Q3 2022 Sociedad Quimica y Minera de Chile SA Earnings Call

Good morning, and welcome to the Q1 third quarter 2022 earnings Conference call.

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I'll now like to turn the call them through to Kelly O'brien.

Investor Relations. Please go ahead.

Good morning, Thank you for joining SQL earnings conference call for the nine months ended September 30 F. 'twenty 'twenty. Two this conference call will be recorded and is being webcast live our earnings press release, and a presentation with a summary of the results have been uploaded to our website.

Where you can also find a link to this webcast speaking on the call today will be Ricardo Ramos CEO and Arnaud Giannis CFO Philippe Smith senior commercial Vice President of lithium and Pablo Tomatoes, executive Vice President of iodine and nitrates will.

We'll be available to answer any questions before we begin let me remind you that statements in this conference concerning the company's business outlook 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 federal 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 from those stated in such statements, including our.

Our ability to successfully implement the sustainable development plan risks uncertainties and factors that could affect the accuracy of such forward looking statements are identified in our public filings made with the United States Security and Exchange Commission and in our earnings release issued last night.

And these forward looking statements should be considered in light of these factors, we assume no obligation to such statements whether as a result of new information future developments or otherwise, except as required by law I now leave you with our Chief Executive Officer Ricardo Ramos.

Okay.

Thank you Kelly good morning, and thank you for joining the call. Today. We are very pleased with the results. We published these results were influenced by positive market conditions in iodine and lithium where we saw record high prices. During the first nine months of the year lithium represented 77% of our.

Gross profit.

Success did not happen overnight for decades, we have a belief in the lithium market and that enthusiasm has only grown in recent years, we have invested heavily in R&D and have been able to bring on more capacity faster than any other player in the world.

Successful public private alliance between Eskom Uncalled-for us benefited both parties as well as the neighboring communities until it to an unprecedented level, we look forward to.

Keeping this momentum going in the future formalizes through our solar food Duda announcement. This momentum has driven us to continue investing and growing our lithium production around the world. We're instantly announced the purchase of a plant in China, which has been overhauled to allow us to process lithium sulfate from AOI.

Our operations in Chile to lithium hydroxide yesterday, we announced that we will begin to expansion of our lithium hydroxide capacity in Chile from 40000 metric ton 200000 metric tonne in Chile, we have the necessary permits and look forward to completing this project by 2025.

In the lithium industry, we see strong indicators relating to demand growth, particularly Jeannie chiller Jinan, where we are seeing that electric vehicle sales units are doubling compared to last year, while jeanice, leading the lithium demand growth today. We also believe in the electric vehicle.

He called markets in Europe , and the United States Electric vehicles sales in the U S will grow up to 60% this year compared to last year and while starting at a lower base. These numbers are is still a positive indicator of the continued momentum globally of the lithium market in the future given all of these.

It seems likely that prices will remain a dis historically high levels for the remainder of 2022 and into 2023.

As a strong growth fundamentals are instant advising us to keep on growing beyond what we have announced in Chilean abroad. We will continue to invest in R&D innovation of new projects and opportunities that will allow produce lithium in a cost effective and sustainable way to meet the green energy transfer.

See some of the future.

While we have announced significant investment in the lithium business in the recent years, our long term views.

In or all the business remain strong we continued to invest in expansion projects related to a unit of nitrogen Oh swell. During the past few months, we have signed long term contract for both lithium and iodine provant proving our commitment to our business and the mutual trust and.

Collaborations that we have with the main players in the industries, where we operate.

Operator, we can now turn it over to questions.

Yeah.

We will now begin the question answer session.

To ask a question you May Press Star then one on your Touchtone phone.

If you're using a speakerphone please pick up your handset before pressing the keys.

Two is try a question. Please press Star then two.

At this time, we will pause momentarily to assemble our roster.

Our first question will come from Joel Jackson with BMO capital markets. You May now go ahead.

Hi, good morning.

Couple of questions I'll go one by one so in lithium there's a lot of noise. This week that lithium spot prices may or may not have started to decline are you seeing spot prices falling and considering that you realise lag the realized prices lag spot by a few months should we see your first quarter 'twenty.

