, except as required by law I now leave you with Ricardo Ramos, our Chief Executive Officer.
Hey.
Good morning, Thank you for joining the call today.
During the second quarter 2021 were almost 76% higher than earnings reported during the same period last year. These are all sort of a sole source because of the higher sales volumes and prices across almost all our business lines when compared to the first quarter of 2021.
We are seeing positive market conditions in all our major markets, which we participate and expect to see demand growth of over 40% in the Houston market and all of a 10% of the ASIC market.
Our sales volumes will affect is a strong market momentum.
Mentioned.
The earnings release did human Ireland sales volumes this year Chooser Pas 95000 metric ton sunstroke sell somebody those were specifically.
Have you done other work.
Additionally, we believe well doesn't blow right I know sales volumes plus 800000 metric tons. This year, an increase of approximately 10% compared to last year.
We expect prices in the Polish market is increasingly they compete.
I would've thought that the lithium market focus on the long trip currently we're producing lithium carbonate that's a lot of the camera at a range of approximately 110000 metric tons per year.
When we made them target to reach our nameplate capacity of 150000 metric tons during the fourth quarter. This year.
As we mentioned in May the completion of the next stage of our lithium carbonate expansion in Chile. It has to be moved forward to 2022 and this remains true wed expect to produce approximately 140000 metric tons next year.
I'm sorry, yes, the development of our workplace themselves in metric tons. We can manage the pipeline is on track and we expect to be operating in 2024.
In terms of sales volume, we plan to continue growing with the market as we have done successfully over the past 18 months for example, during the first half of this year, we have sold more than doubled its sales volumes sold during the same period last year.
Our average lithium prices during the second quarter of 2021 were almost 20% higher compared to the first quarter 2021, our sales contract signed last year.
Expiring and how you get persons each of our sales are in voice based on the current pricing scenario.
Average prices during the second half of the year.
I'd expect it to increase further as the market continues to tighten and 2020 contracts continue to expire the fundamentals in the lithium market are stronger than ever and we recently updated our 2025 leasing card, but he did prevail in this domain.
Alas 1 million metric tons, and we are working to strengthen our position and be smart.
Thank you operator, we may now go to the Q&A session.
Pardon me, ladies and <unk>.
Gentlemen, it appears we have lost connection to our speaker line. Please standby, while we reconnect. Thank you for your patience.
Operator, we're here connected.
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Pardon me, ladies and gentlemen, this is the operator, we have reconnected. The speakers will continue we will actually now begin the question and answer session to ask a question you May Press Star then one on your Touchtone phone, if you're using a speakerphone. Please pick up your handset before pressing the keys.
At any time your question that's been addressed and you would like to withdraw. Your question. Please press Star then two at this time, we will pause momentarily to assemble our roster.
Our first question will come from Cesar Perez Novoa with BTG Pactual. Please go ahead.
Thank you.
Good after noon Kevvy Ricardo Felipe and congratulations for your strong performance in the first half of 2021.
A couple of questions. If I if I may you upgraded 2021 lithium volumes to 95000 tons and are projecting significantly higher prices in the second half of the year in part because of sound market dynamics, but also because of expiration of old contracts that had lower prices.
Could you. Please provide what percent of the old contracts are set to expire or how much of the newly priced contracts should we expect in in in the second half of the year on on potash a similar question you upgraded volumes by an incremental 100000 tons and seen how.
Prices, if you could assess what is driving this market and also give a glimpse of what we should look at in 2022 for fresh gums volumes.
And.
Hopefully you know you can shed a little bit more more light about the long term outlook for that market are finally, I have a qualitative question, perhaps for Covid Carlo.
Regarding the political environment in Chilean and comments by some lawmakers and media related to lithium royalties on and there's a lot of epic AMA.
While most of these statements our political in nature and unfortunately occurring during an electoral year I would like to hear your thoughts on on a very broad level and perhaps tell us where we're ask Jeremy is positioned.
In all of this and possibly separate fact from from fiction.
Would be my my questions.
Thank you very much for taking them.
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That really long question.
A lot of questions, but let me start with the.
The lithium paired.
With us to give you.
More details about what we're doing there in human up is that some comments about the fall that industry.
Finally yard.
I'll bet existence, AT&T or whatever.
