Q2 2024 Lithium Americas (Argentina) Corp Earnings Call
Bailey: David Deckelbaum, Noel Parks, MacMurray Whale, And then we'll see you in the next video! [inaudible] John Kanellitsas, John Kanellitsas, John Kanellitsas, And then we'll see you in the next video. Thank you for standing by. My name is Bailey, and I will be your conference operator today. At this time, I would like to welcome everyone to the Lithium Argentina 2nd quarter, 2024 earnings call. All lines have been placed on mute to prevent any background noise.
Bailey: Thank you for standing by. My name is Bailey and I will be your conference operator today. At this time I would like to welcome everyone to the Lithium Argentina second quarter 2024 earnings call. All lines have been placed on mute to prevent any background noise.
Bailey: After the speaker's remarks, there will be a question and answer session. If you would like to ask a question during this time, simply press star followed by the number one on your telephone keypad. If you would like to withdraw your question, press star and one again. I would now like to turn the call over to Kelly O'Brien, Vice President of Investor Relations in ESG. She may begin. Thank you, Bailey.
Speaker Change: After the speakers are marks, there will be a question and answer session.
Speaker Change: If you would like to ask a question during this time, simply press star, followed by the number 1 on your telephone keypad. If you would like to withdraw your question, again, press star and 1. I would now like to turn the call over to Kelly O'Brien, Vice President of Industrial Relations and ESG. You may begin.
Kelly O'brien: I want to welcome everyone to our earnings conference call this morning. Joining me on the call today to discuss the second quarter results is Sam Pigott, President and CEO of Lithium Argentina. Alex Shulga, Vice President and CFO, will also be available during the Q&A session.
Kelly O'brien: Thank you, Bailey.
Speaker Change: I want to welcome everyone to our earnings conference call this morning. Joining me on the call today to discuss the second quarter results is Sam Pigott, President and CEO of Lithium Argentina,
Kelly O'brien: Before we begin, I would like to cover a few items. Our press release with second quarter 2024 results was issued last evening, and the corresponding documents are available on our website. I remind you that some of the statements made during this call, including any production guidance, expected company performance, gone things, strategic investment, and pastas grandes, the timing of our projects, and market conditions may be considered forward-looking statements. Please note the cautionary language about forward-looking statements in our MD&A and news release that was filed last night. I will now turn the call over to Sam. Thank you, Kelly, and thank you, everyone, for joining us today.
Speaker Change: Alex Shogo, Vice President and CFO will also be available during the Q&A session.
Speaker Change: Before we begin, I would like to cover a few items.
Speaker Change: Are pressed really? [inaudible]
Speaker Change: With second quarter 2024 results were issued last evening and the corresponding documents are available on our website.
Speaker Change: I remind you that some of the statements made during this call, including any production guidance, expected company performance, Gomfeng's strategic investment in Pastas Grandes, the timing of our projects and market conditions, may be considered forward-looking statements.
Speaker Change: Please note the cautionary language about forward-looking statements in our MD&A and news release that was filed last night. I will now turn the call over to Sam.
Sam Pigott: Since the last earnings call, we have remained focused on our strategic efforts, supporting a successful ramp-up at Cachari O'Rodz, ensuring that the company remains sufficiently capitalized, and advancing our long-term growth plans with our partner again. I'll begin with an update on the ramp-up of Cachari Oloraz. As mentioned in the earnings release last night, we are very pleased with the progress being made and remain on track to achieve 2024 guidance. During the second quarter, production volumes reached approximately 5,600 tons of lithium carbonate, an increase of 24% compared to the first quarter of this year, and we have achieved monthly production records in each of the past three months.
Sam Pigott: Thank you, Kelly, and thank you, everyone, for joining us today. Since our last earnings call, we have remained focused on our strategic efforts, supporting a successful ramp-up of Kachari Oloraz, ensuring that the company remains sufficiently capitalized, and advancing our long-term growth plans with our partner Genseng.
Sam Pigott: I'll begin with an update on the ramp-up of Kachari Olaraz. As mentioned in the earnings release last night, we are very pleased with the progress being made and remain on track to achieve 2024 guidance.
Sam Pigott: During the second quarter, production volumes reached approximately 5,600 tons of lithium carbonate, an increase of 24% compared to the first quarter of this year, and we have achieved monthly production records in each of the past three months.
Sam Pigott: Production is now being sustained at around 70% of design capacity, and we have been able to surpass these production levels, achieving close to design capacity for limited periods of time. The focus is now on maintaining the entire production level near the bank.
