Q1 2022 Sociedad Quimica y Minera de Chile SA Earnings Call
Good day and welcome to the F. Q first quarter 2022 earnings conference call.
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So this event is being recorded.
I would now like to turn the conference over to Kelly O'brien head of Investor Relations. Please go ahead.
Okay.
Good morning. Thank you for joining <unk> first quarter 2022 earnings Conference call. This conference call will be recorded and is being webcast live on this call you'll be able to access the webcast at our website www dot SQL on dot com.
Our earnings press release, and the presentation with a summary of the results have been uploaded to our website, where you can also find the link to the webcast speaking on the call today will be Ricardo Ramos, Chief Executive Officer, and Scott <unk>.
Chief Financial Officer, Carlos Dias, Executive Vice President of lithium business and Pablo Tomatoes, executive Vice presidents of the idle electric business that will be available to answer any questions before we begin let me react.
You that statements in this conference concerning the company's isn't that much future economic performances anticipated profitability revenues 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 that term is defined under that.
Securities laws any forward looking statements are estimates, reflecting the best judgment of SQL based on currently available information and involve a number of risks uncertainties and other factors that could cause actual results to differ materially and those stated in such statements, including our ability to successfully implement this.
No single development plans risks uncertainties and factors that could affect the accuracy of such forward looking statements are identified in our public filings made with the U S Securities and Exchange Commission and in our earnings release issued last night. 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 our new information future developments or otherwise, except as required by law.
Yeah.
And I also wanted to mention before I pass the phone over to Ricardo Ramos That'd be very Smith is also here to answer questions related to the lithium market.
Uh huh.
Thank you Eddie first good morning, and thank you for joining the call today, our first quarter resource wherein a milestone for us.
Sanction a fair bit of positive conditions higher prices in all our business lines were significant increases in diesel prices are spun out benefits of our successful long term operational and commercial trucks.
Today, we proudly report.
Here you can see from industry, we have almost tripled our production levels in three years, while we have significantly increased instructional Brian where are the most integrated producers tend to go for it.
High quality products that come to us that it's the production of high end.
Related to our operations and discovered that comment it is important to remember that <unk> project.
Project acquired its participation from other producers.
At G III.
There's a lot of investors and executed the project.
That's not been an easy top natural resources was not well known I would put your hat.
This required a non digital piano man.
In collaboration with the neighboring communities.
Investment from shareholders and above all a strong team to innovate developing knowledge to operate their natural resources.
Our first quarter resource statements related to the agreement with cortisol at that.
Provisions totaled approximately 800 shops owners total amount similar to the earnings reported by all of our business. During the first quarter of this year as Jim's lithium business. It's a very good example.
That's the public private partnership.
And all of the operational delivering more resources proportionally to the GDS culprit, approximately 60% of the operating margin from Greenfield dedicated payments for taxes, we continue to analyze enjoyed starting new projects in all our businesses.
Our investment plan.
I will update our predictions followed with that review it's.
Where do you like that we would increase the resources into the development business the Chilean abroad.
Continue growing and investing in all of our businesses.
Markets remain as targets.
<unk> thousand metric tons next year 2.5 thousand metric tons in 2020.
We're increasing our nitric salt production by 220000 metric tons, which will allow us to meet future demand growth of nitrogen fertilizer solar source.
Finally for lithium.
Target to reach the 180000 metric tons in the coming months, our plan to reach the 210000 metric tons 40000 metric tons of capacity of lithium primarily lithium microsite, respectively.
Well as you.
You know Nathan.
Or elections, I look forward to working with this new group of diverse professionals, we work to bring it together and its participation and contribution to Chile and its surrounding communities to a new level.
Yes.
Yeah.
Operator, we will now open the lines for questions.
We will now begin the question and answer session.
I ask a question you May press Star then one on you touched on.
If you're using a speaker phone please pick up your handset before pressing the keys.
If at any time. Your question has 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.
Okay.
The first question today comes from quarrying Blanchard with Deutsche Bank. Please go ahead.
Hey, good morning, everyone and congratulation on this shrunk quite there and the pricing organization across all the business Division.
