Q1 2021 Livent Corp Earnings Call
Good afternoon, and welcome to the first quarter 2021 earnings release Conference call for line Corporation on line.
And so it will be placed on listen only mode throughout the conference.
And after the Speakers' presentation, there will be a question and answer period.
I'll turn the conference over to Mr. Daniel Rosen Investor Relations and strategy for live and Corporation. Mr. Wilson you may begin.
Okay.
Thank you Erika good.
Good evening, everyone and welcome to live and its first quarter 2021 earnings call.
Joining me today are Paul Graves, President and Chief Executive Officer, and Joe Berchtold, and Tony Aussie Chief Financial Officer.
The slide presentation that accompanies our results along with our earnings release can be found and the Investor Relations section of our website the per.
Repaired remarks from today's discussion will be made available after the call.
Following our prepared remarks Collins, Roberto will be available to address your questions.
We would ask that any questions be limited to two per caller.
And we'd be happy to address any additional questions after the call.
Before we begin let me remind you that today's discussion will include forward looking statements are subject to various risks and uncertainties concerning specific factors, including but not limited to those factors identified in our release and in our.
Filings with the Securities and Exchange Commission.
Information presented represents our best judgment based on today's information.
Actual results May vary based on these risks and uncertainties.
Today's discussion will include references the various non-GAAP financial metrics definitions of these terms as well as the reconciliations for the most directly comparable financial measure calculated and presented in accordance with GAAP are provided on our Investor relations website and with that I'll turn the call over to Paul.
Thank you Dan good evening everyone.
The admit it feels about five minutes since we last did this.
Before I begin on one of them once again, thank all of our employees for their hard work and the ability to adapt during these challenging times.
I also want to acknowledge the reality that the recovery from COVID-19 has been uneven around the world.
Alive, and we will remain vigilant across our global operations and continue to work closely with local authorities to prioritize safety as we all get through this together.
We have a number of important topics to discuss today, including.
Performance and the first quarter. The continued positive trends seen in the market and how we expect them to evolve in 2020, one and beyond and.
And the decision to resume our capacity expansions backed by the recent execution of <unk>.
T of customer agreements and support from local stakeholders and and improving overall market backdrop.
So starting with the first quarter results on slide four we reported revenue of $92 million adjusted EBITDA of $11 million and adjusted earnings of two cents per diluted share.
Revenue increased 12% sequentially, driven by higher volumes and increased customer demand across most of our products, particularly in hydroxide. This.
This was partially offset by slightly lower pricing.
And the license annual fixed price contract the one negotiated in 'twenty, and 'twenty and reset and the new calendar year.
Adjusted EBITDA was nearly double the prior quarter.
This profitability improvement was driven by higher volumes and lower operating costs, partially offset by slightly lower pricing.
The rapid improvement and publish lithium prices, we saw at the end of 2020 has continued in 2020 one.
As stated on our last earnings call, we did not expect much pricing benefits and the first quarter, given where prices were previously set with many of our customers and without of available volume for 2021 largely committed.
Much of the pricing upside for life and will be and the remaining part of 2021.
On the subset of our customer contracts, but are subject to monthly or quarterly price renegotiation.
And we'll have a lag for market linked pricing adjustments.
While our 2021 guidance range for full year revenue and adjusted EBITDA remain unchanged from last quarter, we do expect to perform at the higher end of these ranges as market conditions continue to improve.
We will adjust out of estimates as warranted as we move through the year.
The momentum and market pricing that we have seen unexpected to continue the appears to be routed and a strong increase in demand that is significantly exceeding supply growth.
This reflects what feels like the wheel and fundamental turning point and our industry and we expect to benefit the benefit from this even more as we approach contract and with customers for 2020 two.
We are already seeing an increased sense of focus and urgency and conversations with both existing and potential customers.
The multiyear supply agreements the life and has executed over the last few years reflect the company's position as a global leader and the lithium industry with a fully integrated operating model recognized as a reliable supplier partner with a proven ability to meet continuously tightening quality requirements and the best in class of sustainability.
Profile.
Additionally, our ability to live of multiple lithium products from and to various geographic locations is an important focus for our global customers as they look to build more resiliency and that supply chains.
We are one of the few producers of battery grade hydroxide outside of China today.
And as a company that has continued and looking to innovate and develop next generation lithium compounds to advance battery technologies, we want to align ourselves with customers that are leading the owned innovation assets and electrification and appreciate what we can bring to the table.
Supported by improved pricing and the execution of recent long term supply agreements among the other positive factors life and has restarted its capacity expansion plans and both of the United States and Argentina, I will now turn the call over to Gilberto to go through this and more detail.
Thanks, Paul and good evening everyone.
The time line of and halted its expansion plans and the first quarter of last year during the onset of the global pandemic.
The company has been working diligently to determine the optimal path forward for when we would resume activity.
Part of this was ensuring full comfort and alignment with the local governments and communities.
And which we operate particularly in Argentina.
As you know we work closely with Argentine government last year to develop and administer safe and practical set of protocols.
Following the mandatory countrywide quarantine.
As a result.
We were able to resume production after only two weeks of downtime and 2020.
The increased activity and transportation of people and construction and keep them on.
To the remote area like the seller of the aluminum vertical requires additional planning.
And we're glad to have accomplished this in partnership with and supported by our local stakeholders.
And while COVID-19 may continue to provide logistical challenges as we progress on our expansion.
Our last 12 plus months of successful regional operations gave.
Many of us well prepared to navigate and adapt as necessary.
Additionally, we have been focused on opposite the upsizing and restart.