Sam Pigott: Production is now being sustained at around 70% of design capacity, and we have been able to surpass these production levels, achieving close to design capacity for limited periods of time.
Sam Pigott: Last night, we also provided further insights into our current pricing formula for the sale of lithium carbonate from Kachari Olaraz and additional financial information on the project. We are working to find the right balance between increased disclosure of the market as we manage the variability, typical, and a new operation undergoing a ramp-up. We realize that periodic or backward-looking information during a ramp-up may not always give an accurate picture with significant changes often month over month or within a quarter.
Sam Pigott: The focus is now on maintaining these higher production levels near divine capacity.
Sam Pigott: Last night we also provided further insights into our current pricing formula for the sale of lithium carbonate from Kachari Olaraz and additional financial information on the project.
Sam Pigott: We are working to find the right balance between increased disclosure to the market as we manage the variability.
Speaker Change: typical and a new operation undergoing a ramp-up. We realize periodic or backward-looking information during a ramp-up may not always give an accurate picture with significant changes often month over month or within a quarter.
Speaker Change: Once the operation reaches commercial production, expected later this year, we intend to provide increased disclosure and additional financial metrics on the project.
Speaker Change: with the current market
Speaker Change: While the current market conditions remain challenging, Kachari Overaad remains well positioned with minimal capital requirements ongoing and positive operating cashflow adjusted for working capital tied to the ramp up of production.
Speaker Change: Even in the current pricing environment, we expect to remain operating cash flow positive with costs continuing to decline and better realized pricing as quality continues to improve.
Sam Pigott: At the close of the second quarter, Lithium Argentina had $96 million in cash, before completing the $70 million dollar pass-lose groundless transaction, which is expected to close imminently, following receipt of Chinese regulatory... Proceeds from this transaction are expected to strengthen Lithium Argentina's balance sheet, including using a portion of the proceeds to reduce debt at the project level. Along those same lines, in May, working with Ganseng, we successfully secured an $80 million bank credit facility for the project to replace existing short-term debt with more flexible, long-term planning.
Speaker Change: At the close of the second quarter, Lithium Argentina had 96 knowing-and-cash before completed the $79 pass-list ground-to-transaction, which is expected to close imminently, following receipt of Chinese regulatory approval.
Speaker Change: Proceeds from this transaction are expected to strengthen Lithium Argentine's balance sheet, including using a portion of the proceeds to reduce debt at the project level.
Speaker Change: Along those same lines, in May, working with GANFANG, we successfully secured an $80 million bank credit facility for the project to replace existing short-term debt with more flexible long-term financing.
Sam Pigott: Finally, we continue to carefully advance our regional development plans for Paso's ground-to-station and stage-to-statch-and-eye-catchery. Focus today remains on completing the ramp up, but we remain cautiously optimistic following the recently passed rigy instead of fill in Argentina that includes an attractive investment framework and important clarity on FX regulations to support our longer-term growth. I've officially been part of the Lithium Argentina team for five months now, and while there's still a long road ahead, I'm increasingly confident in the ramp-up of Cachari Old Rose, supported by the right team in Argentina and partnership with Gunn.
Speaker Change: Finally, we continue to carefully advance our regional development plans for Pasos Grandes Basin and Stage 2 expansion at Kachari.
Speaker Change: Focus today remains on completing the ramp-up, but we remain cautiously optimistic following the recently passed Riggi Incentive Bill in Argentina that includes an attractive investment framework and important clarity on FX regulations to support our longer-term growth plans.
Speaker Change: I have officially been part of the Lithium Argentina team for five months now, and while there is still a long road ahead, I am increasingly confident in the ramp-up of Cachari-Olros supported by the right team in Argentina in partnership with Ganseng.
Sam Pigott: As the project reaches steady state, we see Kachari Olaras providing a powerful platform for long-term growth. With that, I'll now open the floor to questions. Thank you. At this time, I would like to remind everyone, in order to ask a question, press star and the number one on your telephone keypad. Your first question comes from the line of Ben Isaacson with Scotiabank. Your line is open. Hi, Sam Kelly.
Speaker Change: As the project reaches steady state, we see Kachari Overa is providing a powerful platform for long-term growth in Argentina.
Speaker Change: With that, I'll now open the floor to questions. Thank you.
Speaker Change: Thank you. At this time I would like to remind everyone in order to ask a question press star and the number one on your telephone keypad.
Speaker Change: Your first question comes from the line of Ben Isaacson with Scotiabank, your line is open.