Then let me go in that order.
Okay, Hello assessor.
Well regarding your question, let me start with a small introduction so as part of our strategy of growth.
During the second semester of last year, we are indeed contracted as well.
For 2021.
If you look at the total volume of 2021 during the first semester and more of a three quarter of the volumes were contacted.
And if prices, which were prevailing at that time and for the second semester is less than 50%. So we are now.
Morning, Chris.
To the new price environment and all of these contracts are expiring in December.
Thank you.
Yes.
This is in regarding the quarter.
Of course, we are now we have a really unique situation in the market where prices have gone up.
I'm very high and you can expect prices probably union second semester, this year, especially fourthquarter, Rob yes on average it's.
Close to double banded prices average prices I'll take them half last year. It means it's a significant increase in Bryan we.
We don't know what we don't have not information.
With me too.
Long term predictions about what's going on with the oil prices. There is a lot of research about potash guidance. We can thank you Denise.
S T.
There's a lot of them.
Uncertainties regarding what's going on in the long term, but in the short term prices are very very good in the body.
We are pushing our volumes.
In our press release, we will try to increase that with volume through the second half of a whale.
You're getting the benefit of the embedded price environment in that market from both actually second half will be significantly higher than the first half I think you can get the hazard of anyhow for the last three years maybe.
We are very positive about what's going on in that.
Q4 second half the year.
So it is too early now to give you a analysis of all the volume for next few Europe. We have this nice production of lithium in both actually in the process of Gamma we are now working on our business planning operational planning to fly to.
Nobody is going to be the total volume of available for sale next year keep in mind that the main use of our potash is the most important one is to be raw material is progressing nicely.
We're working in now where our business. So that's a nice thing to get both price itself, what I said, well, we need the right direction of course, but thats a 19th is going in the right direction.
We mentioned before many times like not as well as high loss or that just means potash goes down.
And at the same level and we don't go to the App and the same level, but anyway.
Well, that's a nice at SEC I'm happy for you guys going to be significantly higher in place. That's very good news, but I expect we'll have more information or more dialog regarding when do we expect for next year in the next conference call last year September.
Regarding your last question that is not an easy question.
The political situation as you mentioned, we added in the middle of an electoral year.
So it is reasonable to hear many statements many different issues.
In my opinion is no program for companies to get involved in political discussions of course, not however, I think it's important to remember.
Some key facts in my opinion Novartis.
And this allowed us omnicom operation very few.
First of all on the first one and the other opinions regarding what we're seeing is there's a lot of operations.
As you May remember, it's an old story, but there's a lot of the kind of a project.
So now you're paying for it.
The mid Eighty's, if I'm not wrong, what we May see you may be seeing from 1985 something like that.
It was awarded by an American company.
The company, if you remember with IMAX.
And I will stop I remember one of the largest mining company in the U S at that time and the Chilean company around gross margin.
The main conditions to break this a lot is the guy that was set in that process in the United States.
Of course, it was nothing more viable, but after seven years more or less than a year. So this investment in research and development whatever it is.
The project in the any degree I'm sure with 1983.
These companies decided to sell their participation in the project.
When it can both of them.
And everything the same conditions as read by these companies with core for seven years ago.
Finally, as you may remember in 2018 during the period government an amendment to the contract was signed between Cortland Essakane main decreasing the that he can pull that up.
We're looking for but of course in exchange of that history of economic conditions in favor of cortisol.
Currently as you know the lithium industry.
System, the human resources to attack according to the agreement with Vodafone, which are close to 50% of the gross margins generated by this business.
To be clear again, no other economy activity TD, that's based more taxes and contribute with hydro resources efficiently and smartphones.
The VLCC for each one of the broker today, the second relative to the second point that I want to be very theory that we had a lot of bodies and email and there's a lot of the guidance on a sustainable way.
We are one of the few lithium producers in the world that you see integrated in the mining and construction and subsequent refinement of the broader into extremely high quality lithium carbonate and lithium hydroxide.
We added value in such a way that it can be used directly in high stakes industry, such as electric vehicles.
As you know most of the figures it's striking to me at all and then send the enrollment figures to China, whereas the value added process of producing refined lithium program is done.
Mr. <unk>, we have more than doubled our capacity.
