Q3 2023 Sociedad Química y Minera de Chile SA Earnings Call
Good day and welcome to the S. QM third quarter 2023 earnings conference call.
All participants will be in a listen only mode should you need assistance. Please signal a conference specialist by pressing the star key followed by zero. After today's presentation, there will be an opportunity to ask questions to ask a question you May press Star and then one on a touchtone phone to withdraw your question.
Please press Star then two please note. This event is being recorded I would now like to turn the conference over to Arena ex Nova head of Investor Relations. Please go ahead.
Thank you Dave Good morning, Thank you for joining us <unk>, earning conference call for the first quarter was 2023. This conference call. Those are recorded and is being webcast life. Our earnings press release and the presentation with a summary of the results have been uploaded to our website, where you can also find a link to the webcast regard of AMR.
Our Chief Executive Officer will be speaking on the call today Gerardo <unk>, our Chief Financial Officer, Carlos Dias Executive Vice President of leasing them, Philip Smith commercial Vice President of lithium Mark Fones, Vice President of strategy, and M&A lithium and Juan Pablo will be Lawndale commercial vice president of iodine and industrial chemicals well there.
Available to answer any questions before we begin I would like to remind you that statements made in this conference call regarding our business outlook future economic performance anticipated profitability revenues expenses and other financial items, along with expected cost synergies and product or service line growth are considered.
Forward looking statements under federal Securities laws. These statements are not historical facts and may be subject to changes due to new information future developmental other factors, we assume no obligation to update these statements except as required by law.
For a complete forward looking statement. Please refer to our earnings press release and presentations I now leave you with our Chief Executive Officer Ricardo Ramos.
Hum.
Thank you Tina and good morning. Thank you for the joining the call today just today, we reported our third quarter 2023 earnings I'm on this call I will like to focus on the key drivers in each of the business behind our performance during this quarter in the lithium business, we reported close to one 3 billion.
Dollars and revenues of approximately 10% lower done compared to the previous quarter. This year primary as a result of significantly lower realized sales prices.
Partially offset by record high sales volumes will be 43000 metric tons during the quarter we.
We all observed a downward price trend that command said at the beginning of this year and could continue for the reminder of 2023 science. The majority of our sales contracts are linked to price indices, which move with the market. Our realized sales prices have followed the same trend with us.
Small delay and it is reasonable to expect that they should continue to reflect market price dynamics in the upcoming months.
We continue to see strong fundamentals behind long term growth of lithium demand supported by EV production and sales volumes high emission reduction targets worldwide in the short term however.
Excess of inventories alone can make us some batching material supply chain as well as a D C not additional supply which entered the market. This year have been negatively affecting customer purchasing activity. As a result, we expect to see quarter on quarter, similar or lower sales volumes during the fourth quarter. This year.
In the iodine business, we reported over 210 million in revenues for the third quarter 2023, driven by a strong pricing environment with sales prices close to $70 per kilogram with year to date, how do you get volumes done last year. This is supported by increased demand from X Ray contrast media segment.
They some reduction in demand coming from all the price sensitive applications really we believe that as Jim remains the only yeah, you didn't produce it impeded supplies. This year, while we keep on increasing our capacity.
Moving to fertilize the business our revenues in our specialty plant nutrition in potassium business segments reach almost $300 million during the third quarter as a result of positive demand growth, which began during the third quarter. This year and it is expected to continue into 2024 and the industrial chemical business.
We ended the third quarter, we completed solar salts delivery to the concentrated solar power plant project in the immediate leased with a total of more than 430000 metric tons of solar salts reduces and cheap between 2020, and 2000 and twenty-three. These mishoe proved to be challenging, particularly at the <unk>.
You already have the deliveries of cure amidst the global pandemic, which is chain both our production capabilities and logistical conditions. We are proud of our accomplishments and the successful completion of this contract.
I will also like to common I would progress with our expansion plans, both in Chile and abroad.