I have two main questions. The first one if you could give a view on.
<unk> pricing for lithium and maybe fill the way something yeah and then the second question would be if you can elaborate and give us your view on inventory in China. Since you made into Q4 from the ongoing long ago.
Okay.
Okay.
Yeah.
Yeah.
Hello.
Good morning, everyone I am Felipe.
I will comment on the first question.
Of course, it's very difficult to predict what would be the price part of the rest of the year.
Price is always related to the supply demand balance.
What we can comment is that approximately 50%.
50% of our sales.
Constructively fully variable price.
Thanks, Ed.
130% of our sales are still open.
And about 20%.
With cap correct.
At the end.
Our pricing.
Although in general the market trend.
Got it.
Second quarter, we could say that we expect the price to be somewhat higher on the first part.
Yeah.
Regarding the second question.
It was about inventory if I understand well.
In general in the first quarter our sale.
Reduction were more or less in line.
Uh huh.
The second quarter.
We have seen back in the month of April .
Walk.
Drop in our sales related to Shanghai.
Lockdowns in May we are seeing that there is a recovery in the in their demand.
So we expect that.
We will start catching up with their with our site.
Okay great.
In Q2 the volume.
We believe that will be.
It would be more worried about in Q1.
Okay. Thank you that's not paid for on a volume and if I may.
Just a follow up on the pricing.
Yeah, I was thinking of following the benchmark in the spot prices I think it's it's a given that <unk> would be higher than <unk>, you that Amy maybe quarter over quarter or year over year like a person surgery that you could help us to understand and frame the pricing them. Maybe it was Michigan comment that's really on the 20% of the volume that you have.
On the legacy Goldstrike I believe that you may have renegotiated some of the price anything would be appreciated. Thank you.
Okay.
Okay.
Regarding the 20% that study.
Yeah.
I would say within coffee prices, what we are doing.
We are trying to renegotiate some of those contracts.
So we expect that we may have.
A better reflection of what is the market, but again I would like to insist that it is very difficult to predict what the prices will be for the rest of the year.
Bob.
Our main volume is linked to market price. So it will depend on how the market price of fuel.
Okay.
Thank you I appreciate it.
Okay.
The next question comes from Joel Jackson with BMO. Please go ahead.
Hi, This is Alex Chan on for Joel Jackson, Thanks for taking my questions.
First question I, just wanted to follow up and ask may be.
And pricing a different way.
Given that the pricing they light up to three months.
Recently negotiated contracts could.
Could you maybe provide some color on if spot prices were to hold at current levels.
Where would Afghans realized.
Average selling price move to or like the the <unk>.
<unk> of that.
And the second question.
With respect to lithium sales volumes I was hoping you could provide some commentary on what may have happened over the past few months that changed your expectations that sales would be.
Greater than 140000 tons.
And maybe to what degree and.
Where production levels in Chile, much higher than previous expectations. Thank you.
Okay that makes sense.
Okay.
Yes.
I will start with the second question.
We are still expecting that our sales will be around 140000 metric tons.
We are basing this estimation on the fact that the.
The fundamentals of the demand we believe are still there.
What we saw in especially in China. During the month of April which has to do with the Lockdowns, we see that.
This month of May there is some recovery already so we are positive about that.
The demand the supply is of course talking about it's more difficult to anticipate how it will evolve and at the end that will be the key of where the price was more for the rest of the year. So.
Regarding that once again.
Spot, Brian Smith will be a result of the supply demand our power contract.
Is that are linked to air.
The market price has certainly lately so.
80% of our sales.
Will follow whatever the market is.
Yeah.
Okay perfect. Thank you.
The next question comes from Ben Isaacson with Scotiabank. Please go ahead.
Thank you very much and good morning.
So just wanted to understand your comment on.
The lockdowns in China, and how that's impacting the supply chain. So you've talked about 140000 tons. This year. If you subtract. The 38 from Q1 that gives you around 34000 tonnes per quarter for the rest of the year.
Given the Lockdowns in China can you discuss the shape of.
