Q3 2022 Livent Corp Earnings Call
Good afternoon.
And welcome to the third quarter 2022 earnings release conference call for live at the Corporation.
Phone lines will be placed on listen only mode throughout the conference. After the Speakers' presentation, there will be a question and answer period.
Now I'll turn the conference over to Mr. Daniel Rosen Investor Relations and strategy for Library Corporation. Mr. Rosen you may begin.
Thank you Dennis good evening, everyone and welcome to <unk> third quarter 2022 earnings call.
Joining me today are Paul Graves, President and Chief Executive Officer, and Joe Bertelli, Tony Aussie Chief Financial Officer.
The slide presentation that accompanies our results along with our earnings release can be found in the Investor Relations section of our website.
Prepared remarks from today's discussion will be made available after the call.
Following our prepared remarks, Paul and Roberto will be available to address your questions.
Given the number of participants on the call today, we request a limit of one question and 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 <unk>.
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 definitions of 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'll turn the call over to Paul.
Okay.
Thank you Dan and good evening everyone.
<unk> had another very strong financial performance in the third quarter as the business continues to achieve record levels of profitability.
Q3, adjusted EBITDA of $111 million compared to $15 million, one year ago to $95 million last quarter.
And what remains a very strong market <unk> has continued to achieve higher realized prices, while also delivering increased volumes to customers in the third quarter.
As we approach year end, leaving us narrow the ranges of its full year 2022 financial guidance, while increasing projections for adjusted EBITDA at the midpoint.
This is underpinned by higher realized pricing in the second half than previously expected.
I think it will go into further detail <unk> continues to make considerable progress on its expansion projects and remains on track with all projected timelines on capital plans.
Construction of about 5000 metric ton lithium hydroxide expansion investments that he was completed in the third quarter.
Now in the early stages of producing and qualifying this product with customers.
2023 will be a landmark year for ligand as we expect to fully ramp up the Bessemer city hydroxide expansion.
Complete two phases of lithium carbonate expansion in Argentina, totaling 20000 metric tons of nameplate capacity and added new 15000 metric ton hydroxide facility in China, all by year end.
Given the time required to ramp up the new Argentina expansions <unk> expects to produce roughly 6000 metric tons of incremental LTE volume in 2023, or roughly 25% annual increase starting in the second quarter and we expect to further increase our production in 2002.
94 in the years to follow.
2023 will also be a pivotal year for the domestic project as it begins construction and critical decisions regarding project financing and commercial pathways are made and executed on.
All of these capacity expansion efforts continue to progress as expected and as previously communicated.
I will now turn the call over to Joe Bento to discuss our third quarter performance and our updated 2022 financial guidance.
Thanks, Paul and good evening everyone.
Turning to slide four.
<unk> reported third quarter revenue of $232 million.
Adjusted EBITDA of $111 million.
Adjusted earnings of 41 cents.
Per diluted share.
This was another record quarterly financial performance for license.
As we continue to execute well operationally in a strong market environment.
Versus the prior quarter revenue was up 6% with higher total LC volumes sold complemented by slightly higher realized prices and a favorable product mix.
Third quarter, adjusted EBITDA was 17% higher than the prior quarter and over seven times higher than the prior year.
This was due to continued strong pricing across all products and our ability to take advantage of a favorable market conditions.
Additionally, we saw a small improvement in sequential costs.
As we saw the bulk of our remaining higher cost third party carbonate material from inventory in the second quarter.
There was also an FX benefit to adjusted EBITDA.
As a result of the strengthening of the U S dollar versus some of our foreign denominated costs.
From a balance sheet perspective, we finished the quarter with $212 million of cash inclusive.
The receipt of $198 million prepayment from General Motors.
As a reminder, this prepayment is related to a six year battery grade lithium hydroxide supply agreement.
2025, which was announced by <unk> and GM last quarter.
During Q3, <unk> also announced the renewal of its revolving credit facility for five years through 2027.
While upsizing it by $100 million.
As a result.
And due to continued strong cash generation license now $500 million facility remained undrawn at quarter end.
As we look to the remainder of 2022.
You will see the alignment has updated its full year guidance.
Shown on slide five.
We have narrowed the ranges of our guidance, while increasing the midpoint of our projected results for adjusted EBITDA.
$10 million.
For the full year 2022 live and now project revenue to be in the range of $815 million to $845 million.
And adjusted EBITDA to be in the range of 350 million to $370 million.
This improvement is largely underpinned by expectations for slightly higher realized price.
Vitor demand has been exceptionally strong throughout this year.
And published lithium prices in all forms have continued to move higher.
Reflecting very tight market conditions.
<unk> has been able to take advantage of this by realizing higher prices on the subset of its volumes they are exposed to market prices.
We are confident that this environment not changing for the rest of the year in.
And later, we will continue to take advantage.
Of this <unk>.
However, due to customer mix.
We will have a larger portion of salt volumes in the fourth quarter. There are contracted previously set lower fixed price.
As a reminder, we expect 2022 total volumes sold on an LC basis should be roughly flat versus 2021.
As no meaningful volumes from our capacity expansions are expected to be commercial available until 2023.
The revised guidance does not assume any change in total volumes compared to a loss guidance.
Although we do expect to sell slightly higher volume sequentially in the fourth quarter.
With that said.
Give us some of the regional supply chain disruptions, we continue to see affecting many industries, including our own.
There is a potential for some year end volumes to be pushed into the beginning weeks of 2023.
Well either significantly improve <unk>.
Stability and cash flow will be further enhanced by additional production volumes coming online over the next few years.
This much improved cash generation provides alignment with ample liquidity to continue advancing and where possible accelerating its expansionary investments.
