Q4 2021 Livent Corp Earnings Call
Good afternoon, and welcome to the fourth quarter 2021 earnings release Conference call for live on Corporation phone lines will be placed on a listen only mode. Throughout the conference. After the Speakers' presentation, there will be a question and answer period.
I'll now turn the conference over to Mr. Daniel Rosen Investor Relations and strategy for life <unk> Corporation. Mr. Rosen you may begin.
Thank you Anna.
Good evening, everyone and welcome to alignment and fourth quarter 2021 earnings call. Joining me today are Paul Graves, President and Chief Executive Officer, and Roberto <unk> Chief financial.
Hello.
The slide presentation that accompanies our results along with our earnings release can be found in the Investor Relations section of our website.
Her remarks from today's discussion will be made available after the call.
Following our prepared remarks, Paul and Gilberto will be available to address your questions.
Given the number of participants on the call today, we will request you limit to one question one follow up per caller.
We'll 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 that 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 upon these risks and uncertainties.
Today's discussion will include references to various non-GAAP financial metrics.
These terms as well as a reconciliation to the most directly comparable financial measure calculated and presented in accordance with GAAP are provided on our Investor Relations website.
And with that I will turn the call over to Paul.
Yes.
Thank you Dan and good evening, everyone and if there is another topics. We will cover today include now we finished 2021, what we are seeing a soft 2022, and how we see the full year developing well give an update on market conditions and what we think the medium term wholesale industry and how we are investing to meet the rapidly growing customer demand.
Turning to growth.
Starting with 2021, we delivered stronger results in the fourth quarter compared to earlier quarters.
Rex will demand some customers throughout the year meant that we largely satisfied annual volume commitments by the end of the third quarter given as it makes the ability to take advantage of consistently improving market conditions in the final quarter.
We were able to recognize high average prices across our portfolio. In Q4, you will see an even greater increase in realized pricing in 2022, as we will discuss shortly.
Results for 2021 came to talk about guidance as a result of the strong Q4 performance.
Looking at 2022 guidance high realized prices will drive a significant increase in profitability compared to 2021. This is despite flat year over year volumes.
So our capacity expansion, which will add incremental volumes in 2022 weeks.
We expect this higher realized pricing to drive full year adjusted EBITDA up to almost three times that of 2021 at the high end of our guidance range.
Beyond 2022, we expect demand to continue to grow rates similar to today.
Boosted by increased visibility and focus from our customers unsecured reliable long term battery grade lithium supply. We are announcing today that we have commenced engineering work to add a further 20000 metric tons of lithium carbonate capacity in Argentina, which we expect to be in production before the end of 2025 when.
And without Covid 20000 metric tons of carbonate expansion, which we will give an update on today. This will triple our total capacity in Argentina compared to today to 60000 metric tons of lithium carbonate.
So before I get into more detail, we got in 2022 and beyond I will turn the call over to Gilberto to walk you through our Q4 2021 financial results as well as our 2022 outlook.
Thanks, Paul and good evening everyone.
We will begin with our fourth quarter results on slide four.
We reported revenue of $123 million adjusted EBITDA of $28 million.
Adjusted earnings.
Our diluted share.
Revenue was up 60% compared to the same quarter in 2020.
Driven by higher volumes and higher realized pricing across almost all of these products.
Versus the prior quarter revenue was also up 19% with slightly more total LST volumes should be.
More than offset by higher realized pricing.
Notably for lithium hydroxide and lithium carbonate.
Fourth quarter, adjusted EBITDA was nearly four times higher than prior year and decreased 85% versus the prior quarter.
As discussed last earnings call.
License fulfill most of its committed volumes for 2021 in the first three quarters of the year, we had more available volumes to sell that higher price environment seen in Q4.
Additionally, a greater proportion of the sales were in the form of lithium carbonate where market prices were notably higher.
Some of the margin benefit from much higher pricing was offset by increased costs due to broad inflationary pressures and continued global supply chain disruptions.
Yeah.
Turning to slide five.
For the full year 2021, we reported revenue of.
$420 million.
Adjusted EBITDA of $70 million and 80.
Adjusted earnings per diluted share.
Revenue and adjusted EBITDA were both at the high end of our guidance ranges and <unk>.
Resulting in a year over year growth of 46% at 212% respectively.
The improvement was due to higher volumes and higher average pricing.
We offset by higher costs related to logistics solvents, and all the raw materials.
Despite flat production volumes in Argentina versus 2020.
<unk> 2021 total sales volumes increased by over 7000 metric tons in LC service versus the prior year.
Primarily from higher hydroxide and carbonate sales.
We were able to draw on the inventory we carry into 2021.
And were also supported by some additional third party carbonate purchases.
Average pricing on an LTE basis across the portfolio was higher than 2020.
Average price pricing was better than our expectations 12 months ago.
Was largely a result better than expected improvement in the market conditions.
It was also supported by the flexible nature of our operations and our ability to pivot to Sally carbonate or hydroxide.
Makes sense to do so.
There were a few areas of higher costs that impacted our business.
Include higher and less predictable energy costs and higher raw material costs, most notably in the solvents will lead to macro used as feedstock for our utility business.
Global supply chain challenges also resulted in higher shipping and logistic costs.
And avoid that will deliver disruptions created certain timing issues for us.
We had $119 million.
Total capital spending in 2021 of which 25 was for general maintenance.
<unk> historical levels.
The remainder of.
While the remainder was for our external work.
There was a notable ramp up in capital spending in the fourth quarter that we forecast will continue into 2022 as we move closer to the completion of our near term capacity expansion projects in past and receipt and Argentina.