The remaining quarters and how you think that'll look and I am just trying to.
Assuming that there is no more lockdowns in the second half of the year. Thank you.
Okay.
Yes.
Yes, so indeed during the second quarter, we expect lower volume.
Hum.
The second half.
Expecting that we can have a recovery on.
Those volumes will be.
Our next destination to data for the year, we will be in the surroundings of 140000, yes.
Yes.
Just to understand.
You're assuming no lockdowns in the second half of the year is that correct can you talk about a recovery.
Yes, exactly that is our best assumption today, because we are seeing that already in this month of May we are seeing that there is a recovery ongoing.
We want to be positive and expect that situation will improve for the rest of the year.
Ricardo My second question is on your statement that you made both today on the call and in the earnings release I'm talking about.
S QM success.
Public private partnership and you gave a lot of commentary.
Everything you said is true and it and it's been true for quarters and for years why do you why do you just need to make that comment today, what what's the logic behind those statements right now.
No Ben.
Yes.
They recently.
Important to note.
The first quarter, the highest going into company. It means if you review the results are really really good.
Resource.
When you have these kind of numbers to support it.
Remember that those numbers are upbeat agnostic for one day to another day.
I think it's important to remember that especially for our own people insured owning this captive risk it's not LNG for investors. This morning, everyone.
Yeah, Hi, do you want to.
Yes.
Many asking workers many of them very talented people, who over a long PTO Stein with good years and difficult years were able to successfully develop new technologies apply innovation and develop new Broncos in a project that was very difficult. So I think when you say.
Kind of milestones is important to say thank you for the people.
Recognize that it was a long work along way is not one day to another day. It was a long efforts with difficult days.
These days and now all of these efforts with good and talented people is paying off that was the main idea because it was a milestone as it was a very important quarter.
<unk> record.
And so it's also I guess helpful and while it's also a signal to the Chilean government.
So leave us alone.
We're doing things really well.
There's a lot of other comments in the right hands is that also part of the message as well now that the constitution is being worked on.
As you May know the competition Commission regarding domain name activity is practically finished.
No sense to send any signal to the cost additional commission nowadays.
We don't use press release to send anything until the government. It means we when we have the opportunity to meet the government authorities. We shared a will opinion, we shared our weighted ideas about the country of what we're doing and I think that the government and local authorities are really well informed they have been for may.
Regarding what is this kind of activity and again the main innovation on it wouldn't be very open with you. Ben is that we saw very good results is very important for our own people or would own workers. We are more than 11000 people working in Chile.
Italy.
I would personally it is very important for them and I want to I want to say thank you for a lot of people are working very hard in all those years in a very difficult project trying to deliver good results are not always had great milestone for the company getting the results.
Does that makes sense. Thank you very much and congratulations again.
Yeah.
The next question comes from P. J <unk> with Citigroup. Please go ahead.
Yes, good morning.
You know I think you said you paid $800 million in royalties in Texas in one queue.
Can you give us what was the amount in for Q4 does the same thing.
Yeah.
Aye.
Those have been named in front of me, although the payment to careful.
We can provide these numbers I don't think it is a.
Confidential number then we can provide these numbers.
But we don't have this historical information.
Okay, then calculate Duke and calculated because the affordable that we pay taxes to call for on the local governments and community DC public knowledge.
I think that the agreement we have with of course was about lease agreement that you can have access to it in our web page.
And you can calculate VSAT is kind of I believe it's a procedures depending the volumes on the prices and so on but we can provide the numbers. If you if you wish but we don't have it exactly a year.
Great no. Thank you that's okay.
And on your Capex, you mentioned more investments in Chile and abroad.
And so the question on a broader powered what plans do you have a broad besides your mountain Poland project.
And with the increases in cash flows with this lithium pricing.
Do you have appetite for more M&A. Thank you.
I'd tell you say before we are always looking for new projects and new activities helped to email or in Chile.
We're very committed with our business lines and all our business lines.
And in deteriorate more outside Chile.
