Q4 2022 Sociedad Quimica y Minera de Chile SA Earnings Call
Good morning, and welcome to the QM fourth quarter 2020, Q3 earnings conference call.
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I would like to turn the conference Irina It's nowhere Investor Relations. Please go ahead.
Thanks, Anthony and good morning, welcome for joining <unk> earnings Conference call for the fourth quarter of 'twenty Finance here. At this conference calls are recorded and is being webcast slides our earnings press release and a presentation with a summary of our results have been uploaded to our website, where you can also find a link to the webcast.
Speaking on the call today, well Ricardo Ramos, Chief Executive Officer, and hit all the youngest Chief Financial Officer, Carlos <unk> Executive Vice President of Le Salle Slippage Smith commercial rights to President of lithium and also Juan Pablo colonial commercial lives, if they're going to buy a done well. They also 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 performance. This is 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 look.
Statements and 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.
Considering this and factors that could affect the accuracy of such forward looking statements are identified in our public filings made with the U S Securities and Exchange Commission and in our earnings release issued today and these forward looking statements should be considered in light of those factors, whereas no obligation to update such statements whether as a result of it.
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 Dana good morning, and thank you for joining the call today, we're very pleased with the 2022 results. We published last night lithium business contributed to almost 80% of our gross profit for the year driven by significantly higher sales volumes on IRA.
Prices, our long term vision for the lithium market investments in technology innovation and new capacity along with the reason we took on our operational success enabled us to make the most of favorable market conditions since last year.
Through the public private alliance with code for our total contribution to Chilean including corporate taxes or boss 5 billion in 2022, we see a strong indicators of demand growth in the lithium market driven by the electric vehicle sales growth worldwide and investment and Brenda will.
Oh Gee that required energy storage systems, we estimate that the total global lithium demand who reached one 5 million metric tons by 2025 and delivered at least 20% growth in 2023 after unexpected a slowdown in demand during the.
Chinese new year celebrations electric vehicles sales have increased in recent weeks in China, while the U S market leg to vehicles sales are doubling when compared to last year. This growth rate should continue for the reminder of the year with May your Oems Joey and an increase in their production volumes. Consequently.
I would sales volume during the second half of the year should be higher than compared to the first half of the year. We will continue to invest in growing our lithium production globally. Our capital expenditure plan for the next three years includes investment in lithium ion on a nitrogen capacity expansion in Chile competition.
The Moon Holland project in Australia, a lithium refining capacity in China. We are also active on lithium mining exploration and we will continue looking for attractive assets worldwide. This capex plan also includes investment in certain activities and initiatives related to our solar due to project.
Cheng Nikolay documentation, we expect to submit for devaluation to the Chilean authorities in 2024, I would like to highlight our operational success. During last year, we successfully completed our ramp up of our lithium capacity, reaching 180000 metric tons and finished the year with record high.
IRA and production volumes of overdose 12000 metric tons. None of these schools have been possible without the continuous dedication support and commitment of our team others Kim Thank you.
Operator, we would now open the line for questions.
Yes.
We will now begin the question answer session.
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At this time, we will pause momentarily to assemble our roster.
Our first question will come from P J <unk> with Citigroup.
May now go ahead.
Yes, good morning.
I think you had mentioned last quarter that for 2023 you are 100% exposed to spot price.
I was wondering can you explain spot price because there is China spot price, which has dropped to recently, but spot pricing ex China has not dropped as watch.
And so and there is another price for seaborne lithium. So wondering what price are you exposed to and can you just talk about your pricing exposure. Thank you.
Hello P. J. This is Philip asked me how are you.
Thank you.
Yeah, no well yeah.
I would like to comment that our sales are very well diversified.
Geographically by segment by product so.
So.
You'll have to be careful when you look at the evolution of some of the indexes in the market.
Because what we have is at least at the N is a mix of defend.
The geographies and market prices.
So what you are seeing today in China is still very early for us to consider us.
Yeah, as a real trend because the level of transactions that we're seeing so far are not that much.
Relatively okay.
So I would say that the main message is that we are going to be very well exposed to the market whatever the direction. The market takes our saves would be mainly following the market.
Okay. Thank you and then secondly, you mentioned that you know the lithium sales in China slowed in the first two months, but recently have picked up a it was a comment you made I was wondering can you just talk about kind of what kind of a bounce back have you seen recently.
That'd be helpful. Thank you.
Yes, we are seeing actually indeed.
Scott.
First of all generally we are starting to see very good figures of sales of Evs and that will definitely.