From both the capital and timing perspective.
And the time of pause and expansion.
We assure that we completed critical steps that would allow for an efficient and low risk we started plant.
And this included completing module construction and shipping and storing them encountered.
What's particularly important today, given some of the global logistics challenges.
On slide five we provide the latest details on our near term expansion plans.
<unk> 5000 metric ton hydroxide edition and best machine.
And its phase one lithium carbonate expansion of 10000 metric tons in Argentina.
We're both the progress at the time of policy last year.
These are now expected to reach commercial production.
By the third quarter of 2022, and the first quarter of 2020 three respectively.
Additionally, live and has made the decision to commence.
The phase II carbonate expansion in Argentina for an additional 10000 metric tons.
We'd expect the production by year end 2020 three.
We would expect the ramp up.
Two run rate capacity of each of these units to be fairly quick.
Given the direct distraction process that we implement and Argentina.
And the fact of the new hydroxide unit will be focus on customers that we already qualified with.
So you should expect 2023 to reflect a large portion of the new capacity from phase, one and Argentina and best of RCD and.
And 2024 to include the phase II capacity from Argentina.
Our total capital spending in 2020, one is now anticipated to be approximately $125 million.
With 25 million and of that amount of going towards maintenance of spending.
Full year adjusted cash from operations is projected to be and the range of $45 million to $65 million.
We will continue to provide further details regarding the expansion of as we progress.
I will now turn the call back to Paul to discuss our expansion plans further.
Thank you Gilberto.
Slide six provides a graphical illustration of what the completion of these near term expansions will mean for our total production capacity.
We expect that by the end of 2020 three live and one of them roughly doubled its carbonate capacity and Argentina from today's levels to 40000 metric tons and creating the opportunity to significantly increase our earnings power from today's volume constrained levels.
Based on our current plans. Once these expansions are complete we will be long carbonate will have a surplus and out of operations of about 14000 metric tons.
This is important for two reasons.
First it eliminates the need to source third party carbonate to feed out of hydroxide units, which will increase our profit margins and lithium hydroxide.
Second it gives us the flexibility to participate and the growing carbonate market.
And <unk> to provide additional feedstock for fear of the hydroxide expansion should our customers need it.
As we have discussed previously our past decisions to sell limits of volumes of lithium carbonate to customers.
Instead of focus on our demonstrated strength of the leading battery grade hydroxide producer with demand growth from our customers has meant that we consume almost all of our carbonate production internally.
While we will maintain our focus on meeting our customers' growing requirements for battery quality lithium hydroxide. We also continue to believe that live and should have greater direct exposure to the carbonate market and the future and our expansion plans allow us to get to that point more quickly.
While our team will be focused on execution of these expansion plans for the next three years, we of course cannot stop that.
As we set out on slide seven we must continue to expand our production capabilities to take advantage of the huge growth opportunity from on customers and the industry over the coming years.
And we feel we have a number of attractive opportunities to do so on.
Our operations and Argentina allow us to be one of the lowest cost producers of both the lithium carbonate and lithium chloride globally.
Our abuse since the IPO in 2019 has remained the we have the capability to triple our carbonate capacity and Argentina to 60000 metric tons and that it is one of the most attractive areas to deploy capital.
Additionally, we intend to keep expanding our global hydroxide network to align with customers, especially as the specification and geographic needs continue to evolve.
Our modular approach to hydroxide expansion allows us to build and you new units quickly and capital efficiently.
How and where we build will determine the required capital and we would expect to have the appropriate commitments from both customers and the local authorities to supporters and these assets before we would make any firm decisions.
This will only become more important as the coals for regionalization of EV and battery supply change becomes louder, especially in North America and Europe.
And finally, we have and attractive position and our partnership with piling has done the IQ and the Mexico, located and Quebec, Canada.
As a fully integrated lithium chemical project.
And would buy renewable hydroelectric energy and it will be well positioned to serve the growing markets and North America and Europe.
We are currently working without partners on and optimization study that will determine the best path forward for commercial development, including lithium products capacity timing and capital requirements. We intend to provide further information regarding the results later in 2021.
Yeah.
I'd like to spend some time outlining the recent positive changes and market conditions, and how we expect them to evolve.
The signs of increasingly positive lithium market dynamics that of minutes late in the fourth quarter of last year of continued so far in 2020 one.
It is clear that the largest driver of this is much higher than expect expect the demand for lithium driven by strong actual and even stronger forecasted E book sales.
While there have been some meaningful disruptions and the board of battery supply chain, especially with regard to availability of shipping containers and restrictions around the movement of people goods and materials and some key geographies, we have not seen EV production itself slowed down and the same way it has for many traditional ice.
And the models.
Certainly appears that Oems are prioritizing successful EV launches when they otherwise constrained driven by factors that include emissions regulations of desire for the first mover advantage and the increasingly consumer preferences.
EV demand and the first quarter of 2021 was strongly and all three major regions with the EV sales in March up around 100% month over month, and China, and Europe, and up 70% and the U S.
Responding to the strong data and supported by increasing <unk> sales forecast by Oems and battery supply chains of accelerated their activity and in the last few months.
Collecting of competence that these demand trends for E vs will continue.
This is a stark difference from most of last year and COVID-19 related uncertainty drove many purchases to delay orders and avoid the building any potential excess of inventory.
And this environment. It is no surprise that the increases and published lithium prices first seen three of four months ago have continued.
Published carbonate prices in China of effectively doubled year to date and that's.