Let me now comment further on our financial guidance for 2022.
Well I would expect a substantial improvement in financial performance in 2022.
For the full year live in project revenue to be in the range of 542 $600 million.
And adjusted EBITDA to be $160 million to $200 million.
Representing growth of 36% and 169% respectively.
The midpoint versus the prior year.
This would imply an adjusted EBITDA margin improvement of 16% at any point.
Our guidance is based on a flat year over year total volume sold.
Significantly higher prices.
Over a year across all product lines.
Partially offset by higher costs.
Given the number of moving pieces in our guidance, let me try to provide a simple bridge from 'twenty to 'twenty one results to the midpoint.
EBITDA guidance.
Starting with our 2021 result of $70 million.
The increased pricing in our multi year hydroxide contracts effectively doubled that number.
In addition, the increased earnings from our non contracted volumes, combining hydroxide and carbonate price by reference to China indexes.
We've expected to add a further $60 million to.
The adjusted EBITDA.
Offsetting this we see high operating costs, such as labor energy and raw materials.
<unk>.
And finally, as we complete our expenses, we expect a $5 million expense for ramp up costs.
You will notice that we do not anticipate any impact to our profitability from Q2, lithium and high purity matter of business since we expect higher input costs to be passed on to our customers through higher prices.
Okay before concluding I'd like to provide further guidance and selected financial metrics towards 2022.
With respect to our balance sheet, we ended 2021 with $130 million in cash.
And no draw under our 400 million.
Revolving credit facility.
For the full year 2022 lighting is expected to generate adjusted cash from operations in the range of $145 billion to $185 billion.
We anticipate capital spending in 2022 to be in the range of $280 million to $320 million as we complete our new 5000 metric tons hydroxide units <unk> and the first 10000 metric tons of our currently.
Expansion in.
Argentina.
This guidance is also inclusive of maintenance spending across the business at levels in line with historical spending.
The combination of <unk> current cash position and its ability to draw on the credit facility and a much stronger outlook for cash generation from higher volumes and pricing provides confidence in the ability to fund its capacity expansion programs.
Although I will now turn the call back to Paul to provide some additional context to our guidance range.
We are thinking about the year ahead.
Thank you you bet.
So turning to slide six and NGL basket already mentioned, we expect total volumes sold on an LTE basis to be flat versus 2021.
No meaningful volumes from our capacity expansion projects are expected to be commercially available. This year, even though we do expect mechanical completion and operational startup before the end of the year.
This reflects the reality in our industry. It takes time to ramp up production levels to resolve the inevitable source of challenges for product quality and consistency.
Please the processes related to customer qualification, especially behind upside as a result, the first meaningful step up in sales volumes for license will be 2023.
We expect a significant improvement in pricing in 2022 with average realized prices higher across all of our products specifically for ligand.
100% of our sales volumes in 2022 will be at prices either in contracts entered into in late 2021.
Marquee prices determined on a monthly or quarterly basis in 2022.
We anticipate significant.
The higher average realized prices in our lithium hydroxide business, which can be characterized by two distinct segments.
Three quarters about hydroxide volumes are under multi year, largely fixed price take or pay commitments with a small subset of customers. This is in line with the company's historical strategy.
The base of stability and predictability around returns on its capital investment among.
Among these contracts, we expect to realize increased prices versus prior agreements of about 50%.
But the remaining portion of hydroxide volumes, we have made volume only commitments for 2022 with periodic pricing reviews that allow for more direct exposure to market prices.
The majority of our hydroxide customers are transacting with us on this basis.
With respect to lithium carbonate, which has seen some of the most dramatic recent increases in market prices, we will continue to be opportunistic in the near term selling small volumes.
Uncommitted month by month basis sitting here today, we would expect realized prices with these portfolios of customers to be more than double what we achieved in 2021.
And finally, probably remaining key lithium products such as people lithium and high purity metal we continued to commit volumes from existing customers. However prices have shifted to be on a quarterly or even a monthly basis as opposed to an annual basis. As it has been historically this processing change reflects a different dynamic than a high.
Outside of carbonate so much of these lithium products, we are seeing significant and rapid cost increases in key inputs, especially solvents and metal by moving to a monthly pricing conversations with customers, we're able to more effectively maintained profitability.
But many other businesses with dealing with the impact of general inflationary pressure in both raw materials and labor costs and.
In addition, and specific to live in our guidance includes additional costs through the second half of 'twenty two as we commenced the process of commissioning and Matthew that by new Covenant hydroxide units.
And lastly that continues to be lingering global supply chain disruptions that originated at the onset of the pandemic.
Fiction and cost of shipping logistics and while we hope some of these pressures to ease over time, it's much more difficult to predict how this will unfold.
The ranges of our guidance for 2022, all wide on historical ranges, reflecting the shorter term volatility and unpredictability. We are seeing in some of that as the market delivered full year results near the high end of our ranges would likely be Q2, even higher pricing than we're currently assuming you. Conversely results at the low end would most likely be.
Due to lingering supply chain challenges impacted the timing of volume delivered all resulting in high end unexpected costs.
I want to spend some time discussing current market conditions on slide number seven incredibly strong demand for lithium we saw throughout 2021 and now into 2022.
Led by record setting demand for electric vehicles, New energy vehicle sales in China grew by over 150% in 2021 to $3 5 million units, which is greater than the entire number of evs sold globally in 2020.
Additionally, in EV sales in China are projected to be well over 5 million units in 2022, despite perhaps for the country to cut incentives on zero emission vehicles by 30% before phasing them out completely in 2023.