Additionally, we will continue to have I believe other forms of funding such as the prepayment received from GM. They provide additional flexibility and are only available to proven reliable producers such as slide.
Credible expansion projects.
The focus from customers on securing supply of battery grade lithium from proven producers.
Producers remains as strong as ever.
Vyvanse projections for 2022 capital spending of 300 to 340 million remains unchanged.
Our pace of spending pick it up on the <unk>.
Third quarter and this will continue in the fourth quarter as we approach permission of our first 10000 metric tonne phase of carbonate expansion in Argentina.
And reached other key milestones across our projects.
I will now turn the call back to Paul.
Thank you so bad so.
Turning now to several market observations on slide six despite some near term supply chain disruptions, particularly in China with energy curtailments.
Collins COVID-19 policies lithium demand has continued to be incredibly strong.
Through the first nine months of 2022, China EV sales reached $4 5 million units and based on most full year estimates sales in China were more than double versus 2021.
Battery sales in China show, Similarly impressive growth up roughly 245% through Q3 year to date versus 2021.
And <unk> registrations in Europe reached an all time high in the month of September Pete that was not expected until the typically higher yearend push in December .
The lithium market has continued to be extremely tight as evidenced by the lack of inventory building throughout the supply chain and the continually high bid prices set for the limited uncommitted feedstock material that is available.
We believe that Australian spodumene, based LTE, which make up close to half of the total market did not increase in the third quarter versus the prior quarter, while demand continued to grow.
There are few credible data points to suggest this pressure will abate as we move through the remainder of this year.
As we go through a period of seasonal slowdown for higher cost Chinese grind produces and adult youll make because supply chain ramp up production to meet higher anticipated year end demand.
It's also hard to make a strong case for meaningful shift of supply demand balances as we look out over the foreseeable future on.
On the supply side there are several expansions on new projects that are slated to bring incremental volumes to the market over the next few years.
But the challenges in doing so almost seem to increase.
There are multiple reasons for this ranging from permitting challenges to difficulties in procuring long lead time equipment.
To difficulties in finding sufficient labor.
Spansion projects, and especially Greenfield developments that are becoming more critical and very complex undertaking on a time intensive by their very nature.
On top of this the cost of these projects is moving higher due to inflationary pressures backlogs at the contractors and especially tight labor markets.
And of course pressure from local communities to participate in these projects. It means that a longer more extensive engagement that many new entrants expect is typically required.
The complexities of integrated lithium production unmatched downstream qualification standards for southern battery grade materials are not getting easier and even incumbent producers such as ligand required time to ramp up new production lines to meet the tightening specifications of customers.
None of this is to say that they will not be some supply relief in the coming years, whether there was any long term cost curve out there to justify current market prices.
But it's hard to see a probable scenario, where the lithium market does not remain structurally tight to varying degrees or one way of our industry returns to prior trough pricing levels.
On the other side, it's important to acknowledge just how resilient lithium demand has been <unk>.
Despite having gone through a global pandemic when no industry regional consumer was left unaffected.
Forecasted lithium demand growth is not only not slowed down but it's exceeded just about every published forecast available.
The latest cautionary flags being waived point to fears amongst commentators that high lithium prices will be demand destructive.
The negative impact of a potential global economic slowdown, especially on consumer demand.
While we do not intend to dismiss the likelihood of either there are still many reasons to remain bullish around lithium.
With respect to lithium prices from the recent historical high as we've seen over the last few months there has been little to no evidence that the resulting slowdown in demand.
And even at these higher price levels lithium still represents a relatively low percentage of the total cost of an electric vehicle.
Additionally, we're seeing many examples of record profitability from consumers of lithium, including major EV and battery producers.
All sustained macro weakness could ultimately have an impact on the end consumer. However, there is merit to a recent EV players classification of the industry as being somewhat recessive recession resilient.
Critical reason for this is just how strongly the shift to electrification is supported by various regions and governments that continue to reinforce their own low to zero carbon commitments.
Policy incentives and emissions regulations remains hugely influential and we've seen stepped up efforts in recent months, particularly in the U S.
As we will discuss this is a development that we believe is hugely beneficial to ligand and one we have been preparing for.
On slide seven I'd like to provide some more live in specific comments on why the company is so well positioned as we move into 2023.
As we said earlier this is a business that will continue to generate meaningfully higher cash flow.
Our growth is supported by being able to sell an incremental 6000 metric tons of internally produced <unk> in 2023.
Roughly 25% year over year increase.
Additionally, a large portion of these incremental volumes.
<unk> today from a pricing standpoint, so if market prices remain resilient in 2023, which is in line with our and apparently most other observers expectations, we would achieve higher average realized prices versus 2022.
We therefore confident that we will generate meaningfully higher cash flow under a wide range of scenarios.
Yes.
Well it may be somewhat premature to speak to cost trends. It is fair to say that we are not projecting a material improvement in raw materials and other input costs and a broad based high inflationary environment, but with that said as an integrated producer.
Exposure to third party cost is much lower than those who have to source that lithium inputs externally.
And we've shown an ability to pass through certain key cost to customers in 2022.
We projected capital spending in 2023 to be higher in 2022. This is not a change to our previous expectations. As we continue to execute on a roughly $1 billion in investment plans from 2022 through 2024, excluding Nebraska.
We will begin to see the initial benefits of these efforts in early 2023, when we ramp up our first 10000 metric ton phase of carbonate expansion in Argentina.
We can do relatively quickly given the unique nature about DLA based processes.
Given some of the recent announcements in the U S from the current administration.
Spent some time on slide eight highlighting license regionalization efforts and why the company is so well positioned to take advantage of a growing government and industry focus on developing a comprehensive north American energy storage supply chain.