Sam Pigott: This is the pervo on Perven. I can wrap up the quarter. My first question is, I'm just taking a look at your off-take agreements. For the last, I think 3,800 tons of phase one production that's yet to be committed, is there a plan to get these out the door through an additional offtake or are you considering marketing them yourselves and potentially selling them at spot? Thanks.
Speaker Change: Hi, Sam, Kelly. This is the Provo on Provence. Congrats on the quarter. My first question is, I'm just taking a look at your off-take agreements for the last, I think, 3.8 thousand
Speaker Change: tons of phase 1 production that's yet to be committed. Is the plan to get these out the door through an additional offtake or are you considering marketing them yourselves and potentially selling them at spot?
Sam Pigott: So at this point, we plan to retain this uncommitted share of offtake. This gives us flexibility longer term, as well as the uncommitted offtake on stage two. So, during the ramp up, even though we haven't committed this portion to anything, I think at this point, we expect to sell that product through Gantt. Gotcha. Thank you.
Speaker Change: Thanks for the question. So at this point we plan to retain this uncommitted share.
Speaker Change: of offtake. This gives us flexibility longer term as well as the uncommitted offtake on stage two. So, but during the ramp-up, even though we haven't committed this portion to anything, I think at this point we expect to sell that product to, through Ganseng.
Sam Pigott: And then my next question, you mentioned the debt profile of the operating company at XR. Given some of the, given the plan to use some of those proceeds from the Patsos-Grandes transaction towards reducing leverage, can you give any color on what other or the scope of the refinancing that we might see? Potentially what those terms look like at a high level?
Speaker Change: Gotcha, thank you. And then my next question
Speaker Change: You mentioned the depth profile of the operating company at XR. Given some of the, given the plan to use some of those proceeds from the Patsr's Grande Transaction towards reducing leverage, can you give any color on what other or the scope of the refinancing that we might see, potentially what those...
Sam Pigott: Are they still favorable? Yeah, I mean, we're open to all credit facilities, so we, in May, we secured an export credit facility for $80 million. We expect that type of facility, which is accounted for in the overall debt on XR, to be able to roll.
Speaker Change: terms look like at a high level or are they still favorable?
Speaker Change: Yeah, I mean, we're open to all credit facilities. So in May, we secured an export credit facility for $80 million. We expect that type of facility, which is accounted for in the overall debt
Speaker Change: on XR. We expect that to be able to roll. We expect to use a portion of the proceeds from the PG co-transaction to de-lever XR significantly.
Speaker Change: and then we're also working with Gantank to pursue longer-term financing options to take advantage of the improved financing conditions in Argentina and that you know an example of that would include evaluating a local bond offering in Argentina which could allow us to take advantage of improved lending conditions there.
Speaker Change: All right, thanks for the call.
Speaker Change: Thank you.
Speaker Change: Your next question comes from the line of Joel Jackson, BMO Capital Markets. Your line is open.
Sam Pigott: Sam, just a first quick question. When you said in the press release last night, you know, assuming the current market dynamic continues, you know, the lithium price commentary, and that you would be operating cash? full positive, excluding network capital changes, sorry. What do you think is the current operating environment for pricing? What were you referring to exactly? What level?
Joel Jackson: Morning, Sam and team.
Joel Jackson: Sam, just a first quick question, when you said in the press release last night, you know, assuming the current market dynamic continues, you know, the Lithium price commentary, what is, and that you would be operating cash?
Speaker Change: We'll pause with excluding what can capital changes, sorry. What do you think is the current operating environment preparation? We'll what we refer to exactly what levels. So I mean, we look at the battery grade price and China.
Sam Pigott: So I mean, we look at the battery grade price in China. So $11,000? Yeah. Okay. So, you know, the pricing across the first half of the year was higher than that. And depending on assumptions you would make on what your actual sales volume was for the JV, you were making maybe, the JV was making maybe $1,000, $2,000 a ton of profit, right, at first half pricing. We know that spot pricing is lower. Um, can you comment on that?
Speaker Change: Patrick.
Patrick: $11,000 David Deckelbaum, Noel Parks, MacMurray Whale,
Patrick: Yeah.
Speaker Change: So, you know, the pricing across the first half of the year was higher than that.
Speaker Change: And depending on assumptions you would make on what your actual sales volume was for the JV, the JV is making maybe $1,000, $2,000 a ton of profit at first half pricing. We know that spot pricing is lower.