And in Europe fully electric vehicle sales grew to 190000 units in December marking a monthly record for the top five regional markets and our penetration rate at a new high of 16%.
In the U S. At least 13, new EV models are expected to be introduced to the market in 2000 to more than double the number of currently available.
The positive trends behind the demand for lithium do not stop at electric vehicles, we continue to see increased demand expectations across all energy storage applications, including light commercial vehicles E bikes stationary storage and mobile devices.
And lithium ion battery installations for Evs grew by 143% in China.
And just over 50% of these new installations with the lithium iron phosphate LSP batteries, marking the first time in recent years that it has to become the predominant cathode technology.
While carbonate and hydroxide demand both grew significantly in 'twenty. One this shift towards LSP was clearly responsible for part of the acute tightness seen in the carbonate market.
And this demand surprise combined with the less surprising failure of carbonate expansions to deliver volumes as planned met the demand growth outstripped supply growth, we saw inventory levels essentially disappear in the channels, whether that's spodumene concentrate lithium carbonate all finished cathode materials.
This environment, it's easy to understand that the China based battery market, which has largely rejected multiyear fixed price contracts and preference with short term pricing mechanisms. So a rapid increase in prices for all battery materials.
However, with low cost one of the main reasons to adult LSP over high nickel Chemistries, we will be monitoring carefully how battery technology adoption evolves with iron phosphate prices also advising rapidly the Hyatt covenant packages are put to negate the relative cost of that to develop <unk> based cathodes in fact, the lower margin applications received a financial.
<unk> LSP tap those disappear.
These applications of non EV nature of such a stationary storage, but it does not take a great leap to see some future EV launches, which are attempting on low cost the LLP baxter's to justify the decision may not happen quite as predicted.
Additionally over time, we expect there will be a greater focus on the highest average energy consumption required to produce and LSP guys, Patrick Vista, NFC based Patrick and especially on the significantly lower metal recovery value per kilowatts hour when thinking about end of life recycling factors.
For all of these reasons, it's clear to us from our many conversations with leading Oems. So there was no intention of moving away from high nickel cathodes, which require lithium hydroxide and that highest performance in high margin vehicles.
The entire lithium market remains tight today and the extensive this tightness is reflected by just how high prices in the Chinese non contracted market declined published lithium prices in all forms continue to rise and we are not seeing the pull through of contracts that matured at yearend being reset a meaningfully higher price levels non integrated.
Spodumene converters in China continued to operate at lower utilization rates due to a lack of available spodumene feedstock and faced significantly higher input costs as a result.
This dynamic is driving up the price of finished lithium products and a similar feedback loop to what we previously saw on lithium prices with steadily declining, albeit in the opposite direction.
And in this rising price environment, there have been a number of other lithium suppliers that have chosen to walk away from existing supply agreements or forced to shift to market based pricing structures. The dramatic near term spike in the spread between carbonate and hydroxide prices has also caused some producers to switch to producing carbonate.
Actively pulling back from that excess to answer the hydroxide market. This withdrawal from the battery grade hydroxide market is further supported as producers have seen at close hand, the difficulty getting qualified and the costs associated with not being able to sell low grade hydroxide due to a lack of customer willingness to use it.
<unk> is the choose to withdraw from the hydroxide market will find it much harder to get <unk> qualified into the supply chain of the higher end battery on auto OEM application in the future, but the time and effort needed from the battery producer to qualify supply requires a commitment from the lithium producer to remain a supplier of long enough to.
Justify that FX.
Looking at our forecast the lithium industry capacity additions many hope will relieve some of the supply shortfalls, we continue to see both delays and cost increases part of this can be attributed to inflationary pressure in tight labor markets, but also some factors such as environmental challenges on local opposition that equation does.
Days of even some high profile cancellations as we've said in the past lithium expansion projects are complex they both.
Time and capital intensive and they almost always have unique local challenges. So it required a great deal of sensitivity to overcome each.
These factors make it difficult to accelerate that path to commercial production in a material way and in fact more often than not resulted delays or cancellations given the practical reality is it's very difficult to forecast a sustained period of oversupply over the next few years.
Despite some of the challenges seen on the supply side, we have not seen any auto Oems backed away from that electrification targets or commitments in fact in the past few months alone there have been new announcements of VB partnerships giant battery cell manufacturing plants and understandably in this environment, we've seen a heightened customer focus on security.
Long term lithium volume commitments from reliable sources.
Am slowly develop their understanding of the lithium supply universe, our proven ability to meet battery grade qualification standards and deliver on our commitments makes us one of the first calls as Oems look to secure the long term base volumes and it is this increased engagement with us by the ultimate consumers of lithium products that underpins that.
Our decision to invest in further capacity expansion.
As shown on slide eight within the next 12 months ligand will add.
5000 metric tons of hydroxide capacity investments in 10000 tons of carbonate capacity in our strategic and these two additions will allow us to meet our expanding high upside commitments to strategic customers, while eliminating the need to purchase third party carbonate to hydroxide plants beyond this an additional 10000 metric tons of carbonate capacity.
It will be online in Argentina by the end of 'twenty, three which will nearly double license total available LTE from 'twenty to 'twenty one levels.
This production growth over the next few years, we'll see us deliver high volumes with customers and help us to fund continued expansionary investments.
To meet the growing needs of our customers live and have begun the engineering work on a second expansion in Argentina looking to add an additional 20000 metric tons of lithium carbonate capacity. Following this expansion, which is expected to be complete before the end of 2025 licensed Argentina operations total annual covenant capacity.