We're already working to almost doubled in just a few years at the same time, but at the same time wherever you use it our Bryan, Texas, increasing yields and whether you see an unprecedented way.
It is very proud about.
Finally, let me tell you the fact that we will keep working on it.
Working on initiatives like this we're committed to producing these human NOLA what problems are all of our products in a sustainable way, adding value to all our stakeholders.
Okay.
Right.
Thank you very much of a carnival for for the thorough explanation and good luck in the subsequent quarters.
Our next question will come from P. J <unk> with Citigroup. Please go ahead.
Yes, hi, good morning.
Alright, I should say good afternoon.
You know your majority of lithium or another.
Him goes to Asia, mainly to China.
And you know how is the shipping tightness impacted you and what is shipping and transportation as a part of your Cogs.
Yeah.
Okay.
Hello can you hear me.
Yes, Hello, Hello P. J, how are you, yes, good how're you well.
Yeah, I think that.
Indeed, as you mentioned that there is a general overall problem with a with a comparator shipments.
Everywhere and Broadcom desktops and so on.
Pardon me, ladies and gentlemen, as it appears that we have lost connection to our speaker line. Please stand up please standby while we reconnect. Thank you for your patience.
Yes.
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Pardon me, ladies and gentlemen, it appears that we have reconnected our speakers line speakers. Please continue answering the question.
Yeah.
Okay.
Well as I was saying a P J.
We recognize that there is indeed, an overall problem with the supply chain, but as part of our strategy. We have established local warehouses and storage point in the main markets. So that gives us good flexibility to supply.
So by our customers and to absorb part of these possible interruptions or delays.
From that point of view, we are in a good position.
And regarding that what is the cost.
It's a very small percentage of our total cost what what has to do with their logistic and transportation.
Okay.
And my second thank you for that my second question is would you like to get bigger into the lithium refining business getting into hydroxide business I'm going downstream can we just talk about why or why not and would you look at potential M&A due to if you decided to go into it or would you potentially look at M&A in China.
Uh huh.
Get into hydroxide business. Thank you.
Yeah.
Hi, P. J, we got about almost speaking as you may know we are fully integrated today, we produce lithium carbonate and lithium hydroxide, but of course, we're looking for what we're doing much debated than today and yes. We are looking for different alternatives to increase our lithium appetite for example capacity.
Mentioned in the previous conference call I expect during this year I hope he is going to be during the conference call of September the announced what he is going to be targeting in terms of lithium hydroxide capacity. So 530000, but we are looking forward to the.
To increase our capacity.
You are right in terms that we're looking for different alternatives not only T live I don't say it we're a big player in the lithium we aren't going to be in the short term.
And the engine and 80000 metric tons capacity, that's a lot of lithium carbonate and lithium hypothetically have to sell on a sports we're looking for different.
Around the world as soon as we have any news regarding that of course, we will announce the market.
Thank you.
Our next question will come from Joel Jackson with BMO capital markets. Please go ahead.
Hi, good afternoon everybody.
Hum.
I have a few questions that I ask them one by one.
If I listen to your commentary earlier about half of the second half of your volume for lithium this year being still contracted from last year's prices.
That seems to imply that your spot prices hold here your second half lithium price should average about 30% higher than the first half of Europe, you've got the right ballpark.
Yes, hi, Joel well and.
We believe that a good estimation of our pricing and the fall.
First quarter is to approach the $10000 per tonne outbreaks.
Okay. That's actually quite helpful. Thank you so I'll keep going.
If I pick up I think you said earlier on this call that you expect to be able to produce about hundred and 40000 tonnes LTE next year as you work through your expansion in Europe.
We got a really big volume growth. This year of 30000 times, you've been able to increase your sales guidance throughout the year do you think right now early stage or you can place 45000 tonnes next year, obviously, you've been lucky that you've had a lot of production increases that's your others haven't and exercise more supply coming on it's also big growth do you expect you'd be building inventory.
Next year, whether you could tell the full 45000 any early thoughts would be helpful.
Yeah.
Regarding this question I think that a hour.
Any idea or target is to grow at least famous the general or the overall market. Okay. So our best estimation for that today with the information. We have today is that the market will grow around 20% next year. So this should be our minimum growth in phases as well.