Of course, we are now facing the moment to decide if we're going to move from 50000 metric tons to 100000 metric tonnes total capacity in our moen whole lot pointed I hope that we will have these decision is do it in second half. This year, we need to have a meeting with our partners with farmers.
And of course, it means more investment I don't have the exact number of additional investment and we will inform the market update moment, but of course. This is the most important.
This meant outside Chile, we're thinking today and we're very optimistic we are moving in the right duration you do it is to do it.
And of course, the company is always looking for M&A as DVD EBITDA is good for the company.
If we can generate value for the company and shareholders of course, we are open.
We receive a lot of opportunities in their database, so people trying to sell something.
The potential business on natural resources, whatever will be read in detail, but.
As soon as we have something.
We will inform the market, but the most important thing here keep in mind is not because we are having good profits or we have money, we're going to get involved in M&A, because we want to be big we're going to get involved in an M&A Aussie we assured the weekend.
It showed to you our main shareholders I wish if orders I know the company that we have a good project a project that generates value for the company on shareholders. That's it.
Yeah.
Thank you.
The next question comes from Roberto Browne with Morgan Stanley . Please go ahead.
Hi, Eddie cargo being hope you're all well. Thank you for taking my question.
My question actually is a follow up on the previous question is little more focus on Chile and.
I was wondering what business line is in Chilean have more propensity to receive those incremental.
Steve you mentioned on the release.
And also on lithium.
It will be interesting to know how youre thinking about balancing the quota you have allowed to extract.
Got to come into 2030 and potentially increasing capacity.
Faster than our beyond that what will be led by the quota gigabit so high.
You may have today at current prices and and and and also considering that there's very little capex.
You are correct.
Correct or any other projects in the world.
Okay.
First regarding.
What do you need to see in Chile is important to remember that this can be used not only lithium lithium is a very important business for us, but we produce a lot of nitrates. We're the number one in the world producing put us some nicer, but thats a nike. It's the best fertilizer you can have fortunate to irrigation hydroponic greenhouse and we're very proud about this product that we are increasing our capacity that's why we.
<unk> seen that we have new opportunities to increase production to have better quality to add new facilities in order to improve.
They are different products in the specialty fertilizer division Silicon we are the number one by far in the world in the India business were close to 30% of the idea of end demand in the wall and production.
We supply to a very important market that is the idea that for example, using the X Ray contrast media, we're talking about thousands of people that every year.
And early detection of potential cancer using X Ray contrast media.
Already committed to supply you down to the three X Ray contrast media producer.
And I've mentioned before increasing our capacity I will review it again, he will increase a gainer with capacity also if we would provide different quality.
We are also as you know we have our sustainability projects. We are very aggressively and that we are pretty proud about that we're going to use seawater in our projects with <unk>, who have investment involved in that.
We have many initiatives that we are reviewing today that could be included in that with next.
It probably takes it is Dave announcement about lithium that is important and of course as you know we are always have more hits more chemicals and mining business came in lithium and Chilean.
You May know, we signed for example, an agreement with LG.
He is one of the major players in the global luxury market, we have a long and very good relationship with them and we believe we can jointly exploring new businesses either in the production of gasoline components in Chile, or the recycling of lithium abroad. As examples of alternatives that we're studying together and he noted.
To do more investment most of this investment could be very good idea to do it in Chilean these could be included and I would makes capex about the total lithium production coming from this alive.
I don't want to announce every single quarter, a new increase in capacity. It means less weighted announced they were moving into 130000 at least gave me a couple of quarters before announcing a new increase and we are now working very hard not myself Carlos and his team working very hard in the 180 and the 200 Shannon.
And by the way just a little bit on we will inform me we have opportunities to move forward with something better than that I'm sure considering the quality of the people, we're having that there's a lot of levers that we can inform good news in the future but.
Please give me a couple of quarters before moving in that direction.
Makes sense. Thank you for your kind of if I just may ask another question.
And related to fertilizers.
It looks like that the high price with our our coding dimension in the SPN division. So in the past when they stood at the strategy.
It's almost you have more stable prices to keep.
To keep it quiet.
Your client base closer has changed.
Changed or.