Our lithium carbonate capacity in Chile has reached the 200000 metric tons per year, and we expect to complete the expansion to 210000 metric tons in the beginning of 2020 for almost a year early than anticipated. This gives us a space to focus on production cost optimization and ensured that would.
Remain one of the most cost efficient lithium producers in the world.
Failure, the first production of spodumene concentrate on mode Hollander is baked in during this quarter, while in China. We have started lithium hydroxide production from lithium salt Lake as we.
Genie oil would progress to work toward more sustainable operations. Another very significant milestone reached last quarter was an international recognition from ear man of our commitment to becoming the world's most sustainable source of lithium our operations and there's a lot of the comments received the how it gives us score today they'll feared Mustang.
Defied, reflecting our dedication to transparency and community engagement. While there is a considerable amount of work ahead of us in collaboration with our communities and stakeholders, who will persist in the collective efforts to achieve our sustainable objectives.
But are you doing and why.
We will now open for the line to questions.
We will now begin the question and answer session to ask a question you May Press Star then one on a touchtone phone if youre using a speakerphone. Please pick up your handset before pressing the keys if at any time. Your question has been addressed and you would like to withdraw your question. Please press Star and then two.
Our first question comes from Joel Jackson.
With BMO capital markets. Please go ahead.
Good morning, everyone Ricardo.
I'm going to ask a few questions one by one.
First.
You previously said <unk> previously said that you would produce about 185000 tonne Hunter 185000 tonnes. This year looks like yourselves on and be more of 160000 tons. So am I correct in assuming that that production number is the same you're building inventory. This year 20 to 30000 tonnes and a follow up on that is it.
<unk> feel the need to be disciplined and hold back production in 2024 for a little while we're seeing other producers pull back production and if you do run at the capacity you say you haven't you why 24 your sales volume would be up maybe 30% next year.
Seem to be above market growth. So do you need to be disciplined so inventory question inventory build right now and we'd be building more inventory next year and we'll be disciplined.
Hello, Joe This is kind of the other than by personally of the lithium division.
Thank you for your question.
Well first of all we would have to we have seen this type of distortion in the market and the bus.
A lot of time and then in our Defense Division grew in lithium.
And the different it's grim division, but due to our leadership position in ghost quality sustainability.
The structure has been and it will be continue to read to produce at a maximum capacity and not our plan a meeting really well, we're producing in China and Australia.
And the idea is to be prepared when the banter has returned to the normal level and ultimate purchase are reactivated.
Therefore, our strategy is continued to work producing why don't I say before at the maximum capacity were no change in that.
Yeah.
Okay.
So you expect to be building inventory in the next bunch of quarters, correct and have been building inventory is that fair.
Yeah, well, what I said before this is something that we have done in the past and we're prepared for Dod we are building inventory in our warehouse in different places, yes, we will be prepared for that.
Okay.
My next question is obviously, a sensitive one but we need to address.
To the extent that you're able to talk about maybe some potential range of outcomes with your discussions with codelco.
Theres been some numbers thrown around this week again, it's sensitive maybe I'd like to ask and any sort of arrangement you may come up to how fast could add a comma production be pushed you can you get just if there are no constraints no quota is nothing with Corpo could you get to 300000 times could you get to 4000 tonnes of LTE out of order.
Comma, how long would take you to do that and do those discussions focus very heavily in your discussions with codelco for what are reasonable expectations for an extra them down the road.
Okay.
Well Ricardo Ramos speaking.
As you know directly responsible for the negotiation with Galenical I've seen a couple of days ago, We sure misstatements asking about some news from depressed other west was not right. It was not correct.
It's very difficult to answer your question because we have to considered all the restrictions environmental restrictions courts hardware environmental goals and deserve the guy Markworthy steak country goals in this alert that's why I'm talking about well what is the maximum capacity without any of the restrictions makes no sense because we do have.
Restrictions and if that's a mud who operates the seller. It will have restrictions. That's why when you think about the future of operation of this alert that came out you should think about what is the most efficient way to do it from an environmental point of view from a social responsibility point of view with our relation with the community ACOG.