Sam Pigott: I mean, it would seem like you're a very razor-thin margin share at spot prices at XR. Yeah, I mean, the expectation for since the beginning of the year has been running this business on very conservative assumptions around price, and that seems to be a very prudent thing given where the market is today. Our expectations through the back half of the year as production volumes ramp up, we expect costs to decline. I think we've been very pleased with the trajectory of costs through the first half of the year and expect that trend to continue.
Speaker Change: Can you comment on that? I mean, it would seem like you're a very razor-thin margin share at spot prices at XR.
Speaker Change: Yeah, I mean, the expectation for since the beginning of the year, we've been running this business on very conservative assumptions around pricing.
Speaker Change: And that seems to be a very prudent thing, given where the market is today.
Speaker Change: Our expectation through the back half of the year is, as production volumes ramp, we expect costs to decline. I think we've been very pleased with the trajectory of costs through the first half of the year and expect that trend to continue.
Speaker Change: And then in terms of the kind of realized pricing that we're receiving, you know, we disclosed this pricing formula.
Speaker Change: which is a snapshot of where we are today, but we really expect that realized pricing to improve given that, you know, the trends on quality have improved and therefore the reprocessing cost comes down.
Speaker Change: So we're confident that you know in today's current pricing environment we remain operating cash flow positive adjusted to working capital tied to the ramp-up.
Speaker Change: We expect costs to continue to decline as volumes progress and we expect the realized pricing relative to battery grade spot market pricing in China to improve as quality does.
Speaker Change: Okay, that's helpful. And then, you know, I think you took down the plants, a lot of part of the circuits in April, sometime in the spring, right, to sort of fix this up.
Sam Pigott: Now we ramp it back up and focus on quality, right? That's correct so far, and yeah. And then now that you've had a few more months on the reramp and after you've done some fixes and some optimization, are you now, as a team now at XR, thinking about some changes to the design, changing maybe the KCL plant to work, or other things like trying to implement some new ideas you guys have with three months more runtime that you want to implement, and what would that look like if true? [inaudible] Yeah, I mean the plan that was shut down in April was very effective.
Speaker Change: Now ramp it back up and focus on quality, right? That's correct, so far.
Speaker Change: Yeah.
Speaker Change: and then, now that you've had a few more months on the reramp,
Speaker Change: And after you did some fixes and some optimization, are you now as a team now at XR thinking about some changes to the design?
Speaker Change: changing maybe how the KCL plant works or other things like to try to like are there some new ideas you guys have with three or four months more run time that you want to implement and what would that look like if true?
Sam Pigott: We've seen it in the last three months where we've kind of progressively hit higher and higher production volumes. You know, part of this ramp-up is about learning how the plant operates at higher and higher production levels and being able to sustain them. I think there's a lot of optimization work that is ongoing. But I wouldn't say that we're, you know, certainly not looking to change the design of the plant.
Speaker Change: Yeah, I mean, the plan shut down in April was very effective. We've seen it in the last three months where we've kind of progressively had higher and higher production volumes.
Speaker Change: You know, part of.
Speaker Change: Part of this ramp-up is about learning how the plant operates at higher and higher production levels and being able to sustain them. I think there's a lot of optimization work that is ongoing. I wouldn't say that we're, you know, we're certainly not looking to change the design of the plant. I think we've been very
Sam Pigott: I think we've been very pleasantly surprised by how it's been operating, but certainly, tweaks and minor optimizations along the way are going to be necessary to kind of continue to ramp up, achieve higher levels of production, and then sustain. And just finally, it's a tougher question, and it kind of makes you look at the hat you wear now and the hat you wore too recently, but... We all know what's happened with the lithium environment, and we're seeing a lot of different companies start to push off projects, curtail conversion plans, a lot of things happening in different regions of the world.
Speaker Change: I'm pleasantly surprised by how it's been operating, but certainly tweaks and minor optimizations along the way are going to be necessary to kind of continue to ramp up and achieve higher levels of production and then sustain them.
Speaker Change: Just finally, it's a tougher question and it kind of makes you look at the hat you wear now and the hat you wore too recently, but
Speaker Change: We all know what's happened with the environment and we're seeing you know a lot of different companies start to...
Sam Pigott: You're obviously tied to Ganfeng and some of your future goals, investing in the different basins in Argentina, your partner in XR, their view on things would matter. Do you see a difference now in how some of your partners look at the market and how that might affect investment decisions by yourselves and them? I mean, the short answer is no.