And you would expect this upward price pressure is now being felt outside of China and is being seen and reports of the hydroxide prices.
But we're also seeing spodumene prices rise rapidly, which will continue to place upward pressure on costs for all non integrated conversion of operations.
One interesting dynamic the way we're watching closely is how variable price contracts structured survive these trends.
And much more prevalent phenomenon compared to the last time, we saw increasing market prices is the structure of formulate pricing of spodumene concentrate a quiet on the long term supply contracts with the price charged for spodumene directly linked to published or index lithium carbonate or high.
And I'll tried prices.
This means is that as lithium chemical prices increases so do contracted spodumene prices.
And if those of increase and the convert to the operating costs.
This is likely to result in continued upward pressure on the lithium chemical prices since most of them book is operating at close to breakeven profitability, even with the $400 a ton of spodumene prices.
So and moved to 600 of $700 spodumene pricing, which is what we have now seen reported will force them to raise prices just to breakeven.
Given these higher cost pressures, we are starting to see some lithium supply contracts being strained with multiyear agreements with limited or no price flexibility quickly becoming unprofitable for these non integrated converters.
With the little to no surplus of carbonate or hydroxide available on the market today, we expect the many of these contracts will come under pressure to be renegotiated in the coming quarters.
Suppliers that are fully integrated from the lithium resource to final lithium chemical production such as ourselves have the cost predictability and the security of supply to continue to deliver commitments made under longer term supply agreements.
We believe this is the right operational strategy, particularly in the industry that requires multi of investment at the minimum for expansion of any projects.
We also continue to believe the many consumers of lithium chemicals will increasingly value having contracts with fully integrated supply of such as live and that's part of the lithium supply portfolios.
The final factor that we see and specific to lithium hydroxide and high nickel applications and that is increasingly tight specifications and qualification requirements.
The battery producers expanded the hydroxide based battery lines and 2020 the.
The diversified the supply to include new sources of hydroxide that have come on line in 2019 and in 2020. However, it is clear that not all of the suppliers have been successful and this qualification process.
And and even more rapid tightening of battery qualified hydroxide markets.
For the most battery qualified production capacity all of it and sold out.
And limited new qualified capacity scheduled to come on line. There was an increasing the risk that this market become structurally short and the second half of 2021.
In addition to qualification issues the supply side continues to have its fair share of challenges. While many companies ourselves included have resumed previously paused or delayed expansion plans there was little ability to expedite the timelines to bring online new production.
Put differently every day that and expansion is on hold at the at least a day to the point at which it will stop.
Even with today's operating assets the challenge for meeting demand and the next 12 months alone is growing with continued operating restrictions driven by COVID-19, global supply chain disruptions, which are likely to continue into the second half of this year and gradual but consistent near term demand forecast increases.
From customers.
And the supply demand dynamics of having an acute near term impact, but the supply pressures will continue to build before they start to ease and our forecast suggests that they will persist and even increase over the next few years.
Escalating demand is becoming more sudden and electric vehicles and the energy storage become further ingrained with the global consumer and.
Announcements from Oems are coming more frequently book in terms of ambitious electrification targets and the specs and the timing of new and highly anticipated muddle lunches.
And as the success of the premium push Thaicom and demonstrates a car, which by the way match. The post 911 per sales and Q1 of this year.
The near term EV launches of largely being led by premium vehicles, such as the Cadillac lyric and the Mercedes EQ range. These vehicles are typically launching with next generation high nickel batteries, which means the fastest demand growth over the next three to four years is and the highest quality hardest to produce forms of lithium.
The challenge for all of industry and providing sufficient material over the medium term is clear.
While lagging and EV adoption today of the push for domestic electrification is not of a clear focus and the United States.
The Buyten infrastructure plan, which he of proposed $174 billion invested towards the EV value chain.
This would prioritize the domestic purchase and production of Evs factories and raw materials.
Support local infrastructure, including charging stations and electrify the federal fleet concluded and the U S Postal service.
The U S Department of Commerce has also been exploring ways to facilitate the north American EV hub with Canada, and this isn't the area, where the life and has participated and conversations and has a unique position and perspective to our perspective to offer.
With respect to with respect to evolving battery technology, there's been plenty of conversation about the resiliency of certain legacy cathode technologies, particularly L. S. P. Despite the much promoted shifts to high nickel cathode and ultimately solid state.
Given the high installed capacity in China, and it's solid cost position. There is no surprise that the L. F P, which can easily the lithium carbonate all lithium hydroxide and its production process will continue to make sense and numerous applications with the performance requirements allow.
However, this does not contradict the trend of higher hydroxide demand growth.
And as battery technology continues to mature and go.
Mobile Oems rollout the larger E platforms, and we still believe the hydroxide demand will grow at a higher rate than carbonate and makeup and increasing share of the energy storage market, particularly as manufacturer and scales.
But we will continue to operate under the assumption the both products will be critical for long term energy storage.
Putting all of this together absolute lithium demand growth looks as strong as ever over the coming decade. That's the general consensus continues to both rise and narrow.
And there was also the growing belief that it will be a challenge for the lithium industry to produce sufficient qualified material on the near and medium term.
For those yet to be any agreement as to the best mechanism to solve this.
Since expansions and new assets need significant amounts of capital and.
And the next wave of resources, where all of a higher operating cost and today's resources, we're watching carefully to see whether the mark keep of sponge with higher prices more direct investments by customers or some combination of both.
Either way the need for high performance lithium chemicals will we believe favor proven incumbent producers over the new entrants with no proven track record.
I want to finish on slide 10, with a few comments about sustainability.