Of 60000 metric tons and this is in addition drive existing 9000 metric tons of lithium chloride capacity in Argentina.
The rationale for this decision was straightforward our customers want to secure mobile news from us that we can currently produce.
As long as we can execute supply agreements to justify the capital commitments with respect to price deflation uncertainty, we will continue to invest longer term life and we will continue to expand its hydroxide production capacity and in multiple geographies in order to meet growing customer demand. However, we also anticipate the expansion in Argentina.
Provides a company with more operational flexibility and a pathway to be a larger participant in the covenant market.
Domestic a fully integrated lithium hydroxide project located in Quebec, Canada of which live and currently holds a 25% ownership stake is nearing completion of its previously announced optimization study. While the study is a few months behind schedule with confidence in our Mexico will be producing lithium chemicals by 2025.
I wanted to conclude on slide nine by providing a few sustainability updates from items. It is important to note that the next phase of our planned expansion in Argentina will be fundamentally different from our existing operations of the slot today.
The primary focus of the preliminary engineering work is how we can expand capacity within the existing infrastructure constraints for example by changing some of our existing processes. We believe we can add this next 20000 metric tons of carbonate capacity without requiring access to any additional fresh water and by applying the same cost.
As changes across our existing operations in Argentina, we can increase yield and eliminate the production seasonality caused by unexpected weather events.
And as we look to expand <unk> production to meet the increasing demand for lithium we remain equally committed to growing responsibly and delivering on our 2013 2014 sustainability goals, we will provide more detail on some of the specific sustainability initiatives initiatives, we'll be implementing for the Argentina expansion as well as the asoka.
Capital Acquirements as we progress sustainability continues to be a key consideration in that decision, making and investments and we welcome opportunities to further strengthen and FSA program.
Earlier this year <unk> announced it was awarded a 2021 gold status the sustainability performance by <unk>. This is the second consecutive year. The company has achieved a gold sustainability rankings and places <unk> in the top 5% of the more than 85000 companies assessed by <unk> around the world. We are proud of this recognition and it's a testament to that.
Vacation about teams to meet the needs of our customers, while ensuring we continue to operate in a safe ethical socially conscious and sustainable manner, and finally live and began a voluntary independent third party assessment using the standard for responsible mining from the initiative responsible responsible mining shows however, <unk>.
As the first company with mining operations in Argentina, and one of the first lithium mining companies in the world to become a full member.
We intend to continue our leadership and pushing our industry towards greater transparency and continuous improvement in all aspects of sustainability, including efforts to better engage with our communities. This is something our current and potential customers truly value and believe it is another key area of differentiation for the company.
I will now turn the call back to Dan for questions.
Thank you Paul.
You may now begin the Q&A session.
If you would like to ask a question at this time. Please press Star then the number one on your telephone keypad. Please limit yourself to one question and one follow up if you have additional questions you can jump back in the queue to withdraw your question press the pound key.
I'll pause for a moment to compile the Q&A roster.
Your first question comes from the line of Chris Capps with loop capital markets. Your line is now open.
Yes, good evening, thanks for the color on the market trends. There is obviously a lot of cross currents.
Sure.
My first question really is.
I think you'd said despite increased relevance develop P.
Because of I guess higher costs for carbonate and maybe some on.
On sustainability considerations, many western EV supply chain, there are not really backing away from their commitments to high nickel cathodes. So my question is to the extent that they're looking for security of supply for hydroxide and those battery specs that are tough to meet do they have do they have a preference for.
Our brine versus hard rock based hydroxide in order to meet those commitments looking forward.
Not that I'm aware of because we obviously don't have a hub.
Asset right now that's operating in but we don't really hear that there's any particular major perhaps now the one caveat to that is that there are a couple of producers that are already <unk> very much about sustainability, while there's inherent really no reason why you cant app.
Sustainable path to produce.
Lithium hydroxide from hard rock today at least much of it has got a huge carbon footprint because of the waste mining failure shipped into China and process them shipped around the world. So that was certainly something that I'm looking at that saying that and model. The non integrated model doesn't work for us not for Baseload blip.
Yes.
But it's not really an issue with spodumene per se, it's actually about the weight spodumene is b.
Minded converted in the market today.
Okay.
Right, Okay fair enough and then just to follow up Pete you alluded to the increased participation in the carbonate market. Just can you talk about what the.
Thinking it from a strategic standpoint would would making more volumes available for that market would be more opportunistic based on where the relative pricing between carbonate and hydroxide or R.
Are you do you have customers are looking to you for security of supply of carbonate as well as hydroxide any color there I appreciate it. Thanks.
Yes, I think it is.
This idea of there being a monolithic lithium producers not necessarily a good idea in the long run and it can be monolithic and only having one resource CPU model I think can only making one of the key products.
And from our perspective.
Certainly heavily focused on the upside and historically have diversification of spin butyl lithium metal based products, but they don't grow at the same rate and so we look forward and we would like to have some diversification. We also recognize that people want us US included sometimes to participate in what I'll call short term market as we look at today.
The ability to participate in China requires you to have product that China wants to buy <unk> lend itself in the same way to meaningful volume of short term transactions Covenant does and so I do think that there is an opportunity for us to increase the diversification of our portfolio allow us to participate in.
More markets it won't change the fact that we consider ourselves primarily to be a fully integrated lithium hydroxide could you focused on the most demanding applications and they don't lend themselves to short term spot transactions. So we don't expect it to move away from long term commitments from customers, but we would like to have a little bit more expose.
To lithium carbonate than we have today.