Three pricing being slightly higher than the levels youre getting in Q4. Thank you.

Yes.

Hi, Good morning. This is Felipe Smith.

We are.

And we're still not seeing any any sign of a.

Price trend changing out right now.

I mean, the information you mentioned is about futures, but at current levels.

The spot price still lease at the same levels.

Of course.

As we have mentioned before.

Our future contracts are all.

A link to market prices so.

We do not expect in the first there.

In the remaining of this year in the first months of next year to have a significant change in the pricing.

Okay.

Let's go on with the topic. So there also seems to be more new lithium reference prices emerging including new journalistic assessments and new exchanges futures price like you said you expect all of this to change lithium contract and sales structures and purchasing patterns.

Well yeah. There are some some indexes that we that are.

Our older and more reliable but of course, we welcome to have new index is coming in the market I think that will help to have more transparency.

Yeah, and the decision on which index, we consider is a b and a part of a discussion that we have with our customers.

You mentioned in one of your earlier answers about futures pricing. So there's some new future prices.

Exchanges are references that are emerging or are those credible futures.

References like is incredible that customers now think that lithium prices are declining later in 'twenty three based on these new assessments are incredible with air Liquide.

Yeah, we just.

We just followed those developments, but at the end our contracts are based on the on the current market indexes.

Thank you very much.

Our next question will come from P. J <unk> with Citi.

You May now go ahead.

Yes, hi, good morning.

Hum.

Question for you you're expanding your conversion plant in Chile, and as well as capacity in China with.

With the IAA Bill would it makes sense for us.

S Q1 to consider a plant in the U S for conversion.

Morning, I'm on Carlos DSM exact with Dubai prescient.

We do business in lithium.

Well the way whether it was you know where we're expanding our capacity to hearing to lay in the lithium carbonate.

Got it and I would say at the same time, we expect to reach it.

I spoke about at the next year of lithium of Brookside of 40000 on 180000 in lithium carbonate at the same time, we're aware of where are they spun either way.

By adding a new capacity of our refining in unconventional in China.

Total of 30000 and for next year on the same time.

Working in the building a new plant in Australia that will be radio in the 'twenty four.

Additionally, the way we are what we announced yesterday to continue expanding our lithium hydroxide capacity in Chile up two ratio 100000 in the year 25 leased.

Our work plan.

Now you asked about is to do it something to do is obviously see where what are studying different opportunity that could be one to boot to booty plan anywhere to another market that we know there are a grow in Boston for the consumption of lithium for batteries Louise you seen nowhere to go but we're still we're still under.

Study.

Okay. Thank you and then I have a question on potash you know Brazil is your biggest market.

Can you talk about inventories in Brazil that some people think got high some people seem to have come down.

In potash and you talked about higher prices, causing some demand weakness.

That happened in 2022, what's your outlook for 2023.

Okay.

Okay bone alternator is speaking good morning.

Well as you know I would say that the whole fertilizer industry, it's been a very unusual year.

And demand is not only the the reaction and the money is not only explained because of the price of fertilizer down you just gate beaudet.

Also there are a lot of pressure you know in the farmers' economies because of the cost of gas raw materials in general.

Manpower et cetera. So of course that these have impact you know in the in any mine in a very important way.

Brazil is not been the section and also in Brazil as you know they start in buying a lot of product at the beginning of the year. So right now our review is still.

In that country, we have.

A lot of inventory.

And that explain you know the low volumes that we saw in this quarter.

Regarding to what will happen as I said before is still there a little uncertainty of course that we are following up what's going on with the market situation.

So it's difficult to say.

Yeah.

We see some small recoveries now, but I think that because of uncertainty we need to weigh a little leading OEM to know what will happen.

So would you say would you say that demand is weaker in for Q I mean.

Brazil had just finished blunting you think demand was weaker during the planting season.

Well you know in our specific case, you will see that our sales in Q3 were low we see some recovery in our case.

Bob.

Yeah as I said before because we are starting seeing son, saying as you know that the the money is getting there.

But it's still you know.

Slow because of the level of inventories.