As mentioned earlier, we completed a 5000 metric ton battery grade hydroxide expansion in the third quarter and have begun the process of ramping up production on qualifying with customers. We expect this ramp up to be complete in the first quarter of 2023 aligning with the completion of our first carbonate expansion in Argentina, which will provide the feedstock for.
The plant.
This additional capacity buildup <unk> position as the largest producer of lithium hydroxide in the U S and one of the few hydroxide producers outside of China today.
We also want to provide an update on <unk>.
Project is now reaching the conclusion of its detailed engineering phase.
Okay.
Having done this work we remain as committed as ever to help in bringing <unk> into production.
We continue to believe that the master will be critical to our future North American supply chain.
Excited to be a part of it.
As a reminder, Nebraska as a fully integrated lithium hydroxide project project located in Quebec, Canada, and which ligand is a 50% and equal partner today alongside investment, Quebec and investment group owned by the government of Quebec.
Domestic tons to have 34000 metric tons of nameplate capacity of battery grade lithium hydroxide and we will have over 30 years of mine life as a very large cost competitive asset.
It will have access to zero carbon hydroelectric power.
And we will be strategically located close to regional shipping ports at an industrial park being developed and Beck and call.
This is expected to become a global battery materials hub and they've already been multiple announcements to produce cathode active materials at the site alongside the Moscow, creating a model for localization that we believe is essential to the sustainable development of our industry.
Total Capex is currently estimated to be around $1 billion, which is consistent with the capital cost of similar integrated projects being developed globally.
Mechanical completion for <unk> remains on track for the end of 2025 with.
With the first meaningful production beginning in 2026. The team has already begun ordering important long lead equipment that is required for construction, which we expect to begin in early 2023.
With respect to financing the massacres evaluating a number of attractive options. The resulting structure is likely to include a combination of third party debt financing, including potential low cost government funding.
<unk> prepayments from future customers and some funding from the existing shareholders that is IQ and ourselves.
We expect to have more to share on a comprehensive plan in the first half of next year.
It is important to reiterate that 100% of future, Nebraska volumes remained committed to customers today.
<unk> will play a major role in helping Damascus to identify an appropriate promotional strategy and to manage commercial decision making.
It should come as no surprise that Nebraska looking to us to help them in these areas given our expertise in qualifying and selling battery grade lithium products to leading customers globally, and especially in North America.
We expect it to help them ask a few initial customers that will be both credible and committed to supporting our north American and especially Quebec centered localized supply chain.
<unk> recently hired a new senior executive who joins us from a major EV focused OEM and will lead our efforts in Canada as well as our expansion strategy more broadly.
Regionalization of supply chains, both the security of supply and sustainability reasons, that's become a growing focus for our industry. We.
Recent actions taken by the U S government led by the inflation reduction act or <unk>.
<unk> commitments and incentives to encourage the strengthening of a domestic energy storage supply chain.
Given the importance of domestically mined ore processed lithium supply in these efforts.
We believe <unk> is extremely well positioned to take advantage of a number of additional long term regional growth opportunities.
We expect the operations in Bessemer City, and Nebraska to qualify the downstream EV credits under the critical minerals requirement for the sourcing and processing of lithium we.
We also believe that it will be cost and capital savings opportunities for live or via the advanced manufacturing production tax credit portion of the IRI.
We will continue to grow our production capabilities in North America and build on our leading domestic footprint. Both the best in a city in the Mexico projects are designed with significant scope and space to build additional production capacity as we continue to grow alongside our customers.
Additionally, <unk> is advancing designs that will allow any future production lines to be much more flexible in their ability to utilize a wider variety of lithium feedstock material, including various recycling produced lithium streams.
The passage of time, we continue to have increased confidence in the decisions, we are making to invest in and Americas based supply chain.
I want to conclude with a few ESG related updates.
On the back of our annual sustainability report published in the second quarter. We have continued to make meaningful strides on a number of trumps.
I was one of the first lithium producers in the world to become a full member of the initiative of responsible mining assurance. We are leading by example in our industry and helping to drive an agenda for increased transparency stakeholder engagement and responsible growth at the end of November alignment will advance to the next stage of the process by beginning of <unk>.
<unk> Terry and comprehensive.
Assessment of our Phoenix operations in Argentina.
During the on site review independent third party audit to US, we'll evaluate our claims and direct feedback from various stakeholders, including members of local communities.
Our participation sends a strong signal that we welcome input from our stakeholders and are committed to responsible growth and continuous improvement in all aspects of our operations.
<unk> long standing commitment to sustainability and the progress we are making across ESG is increasingly being recognized by both our customers and independent organizations that evaluate sustainability credentials. Most recently <unk> was placed in the highest tier of sustainable lithium producers and the <unk>.
ESG report from benchmark mineral intelligence.
This is another testament to license leading sustainability profile of the progress we continue to make as we work to deliver on our 2013 2014 sustainability commitments.
I will now turn the call back to Dan for questions.
Thank you Paul Dennis 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 we'll pause for just a moment to compile the Q&A roster.
And your first question is from the line of Chris Capps with loop capital markets. Please go ahead.
Yes. Good afternoon. So you addressed this somewhat in your formal comments about the industry dynamics, but just obviously demand outstripping supply in fact, one consultancy, we talked to is pointing to more I think more than I think 800000 metric tons of demand. This year. So obviously this is underpinning the <unk>.
<unk> pricing cycle or maybe even paradigm is a better word I'm just curious if this dynamic most recently is influencing the procurement strategy of any major oes that youre engaged with or is it giving you.
Any thoughts on.
Just revamping your commercial strategy just your thoughts on that.