You may have seen the BMW group recently put out a press release, highlighting the supply agreement with alive and that we had previously disclosed. It also detailed the study of sustainable lithium extraction and South America that is conducting alongside leading U S universities and the life and will become contribution to <unk>.
Most importantly, it elaborates on the Bmw's focus on establishing the sustainable supply chains, and working with partners that share of that commitment.
This is a distinguished area of strength for live and on the one that enhances the scope of conversations and the cross functional teams that are involved when we engage with our customers.
Life, and we'll be releasing its latest annual sustainability report this upcoming quarter and we look forward to providing further updates over time on progress against the new sustainability goals that we released earlier this year, which reflect the highest priorities of life of its customers communities and investors employees and other stakeholders.
I will now turn the call back to Dan for questions.
Thank you Paul.
Erika you may now begin the Q&A session.
If you would like to ask a question at this time simply press Star then the number one on your telephone keypad. Please limit yourself to one question and one follow up.
Questions.
And thank you.
It was true.
Price.
Well pause for just a mom.
Thank you and day roster.
Your first question is from Chris Katz with loop capital market.
Hi, Good afternoon I appreciate your comments about the evolution of the pricing dynamic and supply agreements and and more specifically the advantage of associated with Dean and integrated producer.
Paul I'm curious and.
And the context of your comments about battery grade being potentially structurally short and the second half of 'twenty one.
Is it right the surmise and any volume that you have of beyond 'twenty, one and therefore that are not under longer term contracts would be subjected to a meaningful.
Price increases and when do you expect to have visibility in and around what that might look like.
Hey, Christy I think look I think the the assumption that we're working on there is the that they will be the upward price pressure of thought for anybody who doesn't have a locked down the formal contract for one of the bad description and so we do expect the 'twenty 'twenty two is going to be a very different pricing environment, we do expect pricing.
I mean, I think some of the day to day I've seen and like that.
Admittedly this is off of low numbers, and three months, which of carbonate prices doubling and hydroxide prices up 80% of them.
The spodumene concentrate chasing it hard and so these price pressures.
Great for this not to flow through to customers and so on and frankly I think many customers recognize this I think there's been many customers if you get them and a quiet momo and <unk> seen the last couple of years is a bit of the honeymoon period for them and they recognize that it would not could not last forever.
And I think as we've always said, we couldnt really predict when the prices will move, but we will guarantee you that when they move they move quickly and that is the case today and I think given the fact that we don't see the speed and a short term issue, it's not like the big plants of new went down on one specific.
Non replaceable demand pool suddenly appeared it's hard to know why this would not continue at least through 2022 and I think what that means is really true most of the rest of 2021 conversations with customers about commitments and both directions are going to become increasingly intense and I suspect the before we really get true.
The ability of one of our 2020 two he's gonna look like with regard to price and it's probably going to be sometime in the fourth quarter.
Okay.
And part of my follow up.
And I think people get the demand where it isn't an issue you resume your resuming your capital expansion.
Your that's underwritten the obviously.
And see a key testimonials from.
The key OEM and other E the supply chain customers.
And what a lot of investors want to know is what is the intent in terms of.
How much of this expansion will be funded.
Organically, maybe on piggybacking off of you know much better profitability on pricing on the go forward basis or what are some of you know.
But based on your modeling what are some other options in terms of any funding GAAP that you'll need thanks.
Yeah, you know the.
First of I think the first thing I'd say is.
But for the life, and specifically and the way options available to us for financing today and look very different than they did a year ago and really look very different and then they have at any point since the IPO in terms of.
Just general sentiment general market dynamics general visibility et cetera, and so you know we're gonna be patient with 'twenty 'twenty two 'twenty 'twenty. One sorry, you know of as we start into the shape and as we start the expansion I think you heard from Jill batch of whatever capital requirements. All of this year and they do tend to come late two and the year. So we're going to keep looking at all.
Possible options, you know and there are many I mean, it isn't just simply the case that we're gonna have to raise debt or or do some other kind of equity raise and there are multiple options available to us and we probably have more people all free months capital today than we've ever seen.
The decision that was going to be very very simple, it's which gives us the most certainty as to financing and ultimately we believe brings the most value to our shareholders will be the path. We go down with the down to the financing package that we ultimately put ultimately put in place.
Fair enough. Thanks.
Your next question is from Bob Court with Goldman Sachs.
Thank you Paul.
Wanted to ask you made a comment on your prepared remarks about the.
And the lagging price or are being and arrive on the alive and income statement subject of monthly or quarterly reset.
I guess I was hoping for a little more visibility on that as we try to think about how soon you guys will benefit from whats happened.
And it's quite an evolution from a few years ago, and we're talking about annual or multi year contract term. So can you give us some sense of your portfolio of products.
How much of reset monthly quarterly and annually and then what is the mechanism for that reset is there a benchmark price is at a negotiated process. How do you introduce the improved pricing into the the contract structure.
Oh and public you know if nothing else. We we've tried over the last day of a two to try and figure out what our customers really want and on what they are willing to do and I won't keeps them comfortable and and and I think what we discovered from that is debt is no single mechanism that makes everybody comfortable with them, we wouldn't really through the path of everybody being fearful of making lump.
Commitments from getting caught with uncompetitive prices when the price declines to customers now being extremely fearful of getting caught on a on a.
On a market price that is somehow just referenced of China published prices, which scared of the lifetime of many customers what we actually have in place today, it's predominantly annual contracts annual pricing.
Most of those were reset in Q4 of last year and will not change during the year of multi year fixed price contracts and.