All these gene Julian restrictions, that's why it's not there's nothing that you can have a different answer just trying to forget about what is it the gold's environmental goals for us the environmental goals and decided that gummies amassed you said competitor advantage to be a producer of sustainable.
In the solar that's why having huge amount of production Eve, we affect our sustainability and our environmental goals of course, we don't expect to do so that's why as we have stayed in the future. We don't expect significant increase in production in the future plans of codelco.
Sorry, and it is hard to comment.
We were very clear in that way is allowed for doodle presentation I think in a couple of years ago that maybe the bending the technology and so on you can reach close to 300000 metric tonnes, but it will depends on the different environmental restriction environmental permits under our environmental goals internally, but.
But considering that you are asking about above the codelco I Wanna be very clear about these this negotiation process.
At first I want to add a couple of things that I think are quite important in this process first one in my opinion and let me give my opinion about that Codell cool that is the one where you're having the negotiations now the company is a great company how about very good opinion about codelco they have an outstanding.
Professional team and of course like any large company in the mining and natural resources area and of course codelco facing important challenges in the short term in their businesses like everyone.
As Jim like any other large company also facing challenges.
We started conversation with collateral of course, you know about six months ago I'm not so sure. It was six or five whatever something close to that and a significant part of the Mei and meetings at the beginning and we have had so far have been focus on explaining in detail our lithium businesses.
The technology, we have developed the production process the different initiatives. We're working on it is important to remember that in the cell. We have the largest lithium production site in the world in there's a lot of the gamma along with the largest integrated lithium refinery capacity in the world located near the city, Nebraska is a big big business is comp.
<unk> complex is grade is beautiful is the best one in the world but of course, it takes a lot of time to explain.
Two up a high professional group of people from Codelco, all the big all the main detailed so powered abrasion the ads to understand that's.
On top of this we have spent a significant amount of time sharing vision. So visit select to do the project that was your product. Your question of course discussing the different alternatives. We have in order to their below diesel are for the future.
The importance in our opinion and we have an agreement with codelco about that that the successful execution of this project has over the sustainability of that ratio and there's a lot of the gamma.
We both agreed that having a sustainable operation in the long term is the most important target we face in the sellout of the common development investment required are significant we reviewed investment all the technologies, we're developing to achieve the goal of aiming to reach.
What we expect to be in Heidrick neutrality, and there's a lot of the camera basing keep in mind that we as a scam being working probably two and a half year, maybe close to three years in what we call. The select for Udo project, we have been working very hard with new technology, New process, New York to another town, we have been working very hard with codelco.
Now trying to explain to them trying to share with them all the advanced surface jamming. These projects very very important to do it during this process.
The same time.
It is important also to remember that.
Whatever potential agreement if we have an agreement in this negotiation has to be for the benefit of Chile for the benefit of the Antofagasta region. The local communities Codelco and of course, as Kim and Cleary and agreement must be based on a shared vision of the challenges and opportunities the separation.
Has for all stakeholders.
Please.
Keep keep rest assured that we will inform the market on a timely manner.
Through our own channels of communication of any significant development in this negotiation.
Thank you.
Thank you Ricardo.
The next question comes from Lucas Ferrara for Ferrara with J P. Morgan. Please go ahead.
Hello, everyone I have two questions. The first one on on your lithium production for next year. So what what's allowed you guys to anticipate the ramp up to 210000 tons was this a a challenge at the Carman plant level that was.
[noise] overcome and then you you made some comments about the cost. So can you also give us a view of.
How your costs per ton should evolve once these capacities ramped up so we will view be diluting more fixed costs.
With the production of 210, so could we expect a good performance already been a reduction in the in the in the in the cost per ton. If you can comment about soda ash contracts for next year. So how to think about your cost per ton in 2024, that's the first question.
And the second question I don't know how much you are also going to be able to comment about oh, sorry, but the.