Hey, Chris Good question.
Yes and no.
Yes.
I think those are you, including yourself, who followed us for many years now that we've always tried to be commercially focused right. We don't can be answering this ambition to produce and sell the products into the market. If youre not engaged with your customers, particularly when you're making hydro archives isn't that really blindsided by changes in battery technology or changes in.
Who is making buying decisions in the supply chain and so I think it's fair to say that our commercial engagement.
Loud us to constantly sort of look forward and have a reasonably accurate view as to what dynamics are coming and we've largely been.
Kind of not surprised I think what we're seeing today I think the interesting dynamic that I see today I'm not sure it's necessarily driven by the high prices, although I think it gets a bit more attention. This way I think it is the OEM.
Realizing that that ultimately paying for the lithium and it is.
They are the ones that in the end, they're going to suffer if they don't have enough access to the lithium and so to varying degrees. They are looking around and so on what role do we play.
The Companys zero in most cases.
Even people that have been 100%, we will buy all the lithium are backing away from that and say, that's maybe not possible anymore and we're going to have to let other parts of the supply chain see if they can social lithium too I mean, ultimately if youre gaslog could you so maybe a cell producer.
Up to you as to what grade of lithium you can use is up to you to develop a process. If you can to make it easier to acquire different grades of lithium I don't see a massive trend and that impact Michael.
My conversations with our customers is frankly advising them that they are crazy to keep tightening with specifications, because they're just making it harder and harder for themselves, but I do think there is going to have to be more flexibility on the part of the <unk>.
But I also think today, that's maybe three or four guys in the world that are actually engaged with actual really credible lithium supply contracts in the OEM world and it's going to have to go broader than that I think allowing agents or your supply chain to source everything for you.
Really difficult to know where they are acting any differently today no I think it's an evolution I think the shortness of supply rather than the prices and maybe they see the prices is a perfect indicator of the shortness of supply is really what's triggering that behavior, which go back and read a script from a year and a half ago. We predicted. This this was going to happen right there's going to be.
I look forward and someone's going to realize that just don't have the raw materials secured and so I think there's a desperation is a strong word but certainly a lot more concern amongst the auto manufacturers today about whether they will have enough material.
I appreciate that and so my follow up question and I think you touched upon this you mentioned a strategic hire and I did pick up on this in the public domain that.
I believe this higher is referred to as you're now you're Chief strategy Officer. This person that she was formerly.
Had a battery materials procurement as you put it in may.
A major EV company and so I'm just wondering if you could just elaborate a little bit more on the on the rationale for the iron what her mandate will be thank you.
Yes, so the rationale is really really straightforward.
We obviously had a huge amount of engagement with she is incredibly common good she knows the industry, probably better than anybody else and it's a great cultural fit with <unk>.
She also brings some other specific skills and qualities that lends itself for example to operating in Quebec, which is where we have certainly tasked.
We've taken the lead on everything Canada related to US, we see Canada, particularly Quebec as being the second hub.
So alive after Argentina, frankly publicly surpass Argentina with time and those opportunities broadly across Canada that you'll take the lead on but I think also she can help us with just a whole range of different areas of where we take the business what we do and recycling for example, what our strategy will be there.
How large we go and how big we go in terms of product mix carbonate versus hydroxide, even in metal space. So.
Really reflects the fact that live in is growing we can't keep we cant keep pretending that with a company we were five years ago or even three years ago and in three or four years' time, I think we'll be unrecognizable and to get that we need more talent, we need people with capabilities.
We need to invest not just in assets and resources, but in the people that we have I believe the people we have in our areas of expertise of the best in the entire industry and that is a source of competitive advantage and we're going to keep adding talent.
Particularly tomo this person as much as we can to be honest Chris.
Your next question is from the line of David <unk> with Cowen <unk> Company. Please go ahead.
Hi, Thanks for taking the time Paul.
My first question was just to follow up on <unk>.
Just wanted to understand the timing one.
I think the last update was estimated capex at 100% level is a $1 billion.
Is that is that still subject to <unk>.
Final feasibility studies.
And then I guess.
Would that capex begin already in the first half of 'twenty three with SSP early works construction before you might be announcing some sort of.
Holistic financing plan and structure.
Yes.
It's.
Does that capital number as to what we call at FPL three level, which is essentially we're confident of it plus or minus 10%, which is the level, we insist on and so the investment Quebec could assist we get to in order to give construction approval too many projects.
You've seen numbers out there, whether <unk>, two level, which is plus or minus 30%, 40%, 50% you can't make investments on the comp side ordering items and starting construction that way.
So it is absolutely a definitive number of its Paul as we will go in terms of the engineering.
So it is a pretty solid number for sure. The spending that's frankly already started to remember. We this is this is an integrated project as both a mine and it is the hydroxide plant a lot of the spending that the mine actually already took place in the previous incarnation.
Spending that doesn't have to be repeated.
So at the mine level frankly, the minus sort of sat waiting for the chemical plant, we could suddenly stopped we could put in the mine up and running much more quickly probably sometime maybe in late 'twenty three 'twenty four if we really wanted to but we haven't we're not going to sell spot concentrate we're not going to exports what concentrate I don't have the government of Quebec wants us to do that we don't want to do that.
So we will defer additional spending at the mine until closer to the point at which the chemical plant is built chemical plants take two or three years to build people can tell you whatever they wish but unless they've got a special magic into some of the long lead item produces crystallizes and some of them.
The way we compete for parts with like copper projects. For example, it's not like Everything's unique to lithium you just cant get the stuff inside two years or three years, you shouldn't ordered this stuff until you're at the LP level anyway. So this is just the nature of why it takes so long to build these things maybe somebody asthmatic path in China.