Fair enough. Thanks.
Yes.
Your next question comes from the line of Joel Jackson with BMO Capital. Your line is now open.
Hi, good afternoon or evening.
Hey, Dan.
We know what your capital plan was a capital expansion plan Capex LIBOR is at the time of the spin out of the IPO.
Can you walk through.
How much Capex is left to spend on the carbon expansions for 'twenty coming up in the 'twenty after that.
300, and the budget now so how much we should expect to spend on that.
23% were unfortunately $5 26.
And.
I guess talking about carbonate you can throw on what you've committed hydroxide to got to get the <unk> and then.
Okay. Thanks.
Yes, I'm going to pass that to go back to in a moment on what was going to say, we have visibility over fiscal 'twenty, two and 'twenty three because that's essentially went out Kevin engineered expansion and.
So I don't yet have visibility on the new one that we've announced today.
Overall, we don't see any reason why it will be any more capital intense than what we've done already but that needs to be proven out, but I'll, let Joe to walk through some actual numbers of what 'twenty two 'twenty three in any run over into 2012 spending.
So Joe So just disciplined perspective between 18 and 21 2018 to 2021.
We spent because of the growth initiatives about $360 million and frankly this is pretty much in line, where we always expected.
For this year, we are expecting to spend in the growth initiatives passengers senior Argentina about 275.
So.
And the remaining of Covid. Another 150 to 125 next year to complete phase II and in Argentina. So that's where we're looking to horizon and actually this year is a big spend because we do all of the civil work. There is no pre buying because we spent a lot of money over the last couple of years.
Building.
The modules in China, Theyre, all in Argentina, and now we're just really are going through a lot of the civil work that needs to be done in both Argentina invest receding.
Sorry.
And I just had another question out there, but the 100 125 next year that you said the finished phase two that the finished phase one or phase two I may have heard that wrong.
Well, it's a finished the second half 'twenty.
10000 metric tons that we already building.
Next year, but the finish the posted okay, we get the <unk>.
<unk> had a $1 25 next year.
Everything that we've been asked by up to today, Yeah, Yeah, Yeah, yeah. Okay.
Okay.
Other question would be then.
Can you talk about the process changes for.
For the next 20000 that in Argentina.
A little bit more what exactly was it seems that youre, considering what's proven out what do you have to provide scale and ethics.
Yes.
I think it's fair to say none of the process changes require technical.
Innovation of evolution, there will no technologies that exist today, just hasn't been applied in the lithium space and frankly historically at the scale. We were operating at just didn't justify.
To what extent and a high degree of engineering complexity that would be required.
It is not massively different to what you will see some of the other projects in Argentina talking about so it requires us first of all it will essentially eliminate pumps. So we will not only have a pump system in place not of any scale and that's good because it comes with a pain to maintain that expensive to maintain that ugly locals don't like them and so it will certainly help with that.
And it will require us to create a much more closed loop environment to the will to do so.
It will significantly reduce the amount that.
We used per kilo of product produced it also allows us to do a whole bunch of other stuff in terms of recovery of other waste streams that helps increase yield as well.
All I can say.
It's just a different approach to it the base BLE technology that we use does not change the basic process does not change it.
Really about how we handle and manage.
Looking more than anything else in that and how we essentially concentrated brine required levels.
Are you going to be doing a pilot of this or you don't need to do that.
Hello, Yes, the engineering process will let us know, whether we feel the need to pilot we don't know.
Thank you very much.
Your next question comes from the line of Val <unk> with Raymond James Your line is now open.
Thanks for taking the question, let me start with kind of a high level question, we've seen the spot price of <unk>.
Lithium carbonate increased six fold in the past year.
How high can that gap realistically before we begin to see some kind of demand destruction in the battery market or any of the other verticals.
That is a really really key question that I don't have a specific answer floor. There's no doubt that point exist, but I think it exists at different points to different products different segments I think in a premium vehicles using high nickel technology.
A much higher number because thats the relative cost of the batteries.
I think for bluntly antibody yourself cause in a highly regulated abbvie, where you don't get a chance to sell <unk>.
<unk> any more or you have massive findings potentially because.
Two emissions. So they don't have a lot of choice you have to find a way to continue to sell vehicles.
The factors in them, so maybe a little less price sensitivity in that but I think where there isn't a regulatory push.
And then a couple of things are going to happen I think one of them is quite low.
Likely till maybe launch different vehicles to start with you either only launched a high premium ones. All you built a smaller shorter arrangements that can carry a smaller battery pack to allow for the fact that they are more expensive I think.
So impacts quite significantly some of the maybe lower margin businesses, whether that's <unk>.
Commercial vehicles, whether it's especially in a storage, especially which is very high so it can be very price sensitive.
You're going to find some of these adjacencies of demand struggling before you find passenger EV demand look you'd also could trigger a bunch of other innovations around the market I mean, theres no doubt that it may trade better charging infrastructure, if the gourmet catastrophe smaller batches and because they're so expensive the incentive to invest and faster charging maybe comes along so.
It's an interesting really interesting question to play out.
So to my mind, there is no doubt the prices.
And as high as they are to have some impact on demand in the long run.
Okay.
Let me zoom in on your Quebec opportunity I guess, it's been about a year and a half since you may be.
The masking investment.
Would it take for you to.
Pulled the trigger and make a final investment decision on that.
Okay.
Yes.
We don't control.
That's appropriately only owned 25% and the government of Quebec over 50%. So it's clearly appropriate that it runs its process independently. We are providing a lot of technical support. So we have a very clear insight into what is coming out of that but I would just remind everybody. The festival Damascus is debated.