It has an impact on the purchases of lithium and IRA we are now already seeing that activity increasing.
Thank you.
Our next question will come from Ben Isaacson with Scotiabank you May now go ahead.
Good morning, everyone and congrats on the good results I have three questions I'd like to ask them one by one if that's okay.
First question is on iodine these prices aren't really incredible I think they're now much higher than they were after the Fukushima disaster 10 years ago, well, so what's gonna crack the market I mean.
My view is that if demand destruction kind of didn't occur at $40 $50 $60 now we're at 70 I mean, how.
How is this market going to crack it.
In Ireland.
Yes.
Yeah.
Hi, Dan This is Juan Pablo well, yeah prices are are.
Our high today I would say yeah, almost at the same level or even higher in average done after Fukushima, but it is mainly due to a healthy demand coming from the market I would say contrast media industry is.
<unk> is growing more than what was the average of the higher than industry. So.
That demand is growing more than the supply pushing for prices. So we're we still see.
Healthy demand coming this year and that will be the astute.
Bring pressure on prices, we see at least now prices to be at the same level. During the first half of the year compared to the end of 2022.
But do you see any new capacity announcements I mean arent why wouldn't people will be rational and start taking advantage of these very high margins.
Sorry could drew could you repeat the question.
Given the prices are so high why aren't we seeing any announcements for new capacity.
First of all we assess Graham we have announced in the past, we keep announcing a new investment in new capacity in Ireland, but you need to remember that new capacity in Ireland takes a lot of time and we are talking about material capacity or new projects will take time to be to get the permits.
And environmental conditions to go ahead, and that's why you have to look the price today to do that investment you need to look the price for the future and that's obviously something is not so clear.
Thank you My second question is on the SPN business I think one of the messages that you guys have been giving is that over the next few years your potash volume.
Your your potash production will start to decline and if that's correct. Then does that really limit the growth for N O P potassium nitrate in the SPN business.
And if not been where does the growth come from in SPN.
Hi, Ricardo Ramos speaking of course, we expect to have some reduction in the production of M. O B, because we are going to reduce the bumping up solution. The brines from this charade of the camera in the future. It every year, but we are increasing our technology on our deals.
This allowed he noted that that we can control in some way the reduction in total production anyway.
Total production of the MLP today is more than enough in order to cover the production of potassium nitrate. That's why we don't foresee until the next 10 years, having any issue of supplying enough potash for the production of potassium nitrate of course, the sales to third party support us.
It will be reduced but we will not affect the growth of potassium nitrate from essakane.
Okay. That's helpful. And then my my very last question, maybe just a follow up on P. J 's question on the portfolio structure of lithium.
You just said that youre going to mainly follow the market.
There's a there's a debate out there that perhaps spot prices or just in general will start to see prices start to moderate overtime and if that's true why would you not add some more stability and predictability to our lithium portfolio by adding a little bit more fixed prices.
Especially if we're if if you believe that prices will trend lower.
Are we closer to the cost curve over the next few years why would you leave yourself exposed to spot. If you believe prices will trend down.
Yeah.
Yes.
Yes.
Well, we have taken that decision already some <unk> some time ago that we want to have our contacts following the market.
Yeah, I think this I began represented the best solution for customers and suppliers.
Sometimes I mean, we have learned the hard way in the past, but sometimes when you fixed prices and then market changes unexpectedly than you are in a problem and we want to avoid that.
Thank you very much.
Okay.
Yeah.
Our next question will come from Corinne Blanchard with Deutsche Bank.
You May now go ahead.
Hey, good morning, everyone and thanks for taking my question I'm. The first one I wanted to try to understand better what you're expecting camel volume for this year for 2000 2024 in Asia.
Do you want to know about capacity or about faith.
[laughter] or both.
Okay.
I think yeah okay.
Yeah, well I will speak I must say that I'm Carlos can comment about capacity whatever Costello, let's start talking about capacity because through where.
The sale is gonna be prolia with sort of our capacity, but but finally, what is important to mention that we continue to progress to report to expansion in Chile, where we will really are reaching to the capacity of 180000 an.
Now, we're moving to <unk> 210000 at the end of this year. So we're continuing to expanding that and then the new and the new capacity that will come out in China, and the Sichuan knew and resume we spoke to produce around 20000 metric ton. There. So in total it will be around 200000.
On a product that is coming from the sell out of the gamma from the Bryan instruction.