Okay. So if that's what you think's going to happen.
If the market goes 20% and you're planning to produce.
40, or 45000 tons more next year half for incremental sale and half for inventory balance is that correct.
Yeah, I mean, there are.
The extra capacity that we will have will allow us to have flexibility going so I mean, we.
The business and our sales will move depending on.
Our strategic.
And priorities, our strategic actions on priority so yeah.
Most important thing is that we will have enough capacity to sustain our growth and sales, but also to give us flexibility to move in the market.
This is helpful. If I look at in the iodine business now downgrade to recover volume you've been holding price.
Your iron costs have also gone up a fair bit.
As we look into the next year, you know well these iodine cost stay roughly the same.
And your goal is try to you know balanced price with growing back volume too.
Where you were a couple of years ago. So are you able to offset the.
Higher costs with price.
Yeah.
Regarding <unk> speaking I think that because this is we expect next year depending of course is the energy on the exchange rate is very important we need to keep an eye on it but anyway, we have different initiatives to maintain our castle trying we are trying to reduce over Kosmos next year, India business on the prices the market for.
Decent pricing.
And as you know is a very good yeah.
Trend means to increasing demand with very strong the clients our recovery and our customers are recovering their inventories that they decrease in deposits during the second quarter. This year. We think we're going to have a strong second half. This year means that you can continue that way of course pricing is going to be positive, but it's too early.
To give up Brian guidance for next year.
Of course in the cost area. We are working forward to do move in the right direction to reduce some of the cost.
And just my last question, if I can be greedy done very well to raise your guidance for merchant potash sales volumes this year.
And what your brine extraction plans have been and what you've announced about.
In the past couple of years should we expect a decent drop off like a large drop off in your merchant potash sales well below 800000 tonnes next year can you hold roughly this level next year.
Yeah, I think I mentioned before it is too early for us to have on guidance about volume support actually next year, we're working in our business plan for next year and are now operational.
Planning to Soliris as you know lithium is a very important priority for us is a very good long term business for us and take on most of the use of the product for us as a raw material for us a nice it that's why we cannot we don't have today a guidance of coalition next year, but it is reasonable to expect that the.
Volumes were going to sell these next year is going to be slightly lower or lower than this yet, but I don't have the numbers. So far of course, considering what is the magic condition during cyclical sccm trying to increase.
As much as we can is warranted because we think that the pricing is very very interesting pricing environment in the broader industry. So far but it's very difficult now to have a guidance. How are you seeing I have to wait until September.
Thank you very much.
Our next question will come from Ben Isaacson with Scotiabank. Please go ahead.
Okay.
Thank you and congrats on the great quarter.
First question Ricardo you talked about looking at different alternatives, both within and outside of Chile for lithium.
Is the Mount Saint Holland project, an alternative for you the 50% that you don't own how is that structured is that possible for you to buy that 50% or do you foresee yourself being 50, 50 JV partners indefinitely.
Hi, Ben.
We're very happy with our partner in Australia. It means with farmer is by far the best funding you're going to have enough Australia. Nowadays muted you said great company.
Probably the number one company as a global company in Western Australia in doing business with them in Western Australia.
You said dream come true for me I'm very happy being partnered with with pharma will continue to do business together, he and I will tell you that I have no single doubt about it.
Second question when you look at the impact that Covid had on iodine volumes. It seems that there was quite a bit of a lag you did 3000 tonnes in Q4.19 before Covid and then you went to 2800.2600 2200, and then by Q4 of 2020 Europe just.
Over 2000.
Now that we're heading into the fourth wave with the Delta variance.
You guys just did really really well in Q2 with respect to your Ida in volume is there a risk now that we start to see declines to your sales volume over the next several quarters as it relates to the Delta variant.
Yes, I am.
Hello, Ben well.
2020 was indeed, a negative year for Iran. Because the pandemic was a.
Hitting strongly certain obligations.
But this year 2021, we have seen a recovery.
As a matter of fact, we believe that the total demand will even surpass.
2019, total demand, which is good news and we are expecting that looking ahead in the coming months.
This growth or recovery.
Will be maintained okay. So.