Does it make sense, maybe to sacrifice margins, a little bit because energy prices just wondering how what the strategy today.
Yes.
Hello, Paul multimedia is speaking.
What would you say is true and of course, when you participating visa specialty fertilizers business you will close with customers. However, you know today's to fall on a certain strategy is complicated because of the issues that we're facing today you know that they always look facing normal times.
It's really difficult to predict.
When it happened you know with the issues with the war integrated you know the restriction the compression.
Russia as you know producers.
That excludes the tax.
So today you know it is difficult to predict we see that the demand will be affected.
We wish to continue producing you know and I would capacity to supply you know the customers like we have with the flu.
Did you know prices as a matter of supply and demand that we are trying to be there, but it's important also to understand that many farmers cost issues you know in order to plan, what they want to do because of different issues supply chain issues with logistics. So you know today's difficult to answer.
About what you are asking.
Yeah.
Understood. Thank you very much.
The next question comes from Lucas Ferreira with Jpmorgan. Please go ahead.
Yeah.
Hi, everybody. Thanks for just based on the questions I have two.
First one in general about your costs.
Any inflation on your on your raw materials.
So inflation in Chile's running around 10% and you probably have some some costs linked it to the to the U S. Dollar. So if you can comment on X obviously.
Do we see how.
How much your your costs. So overall in your operations should be going up this year.
If more than this 10% inflation or less because you're ramping up capacity. So diluting fixed costs. So how to think about sex leaves and.
And the second question about the dividend so he's not mistaken you correct me, if I'm wrong, but that's where your policy you shouldn't be paying at least 100%.
If your net income right as dividends, but looking at the past year's even you wind up being more than there is on the 20th sometimes 130, so whats the mindset this year.
Your your cash positive I know your capex could be accelerating a little bit but.
Are you do you think it's possible to go back to that those levels are 120% of your net income at the payout. Thank you.
Hi, how are you looking at.
<unk> speaking.
Regarding the cost and the Chilean peso.
Important to remember that of course.
We are located in Chile, we have a lot of it.
So related costs, we are a U S dollar denominated.
Buddy. So one is we have the inflation of the to be unfaithful, everybody see affecting our costs better be other than the depreciation of the tdm basically.
Affecting our growth on the opposite direction, we're seeing of course pressure.
So when someone says well my videos that we that we liked could use our product and also the impact because of the logistic disturbances that worsening window.
We are all in all it trying to to to control our costs to make sure that they don't go up.
Following by the hundreds of saying what they wouldn't want to EBITDA.
Station.
Regarding the dividend, we can out of it.
Thanks.
As you May as you May know we have.
Our dividend policy that is public policy of the dividend or the spending any way they want them.
Vacation to review the policy every quarter.
Black Hornet and <unk> with the best interest of the company.
First I would number one priority is fully committed with our financial strategy, We're a conservative company.
As you kind of review of our books.
Very good financial position.
Bank to continue to have a baby food financial position.
Strong investment grade rating company since 1994.
All the time that we expect to continue to be a strong investment grade company in the future.
That's why and dividend policy is very important in our financial strategy.
Every quarter, we discuss with the board I would now Chris will discuss what is the cash position of the company when you sign up or anything like that of course will review our capex.
TBD on what potential use of cash.
He didn't ask you Bob will review, where we're at.
Our dividend policy, that's why every quarter.
So far we're using it in.
Policy that was presented to the shareholders. It means that considering the current numbers of our balance sheet at 2%, what the right number but again I would I would.
It is to maintain and to continue to be a strong investment grade rating company from a financial point of view and also it's important to be ready and prepared to take business opportunity, we have a big business opportunity.
Sure.
Yeah.
Perfect. Thank you.
The next question will come from feedback Perez Novoa from BTG. Please go ahead.
Yes. Good morning, everyone first of all congratulations for the strong performance in the quarter.
I'm really happy to see some.
The financial investors, giving us strong recognition for your well deserved efforts. So hopefully we can see the same coming out of our houseware, considering your social and economic contribution in this country I will I will piggyback Huron, regardless comments regarding the LG partnership with both firms.