So in that way, where we were on progress with all of our projects. So an additional two data by the end of the year, we expect to start producing spodumene in our Mulholland project in Australia.
So why do I say, what we're continuing to do due to increasing network capacity on why would you put out how I mean, so when it's going to depend on the supply and demand planning.
So it's not something that we.
We could come in now until we're preparing now for supply in the market.
And for that that that is why we're reason, though we're spending the Chile, China and Australia.
Okay.
Alright, Thank you and then.
And I need to come back on the iodine and I'm not sure. If that's what the previous question, but I think you mentioned you expect July pricing remaining strong.
Flour for the next six months.
Just trying to get like I said with Karate Kid, Kenya remain above the 60 day without that Keno rainy remaining and 60 68 69, and then when do you see probably save on iphones or yeah. Thank you.
I would say you can look at our reported the prices we have been selling at the end of the year.
She prices at this at the same level for the for Q1 and Q2.
Yeah.
Okay. Thank you.
Our next question will come from Joel Jackson with BMO you.
You May now go ahead.
Hey, guys. This is Joseph on for Joel Thanks for taking my questions. So for the first question for the 30000 ton carbonate expansion is taking capacity to 200000 tons, what will be the capital intensity for that and how does that compare to the project scope of past expansions.
Hey don't regard what I'm speaking of you know our Capex is that was informed that is $3 4 billion from the wrong for three years.
Includes the complete investment we have first in the United business as you May know and also in the lithium business in the lithium business of course, we are.
An important investment in order to reach the 210000 metric tons that Carlos already explained, but also it's important to consider it a niche not only reaching the 210000 metric tons. We are significantly we expect to significantly increase our production of lithium hydroxide capacity in Chile, we will now be with the expansion we are.
Finishing now 33 5000 metric tons, but we want to be at least investment in 'twenty four 'twenty five at the level of hundreds tell somewhat cheaper that's a huge expansion that I think is going to be very good for the company noted to have more flexibility in the lithium industry I have even more opportunities to deliver our product to different clients. That's something very important also.
Judy now where your Capex, but of course, the 200 and tennis also including in this city bring forward three point.
$4 billion.
I want to mention that the oils. Among Holden is included and we do expect we're quite positive about our expectation that in 2024 25 him now with predictions, we will expect to start in best men Investor.
Some investment in the capacity the capacity increase and munhall them, because we think that the 50000 metric tons of Montreal and he is just the first step we've seen we strongly believe that we will reach an agreement and we will review all the data from the engineering on the Geological studies that we're performing today that will allow us to go forward.
100000 metric tons or something close to that's why we include in our Capex up also there was expectation that it will invest more more capacity in Australia.
Yeah.
Okay. Thanks for that and then secondly, so in the past six or so months since you guys announced the solar Pitaro plan.
What has been the local and national government feedback on that.
Yeah.
Okay, Yes, we announced celestial due to we're really excited about the project get things a great great opportunity for the company for the country for the region for the communities.
As you know we we continue in the process of informing our different now 40 decent Chilean as stakeholders and tried to explain this global select Fedora project that we have been very active about that so far and I've been very proud that everyone agrees on the interests with developing process and technology that aimed to the objective.
They have a worry balance it means that it is a full agreement about that high deals are maintaining extremely low carbon carbon footprint also has some very important for everyone.
And we think that is the way to have a sustainable productive activity and decided to come in the future in terms of what we're doing in the company, where advanced advancing and Maximus speeding the work of process design. They were even better than expected I think today as we were two months ago and engineering engineering technology definition started.
Working very hard on to develop a complete environmental survey of the project that is very very complex due at the projects as you can only sell big probably gets very intensive work.
That's the reason why we are so excited it's a very good one but it requires a high level of knowledge and experience in this game, we're convinced that with our 25 years of experience in the start of the gamma we have the human team experienced the cumin minimum on of course the resources are successfully faced the project, we hope to complete all the necessary definitions.
Submit the final project with the environmental assessment, we hold he's going to be during the second half of 2024 in Chile. As you May know complete progress is required in all of the definitions of the project prior to being submitted to the environmental evaluation. It is important to consider that you've seen at the end of display you can place operation.
And that go far beyond the year 2030, so working in agreement on together with core four is necessary prior to its presentation than the environmental authority for evaluation.
Yeah.
We all agreed that the development of the solar Fedora brake must be carryout in a way that is positive for the second region positive for the communities for positive for Chile, and false positive for as good currently everybody know I'm, probably you know that is of public knowledge that the government is working on defining a national lithium policy.