And we have if you take those two together by fall of the majority of our volumes and our and our hydroxide and carbonate business all of hydroxide business follow that path I mean, I'm, ignoring everything else, we do and butyl lithium and all the all of those spaces as well the rest of it you know the mechanism is really a reasonably varied but I'll follow sort of similar themes. We have a couple of the basically like debenture.
Marx and simply price off of benchmark on a monthly basis, they are relatively low volumes.
And in many cases they are customers that are relatively you know not taking necessary for the highest quality grade material and so they tend to follow that path.
The others look to some form of index and now there's no perfect index as we've talked about before and there's nobody really 100 per cent comfortable with indices on what we've tended to find is most customers of of.
Looked to have a lag in them. So as prices were falling the pricing stayed higher for longer for them.
And usually a quarter or two and and as we now see price range is dependent on whether they are of one or two quarter lag and those prices you can expect to see the the pricing on those start to climb almost certainly and any of the Q2 or more like the Q3 and then into Q4.
And in terms of one of the challenge of the me answering your question of how much of the portfolio is that it actually can really vary quarter by quarter and expect to say, we had almost none of that and the first quarter.
A lot about volumes and the Midtown and the lay of Paul Yeah, all more exposed relative to Q1 anyway to these price movements.
And if I could follow up on Argentina, It sounds like and make some good progress there.
Just curious what your thoughts are in terms of of the industry doing business in Argentina or are there things that.
Your history. There is giving you an advantage is there some change and sort of the the representative approach of the government towards all of the lithium industry. There and is this something where you have a FERC mover advantage and getting that incremental capacity out or can you give us some sense of what those hurdles where or what what changed in the lab.
And you go forward.
Sure look I think every community and which you operate has a different personality and and.
And Argentina has a distinct personality as the place to walk away and we've been fortunate that we have been the heading towards 40 years now and so we've made on mistakes and the past. It doesn't mean, we don't continue to make them, but we actually also have really of depth and a history of engagement with local communities. The.
It's backed by a real track record and the real understanding of what is most important for these local communities and that's really what drives the compensation first and foremost from that comes your relationship with the local provincial governments and we've spent a huge amount of time understanding exactly what is important and locally and and.
And also educate and ends up and get indication process has to go on and sometimes about what it really means to invest and the lithium project and what kind of commitments, we need back from communities and governments and.
And of course, the as the federal government, which is the one that has the most visibility and changes the mouse but.
Perhaps when it comes to expansions has maybe the least direct impact on us with regard to decisions and the operating most of it really is on the local level conducted on the local level and I do believe that some of the policy moves that have been made and Argentina lately I think theres been a union of the northern States, who are wisely acting which is wherever they are.
All of the lithium resources all of.
And looking to work together to create a cohesive structure to support lithium development, while also putting in place price appropriate standards of environmental and otherwise.
We also see increased focus from the Argentine government recognizing that there's a huge benefit to them of encouraging direct investment into Argentina and taken the steps that they can to make this more predictable for us.
So you know in the end of your decisions and the space come down to.
Do you believe you can operate them on the long run and I think kind of history shows that we have been able to and secondly is the resource of the high enough quality rock quality to justify the investment.
And we absolutely believe that it is.
Great. Thank you.
Your next question is from Stephen Richardson with Evercore.
Hi, Good afternoon, I was wondering if you could talk a little bit about the expansion capital program.
The $100 million of growth capital this year.
Perhaps if we get a little bit more detail on.
Proportionately the expansion of the Bessemer versus the phase one expansion and Argentina and also any insights on.
How much of those programs, particularly in Argentina had already been.
The started.
Before you did suspend operations last year.
And again not not ask you the guide on on 2022 at this point.
Is it a fair expectation considering you would do both of these expansions of Argentina that the growth capital is kind of similar over the next two years.
Sure, let me try on and I'll, probably ask and feel better to jump in with some specifics, but just a couple of points better and the city is by far the smallest it it's a relatively small capital of the maintenance spend and best in the city and so most of the spending is Argentina focused and you can really sort of break Argentina expansion, the always down into three or four buckets you have.
And I'll call permanent infrastructure, which is things like gas pipelines on both the pipelines and what's the treatment facilities et cetera, you have temporary infrastructure, which is.
Logistics and shipping and counts for the workers and and so on and so forth and then you have the productive assets, which is a combination of course of selective absorption columns.
Small ponds that we build and I and our lithium carbonate plant for themselves.
And and the state of completion of each of those for phase one.
And there's a little different it is generally frankly, largely complete the modules of law in Argentina, but it was the labor on the on the.
On the the indirect sort of construct of them the water pipeline is.
Majority, but not completely complete and so it's more of them, 50% complete the themes.
Should be finished and on the water treatment facilities again and a similar place.
And so what you what you're going to find is the much of the spending is on really finishing previous work, which is why for phase one we find most of that spending coming through and the back half of this year, because just bear in mind, it's actually pretty difficult to do a lot of construction, sometimes given the weather conditions and how some of them that winter up there so into the back.
The end of this year and and into the start of next year at which point of phase two will start to roll and which will clearly require more capital. So we'd certainly expect spending in 2022 to be higher than it is and 'twenty 'twenty. One and then of course, you always get a lag on the spending right. So we tend to find the.
And as you've seen and our capital numbers recently, although we stopped some of the the programs and things like D mobilizing and re mobilizing and on cost like that you do get a kind of a lagging effect on the actual cash outflow as well for some of that capital spending is quite likely to run all the way through late 'twenty, three and maybe even into 'twenty two 'twenty for by <unk>.