What do you mean resources this no history yet.
Mining is such a remote co location minus do this all the time, but.
What you're going to transport into Egypt products long distance just before your processes to a chemical.
Vacations as to environmental footprint about cost per unit of production et cetera that just need to be worked through carefully and the same is true of building. The chemical conversion funnel look I think you've heard from us and you've heard from using more experienced producers announced the producing spodumene conversion is not easy we've seen failures that meaningful failures.
Out of that hundreds of millions of dollars worth of wasted capital failures out there.
And so it's really important to do it right I would argue as well by the way.
Isn't necessarily a huge rush to bring up material from <unk> to the market why essentially.
Two or three years, the only really growing market that might offset is China and it's questionable about whether it's practical really to windfall hydroxide in large quantities into China getting customs duties, given shipping and logistics challenges around.
Certainly possible, but I think the masquerade absolutely geared towards the development of a battery industry in North America and in Europe , and it's probably fair to say that it's still pretty nascent and probably won't be meaningfully evolved much before 2000 and for 2025, having said that we still think is a fantastic project and has an important place.
To play in the industry in the long run.
Thanks very much.
Your next question comes from the line of Chris Parkinson with Mizuho Securities. Your line is now open.
Great. Thank you can you just discuss the 28% to 43% growth assumption for 'twenty two on the topline I.
I think we all presume that pricing due to flat volume assumption, but if you could just hit on the portfolio differentials between hydroxide carbonate.
<unk> spodumene versus your primary competitor and just Paul you could quickly comment further on just the changes of the evolution of your pricing contract structures.
That would be incredibly helpful. Thank you so much.
Joe.
Okay. So let me deal with the last question the evolution of our pricing contracts didn't really have any built up much at all in terms of the largest contracts we remain committed to multiyear fixed price contracts.
That's where the bulk of our hydroxide volumes are sold into but the bulk of our customers have typically wanted to reset pricing every year.
We have small volumes that typically enough battery grade is typically an increase in other industrial applications.
And frankly, we've moved them instead look at that market. If you don't want to make long term commitments that lets just price to market and we've made it very clear.
We always have the option and particularly in hydro upside to sell the covenant instead, so well over the market.
A company that we can sell into than frankly, the hydroxide. The short term hydro upset customers like that just have to keep up.
That's been an evolution and we typically not reference type of upside pricing against carbonate pricing.
But the reality is that's where we are today and where we will likely to be in the foreseeable future.
In 2008, and 2023% growth rates I think we mentioned about to qualify hydroxide volumes. It's all price it might have a three quarters about volume.
Mix is different by the way, we're going to sell more hydroxide in 'twenty two than we did in 2021, but we don't have any more LTE. So by definition Carbonite loads will go down.
But the three quarters of the hydroxide volume is up about 50% or so pricing wise.
Remainder of the both hydroxide and carbonate, which is being priced against the alternative to otherwise sell it into the spot market in China today at least we would expect that pricing to be at least double if not three times, depending on where the market goes what it was in 2021, you've got a bit of a link at the top line. There is a little bit confusing as well, which is a beautiful lithium unmet.
<unk> businesses, which were about $120 million, maybe a little bit more of revenue in 2021.
Hey, up hugely sensitive to run ups in lithium metal pricing in lithium metal today is running up incredibly quickly because the alternative for most metal producers who are all in China is to sell carbonate instead, and so as companies pricing goes up they need a higher price to justify the metal therefore, the price of metal for us continues to decline.
We'll pass that onto customers directly out to customers and so the top line is likely to grow below the dollar margin will change and so it won't necessarily contribute any extra EBITDA, but it will add something to the top line. So as you pull your excel spreadsheet.
There'll be a bit of a disconnect. When you do your math caused by this pass through of cost and the beauty of metals businesses.
Got it.
That's helpful and pricing and just a very quick follow up just can you give us updated thoughts or your updated thoughts on transportation logistics labor or just what are the ultimate variables, we should be monitoring for both this year and any.
Current view on 23, thank you.
I don't see that being a massive changes to what has been lately, which is great I mean, its predictability because of the two biggest challenges.
Lasers and less of an issue I think.
Inflationary pressures in labor around the world and I think the shortage of labor in certain places.
We tend not to suffer without as much as others, except maybe in the expansions and capital deployment just shortage of people to do the capital deployment I imagined world.
But in terms of other costs.
The increased energy costs for the show with see difficulty sometimes and securely.
<unk> and securing slots at any can be disrupted philosophy different things, we have a port in Chile today does go into some industrial action, which is create some disruption for us we've had issues in the past.
Ships that we booked two just didnt bother stumping in Argentina, just kept going and NXP kind of disruptions.
Impacts on predictability more than anything else.
Biggest challenge.
I don't I don't have an answer to you as to where it should go up with the cost is going to go up or down it's just going to be it's going to be messy equity probe milestone.
Yes.
That's still helpful color. Thank you.
Yes.
Your next question comes from the line of Steve Richardson with Evercore. Your line is now open.
Mr. Evercore has disconnected so we will move on to Kevin Mccarthy with vertical research. Your line is now open.
Thank you good evening, Paul with regard to your first expansion in Argentina, that's set to come online in 2023.
Any of that output been contracted already.
In essence lumpy has right because we've been buying said probably carbonate converting into hydroxide to me I bauxite commitments, each by which we've been historically short covenant and have to buy some assumes it's up and running and online and one of the reasons. We can bring them reasonably quickly. So we don't have that same drawn a qualification process with <unk>.