We expect that he is going to be these national lithium policy. During this year of course, we bring in known for everyone on and this is going to be the start point in order to move forward in the <unk> in select will do but we are moving as fast as we can today, we are going to be ready at the end of 2024 and we have some.
In order to to have a national agreement in order to move forward.
Yeah.
Okay. Thanks for that and then just one more if I may.
So do you guys have any views on the various commentary that's been coming out of <unk> in China for the future of lithium pricing.
Yeah.
Yeah.
Okay.
Yeah.
You know I I will not comment about the decisions of other companies what I can only say is that in our case I would again emphasize that in our case.
We believe that the direction of the price is.
Totally depending on the supply demand balance. So this is how we are structuring our contracts with our customers following market.
And then.
I think this is the best solution.
Yeah.
Our next question will come from Lucas Ferreira with Jpmorgan you.
You May now go ahead.
Yes. Thank you.
My first question is about the lithium market balance so looking at your your expectations of this are all of the demand growing 20% I can I can be wrong, but I think it's more of a conservative side when I look at the the views of all other lithium producers.
So how do you see the supply and demand balance sheet.
<unk> now this years.
If you think that increasing liquid alike, Boston, China could put this marketing up in AR.
In some some sort of a surplus this year or do you think the market remains on a deficit.
So pretty much how you reconcile this 20% growth percentage at the men growth expectations with the supply you see come to the market and the second question is more of a follow up on the on the Capex guidance because when I look at the number that you guys provided in the.
Our Investor Day in September I know this was the number for 'twenty to 'twenty four but there was a considerable increase in that number right in and I believe that part of this is explained by it is increasing.
Eyedrops site.
Paucity.
So my question. There is is this increasing and hydroxide capacity.
Considering we're adding that top $700 million, you gave a sort of a as a potential capex for increasing in our value added products.
Or if you if you can talk about if there was any sort of high inflation.
In the Capex, maybe from Australia is the number I was expecting from Australia was lower I don't know if this capex you announced that now includes already.
Already the construction of the second phase of part of that so my question is just to understand how much of that was inflation.
And how much of that was actually new scope, new things added to the Capex number. Thank you.
Regardless this too.
The question I think know, yes, let me start with the Capex and I will give the answer to Philippe broadly for the violence of lithium although the capex you're right. It means we were talking about 20 to 24 now we're talking about 23 25 is different timeframe.
And there's some initiatives first we included in in eyewear.
Investor Day, most of what you can call inflation or new course embargo man I think is not so relevant in our new estimates I think new projects and new initiatives are the most important ones in order to affect the total capex for the period first one is it's it's what we remember that is knighted sciurine on lithium.
Most of it and it's not only lithium and United we're pushing very hard today.
They develop developing the seawater project for the production of nitrogen Aida and in the first region, we're putting more airports than before because we think is going to be a very good well.
First we will allow us to replace the consumption of contingent on water, but second we significantly increase our unit production capacity because we will have more awarded available plywood production in in in where he thought he had Easter in the first region.
And as you as you know.
Your line is moving in the right direction in terms of healthy demand in terms of pricing that's why having more capacity as soon as we can he is very important for the company. That's why this is a project that we increase our investment in the period and we tried to push as much as we can second is that we expect to have a new project that.
<unk> is a new native so now you're in a project that is a one color comment that is going to be 'twenty four 'twenty five most of the investment I mean, most of it will be <unk> 25, that's why he's so important in terms of having an additional capacity of Aida means between both projects. We will have a significant capacity increase in <unk> and for the market. That's something we were looking forward to do it.
And we expect to increase production capacity and high quality products from 19, so nature because at the at the moment you increase in <unk> at the same moment you increased nitrogen, that's why having capacity and facilities to have high quality potassium and so the United is very very important in lithium as already mentioned, we have lithium and our newest domain.
Lithium Mulholland, Australia that is with finishing <unk> during this year and next year. The total investment in in the total project I mean concentration on the Aneth ruffino refinery, but as I mentioned before we're very positive on where including significant some amount of money and important.
The amount of money about the expansion. We think we will start at the end of 'twenty four and mainly during 2025.
And again lithium hydroxide is very very important as you already mentioned, but finally over the new few years, we hope to start investing in new technologies. It means we are working very hard intellectual doodle, we will put some money doing this year in all the new technology, but we we know that some of these new technology are so good in some terms.
We can recover the investment in the medium term.