Speaker Change: push off projects, curtail conversion plans, a lot of things happening in different regions of the world. You're obviously tied to Ganfeng and some of your future goals, you know, investing in the different basins in Argentina, your partner in XR.
Speaker Change: with their view on things would matter. Do you see a difference now in how some of your partners look at the market and how that might affect investment decisions by yourselves and them going forward?
Sam Pigott: I think that a bit more color on that is I think it's kind of... I hate the focus on lower-cost operating assets. So I would include high-quality prime projects within that. So I think there's certainly been a bit of a redirection in market participants' strategic positioning around which assets are developed. I think we're very fortunate to have a partner like Ganseng that continues to invest through the bottom of these cycles.
Speaker Change: I mean, the short answer is no. I think that a bit more color on that is I think it's kind of heighten the focus on
Speaker Change: Lower Cost Operating Assets
Speaker Change: So I would I would include high quality prime projects within that. So I think there's certainly
Speaker Change: a bit of a redirection in market participants' strategic positioning around
Ganseng: you know, which assets are developed. I think we're very fortunate to have a partner like Ganseng that, you know, continues to
Ganseng: Invest through the bottom of these cycles. I think this industry is prone to these very aggressive bull and bear markets, the long-term outlook.
Sam Pigott: I think this industry is prone to these very aggressive bull and bear markets. The long-term outlook, I think, is what drives us and certainly what drives Ganseng's investment decisions. But I think when we, you know, when we and they look at, you know, which projects should get developed, I think we're very pleased with the portfolio that we have today. Thank you. Your next question comes from the line of David Deckelbaum with T.D. Cohen.
Ganseng: I think is what drives us and certainly what drives Ganfang's investment decisions. But I think when they, you know, when we and they look at, you know, which projects should get developed, I think we're very pleased with the portfolio that we have today.
Speaker Change: Your next question comes from the line of David Deckelbaum with TD Cohen. Your line is open.
Sam Pigott: Your line is open. Thanks for taking my questions, guys. And Sam, thanks for your time.
Sam Pigott: I did want to ask if you could just kind of help us quantify, as you're in the final stages of ramping towards battery grade, can you sort of refresh us on what your operating cost target is and, you know, sort of how meaningful you think some of these cost optimization endeavors are going to be with regards to lowering your operating costs, which still appear to be in sort of that $6,000 per ton level? I mean, I think the ultimate objective is to, you know, we expect costs once we reach steady state to be in line with some of our low cost producing peers in Argentina. You know, as we ramp up, we've obviously caught largely the function of boiling.
David Dekelbaum: Thanks for taking my questions guys and Sam thanks for the time. I did want to ask if you could just kind of help us quantify as you're in like the the final stages of ramping towards battery grade.
Speaker Change: Can you sort of refresh us on what your operating cost target is?
Speaker Change: you know, sort of how meaningful you think some of these cost optimization, you know, endeavors are going to be with, you know, regards to lowering your operating costs, which, you know, still appears to be in sort of that $6,000 per ton type level.
Speaker Change: I mean, I think the ultimate objective is to, you know, we expect costs, once we reach steady state, to be in line with some of our low-cost producing peers in Argentina.
Speaker Change: you know as we ramp up obviously cost is largely a function of volumes.
Sam Pigott: High Degree at Sixth Cost within our business David Deckelbaum, Noel Parks, MacMurray Whale, And so getting volumes up towards the end of the year will be a major driver of that. And then into next year, there's going to be a lot of room to kind of optimize the business across numerous things, reagents, for one, being a big bucket of costs. I think we've seen.
Speaker Change: There's a high degree of six costs within our business.
Speaker Change: and so getting getting volumes up towards the end of the year will be a major driver of that and then into next year there's going to be a lot of room to kind of optimize
Speaker Change: optimized business across numerous things, you know, reagents for one being, you know, a big bucket of costs. I think we've seen
Sam Pigott: A lot of great work led by Gantzang and the team at Minericks in terms of lowering specific consumption of reagents, and I think that trend will kind of continue next year once we reach steady state, so you know, ultimately, this would be one of the lower cost projects, certainly in South America. And then why? Because of our peers and our children. I appreciate that. And then, if I could just ask for a little bit more elaboration on, you know, I know in the comments that you said that discussions around the expansion of the 20,000 tons at Kitchari continue to advance. Can you give a little bit of insight into what those discussions are right now?
Speaker Change: A lot of great work led by Dan Fang and the team at Manera XR in terms of
Speaker Change: you know, lowering specific consumption of reagents, and I think that trend will kind of continue next year once we reach steady state. So, you know, ultimately this would be, you know, one of the lower cost projects certainly in South America and in line with the torpedoes in Argentina.