Customers because a lot of it's going into our own hydroxide plant still takes time to ramp it up but the qualification is less of an issue.
In essence as I've said, we've moved some needs to purchase by Carbonite. So it helps us for Shaw significantly in terms of margin when it comes online.
I think there are a lot of conversations going on mobile the second phase that comes on in 2023 into 2023 and at that point will be.
Assuming we do nothing else pretty long lithium.
Carbonite, maybe eight nine maybe maybe 11 or 12000 tons of carbonate and so we do have two conversations going on with customers customers that would love to contract for that carbonate and customers that are willing to incentivize us to build another hydroxide plants to convert it into hydroxide.
And they will take the hydroxide from us.
We will certainly do one of those two I suspect ahead of that second expansion coming online.
Okay, and then secondly, how would you characterize the quarterly cadence of your earnings. This year is that mainly going to be a function of.
Of how prices behave within the one quarter of your hydroxide volumes thats essentially floating as I understand it.
Yes, I think it's going to be there is no fundamental reason that without any different to any other quicker they will be quite low at different costs and shipping and left it mixing quarters, depending on customers and we'll certainly have.
Different pricing for certain products tuned it.
We don't have anything.
Fundamentally it's going to drive.
Different cadence is the only thing that maybe will change that will be when we the costs to startup both Bessemer city hydroxide in Argentina carbonate because the stocks of expensive stub piece for mechanical completion at so if we are fortunate enough for example to mechanically complete a muscle too early we will likely start those.
Startup costs and therefore be.
<unk> expenses on a cloudy as well so that's the only real obvious seasonality in outperformance now having said that as we've never done four equal quarters I don't expect the chief debated different but I have nothing that I could go out to you to explain that.
Great. Thank you for the color.
Your next.
Comes from the line of Steve Richardson with Evercore. Your line is now open.
Hello, Hi, this is keyshawn very calling for Steve.
Sorry about that earlier had a phone issue.
In terms of 2022 I was wondering if you can just go back to the underlying earnings power of the business. It's clear that things have kind of gone back to 2018 baseline or even stronger.
Due to pricing, but in terms of the cost structure.
As inflation moderates, even slightly declined to start the year.
How should we think about the cost and margin profile of the business on a go forward basis in 'twenty two 'twenty three.
Yes.
Cost is a hard one because.
Most of the cost your expense to go up but they don't go down less.
Other commodity inputs like solvents for example.
A lot of the costs fundamentally higher constitute business and I think it's a reality of the lithium business by the way the costs don't go down as we expand the low cost and low cost assets of open develop the easy low hanging fruit has been developed.
Trying to regionalize supply, which will become a plus plus cost up not down.
Casino to always in the lowest cost locations when you do that.
I think the cost compared to 2019, we have we have a higher cost of being a public company chose cost for example, and other factors we have higher labor costs, we have more people and a lot of that is ahead of our expansion and so again they are not going to go back down in the future I think 2022 margin profile is clearly.
Healthy margin profile.
Most of the increase in margin, we're going to see in the future is either going to be price all leveraging higher volumes is not necessarily a fundamental change in the cost structure.
Great. Thank you and then just one quick follow up.
Earlier today, one of your peers.
Increased their long term lithium demand bigger.
True.
One 5 million tons, and 25% or another doubling by 2030 I was just wondering your insight on long term demand dynamics of the business.
Sustainable price response, and frankly, if there is enough supply out there to reach demand that's it. Thank you.
I think I think on that call earlier today I think one of ERP is made.
Correct comment might which is doesn't matter what the fundamental demand is if there is no supply there is no supply no amount of price will change. This this is not a new industry.
Looking at the growth that we have there's no idle capacity 16 grams. So you've got growth going this way.
At numbers today that shows growth in hydroxide and carbonate demand for next year.
40% of this shift over the last year of 40 call. It 45% in hydroxide 35, 4% in carbonate, but when you line that up with the supply side that just didn't have the supply that for that.
I think you have no choice, but to look at the supply side that will be the limiting factor.
Well, there's a lot of supply can come to market and will come to market and I also don't believe that the answer to this is going to be price spikes I actually think what will happen is that there'll be multiple operational participation with the ultimate consumers to contract a sensible prices to put in real commitments and to find preferred partners that they will support.
To make sure the expansion happens, whether that's providing technical support capital whatever it may be but theres no doubt that if we just carry on attempting to leave.
China based prices to drive investment decisions, it's not going to end well so.
My view remains if there was a lot more supply there would be a lot more demand.
Okay.
Your next question comes from the line of P. J <unk> with Citi. Your line is now open.
Hey, good evening Paul.
No your lithium prices are up somewhere between.
Due to a 100%.
I'm looking at this China prices.
The impact on the supply chain do this GAAP total battery guys have pricing or are there are there.
One is we're going to get squeezed.
<unk> in the supply chain.
Yes.
Or is it being passed on to the final consumer.
Well I would say a couple of things you just have to look at the earnings profiles of the <unk> and the LG <unk> of the world to suggest it's felt the battery guys that are embedded in the cost.
And my experience from what I've seen the cost does get passed through to the ultimately to the OEM and as Wayne and I think the OEM has to play a bigger role in those decisions because they're the ones carrying cost.
Don't know, what that's being passed on to the ultimate consumer because.
Again in Evs competing with other options, not least of which keeping your old costs. So there's only so much you can pass on to the consumer.
There's no doubt in the automotive OE haven't publicly more than anybody else is going to be the ones feeling the pinch as disclosed through the supply chain. It's a difficult one because as I said before China the prices you've seen China really reflect mainly a China phenomenon.