Okay. Okay. So inventories at high Okay. Thank you.

Yeah.

Our next question will come from Jacob Kim with Scotiabank.

You May now go ahead.

Hi, there hi, this is Jacob Kam, calling in for Ben Isaacson I, just had a couple of questions.

At the hydroxide capacity expansion in Chile.

Before that it takes a while to get these expansions up and running especially in Chile. When you have to jump through so many hurdles.

Can you talk about whether this is an accelerated process and if so has any timeline been accelerated for any of your other projects like China. It is al Salam material.

Yeah well.

We're doing as much as what are we can you know that we're already expanding the lithium carbonate capacity in Chile at the same time doing the same with the Lithia network. So tourists do 40000.

After that immediately with Starwood did the new expansion announced yesterday.

And for the other side, we just received the permit for doing Doug just among so a couple of weeks ago. So we just now in the moment to have to start with that so within that we are doing that.

As much as possible, let me instead of do it faster and we have been building and increasing our capacity in the last three or four year and we will keep doing that for the next two or three year lease.

Sounds good and just one last question just in terms of the pricing contracts I know that you've mentioned that there are some long term pricing contracts in place and you've talked about the pros and cons before of these long term pricing contracts.

In general as they follow general market conditions is there strategic point in time that you identified when you would want to lock in the long term pricing.

Yeah, Hey, you know at the end.

Today in our at least our discussions with customers. We are referring to market indexes. We believe that this is the healthiest way to contract our product.

So definitely locking prices is something that is out of the question for us today and we are following indexes. We believe this is the best.

Sounds good okay. Thank you so much.

Our next question will come from Cesar Perez Novoa with BTG Pactual.

Oh go ahead.

Thank you.

Good afternoon to you all and congratulations for your shrunk performance.

I have a group of questions here. My first one is regarding this incremental 60000 hydroxide expansion in Chile, which certainly is a bold and confident the movement in investment considering the.

Contractual terms with core four expire in 2030 on this rationale has there been any any progress.

With fortunate authorities as his voice with a fresh and also.

When considering this new investment what Capex should we assume in 2023 and and how have your numbers have changed for work for for the next years.

China.

Would it be possible to say when will this AR facility start contributing to STM saw numbers and possibly what under what economic germs and third and finally on lithium pricing.

The third quarter 'twenty, two number Chad head of a consistently.

Increased pricing on a quarter on quarter basis and seems that much.

Of the first 45 days of quarter four there has been a significant uptick in spot prices.

Maybe if you could qualitatively I know that you didn't you didn't talk about price levels.

Maybe qualitatively.

Indicate price direction into 2023, and what sales mix would you obtain next year or seeking to obtain this would be my three questions gentlemen, thank you.

Ics or this is get out of though we will try to go over each of your your question Carlos will start with the person.

Hello, Sarah I will explain about a little bit about the <unk>.

So sponsor the Chilean whereas our playbook, we follow where have been explained we believe that the demand as it will be really strong in the coming year regarding to the lithium, especially as they look at Brookside outside of China.

We are the market obviously, we knew the more supply on new where we're working on that in Chile, and China on Australia.

So we feel we feel very confident that we will do our best effort to restarted capacity, we have shown in the past we have done it and so.

Regarding to call for I don't know too.

Yeah.

Okay.

Thank you Carlos it's important to say that these hydroxide capacity decrease is a very good project result, even considering moving forward.

In the 2030.

The agreement, we have with corporate mean seed so very good product project itself concern that we would be ready in 2025.

But about you were asking about the 2013 core for the agreement we have today, let me comment that as you May know we are in the process is as our we're in the process of informing the different authorities and the stakeholders to explain I think what we call. The scope of this alert for Udo project. So.

Far I'm very pleased to say that everyone agrees on the interest of developing processes and technology that aim at the depth deep of water balance at the Salon side ideals is also a very good adaptive and maintaining an extremely low carbon footprint at the end.

But we are looking for what is deepening our sustainable productive activity and the thorough that come on we have a fully agreement with everyone. We have been in touch so far.

We are advancing today as we speak at maximum speed in the worker of process design and engineering technological definitions and to develop a complete environmental survey of the project.