The point and we actually would have been up and running and and generating cash flow from these assets for a period of time, Joe batch of is there anything you would add to that.
No Paul I think of cover and cover all of the points precisely.
That's very very helpful.
And then Paul on the on the question about funding that I totally appreciate your previous answer in terms of trying to find the multi.
And multiple opportunities and multiple options here in terms of capital and you are looking for one of that gives you flexibility, but also of the best outcome for your shareholders can you talk a little bit about and desire the theyre clearly as you're running this process of it.
And the masker and.
We hope to get some clarity on that later in the year, but.
But how much is the desire to kind of a at least from everything that you've laid out today.
The kind of global or a total funding solution for everything and you're trying to achieve.
All of this of all of the above and I guess as part of that as you know is project financing or something more customer financed conducive to a project like the Moscow or again, just wondering if you could talk about the evaluation process.
Sure. Good question and yes, I think when we do one of.
Holistic view as to how we've been on finance. This you know we don't want to just keep jumping from short term need to short term need I don't think that's and anybody's interest there's no doubt the different assets kind of have different financing profile. So within that broader portfolio. Clearly your book up to Canada. You know we have a couple of partners up there the that want to put more capital to work out of the asset level or.
Various types and and versions and we certainly have customers that understand that there may be a significant advantage to them and committing capital in order to secure supply and as we can point them to specific expansion projects and programs does absolutely no doubt that they all of them.
Today at least interested and seeing how the capital deployment programs might helps secure them and advantage in that sense. I mean, just to give you. An example of the best on the city of line that we are building.
I think we can find two or three different customers or potential customers that would love that to be dedicated to them and the certainly expressed the willingness to engage with us around and capital contribution in order to achieve that so there's lots of different compensation for that can happen of course, just because the customer wants to do a deal just because of the partner wants to do it doesn't.
The subtlety mean, it's gonna be and the best interests of.
And of life, and shareholders and and that sort of really what I'm talking about when I say, we will be patient and we will form a broader view about what the best package is not just on on asset by asset basis, but ultimately what gives us the best risk adjusted.
Cost of capital on our with all of this.
Right.
Thank you very much.
Your next question is from Pavel.
And with Raymond James.
Yes.
Thanks for taking the question on.
I cannot help asking about the COVID-19 crisis in Argentina right now.
And how are you.
It's been more of the year, you've had to adapt our operations there of course to the social distancing, but it's gotten much worse and the last you.
For the six weeks, how have the kind of physical assets been adapting to that.
Yeah, you know, it's an interesting it's an interesting challenge for us because I think there's a couple of things that we have to bear in mind.
And as much of any country of Argentina has a concentration of cases, and one particular location, which is in and around Buenos Aires, and that doesn't mean, the on cases everywhere else but.
But the many places, including where we operate the hasn't been that same concentrated outbreak, but that has been community outbreaks that really really of quite scary for those local communities and.
And we've talked before about around debt facility, we provide medical support we do have an airplane and we have ambulance and since we have good medical facilities because it is so low and so we're able to support the province of Catamarca, and and we continue to do that and help them think about it. We also of helped work with them on.
Good protocols as the chemical company used to dealing with the safety I think we had a head start relative to many others and so we've worked again extensively with them to make sure that they understand what they can do and what we can do together to help keep our employees and the community safe. So we've changed things like you know how and employees.
Now instead of sharing rooms, when the on site get them on them to themselves we.
We've changed the the social areas to be more outside where possible, while we've limited and restricted the numbers of people that can be in one place.
We have very strict protocols around what we do with the people before the way even allowed to get on the plane and come up to the met for the seller and the same on the way back when it comes of the expansion programs. We are fortunate that the people.
They've been up there it's quite a big open space, we are able to completely separate the construction teams from our operating teams and we'll continue to do that we do things like ask our trucks et cetera, and not to stop and local communities as they come through and so you know.
It's really of lots of small things that together are designed to both increase the wheel safety, but also of people's competence and and what we're doing as well.
And maybe the same question in relation to your operations in India.
You know it.
Argentina is that enough I suppose of India is even worse than that.
Yeah, you know a potential plant is relatively small and very small handful of employees and the small part of our business, but that doesn't obviously massive for anybody who's working that and so again.
And we've been very very we have a global standards and so the the fact of the plant is in India, and the U K O and China and Argentina. The U S doesn't really matter to us the standards of the same the way we tackle the maybe variable based upon the specifics of it of a location that but we've done the same way, we broaden gaps between the shift handovers we've.
Two of people in the plan and we've kept them on social distancing.
With all of our plants, we do have programs to provide local community support and what are the way, we can kind of the sheer scale of the problem in India.
And the whatever we do is is by definition going to be relatively small relative to the needs of the communities but.
But we do provide funding provide resources distribution of PPE et cetera, the way we can.
Okay. Thank you very much.
Your next question is from P J <unk> with Citi.
Yeah.
You talked about converters in China, and breakeven and profitability.
And it seems like then they would have made any money and ups.
And downs.
And so if they were to renegotiate the contracts.
And as you suggested.
And Scott said the contracts higher given what's happened to spodumene and all of that.
Does that benefit of the temporary resource if the converters for the raised their pricing with what the final the EV companies.
So you know.
It.
And we've discovered this is a tough business and that particular segment of our business is a tough one to predict.
But I think if you if you believe the nobody is able to run in perpetuity of the cash operating loss.
And we've certainly seen evidence of the back half of last year. The many China competitors. Despite $400 spodumene, that's assuming that you can have any.