All the cathode materials are.
Being made in China, There's obviously a lot in Korea, and Japan, but it's really in China. So while it's a captive domestic market. This is going to impact the Chinese EV market first and foremost and I think as you've seen with some of our peers talking about when you start to sell on price as such China, just a different market dynamic the price spikes and not as extreme they're still meaningful.
But they're not as extreme just as the price collapses, but nowhere near as large either so I do think that.
There's certainly plenty of margin in the chain to sustain higher lithium prices I don't think there is enough margin in the chain in perpetuity sustained $60 $70 carbonate prices, which is why none of us ever predict prices at those levels because laws of economics do tend to kick back given enough time.
Great Paul. Thank you that's helpful and we've been also hearing that the LSP.
Costs are now higher than NMC does that mean NMC begins to get back share.
In China or does that mean, it can incentivize adoption of other bad things like sodium ion batteries for.
Some other applications, maybe not in automotive, but in the NSS.
Well I certainly think there is opportunity for non lithium ion batteries in the DSS title you don't care about weights at some point people are going to start asking those questions.
Don't know whether its <unk> by the way, but I'm sure.
Show. This other alternative technologies that people will and should be looking at.
I didn't see nothing to take back market share continues to grow in absolute growth rate of high nickel NMC is higher than MSP has been just from a small base I think that will continue to see NMC grow and develop in the way that we had predicted that it will grow and undeveloped and passenger EV applications. Nobody was trying to use it in other applications other than maybe.
Our tools E bikes, and scooters that kind of space.
But I can high nickel and nickel is really going to continue doing what it does.
It will run into its own challenges as nickel at some point, it's not there yet, but we are all stopped talking about the nickel China's biggest LSP prices have caught people's attention, but there's still going to be a nickel challenge for those high nickel batteries as well.
Okay.
Great. Thank you.
Your last question today comes from the line of David David <unk> with Cowen. Your line is now open.
Thanks for squeezing me in guys and Paul and Gilberto. Thanks for all the color Tonight.
Im curious Paul just a housekeeping item you talked about Bessemer City mechanical completion, obviously is on time for this year, but we expect for sales I guess or revenue coming in 'twenty. Three how do you think about I guess that timeline when you present, the expansion that solar hombre mechanical completion.
<unk> next.
Next year.
Do we think about the revenue impact versus the charter mechanical completion.
Yes.
Generic and operations team a promise that there will be no leaky pipes seamless dispenser.
In which case the process will be pretty quick a mechanical completion to production extended a question of what are you producing.
<unk> you just cannot get qualified with the best will in the world Shortly our lithium nobody wants to take a chance on lithium hydroxide quality and the high nickel batteries, because recall is a pretty expensive. So we don't really see any easing. Despite the tightness in supply of qualification processes now we can start that process pretty quickly and we.
Have the mechanisms of the relationships in place and so we do expect that to go quickly.
You took a three to six months, but clean up two to three months, you'll get harder to predict in the company because it's less about qualification is actually about getting to pass up and running and producing the material correctly fine tuning the processes, because that's really all about getting the impurities out making sure you have.
So I would hope that we will be running both of those plants at full production rate by the second half of 2023 doesn't mean there'll be a zero in the first half, but it will take two quarters publicly to bundle them all up to full production capability.
That's helpful. And then just a follow up for me is.
You gave some guidelines earlier around.
The additional 20000 tonne per annum expansion getting up to 60000 tons per annum SLR hombre.
Should we think of that because it sounds like it's an engineering.
Tweak that leverages existing infrastructure in place and process redesign.
Should we be thinking about that expanded capacity as being a significantly more capital efficient from a sort of a.
A dollar per ton perspective relative to the initial $210000.
10000 ton expansions or should we be thinking of that as roughly equivalent as a starting point.
That is really hard one to answer I don't know the answer to that is why there is a degree of capital inefficiency as a first phases that we've just done camps for the contractors water treatment capabilities water pipeline. Some roads, we don't need to do again.
So that's not an insignificant amount of capital.
But partners aren't that expensive to put any relatively speaking on what we replaced them with will probably be more upfront capital I don't know how much more yet again until we've engineered all of that so it's hard to know whether there'll be a massive difference is certainly our first look suggests.
Second 20000 tons will be no more capital intensive than the first time.
And possibly maybe even a little less capital intensive, but thats a very preliminary look.
I appreciate that and then I guess just the last one is just the.
Decision point to get everything up and running by 2025.
When does that presume that worked against us that 2023.
It presumes, we stopped the engineering today.
We will leverage as much of the engineering that we did on the previous work. So it's not a complete from scratch.
Engineering costs have not the whole process doesn't changes on positive exchange I would hope that we can start that process before the end of the street and suddenly.
Assuming that we hit this is viable in order to actually meet that 25 deadline with somebody didn't have to stop ordering long lead time items sometime in 2022.
Just think about that.
That's not unique to our process any projects needs to think two or three years out for long lead time items that just has a long it takes to get some of the critical equipment.
These expansions I was actually thinking Conversely, it's a relatively compressed timeline for expansion.
But I appreciate that.
Just to bolt on and that's why it's a simple bolt on.
It sounds easy.
This concludes our Q&A session for today, Mr. Rosen I'll turn the call back to you.
That's all the time, we after the call today, but we will be available following the call to address any additional questions. You may have thank you everyone and have a good evening.
This concludes the <unk> Corporation fourth quarter 2021 earnings release conference call. Thank you.
Please wait the conference will begin shortly.
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