During the second quarter, we had very good sales volume part of it explained by the demand, but also our customers are feeling more confident about the future. They started to recover or rebuild stock. Okay. So we will have to see how this goes in the coming quarters, but at least we're perfectly.
My last question is when you look at the supply demand balance for lithium right now it's quite types, you talked about lithium demand, maybe growing a little bit better than you expected through 2020 fives I think a lot of consultants are looking at 800000 tons 900, and now people are starting to talk about more than a million.
Tons in 2025.
How do you see the next 18 to 24 months playing out versus the tightness right. Now do you think things are going to get tighter or are there going to be pockets of softness when new supply comes on do you think it'll basically stay where it is right now.
And I'm, sorry, just I don't mean pricing I really mean, the supply demand imbalance.
Yes.
Well regarding the demand forecast.
And a question before we believe that.
For next year, it should be at least 20%.
Now.
Being at or retroactively. We were also thinking about the growth this year would be around 50% and we were all surprised by.
They're very good growth. So we have to monitor that development area and we hope that our estimation is fair on the low side and that we can see a much solid market in the next.
One or two years.
Thank you.
Our next question will come from Corinne Blanchard with Deutsche Bank. Please go ahead.
Hey, good money with afternoon, guys and again congrats on the new.
Nice quarter.
My question has already been answered.
Poverty to mall, the first one would be on the Florida contract.
How much of the contracts have been pushed to 2022 and at any time that that's been pushed even further into 2023 I believe last quarter. You. Your guidance says for mm 120 care talent phosphate after funding all you'd be crazy by on debt.
So I'm just trying to stitch, it together and I do that.
Okay.
Hello.
Crane Ricardo Ramos speaking, yes, youre right. It means that we have had some delay in the volume sales for this year to first half next year.
Mainly due to the hour.
And he has some issues at the beginning of the COVID-19 with the workforce. They solve the issue of the workforce now they are moving ahead as fast as they can that's why we moved some of the scandal of keeping from second half. This year to first half next year Theres a delay if I'm the round close 200000 metric tonnes from this year to <unk>.
Year plus of course, the sales that were originally estimated for 2022, but the real delays from this year to next year is close to 80000 to had to Tazemetostat.
Total volumes this year is going to be close to 100000 metric tonnes.
They had been at 80 something that out there what's the original schedule, but the total volume will be.
Desktop a reschedule of the of the shipments through the first half there's no redaction.
Probably it's going to be an increasing volume ceb's sales, but no reductions desktop a delay in the Chilean.
Okay. That's good to know and just for the.
The segments like industrial chemicals.
What's your guidance again for the entire year and camel volume.
Sorry, we have a problem with the communication can you repeat the question we have very bad.
Noise here.
So I was just asking you what the Hum.
<unk> volume guidance for this year.
For the entire segment for the English chorionic kidney care Division.
Okay industrial chemical we have two main business and the industrial chemical the first one is the solar salt business that as I mentioned you before is like 100000 metric tons expected for this year and the second one is the U S.
The traditional use of industrial chemical and is close to 65000 metric tons per year, and we expect to have this year between 65 to 70000 metric tons of what we call the traditional industrial kidney.
Great. Thank you just one last question if I meant to say.
Brought out topic liquidity.
Just give us an update on the on the license revenue I think the timeline.
Where do you stand now and what can we expect maybe over the next you know transfer to 24 months.
Okay, Yes, as we mentioned before.
Not only today, but in the last eight are now several quarters record. We are very focused in increasing capacity increase in network for the CVD increasing deals.
And doing a great job is sustainability. The SLR, we are going to reach the 180000 metric ton studies more than four times, what you used to have three years ago, where increasingly to matrix I in our facilities. The quality is incredibly good today, we're really proud of our process that we're working on our SASSA and as good as we can.
We don't foresee any issue regarding our license.
Word connectivity in the scenario of course us publicly no we of pool.
Full agreement you already explained that until the year 2030, we're working very hard in order to do the best job we can.
Great. Thank you. Thank you. Thank you so much.
This concludes our question and answer session I would like to turn the conference back over to Kelly O'brien for any closing remarks.
Hi, Thank you for joining our call. We look forward you're joining our next quarter quarterly conference call in a few months.
The conference has now concluded. Thank you for attending today's presentation you may now disconnect.