Speaker Change: I appreciate that and then if I could just ask for a little bit more elaboration on you know I know in the comments you said that that discussions around expansion of the 20,000 tons that Kitchari continued to advance
Sam Pigott: And I'm just curious, like, as you look to de-lever at the XR level, is this a matter of conversations just within the existing XR, you know, kind of partnership, you know, or is there advancement in talks of and thoughts of bringing in additional parties before considering expansion? Yeah, I mean, so the development work, both on stage two and the regional development plan, is continuing. For the regional development plan, the ongoing work right now is really around technical collaboration on kind of pulling together the reserve and resource models, the hydrogeological models, and then we're obviously collaborating to explore the benefits of, you know, DLE technology to complement conventional solar evaporation processes. For the regional development plan specifically, Ganseng is leading this plan and bringing a lot of expertise from their experience in Mariana and globally and within China.
Speaker Change: Can you give a little bit of insight into what those discussions are right now?
Speaker Change: look to deliver at the XR level? Is this a matter of conversations just within the existing XR, you know, kind of partnership? You know, or is there advancement in talks of and thoughts of bringing in additional parties before considering expansion?
Speaker Change: Yeah, I mean, so the development work, both on stage two and the regional development plan is continuing.
Speaker Change: For the regional development plan, the ongoing work right now is really around technical collaboration.
Speaker Change: I'm kind of pulling together the reserve and resource models, the hydrogeological models, and then we're obviously collaborating to explore the benefits of DLE technology to complement conventional solar evaporation processes.
Speaker Change: You know, for the regional development plan specifically, Ganseng is leading this plan and bringing a lot of expertise from.
Gantzang: Their experience in Mariana and globally within China and that combines with the early work studies that we're completing right now on the reserves and the hydrogeological models.
Sam Pigott: And that combines with the early work studies that we're completing right now on the reserves and the hydrogeological model. So I think, you know, I think we're trying to position this business to be able to obviously support the ramp-up but also put us in a very strong position to capitalize on the opportunities for growth at the right time. Obviously, we will have more to say on these development plans, both the Regional Development Plan and the Expansion Plan. Once those studies are complete, which, you know, in the case of the Regional Development Plan, we'll have a lot more to say by the end.
Gantzang: So I think we're trying to position this business.
Gantzang: to be able to obviously support the ramp-up, but also put us in a very strong position to capitalize on the opportunities for growth at the right time. Obviously, we will have more to say on these development plans.
Gantzang: the regional development plan and expansion plan. Once those studies are complete, which you know in the case of the regional development plan, we'll have a lot more to say by the end of the year.
Gantzang: i
Santhosh Seshadri: Your next question comes from the line of Santhosh Seshadri with HSBC, your line is open. Yeah, hi, thanks very much. So firstly, when you increase the back regrets, they- increased towards the… … … … … … … … … We expect your average cost to go up or maybe, you know, stay flattish as it becomes incrementally difficult to bring down costs given the additional processing involved, and my second question here is, is Gangpang proucelling its commitment levels in the current low demand scenario, where your peers are finding it difficult to sell their back? Yeah, thanks for the question. I'll answer the second one first.
Speaker Change: Appreciate the color.
Speaker Change: Your next question comes from the line of Santos C. Sedgwick with HSBC. Your line is open.
Speaker Change: Yeah, hi, thanks very much. So, firstly, when you increase the battery grade spec, increase towards the battery grade spec eventually,
Speaker Change: Should we expect your average cost to go up or maybe stay flattish as it becomes incrementally difficult to bring down costs given the additional processing involved?
Speaker Change: and my second question is, is Gangbanger fulfilling its commitment levels in the current low demand scenario where your peers are finding it difficult to sell their battery grids? Thank you.
Sam Pigott: Yes, Ganseng is continuing to take as much of the product as they can get. The second question is, there is a bit of a trade-off. So, obviously, as we reach near nameplate capacity on a sustained basis, we expect operating costs to fall. However, in order to get to battery quality product, there are a few additional steps that need to take place.
Speaker Change: Hello, I am Samuel Pigott, I am Sam Pigott, I am Sam Pigott, I am Sam Pigott, [inaudible]
Speaker Change: Yeah, thanks for the question. I'll answer the second one first. Yes, Ganseng is continuing to take as much of the product as they can get.