In the west.
That's just how long it takes the groundbreaking to start construction of backroom call will start in January February . So it was a little more difficult in Canada, because it gets so cold in winter. So we have to sort of phase when we start the construction.
The construction itself is not frankly, the item that pushes that until 'twenty five 'twenty six it's these long lead items.
Fair enough. Thanks for the color Paul and then my second question was.
Hoping to take a stab at the percentage of volumes on market based pricing.
Maybe if you want to stick to high level, you can walk us through the evolution of contracting which this year I think was around 70% of your volumes were more on fixed price arrangements and thats evidenced in kind of the guidance that youre, giving through <unk>.
One I guess, what those contracts be coming up for review in 'twenty, three and then certainly I guess, what the expansion Thats Hill our hombre.
Assume that the incremental volumes would be under new contracts, maybe you can give us.
High level sense of just that mix shifts and when that would be occurring.
That was really straightforward I think those contracts. We've said this year roll forward into next year those volumes are still under a fixed price next year.
The additional volumes hasn't when they come on with a few a few adjustments here and that largely we're free to sell at whatever price, we which we made with them on the contract. We have made to sell them frankly at $79 15. So what are the latest realized price in China is that's a decision we'll make later in the year as those products come online but.
Almost certainly even if we contract them they will be market exposed to prices I think as you look forward a little bit further you should assume that as we go through 'twenty four 'twenty five.
I personally believe the day of the fixed price contract has been killed by the last 12 months I don't think anybody's renewing a contract at fixed prices I think caps and collars will have a bigger role to play, but there'll be a lot of flexibility of market price movements.
Are there any caps and collars and the reason for that is very simple.
You could get away with the fixed price when sort of attention over that price was never too great.
The market price of $3 higher or $3, lower but when the market prices tens and tens of dollars higher you just have too much tension amount of fixed price contract. So whichever way you look at it fixed price contract probably are no longer going to be part of our industry. Generally speaking is my own view and so as fixed price contracts to rollover.
They're all going to rollover into some form of market based pricing.
Your next question is from the line of Stephen Richardson with Evercore ISI. Please go ahead.
Good evening.
Thanks for the time.
Paul I'm wondering if you could address.
Last quarter, we talked about.
The GM transaction.
The <unk> however, you want to.
Categorize it.
Wonder if you could talk a little bit about.
Conversations with your other customers and how that may have kind of changed the tenor of conversations with other potential customers in your existing customers.
Knowing that you have this longer term commitment and tie up with with GM.
So it's an interesting model I think Noah.
I'm going to describe as three different types of customers because the customer.
That was kind of had the market to themselves for many years and their reaction, which I think is largely.
As you would expect no surprise I mean, the market is evolving there was a lot more competition coming in and.
And when the relationship that we've had with customers that it goes back so far so long listen honest open conversation about where are we with each other on what does it mean and what is expected of that customer as we go forward and what's expected of us by the way with that customer as they bring forward does.
So as the customers that are contracted with us relatively early in that relationship trying to get a little nervous that does this mean, there won't be more volumes for them in the future and so does that it helps our engagement with that customer because it forces them to come and really understand what our investment plans, where they sit in those investment plans have equally what they can do.
To be more prominent in our future supply chain.
Our plants, which is they are all keen to do.
Then there's the customers that we don't supply today that have been wanting to be supplied by us.
I think it creates a bit of panic uncertainty on that part again.
Again, I don't want to use the word desperation, because that's not actually a valid word for what is going on out there, but it has created I think more concerned.
People like <unk>, and I think others in the industry.
Ted major customers I think we are going to be serving three or four of them were going to pick the customers that fit best with us on multiple different parameters and so that comes a bit of a dating game going on I think amongst the uncontacted customers as to who do they want to try and persuade to partner up with them.
That's great.
Helpful. On one thing I was wondering if you could just clarify or give us your read on is the.
The tax credit element on critical minerals as part of the IRI.
The language around U S sourced an FTA.
First could you just clarify.
Your ability to meet that and your customers' ability to meet that requirement with Ms.
Material that sourced from <unk>.
From Argentina, it sounds like there'll be a pretty broad reading of that and it really just means not China sourced, but I was wondering if you could just because I don't think thats the case.
I actually think it's going to be very now reading of it if you look at the comments.
The Treasury Secretary you've made recently.
The interpretation is going to be.
<unk> is going to be a broad one I think there's going to be quiet narrow one.
What is interesting I think most people's reading of it.
But obviously, our customers really very carefully too which is.
If the if the final product coming in is from a country with a free trade agreement then it's going to be eligible frankly in lithium today, that's only one place that Chile carbonate coming from Chile.
If the product is processed into a secondary product usable product in the U S that will also qualify so lithium carbonate from Argentina into Bessemer city converted in lithium hydroxide that lithium hydroxide is processed in the U S that will qualify.
Spodumene concentrate coming out of Australia processed into a carbonate or hydroxide in China will not qualify even though Australia does have a pre trade it.
It's not always as clear and as simple as you might think right in terms of lithium because you think there's benefit for Australia.
Australia produces cant be used in the U S. So won't comment here the product in Argentina made by us at least can be processed into a usable product and so although there is no pre trade agreement with Argentina that actually will be okay provided it runs to additional value added processing in the U S.
So really helpful clarification. Thank you very much.
Your next question is from the line of Christopher Parkinson with Mizuho. Please go ahead.
Awesome. Thank you very much Paul can you just quickly run through just the various projects and expansions and just kind of stay where you are where you expect to be.
Just anything that can still further confidence and getting these up and running for over the next year or two that'd be very helpful. Thank you, yes, sure. So first 10000 tons in Argentina, all carbonite it will be mechanically complete.