And whether in fact closing down.
The facilities for the inability to make to even cover the cash costs.
So I think it was a couple of dynamics of what P. J that are really important to understand some of the very short term I mean, ultimately if a customer tens of and I said look I just kind of how much kind of unless you add X to the price then the cash.
And I have two charges the first charge they habits of accepted the second choice that they have as go and get that all the time from somebody else and on and there's a massive shortage of available of hydroxide and carbonate today and just as some of this will likely abate as we get out of a sense of seasonal periods and Asia and new plants come on line.
But the truth is that there is a significant shortage of availability of material.
Particularly of the right type of and in the right place. So it's hard for that customer I think and any volume, especially for what they're using the needs to be qualified and they usually with the third party. Then that's just the just not on option for them.
And I think the second impact of this will be I suspect. Many people will ask the question how big of a part of the lithium portfolio do they want such a contract to be I think you almost do this for yourself. If you turn up at the trough of the market and then try and sign of a multi year contract out of fixed price at that point in time with and unproved.
And producer Who's materialize and qualified I mean, your labor and so many uncertainties on that that's not to say that isn't a valid par of what your procurement portfolio might look like but I think people might think differently about how much of that portfolio. They will allow and I think if they really do on fixed and predictable prices. They kind of force to become more focused on those of us.
And that all fully integrated and so on the market practice of feedstocks don't really impact out of the decision at all.
All of the gonna have to accept more market based pricing.
And I think even there by the way of I'll just throw one more point out that I think the way that the China converters of spodumene concentrate the way the spodumene.
Could you sort of sold that comes from trade has opened designed to share risk right and so as the price spodumene concentrate goes up you know the.
The Oh, sorry of lithium chemicals go up the concentrate price goes up and same and reverse and so in theory of at least they provide some protection for both potash and suddenly for the kombucha, but what it really does is create the spiraling effect sort of an increase in the chemical price pushes up the concentrate price, which means that the price of lithium has to go up to cover that which means the spodumene price goes.
And I guess, the opposite happened on the way down over the last couple of years until the spodumene producers stop producing and.
And I wonder if the same will happen and the other direction because what customers are really going to see us the signing up for this kind of structure. It's just adding price volatility, it's not bringing predictability doesn't bring many benefits on all of it means is that you're going to get much more rapid price spikes and troughs when they come.
Okay. Thank you for that.
And then and there was a big merger in Australia, the Galaxy and Arctic over that.
And that may be good for you for the industry with this consolidation and.
And I want I know you wanted to diversify your footprint at some point and do a rock assets as well and may not be possible for you right now, but I trust that you and know how to raise capital calls so any thoughts on.
On diversifying your footprint.
Yeah.
No I think we've been pretty open the Lamar.
And our perspective, where the lithium comes from is not a primary concern right. What we care about is it of good quality resource and do we have the capabilities to develop it and increasingly is it and a location that makes sense either for us to walk away or for customer that we fundamentally believe that you'd need to integrate.
And if there's no way around it you would not doing yourself any favors and our view by building a facility that produces of an intermediate step and the process, whether that's some form of crude carbonate as I've had the cold of.
Spodumene concentrate but the reality is the the building for example of hydroxide plant at 14000 feet above sea level. It doesn't makes sense for many reasons building a lithium hydroxide plant and some parts of the world.
And when maybe you of remote you don't have a low cost access to the necessary and chemicals to the necessary power and weight.
Capital, maybe more expensive may also not make a lot of sense. So for US yes, we are keen to diversify.
And the diversification, though is frankly more resources and more geographies, where all of the necessarily new source of new Brian and new hard rock, it's much more of about the bigger picture about what are the all of the economics of our resource the we cannot and does it fit with our customer profile of capabilities and ultra multi app strategy.
Great. Thank you.
Your next question is from Joel Jackson with BMO capital markets.
Hi, good afternoon Paul.
Price on the strategy piece.
And you look at what we thought of what you felt live it might look like a few years ago and looking at your expansion.
The more integrated hydroxide now certainly going forward as the guts of 40000 carbonate for carbonate.
You are looking at not having as much hydroxide. So obviously to start your thinking having more surplus carbon and you would've thought before Q.
On some of that sort of prepared remarks, but can you just sort of talk about how that reflects what you would've thought the market were to look back three years ago versus now and from different catheter with formulations of.
Mark at the regional balance and whatever you think may lead you to think you should be and longer carbonate.
And you know it's it's.
It's hard to kind of cast your mind back so far.
And at the start of three months goes and five minutes, but it also feels like a lifetime and go in terms of how much happens in that period of time.
You know I think I think pushed out.
If you go back to our original forecast when we did the IPO by 2020 five we had 55 per cent of the market being lithium carbonate right. So I don't think anybody can accuses of of shifting type. When you say Oh, you know St carbonate is going to be important. We've always believed it will be important and will continue to be important.
And while I didn't necessarily predict predict the rise of L. P. I think we always set high nickel does not make sense for many many many applications whether that stationary storage all.
And you know entry level vehicles of short range vehicles, but in the same way out of P and and <unk>.
On the close so it doesn't make sense for different reasons, whether it's the ability to gauge the sufficient range on how they perform and the different weather conditions et cetera. So this diversity of of.
Cathode technologies by definition lends itself to the diversity of the raw material feedstocks and.
And we still continue to believe that.
I suspect frankly that if we ended up at the end of 2020 for where the picture just like the chart that we showed you all kind of be a little bit surprised because I do expect customers to really start pushing as hard to build more lithium hydroxide capacity I don't want to get myself in a position again, where I build out my hydroxide. The head of my carbonate capacity and so on.