Speaker Change: The second question is, there is a bit of a trade-off, so obviously as we reach near name plate capacity on a sustained basis, we expect operating costs to go up.
Sam Pigott: These aren't material; I wouldn't classify them as material to the cost. So the expectation is that producing battery material grade at steady state production should have a very immaterial increase to overall cost compared to producing, you know, the quality that we're producing today. Thank you. Just a follow-up on that. Do you think that the incremental costs will be lower than the $2,000 discount that you're getting over?
Speaker Change: to fall.
Speaker Change: In order to get to battery quality products, there are a few additional steps that need to take place. These aren't material, I wouldn't classify them as material to the cost. So, the expectation is that producing battery material grade at steady state production
Speaker Change: should have a very immaterial increase to overall costs compared to producing, you know, the quality that we're producing today.
Speaker Change: Thank you. Just a follow-up on that. Do you think that incremental costs will be lower than the $2,000 discount that you're getting? Yes.
Sam Pigott: Yeah. Thank you. Your next question comes from the line of Mohamed Sidibe with National Bank Financial. Your line is open.
Speaker Change: Your next question comes from the line of Mohamed Sidibe with National Bank Financial. Your line is open.
Mohamed Sidibe: Thanks, Sam and Tim, for taking my question. A bit of modeling questions here. Sam, should we assume that most of the production that you had in the first half of 2024 was sold to Ganttank, all of it? Or could you maybe help me reconcile the production and sales numbers here? So I may get gas bags entitled to 80% of off-takes from the first 25,000 tons of production. The remainder is to be paid a bang check to the Taya Oil and Gas Company. So, you know, gas bang is taking the vast majority of products today.
Mohamed Siddabe: Thanks, Sam, and same for taking my question. David, Noel, and questions here, Sam, should we assume that most of the production that you've had in the first half of 2024 was sold to Ganpen, all of a fit, or could you maybe help me reconcile the production and sales number here?
Speaker Change: So, I mean, Genfeng is entitled to 80% of offtake from the first 25,000 tons of production. The remainder is to bank check to the Thai oil and gas company. So, you know, Genfeng is taking the vast majority of
Sam Pigott: In terms of reconciling, kind of production with sales, but obviously, as we're wrapping up in increasing production levels, there is... a bit of a lag between, you know, production and sale, so there's a bit of a mismatch there. We expect that mismatch to obviously normalize as we approach and sustain steady state production towards the end of this year. Great, thank you. For my second question, you mentioned that you expect to reach commercial production by the end of the year. Can you qualify that?
Speaker Change: of product today. In terms of reconciling kind of production and sales, they're obviously, as we're wrapping up and increasing production levels, there is...
Speaker Change: A bit of a lag between production and sales, so there's a bit of a mismatch there. We expect that mismatch to obviously normalize as we approach and sustain steady-state production towards the end of this year.
Sam Pigott: Is that the level of capacity? Is that reaching 90% capacity? Is that a specific amount going through the plant? Could you give me some color on that, please?
Speaker Change: Great, thank you. My second question, you mentioned that you expect to reach commercial production by the end of the year. Can you qualify that? Is that the level of capacity? Is that reaching 90% capacity? Is that a specific amount going through the plant? Could you give me some color on that, please?
Sam Pigott: So I think that's reaching higher production levels on a sustained basis over several months. Alex Shulga, who is on the call, I'm not sure if you want to step in and answer that question. Yes, sure, Sam. It's an accounting area here, policies and approaches, from accounting efforts to how to define commercial production. There are several criteria that are being used.
Speaker Change: So I mean that's reaching higher, you know, higher production levels on a sustained basis over several several months so
Alex Shilga: Alex Shilga was on the call, I'm not sure if you want to step in and answer that question.
Alex Shilga: Yes, sure, Sam.
Alex Shilga: It's an accounting area here. There are policies and there's an approach.
Alex Shilga: from Accounting Office and Pliny Healthy or Defined Commercial Production. There's several criteria that have been used. One is achieving certain level of capacity.
Alexander Shulga: One is achieving a certain level of capacity. The other one is being able to maintain the level of production of that capacity for a prolonged period of time and quality of the product. So we are monitoring all these criteria, and when we feel that we have met this requirement, the project will be considered for commercial production, which will mean the start of depreciation of all fixed assets, including the processing plant, kindly the processing plant is not depreciated, as well as, you know, not... Discontinuation of capitalization of certain, Thank you.
Alex Shilga: The other one is being able to maintain that level of production of capacity for a prolonged period of time and quality of the product.