These.
Tenders tool to announce a tender to have due to the Azeri shares what's your expectations in terms of timing of that to be fully approved and then what are you guys are planning to achieve there in terms of our production in the future size of production timing for for this production if you can.
Share with us some initial expectations about timing and size of our of our lithium production now see terms. Thank you.
Yeah.
Yes.
Hello, Lucas This is Kevin Lewis. Thank you for your question regarding to the production of.
Lithium as we mentioned in the press release sorry.
Sorry, we already reached there.
Total capacity of 200000 metric ton going into their muscles October that this is because we have been working so far in already to the border that makes all the all.
All the processes on until one in under the same time, we have been working hardly an increase our quality and reducing our carbon and water footprint.
For the beginning of next year, we expect to reach 210.
Although this I have to mention that we have where we have been working harder to produce lithium cell free DNA is that out of the come on that later on this year.
To China to the converse shirts would that give you an additional capacity in total old boost product coming from this although docomo, but of those who the main part of doses is converted in me and I want to have a rest of blood in year two.
Many are two antivirus to sorry in EM and <unk>.
Thereby the lithium sulfate converted in China and that is the plan that we that we have for them.
The lithium.
No.
Regarding Kosovo.
Regarding well Hi, Luca this is a hit out of the regarding assure.
Unfortunately, given the nature of the transaction and the jurisdiction in which the transaction do you see happening.
At this moment, we cannot share more details of drug was formed through a press release, a few weeks ago.
When we have more information that we can share rest assure that you you'll get it along with the rest of the market.
Super clear just maybe a quick follow up on the Costa if I'm, if it's fair to assume.
On the cost are declining or growing less than inflation next year because of the cost dilution.
So so as.
As soon as we are already finished our expansion our focus in OSB and reducing our costs increasing the year I don't know if you. If you. If you know by now we have been reducing their water and Bryan Bryan instruction accordion now works with its liability plan defined India in November of 2020. So it doesn't mean, we will have less Brian and I will have.
Therefore, the other side the Shannon to keep producing more.
So that is a huge challenge, but at the same time would have been increasing the yield in our chemical plants. So that that will mean, a list goes to them.
In the coming year, but I would still need to analyze that Amy.
In the coming months for the when we made a budget for next year.
Yeah.
Perfect. Thank you very much.
Yeah.
The next question comes from Ben Isaacson with Scotiabank. Please go ahead.
Thank you very much two questions one on the market in general.
We see that the futures market is showing 16 or $17000 per ton.
You bet.
Reflect on that price level, how liquid do you think that market is who was selling at those prices and are you concerned that prices will stay in that area for all of 2024 and my second question is the philosophy apparel program that you announced a couple of years ago.
How is the D L E.
Tracking when can we expect the first tons to come out from Delhi, and how will that change your cost profile. Thank you.
Hello, Ben This is Felipe Smith, how are you.
Let me comment a little bit about the market first of all.
So.
Why isn't the demand fundamentals remain solid and the long term we are convinced about that with an annual average growth above 20% for the next five years. Okay. We expect <unk> sales of around 14 million units this year.
Which represents really grow off.
Around 35% compared to last year.
So that is a first.
An introduction now.
Now we have seen some softening of the demand outside China.
Which coupled with a higher than expected supply has resulted in some excess of inventories accumulated in their whole battery supply chain.
And this is what is resulting in a prices showing a downward pressure.
Today Okay.
So what would happen in the future.
Well, it's difficult you know prices are at the end the result of supply and demand.
Bob.
As part of our commercial strategy.
We will continue to be contracting volumes following market indices.
During 2023.
Yeah, we have been able to strengthen further our relationship with our customers. We have entered into several new long term supply agreements.
That at the end and those long term agreements also are based on these indices. So basically a scream will always follow whatever the market is and we're very confident on the fact that we are.
A cost leader so our leadership.
Positioning cost quality and sustainability.
Yeah allow us to be very confident that we will always be there in the market.