And do think they will be.
Really meaningful conversations with our customers about you know how much of lithium carbonate that they will lithium hydroxide, they will need but frankly I also think many customers and we already see this happening a lot.
And of liking this idea that where the lung carbonate and the we can switch between the two because I think that's it that's the change to me that I wouldn't necessarily of predicted where they're starting to look at them and say, maybe I need to have access to both because I also need to have that flexibility, depending on what battery technology, and putting and what part of the world because just trying to that's evolving as well.
So if I am so sorry children, COVID-19 and sorry, if I if I ask then on the follow up on that.
So maybe what's different now is.
You have more confidence and the margin you can get from carbonate in Argentina, and even if the Capex and maybe three times higher to do carbonate in Argentina, then the out of hydroxide circuit and and then.
Hey.
And you have more certainty and the margin you can get in Argentina, and what may happen in for.
Hydroxide because that makes sense.
It does but I'm not I'm not sure of unnecessarily crazy that way because of I don't think it's about of competence and the margin I have a lot of competence that carbonate pricing will be more volatile than hydroxide pricing and we've seen that historically and I don't really see any change to that and the future.
I think I think the there's no reason why carbonate pricing kind of go through sort of really crazy spikes, but also as we've seen white council by the low I'm very confident that the theres never been a time when you know we've been not being able to produce lithium carbonate at a price of the lease covers our all in costs and hydroxide the little bit more difficult you know hydroxide is more difficult to make.
And the customers couldn't be what can be all more demanding I think requires a really of wheel commitment from viewers of supplier you don't come in and out of hydroxide, because if you do you'll be in the apartment of the market. Some of the non battery Spike before you know it you kind of can't come in and out of the company market because it's big enough to allow you to cherry pick.
It's big enough to allow you to take advantage of short term opportunities and deep enough and the hydroxide. Just isn't you know all of the growth and hydroxide all of it is and battery qualified material and and.
And ultimately very few people are going to be willing to keep changing the hydro outside suppliers.
And in any meaningful way. So you know maybe the IDE I would describe it is we have a lot of confidence that we can make hydroxide, it's up to customers to step up and demonstrate though that in the long run they're willing to make the commitments to us justify us from making the conversion of investments, it's really as simple as that.
Thank you very much.
Your final question is from and David.
And with Cowen and company.
Good afternoon policy of Airtel. Thanks for squeezing me in.
And Paul I wanted to go back to one of your earlier comments. One was just on you talked about.
Offloading the customers, where it with him he's previously qualified for battery grade materials.
Should we presume then debt when Bessemer city is up and running that you would the immediately selling battery grade that you would be qualified already there or would there be a lag with the plant.
You know, there's always likes right and the.
And I'll tell you why in a moment of the length of the lag is largely a function of a desperate the customers for the material.
Generally speaking you can only qualify material once the plant is up and running and at full production and say if you don't qualify of pilot material and you can.
Initial samples the just not the customer qualification process doesn't and what that way and then not only that qualification the dislocation audits and value.
Standards that we have to meet at those kinds of and you just can't do that until its up and running I think by being an existing customer and by having had the conversation with them that the future material will come from this location, we can engage with the earlier to make sure they understand what's going on and on what's happening and allow them to do some of that work in advance of wheat.
And we'll shorten the process that's that's for sure but ultimately it will still require some period of qualification with with the certainly the demanding customers that we expect the plant will ultimately be serving.
Thanks for that clarification and just my my last one is just the.
The expansion projects that you've announced and I know, we were all sort of condition to expect these.
And I'm curious if you all maintain the same flow sheets that you had before you sort of pause the activity.
Or if there was another considerations of perhaps compressing some of these phases.
And.
Perhaps I know that there was a there's a fair for a modular design is perhaps cash flow oriented.
But you know what was was there some other tire kicking around the compressing this time line a bit.
There's always ties that we kick and I would I would describe it as follows on the flow sheet here is really it's really the one we expected Q1, I'm sorry phase one and.
Really benefits from the fact that we've done a lot of the work already phase two benefits from the fact that a piggyback on the infrastructure of the largest and most of the infrastructure, whether that's camps of water pipeline etcetera of the gas pipeline that's already in place and so what's left to do is just quicker for simple as that in terms of Tae sik and look I think you should think about the next phase of expansion of up to 60000 tons a day.
We are running I think some quite innovative processes and ideas to two right now, which we will start testing out given the expansion phase, which will do things like allow us to use less water to allow us to use less carbon but less energy, but maybe some more renewable energy of up there and it's not easy when you're when you're up that the just plug and play of solar panel and for example, but there's a.
We can do on a lot the with testing and taking a look at that is really designed.
Largely to improve the sustainability profile of those operations and make sure. The what we do actually can be them and 30 or 40 years and still operating and so we don't just sit there and assuming we've cracked the code and got the best possible answer to this.
But I think for phase one and phase two of the flow charts that are in place really replicate what we do today and and the vast majority of it again with some sustainability upgrades included.
But I think that the next two phases that we ought to make changes, we'll see the biggest changes.
Thanks for that I appreciate the time guys.
Thank you.
And I will turn the call back over to Mr. Daniel Rosen.
And for closing remarks.
Great. Thank you Erika that's all the time, we after the call today, we will be available following the call to address any additional questions. You may have thanks, everyone and have a good evening.
This concludes the line and Corporation first quarter 2021 earnings release Conference call. Thank you.
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