Those four pieces to it three of them will be mechanically complete in the next few weeks. The last one just after the new year, which means that we can start feeding that that plan on getting it up and running it will stop producing as we said sometime in the second quarter.
10000 ton expansion, which was sort of linked to the same infrastructure is this one which is why it's so much quicker will be mechanically complete 12 months later, so it'll go up and running again and then we have another 20000 ton expansion coming that will follow that.
Which will be mechanically complete by the end of 2024, So we've got big chunks coming on at the end of 'twenty, two and 'twenty three and end of 24 in Argentina. We just mentioned the masco it'll be done by the end of 'twenty five and producing in 2026, we have.
Bessemer City expansion is already complete 5000 tons that will be up and running and producing and shipping to customers sometime early next year and then we have a 15000 ton expansion in China for hydroxide, which will be completed by the end of 2023 and also no doubt commercially contributing sometime early mid mid 2020.
Four.
Got it and just as a quick follow up I mean, you and others have been signing a plethora of strategic partnerships I'm sure you're happy with it but now.
Now that you've had a chance to.
Take a step back and see what you've already been accomplishing is there anything else on the horizon, which the street should be considering in terms of that are you kind of happy with the ones you've already done over the last 12 to 18 months any color would be helpful. Thank you.
Are you talking customer commitments, so yes lot of amendments.
First of all yes customer commitments and the ones who've made a nowhere near big enough to keep US happy we just don't have any more supply to selling them all.
So we're very happy with the customers what was lined up with I think our engagement with them their engagement with us that openness.
It's been really great. It's been really great to see and we're very happy with it.
We'd like to sell them more products. Our aim is to get them a lot more product. Our aim is to add maybe one maybe two more major customers, but we need to expand that supply for us. So.
The chicken and egg.
It's why we've hired somebody to help us as quickly as we can expand that production.
Also that we can meet the supply requirements drive existing on one or two new customers.
Okay. Thank you very much.
Yeah.
Your next question is from the line of Graham price with Raymond James. Please go ahead.
Hi, good afternoon, thanks for taking the question.
Just following up on the previous question I guess the first.
As the expansion in Argentina once that comes online early next year, how long does that take.
To ramp up to reach kind of steady state.
Yes, it's a bit of a dip.
And at the time of year currently Luckily for us coming on in that in that summer, which means we can usually move the material through the process in a month rather than four or five months.
That doesn't mean it will take a month.
Just just making sure nothing leaks and everything works takes a couple of months so.
My expectation of the team is that they will be producing material that is capable of being used in a hydroxide plant before the end of the second quarter.
Got it.
It makes sense and then.
Looking to our Bessemer City, you mentioned that there is additional.
Capacity for expansion there.
Just wondering ultimately what the maximum capacity there would be in <unk> and <unk>.
Got it.
The expanded the timeframe.
I think.
I am not sure there is a limit it's a massive side I mean, we used to bind that right and so 200 and something acres and we put up we put room down for a second 5000 ton line to sit next to the first one Brett.
Frankly, I don't think it would take a huge leap to add multiples of that investment as such if we could kind of the biggest issue is just expensive to do it in the U S.
So very well one in U S based production, but someone has to pay for that.
10 times, the capital of being weak in China.
And when do you actually think back that the nature of that of that particular piece just that it requires carbonite. So you also have to source the carbonate in Argentina spend significant capital commitment to expand so it really comes down to.
Where the customers are willing to pay to make it worthwhile I mean, we can keep doing it I wouldn't say all day.
But we can certainly do multiple situations investments at TFC, if the customers all of that for us.
Got it okay.
That's helpful. Thank you very much.
Your next question comes from the line of Joel Jackson with BMO. Please go ahead.
Hey, Paul Hey, Jeff.
Hey, Joe.
I'll try this question and maybe you'll run with it or not.
Well, let's say that spot prices kind of stay where they are for.
Over the next couple of years Okay.
What would you think would be your average selling price like so you got your fixed pricing locked in for next year, you've got new tightened some uncommitted ones what would kind of live in realized price gain kind of a year over year and 23 versus 22, maybe you can ballpark it would give us a range assuming spot stay where it is please.
I know you want to want me to run with that I'm going to hold off running with it but I will answer it next quarter, when we give guidance for 'twenty two.
It's going to be one.
One way is going to be higher, but thats not necessarily about the pricing environment, it's about us having more volume able to settle at a higher price.
And I think over time I don't think I really don't think that price you see in China is going to be the benchmark price for lithium pricing in the long run I really don't I just.
Two volatile it's too variable.
And I think too much of the supply chain that was pulling yourself out of China for the long run subsidized three or four years everything is going to China still forget that there are no capital clients in North America, There's limited capital capability in Europe .
Lithium is going into China today largely.
So that's why it's such an important price and why if you are in China with them contracted volumes.
A good market to be in let's never where we've been and I think if we were to turn around to all of our customers today and so that fit we're locking you when youre going to pay whatever the China prices I think we lose a lot of what we offer to these customers in terms of reliability predictability partnering and I think that that carries with it pretty big penalties for a business like ours requires.
Great visibility as to what does the electrification roadmap of our customers because it impacts what we do what we make where we invest so I think it will certainly push up average prices in our industry realized prices next year for those of us that have a multiyear kind of portfolio of customer contracts, but I don't think anybody I don't think.
Anybody is going to reach an average realized price that is close to that China price.
Okay.
Maybe I'll ask a two part of my second question just on on the mask.
I think you said earlier, you're looking at financing options I mean, do you need to start raising capital in Q1, how when does the capital intensity ratio to pick up the second question is.