This project as I explained before is very complex and requires a high level of knowledge and experience.

We strongly believed that SQL, we are we have a.

Significant experience after 25 years and there's a lot of the camera we have the human team experience the commitment and the resources to successfully faced the project.

We hope to complete all the necessary definitions to submit the final project to the environmental assessment our authority in Chile during the second half of 2024.

It is important to consider an entirely complete progress is required in all the definitions of our project prior to being submitted to the environmental evaluation, that's very important in the Chilean and.

And framework.

I think also it's important to consider that this project of course implies operation commitments that go far beyond the year 2030.

So working in agreement with Korfball is necessary prior to its presentation to the environmental authorities for evaluation.

We all agree that the development of this allowed to do the project must be carryout in a way that is positive for the second region of Chile. It has to be positive for the communities near the seller of course positive for Chile and Fortescue.

Alright, so regarding your question about <unk>.

Regarding your question about the Capex, we have announced our Capex for the period 2022 2024.

We expect that total capex will be approximately $3 billion, which is comprised of $1 billion of capex related to nitrogen I ambitious including maintenance.

If those operation plus $700 million of investments in Australia.

One $3 billion of lithium expansions in Chile, and here I am including the $360 million that we announced yesterday for the expansion of our lithium hydroxide capacity.

Regarding your China.

Good question Carlos Yes regarding to China, we expect to start producing in the second quarter of next year, we're still in the ramp up of the of the world.

The factory and a whipsaw with specced in March and April something like that but medicines into there.

We would say to produce a mixture.

Tom.

Alright second quarter 'twenty three.

Alright, thank you.

Yeah, and this is Felipe before the last question regarding the price correction.

Yeah, we have a lot of questions. So yeah, well, we already mentioned a in our press release that we believe that the price environment will remain high for the rest of this year and the beginning of 2023. So we.

We stick to that view.

The demand remains very strong thesis there.

Yeah, we are very convinced because we received the feedback from our customers as well they are all where theyre very aggressive expansion plans. So.

Demand will play a big factor in the price direction, and we believe that those fundamentals are there.

Alright for Libre, so if I.

Can make like a final conclusion here is essentially you you'll be.

100% exposed to the market.

In 2023 on the on the solid conditions set.

On the strong demand that we're seeing is that a correct assessment.

Because in the third quarter, you were open 80% of the market.

I recall correctly.

Sorry.

Yeah, Yeah for next year, we will be almost entirely exposed to the market price.

So we are very early.

I'm confident bump up.

Yes.

Alright, Thank you everyone and thank you for taking all of my questions.

Our next question will come from Andrew Mccarthy with Credit Corp. Capital You May now go ahead.

Good day, everyone. Many thanks for the call and the presentation.

Q&A session.

I wanted to switch over to admit there is two sorts of iodine a little bit you know you had a very strong quarter in terms of price realizations about 63.

A key like.

Just wondering you know going towards the end of the year and into 2023, how you're saying sort of the supply demand dynamics, there and and all we get reaching.

Peak prices in that segment.

My first question. Thanks.

Okay well.

You said, we are very proud of all the result of this quarter for the OEM business.

I would say that is E somebody, though because the demand has been there, especially explained because of the X contrast media and other obligations.

But also is just to say that we have been able to increase our sales because also we have been able to produce more <unk>.

In the in the last year.

Because some improvements in our operations and as you know we have been investing to expand our capacity at <unk>. So my point is that we have been able to deliver the iodine that our customers' needs.

<unk>.

Regarding to the next year, we'll always is difficult to say everything will depend as you said regarding the amount of supply.

Regarding the demand.

We see some uncertainty because of the situation in Europe that could affect some obligations by the still we have some way to to run to see finally, what happen. So that's one one point.

And regarding to the supply world today.

We have not seen more supply coming in.

Next year, we know that some new capacity could arrive.

But it's still you know we need to see finally that that habit.

How.

We are we are also investing in order to have more capacity.

If the market needs Maria your line, we believe that we will be able to leave or are you going to the market.

Okay.

Alright, thanks very much.

Going back to lithium.