To jointly develop.
Recycling alternatives or.
Or a castle material facility.
Can you please comment on when we can see some of these initiatives going forward.
What level of spending.
<unk> be willing to deploy in this new venture and if I may just a second question.
Hi, fertilizer prices have turned to be problematic in many countries and you specifically state that you may encounter some demand erosion. My question is what level of volume impact are you currently anticipating for the year if any.
Gentlemen.
Okay Fair spring turnaround was speaking and assess that.
First of all about the LG agreement.
Agreement to refuel a Chilean at these times we have.
TV <unk> working as we speak in order to review the processing costs of the different countries.
I expect to reach two received already forefront leased those teams I think the next month or constrained. The report they will recommend will leap forward, even one or tools. Many of trinity's on we will have the timetable of investment according to their recommendations.
Nowadays we're open.
Of course, we're talking about new initiatives, usually you start with a smaller scale I'd be things going the right duration, a little bit safer and stay up on Thursday, and so that's why I do not expect huge investment usually what you have at the beginning of our small plant facilities in order to prove that you can.
On produce.
Well they took the product youre looking forward at investment on costs.
And prepare to move to the second floor space.
And Thats, a very positive about something it's going to have it.
I have a couple of at least two or three initiatives moving forward because.
And really really impressed with the capacity of <unk>. They are one of the most capable companies in the world regarding advisory productions.
They have the knowhow.
It's important.
With predictions and they visit us and a huge team without notably E. <unk> in order to do things together, but it's not.
I want to say, it's not something that will have an exclusive exclusive relation with it we are open to all the other kinds of cooperation with other companies.
The way.
Lithium producer to adviser, that's about Julia and I find it to be.
The industry just cooperated with all the big players, but I hope to have the numbers for the next conference call and share with you what we expect for these.
Additional agreement with us.
The cyclical outlook.
Okay.
So what you mentioned.
Totally right, we have seen an increase of prices.
Let's say if workers have any put away I would say that today is a little bit too early to say how the prices will affect you know fertilizer social depend on fertilizers.
Commodity service like our program.
Specialty fertilizer soybean vessels application.
However, we say that today with the information that we have today to see now we've actually had a fifth per se number the minority line fit associated that could be good could cut it anyhow as I said before it is too early although of course, we are following up.
Quite often in order to see what happen.
Okay fair enough gentlemen, thank you.
The next question comes from Isabella <unk> from Bank of America. Please go ahead.
Thank you good morning, Ricardo Hidalgo, thank them for the call.
My question is on iodine. We also saw a sharp increase in prices Q on Q right in the first quarter is this a demand recovery while.
Supply remains tight I just wanted to get more color on this Dallas right and what we are seeing in terms of.
The size of the demand increase.
I wanted to think about potential new supply right. What are you seeing in terms of marginal cost and that the actual risk of supply being added to the market. Thank you.
Yeah.
Okay.
Yes, you are right I mean, the increase of prices gross was good.
I would say that if this is more related to you know with the lack of supply that we have seen in the market. The demand is being there. Despite a high prices, where we see that some application, but you cellulite someplace.
However, we have seen strong demand in some of those work it stick with like social media and city. So soon however, we are seeing is the level of support from the supply.
Well actually that explained but also why we normally the case, obviously you're in with not only the increase the price, but also the volume because also we have been able to produce more volume that unexpected that we were able to allocate the volume in this in the market.
Regarding to what we have in well again I mean, you know that it is good and we are investing to expand capacity. We got this play before we are doing our best to be there with our customer set with the market. However, we're seeing it.
Everything will depend on third parties.
Do.
We need to see well.
What's happened so far we are not seeing new capacity, arriving in the short term. So maybe the situation that we have today is something that we could expect that habit.
Eight months.
Yeah.
Thank you.
This concludes our question and answer session I would like to turn the conference back over to Kelly O'brien for any closing remarks.
Thank you for joining our call we look forward to hosting our next quarter.
The conference has now concluded. Thank you for attending today's presentation you may now disconnect.
Okay.