There's a lot of feedback from investors as you know that okay. It's as good as it gets in lithium right it can't get better and better and $70000 ton lithium.
There's a reason why people say that okay.
And a lot of things that people will cite as here's what's coming next whether it be battery inventories catheter inventories.
European EV demand elasticity, China, it's over it's over what would be your answer to that.
Okay.
Yes, So look I think let me deal with that one.
So that's pretty straightforward.
I don't think I don't think in terms of average realized prices for life and it's anything close to as good as it gets not even close and you and I spoke to you and I have spoken about it thats right.
If the pace of the China dropped from the $80 that people are quoting today to half that much next year, our average realized price would still significantly go up.
Likely if it stays there for a few years, our average realized price is going to go up for two or three more years. This is just a function of us bringing on more volume and that volume is going to go out the door at a higher average realized price than we saw in 2022, plus these fixed price contracts I mentioned expiring and being replaced with floating price contracts. So I don't know that for actual.
<unk>.
Earnings delivery for profitability for cash flow generation I really don't think this is as good as it gets is $80 as good as it gets our internal predictions as described much higher in Q4, the $80, we'll see because you know them.
As a form of Boston mindset trees don't grow to the sky at some point it has to stop at some point. This hospital base and I think it's sort of somewhat masked a little bit of a moment the strengthening of the U S. Dollar means that the practice has relatively constant in USD terms as it continues to climb in RMB terms.
There comes a point that Scott will stop but it probably isn't Q4 this year.
On your question on your question on the <unk> I forgot what it was already it was well.
The capital the capital.
Okay, not the capital calls.
It's coming quickly it's a lot right.
And it will be the back end of next year at the earliest it won't be the first half of next year, we don't expect to have to but we're certainly not I think and we have a capital raising requirements and the mascot period at any point during the contract we won't see a big live on kind of market call for capital to fund <unk> IV is going to come out of existing cash flow or more importantly, there's other sources of financing and the mascot.
Standalone, so it'll sort of its own financing out on IQ as the shareholders will dictate what that financing looks like it's not just going to be every dollar they get guests provide a 50% of that they need to get sick.
50% IQ that's not how it would go up maintenance. This Paul May ask one more on that because I think you guys are going to count for <unk>, what do you call. It like an equity investment kind of basis will it be like the Albemarle Greenbush is JV or are you going to are you guys is going to be like it is going to be after tax net income before EBITDAR can you tell us how are you going to do it on the.
It's really simple, but unlike other situations there will be no supply arrangement between the master license.
<unk> as a Standalone company and so we'll just we'll just represent our show the promise of Nebraska until we consolidate it we will consolidate it at some point in the future, but until that point. It will just be we'll just capture 50% of the net income of Nebraska in a single line item and so not EBITDA. So it won't be an EBITDA will just be a net income and EPS correct.
Usual accounting as net income is not going to be a proportion of consolidation down to about the income statement, it's going to be straight single line sensitive bank okay.
Okay. Thank you very much but it doesn't really matter at all because.
Yes.
Because not producing or selling it in the next two or three years. So.
Kind of it's kind of irrelevant to be honest, it's only when it's up and running at which point I would hope were consolidated and by that point I would hope.
Your next question is from the line of Kevin Mccarthy with vertical Research partners. Please go ahead.
Good evening, Paul the theme of re shoring has gained a lot of traction over the last year or two.
You've added five kilo tons of hydroxide in North Carolina, and you're adding triple that amount or 15, Kilotons in China, maybe a year from now.
I guess my question would be.
How do you think the IRS will impact capital allocation moving forward. It seems you've got new credits state side, but I think you also commented the capital differential is tenex. So.
As you look at future needs, how do you weigh those countervailing pros and cons in determining where to add capacity.
Let me start by saying I don't think there'll be no response to the Iowa and other parts of the World I suspect maybe the IRS itself is the response to actions incentives given.
China.
I don't know whether Europe is going to have sort of really took a long hard look at itself and decide what it wants to be onshore and what it doesn't it doesn't seem to have a particularly coherent policy and certainly it doesn't seem to have a particularly well thought out incentive structure to onshore.
But that may happen as well I think it's I think it's a really difficult question because I think.
People ask why do we get regionally differentiated pricing per product I think that's quite possible I think you may have regionally different.
Expectations about how much capital at customers for us to give you an order to incentivize future.
To produce it's a big difference, though it is a big difference thats going to have to be it's going to have to be resolved I can I think in lithium.
Areas like nickel it'll be interesting to me because some of the big producing areas.
Matthew maybe some double down and focus on China and say look we just we just can't meet it's either too much capital because we don't have a free trade agreement.
China actually may get a short term big advantage out of this and then maybe more investment in China and around China and processing.
Because bluntly, if you're producing Australian spodumene, you either keep shipping it to China or you got to build onshore hydroxide capability. We know how hard that is in Australia in order to serve the U S.
I don't know many Australian miners are quite emotional about those investment decisions. They make us quite hard headed about that and I suspect, they're going to keep shipping to China.
Thanks, I appreciate the thoughts.
Yeah.
Your next question is from the line of Jeff Zekauskas with Jpmorgan. Please go ahead.
Thanks very much.
Your sequential price mix in the quarter was zero.
Is it the is it the case that the 70%.
Fixed price contracts that you have that you're that are longer extended are such that as a base case that revenue.
Effect on those tons should be zero for the next five quarters.
And for the 30% that's not fixed.
Long should it remains euro that is you must have sold forward I guess at a certain price or made some commitments can you explain that.
Welcome to the Kohl's dress.
Thanks.
Hum.