You know we have been saying recently, so instead of up and down our customers' data in terms of especially around volumes and prices in China. Just wondering if you could share your thoughts on that whether that some of that sort of.

You know, maybe one time effects of mix effects in certain months or anything that you're saying that you would be a bit more concerned about.

Thanks very much.

Okay.

Hi, Andrew This is hit out of yes, there is a lot of it.

The information that comes from from customs that shows our exports to the different market, but that's not all the information it seems that our price adjustments and things like that that are not necessarily being reflected on those numbers. So taking strong conclusions out of BC figures may be a mistake.

And also there is another thing to keep in consideration.

Net.

We export product from Chile to in most of the cases to a world subsidiaries, where where it later on the properties being sold to the market. So we keep in batteries and our subsidiaries. So the fact that one particular quarter the volumes were significantly higher or lower than the previous quarter doesn't necessarily mean that we're going to.

Cell.

Inefficiently more or less during the next quarter.

We are projecting that for this year. The total volumes of lithium sold will be more than 150000.

The tons and that of course.

<unk> product that is.

Going to be sold from Chilean also product that is being sold from our commercial office.

Okay.

Alright, Thanks Gerardo.

Our next question will come from Krish, <unk> with loop capital markets.

You May now go ahead.

Yes, hi, Thank you I was sort of a follow up on a prior question, but I wanted to flesh it out a bit so I'm attending that big battery materials industry Conference currently and Theres a lot of discussion at the conference about the inflation reduction act or IRI, which obviously provides support for our stimulus for EV adoption in the U S. So as.

I understand the production of battery materials or processing of materials.

In Chile would qualify under the structure of the IRA because of the status is of Chile has a free trade partner so that was.

Just wondering if you can.

Could you just confirm your thing.

The status there in terms of your footprint and two because of that free trade desk.

Pre trade partner status and presume qualification within the IRA just curious has there been a step up in <unk> commercial engagement with potential downstream partners in the U S. As a result of that that's bill's passage and its future growth implications in the U S.

Yeah, well this is Carlos here, where we understand yesterday with our brother would qualify for that as a way to have a free trade agreement with the United States, but it is something that I have to be shaken by our customer.

Yes, I'm just curious if it is.

Theres so much enthusiasm around the implications I'm just wondering if youre seeing that in your commercial engagement and is this something that legislation.

Did it help.

Influence the underwriting of your hydroxide expansion intentions that you just announced or is it just completely independent investment decision. Thank you.

Yes, where we have now signed contract with a customer that I confirm that there was a customer that had the Panama project in the genomic data and obviously there wouldn't need double Bravo that it's coming from Chile.

And what I said before because they understand that where we have the we would qualify us as a broader data coming from the countries with the free trade agreement with you when the United States.

Yeah.

Thank you.

Our next question will come from Sam Walsh, Sachin Jain with HSBC you May now go ahead.

Hi, good morning, Thanks for taking up my questions.

My first question is do you see any potential demand normalization in China.

In the setting up of EV subsidies by the end of this year.

And secondly.

It's possible to quantify in monthly demand that is necessary to support that new battery and capital plans that are coming online and ramping up production.

And when those demand will start to peak. Thank you.

Sam could you have to report could you just repeat the first question I think we may have missed that a little bit.

Yes, I'm just wondering.

If there are any signs of normalization of lithium demand in China, given that China is taking out the EV subsidies by the end of this year.

So that is a lot of <unk> happening.

Amy.

Sure.

Yes, Hello Felipe again.

We are we are waiting for more a official information from the Chinese government about a.

The subsidies as of next year. However, we can also come in.

We believe that the Chinese market has shown.

Very strong growth.

And some more maturity, meaning that they are probably their demand has a good momentum.

Momentum now and we're not we do not see a.

A strong impact.

Because of the subsidy ending on the contrary, we believe that there is a good momentum and potentially the Chinese government will Ah.

<unk> announced something that will help the demand.

Thank you.

Okay.

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 operator, and thank you everyone for joining we hope you all have a great day. Thanks.

The conference has now concluded. Thank you for attending today's presentation you may now disconnect.