Yeah.
Yeah.
Okay.
Sorry about the early on and as you know we have been working as I already explained a couple of minutes ago. We are now working what is going to be the technology and process and everything about falafel doodle.
Of course, Ive will reach Eve will reach an agreement with Codelco and we have a project together with them of course, we will be very clear and very specific about what are the technologies that wix and process, we expect to implement in the Florida, Alabama and of course, one of the L train out these many different Technicolor China These technological opportunities.
If the yearly, but but but so far we will announce eve, we have something for clear, but any way we have been advancing in the technology point of view in order to have a a new technology available to a scam I will ask Mark if you can comment as well we have been doing in terms of M&A in order to.
Have more dearly NOLA.
And Olay China.
<unk>.
Okay.
Thanks Ricardo.
Yes, as you mentioned.
We continue to be active in M&A not only in the resource base, but also in further downstream technologies both in processing and also in man starting from the elite technologies. So in the last quarter. So Q3 of this year, we have made an investment to hire a percentage stake on our French <unk>.
Company called and the earnings.
And this is a French developer on DNA technology, and then we will we're looking forward to continue I'm now working together with them in engineering and developing industrial scaling for these kind of technologies into the pitch.
This is in addition also two other ventures in innovations and investments we performing the Afghan listen ventures that we also tackle intrapreneur sheep and innovation in that area.
Great. Thank you very much.
The next question comes from Isabella Summer motto with Bank of America. Please go ahead.
Thank you and good afternoon, everyone. My question is on on SPN I think it's interesting that you guys are on.
Our colleagues at the bottom on prices right.
When we look at the potash prices are you guys had in the quarter and the <unk>.
Prices for potash right now it seems that there is downside to bodies from now on.
But at the other hand, as they're expecting more flattish SPN or some recovery on prices from now on.
Can we assume that the premium widened from from from Q3 levels going forward I mean, if you could give us a little bit more color on how are you seeing the the.
The dynamics of prices between one another I think it could be helpful. Thank you.
I used to have Eddie let Ricardo Ramos speaking, yes.
It destroyed at MLP prices being a more.
More stable environment I've seen in the last border.
If you consider the prices of last year was what was very high in the MLP now we see during the third quarter and we do expect during the fourth quarter to have similar.
This environment in the MLP that's.
Seems like we are reaching in a stable price environment. That's that's quite good in order to have something for sure Youll never know.
Fertilizer prices have always been wide volatile, but the trend seems to be quite stable in the last I don't know four to five months. If you go to the especially the plan. In addition, the bad the good news is that.
Starting the yard the demand was very very affected and was very low maybe because the prices were too high coming from 2000 2022 on some of the U user I'm farming, especially in Europe.
<unk> was affected about that and the lack of energy in order to produce but now nowadays we foresee during the last quarter are out and again in the last two quarters a positive environment in volumes, we're very positive about fourth quarter that are worth first idea about fourth quarter is gonna be array.
Quality means would be very high in terms of volumes and we do expect them, we're very positive.
Moving forward to the year, 2000, 2040, and especially the penetration, especially we're talking about but that's a night pricing is always difficult loss said before with the MLP to say, what he is going to be the future price.
But today pricing is more stable the dun Dun, probably six months ago, we think that keeping pricing.
Today, Lebel said, maybe slightly lower because the volume increase in different areas.
It's a reasonable assumption, but again M. A fertilizer pricing each volatile and the fertilizer market being under a lot of pressures moving up and down in the last two years and that's that's we need to be very careful having long temporary predictions about pricing in the fertilizer Bod.
We've seen that today the environment is more positive in terms of volumes, probably more stable in terms of pricing.
That's very clear thank you.
This concludes our question and answer session.
Like to turn the conference back over to.
Arena ex Nova for any closing remarks.
Thank you for giant golf ball today, and we look forward to having out here in our next call Goodbye.
Yeah.
The conference has now concluded. Thank you for attending today's presentation you may now disconnect.