I think that the in basin that are included until 2025 may allow us to further increase our production capacity in lithium that's something where we're working now but of course using new technology goes in the right direction in order to have a better outcome in the lithium production Thats why you see we have a significant investment in DS.
New technology, mainly in the year 'twenty four 'twenty five.
Yeah.
Yeah.
Hi, This is Carlos here with respect to your question about the.
The one road.
Well, we said at the beginning of the year, we speak of a slowdown in demand due to the Chinese new year.
Sure.
But now we're seeing that a b cell or have no pick up on a similar pace that we have at the at the end of last year or so.
So on that one.
I believe we mentioned before we received the new the one of the one one of the data.
You are making now to announce a novel double this to say that the production there have the smallest comparable with last year. So we're really confident that the.
But it might will grow more than 20% probably.
Broadly in the range of 25 homes in a downturn.
And what would you say at the beginning where we're preparing for that are adding more capacity.
For a prom from Chilean day on the China and Australia.
And regarding to the production the lithium coming from the Bureau of Labor.
We really don't have a clear information about the truck capacity.
Listen there how is the quality of the sustainability of that production. So so.
So we really we don't we don't we cannot comment too much about them.
Perfect. Thank you very much.
Yeah.
Our next question will come from Xavier Martinez with Morgan you May now go ahead.
Sorry, guys my questions were already taken.
Yes.
Yeah.
Our next question will come from CSR Perez Novoa with BTG Pactual.
Yes.
Good afternoon, everyone and congratulations for the results two questions here one on production targets for 2023, you already mentioned sales volume of around them.
200000 metric tons of which China would account for roughly 10% is the volumes sent for patrolling in the Sichuan refinery in China are going to pay the same royalty schemas carbonate produced in Chile.
And my second question goes back to the Capex program.
Essentially how would this be financed and would disfigure contemplate additional possible partnerships or earn ins like your reason agreement with our assure minerals side, if I heard correctly Ricardo.
You mentioned.
Some sort of additional exploration and looking for potential of projects at the beginning of the presentation. Thank you.
Yeah.
Okay regarding to the lithium production.
What are what I mentioned to be union divert our targets to two.
True.
Our capacity this year or is it going to be 180000, as a leader totaling in Chile, lithium carbonate plant lipuma crookesite.
Returning to that will have a capacity of 20 to 30000 in China.
I know at the end of the year the spodumene production in Australia. So in total it's around 200 to 110000 US a capacity how much is going to necessarily is going to depend on the supply.
And then on the bond balance so we're not saying that we're going to sell in that frame. The way just saying that we will have the capacity ready for supply into the market.
And regarding to the to the regarding to the China production well there. The plan now has continued to broaden its according to the plan and I know, we will be ready soon into study.
The commissioning and start producing.
On a respect to the royalty well, where where is my one of them is the same agreement, but he is according to the lithium hydroxide the royalty.
So not only don't care, what anybody else's Mr. Gordon is already agreed with of course.
Okay. Thank you.
So regarding the investments that we have on the financial of Capex. Okay. This the financials edition of the company could not be better.
Today. So you can see December of this year last year, our total cash and cash equivalents was higher than the total finance shallow interest bearing debt. It means that the company's positive in terms of debt. That's very unusual on we're more than prepared for future projects.
Of course, the most important way of financing the company is being very careful in the dividend policy. So far we don't need to be very strong to reduce it even bullish as you may know it has been 80% considering the profits of the of 2022 and 80% dividend policy means that we will retain a significant.
<unk> amount of money internally in the company. If you consider we have no debt not only now that we have excess of cash plus the redemption of the of the net income.
We don't foresee any issue in order to finance, our Capex and our yes, and the other point regarding potential M&A or potential new projects potential geology studies, we were working very hard on needs and that 80 basis is not easy on the best projects. Sometimes is the one that you don't get into.
Do you need to be very careful not to us not to be vague.
To run after projects, we need to be clear.
Clear that if we get into a new project goes you would get into a new M&A. It will be good for the company will be good for then the return on an asset that's why we need to be very careful but we are working very hard.
I cannot promise you that we will be a surprise or not but.
I can promise you that we are working very hard in order to look alternatives, where we can create money were created.
Our return on our investment.
Absolutely fair enough Ricardo Thank you.
This concludes our question and answer session I would like to turn the conference back over to Irina Axa Miller for any closing remarks.
Thank you everyone for joining our call today, and we look forward to having our next call have a great afternoon, everyone.
Yeah.
The conference has now concluded. Thank you for attending today's presentation you may now disconnect.