I'm not quite sure I understand your point about sell forward look it's really straightforward, let's take a really simple example, if our if our mix of customers between Q2, and Q3 was exactly the same and I sold exactly the same proportion to my fixed price contract. So I might have different ones right. So those proportions of the same quarter to quarter My volume.
The amount that goes into the market is also the same Q2 to Q3 realized pricing wasn't massively different it's a little bit higher in Q3, but not much. So you would expect price mix and that situation could not be massively different.
Whatever reason when you may see this in Q4 the amount.
Go into a fixed price contract relative goes up my question, because there's going to be down unless there's a massive jump in the market based piece of it to offset.
It's going to go down right because the mix works against me at that point in time.
Frankly, just math I mean, I think as the days of looking at is on a quarter by quarter basis. It's why we don't guide on a quarter by quarter basis don't really run the business on a quarter by quarter basis, We went out on an annual basis.
And so I tend to encourage people to not get too hung up on that piece whatever we still on track.
Full year guidance, while over all of our kind of predictions as to average realized pricing and mix et cetera for the full year, what we said.
I would advise and ask you to not get too hung up we'll get a read too much into quarterly movements I know, it's a tendency to do that.
To try and get more data.
So it doesn't necessarily give you a better decision and a better understanding of that industry.
Okay.
I will try a longer term question.
And I apologize if it's too nave.
What you said is that the cost of construction and North America, sometimes Turner.
What they are in China.
And when you look at your lithium hydroxide expansion in China.
We're expanding 15000 tonnes for $25 million, if we scale that up to 34000 tons that would be $56 million.
No mask a plant for the hydroxide plant the capital spending of $6 50 to 750.
Can we get for $6 50 to 750 in Canada, what we get for 50.
<unk> 56 in China, or we get something more fundamentally different projects fundamentally different projects you could not billed.
<unk>.
Quebec, Canada, the <unk> spodumene to hydroxide plant for $56 million in China, I mean, it's sort of a day.
Scale is sort of a different complexity, our carbonate to hydroxide bluntly are quite simple processes.
It shouldn't cost as much as they do in the U S.
Do they just do it in Europe too so.
You can't compare those two you can compare essentially Bessemer city plant versus China plan and that's when I talk about eight to 10 times difference and it's probably come down a little bit lately, China has got a bit more expensive and we have found more efficient ways to do it in the U S. But there's still 567 times as much on exactly.
The same pattern exactly the same capabilities.
But like I said don't compatible with Canada fundamentally different plants.
Okay, great. Thank you so much.
Your next question is from the line of Karen Blanchard with Deutsche Bank. Please go ahead.
Hey, good afternoon. Thank you for taking the time.
My first question I would actually Jason HIV no Cornell on the implied for Q. So the guidance was narrow.
But I think in one of the last slide in your presentation.
Pricing was flat in <unk> and <unk>.
Speaking increased pricing going into focus I'm, just trying to reconcile.
Which kind of safeguards Shanghai last weekend the stage four EBITDA, while we don't gain at the flattish EBITDA.
Gotcha.
Yeah.
Yeah look I think I think you see our guidance range and you know what our year to date EBITDA isn't so clearly to meet our guidance range EBITDA is going to be lower in Q4 than in Q3. It reflects a bunch of different stuff. It reflects mix differences in Q4, it looks like.
We've seen increasingly.
End of Q4 shipping logistics gets difficult and so we don't recognize revenue until the project product arrives at the product stays on the water and extra week over new year about two weeks can impact revenue for sure and we're expecting that to happen and expecting that to happen. This year. So there's a whole bunch of different things going on in Q4 with bluntly.
To reflect the specifics about they would reflect the specifics of the way our customers are taking product where they take the product what product. It is.
And also the fact that it's the end of the year. So.
It's <unk>.
Describe Q4, the broad environment to be public slightly stronger than it was in Q3 I think the opportunity in Q4 is slightly stronger than it was in Q3, but we are more constrained into how much we can take advantage of that opportunity in Q4 versus Q3.
Okay. Thank you and then maybe just a follow up question.
I'm going to switch on the Devon side I think we're talking.
Thank you he.
Myanmar comes down, but China, EV demand and going into 2023, and probably more of a macro I know you commented there anything but.
Anything else you can you kind of hard though have you seen any any thought.
Line of softness going into the beginning of next year.
My only comment on this is when you have.
Lithium growth.
<unk>.
I don't know, 5%, 10% quarter over quarter and you have.
Battery demand of battery production levels between Q2, Q3 doublet in China I think yes, you can you've got a lot of room for softening of demand in my view of Evs in China, particularly without making a slightest dent on the excess of demand oversupply I haven't seen any evidence of slowdown in China I think it was a lot of <unk>.
Spectation that isn't on the comp I think theres a lot of nervousness in China about what COVID-19 policies and others are doing too.
A lot of general levels of industrial production.
These haven't been hit anyway near as hard battery production has not been anywhere near the Scott.
More and more contracts being signed in.
Chinese battery companies to export into western vehicles. So it's not just the EV market in China, that's driving battery production activity in China.
So it is just one factor, it's a complicated market theres a lot of pieces moving around.
We'd be yet to find many examples of a single metric, having clearly clearly determinative effect on lithium demand it tends to be a bunch of different factors that are happening there.
It will drive the impact on our industry.
Great. Thank you.
This concludes the Q&A portion of today's call I will now turn the call over to Daniel Rosen for any closing comments.
Thanks, a lot.
That's all the time, we have for the call today, we will be available following the call to address any additional questions. You may have thanks, everyone and have a good evening.
This concludes the <unk> Corporation third quarter 2022 earnings release Conference call. Thank you you may now disconnect.
Please wait the conference will begin shortly.
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