Alex Shilga: So we are monitoring all this criteria and you know when we feel that we We met this requirement the project will be
Alex Shilga: considering commercial production which will mean start of depreciation of all fixed assets including the processing plant.
Speaker Change: currently processing plant is not depreciated, as well as, you know, not discontinuation of capitalization of certain costs.
Alexander Shulga: And then my final question is on the liquidity front as it relates to the third-party loans at the Argentinian level. I know that you have about 200 on a 100% basis, and I'm calling this out here 280 million that is due before June 30 of 2025. Could you give me some color on the cadence of that repayment? Would it be more weighted towards 2025? Or is it fairly split across the next four quarters as you guys continue to advance your refinancing effort? Alec, do you want to take that question?
Speaker Change: Thank you. And then my final question is on the liquidity front as it relates to the third party loans at the Argentinian level. I know that you have about 200, on a 100% basis, I'm calling this out here, 280 million that is due before June 30th, 2025.
Speaker Change: Could you give me some color on the cadence of that repayment? Would it be more weighted towards 2025 or is it fairly split across the next four quarters as you guys continue to advance your refinancing efforts?
Alexander Shulga: Yeah, sure, absolutely. It is spread between the remainder of 2024 and 2025. We are actively working on refinancing this short-term debt, and we achieved a certain level of flexibility by replacing some of the short-term loans with more flexible banks, more traditional bank loans. So yeah, it is spread between 24 and 25, and we do have, as I mentioned, some flexibility on the timing of repayment. We are able to extend and roll some of the loans.
Speaker Change: Alex, do you want to take that question?
Speaker Change: It is spread between the remainder of 2024 and 2025.
Alex Shilga: We are actively working on refinancing this short-term debt and we achieved certain level of flexibility by replacing some of the, you know, short-term
Alex Shilga: loans with more flexible banks, more traditional bank loans.
Speaker Change: So, yeah, it is tied between 24 and 25 and we do have...
Speaker Change: As I mentioned, some flexibility on timing of repayment. We are able to extend and roll some of the loans. As Sam mentioned, we secured an 80 million facility which is expected to be rolled as well.
Alexander Shulga: As Sam mentioned, we secured an 80 million facility, which is expected to be rolled out as well. So yeah, I hope this addresses... Yeah, that's pretty helpful. Thank you very much.
Sam: So, yeah, I hope this addresses your question.
Speaker Change: Yeah, that's pretty helpful. Thank you very much, guys.
Kelly O'brien: Your next question comes from the line of Korean Blanchard with Deutsche Bank. Your line is open. Hey, thanks for the question. This is actually Mike Nolte.
Speaker Change: i
Speaker Change: Your next question.
Speaker Change: comes from the line of Corinne Blanchard with Deutsche Bank. Your line is open.
Mike Nolte: First of all, congratulations on the 70% capacity. My question relates more to pricing. Can you talk about the discount, the $2,000 discount per ton, and how you expect that to evolve in future quarters and years? Yeah, so the current $2,000 processing fee is a reflection of the cost incurred by Ganfeng in China to remove trace levels and impurities and sell into the battery grade market.
Speaker Change: He's good.
Speaker Change: Hey, thanks for the question. This is actually Mike Miltiak.
Corinne Blanchard: First of all, congrats on the 70% capacity. My question relates more to pricing. Can you talk about the discount of the $2000 discount for tons and how you expect that to evolve in future
Speaker Change: Yep, so the current $2,000 processing fee is a reflection of the cost incurred by Danfeng in China to
Speaker Change: to remove trace levels and impurities and sell into the battery grade market.
Sam Pigott: We are constantly reviewing quality, and it's gradually improving. So we expect that processing fee to narrow between now and certainly the end of the year. The expectation, of course, is that once we exit the year, towards nameplate capacity on a sustained basis, quality will be prioritized. And once we achieve battery rate spec, as the plant is designed, that adjustment will no longer be required. Okay, thank you, very helpful. And then the other question I have is related to Minor XR on the 100% level. There was a $13 million loss related to the fair value of derivatives.
Speaker Change: We're constantly reviewing quality and it's gradually improving, so we expect that process to narrow between now and certainly the end of the year. The expectation of course is once we
Speaker Change: exit the year towards nameplate capacity on the same basis, we'll prioritize quality and once we achieve battery grade spec as the plant is designed, that adjustment will no longer be required.
Speaker Change: Okay, thank you. Very helpful. And then the other question I have is related to mineral XR on the 100% level. There was a $113 million loss related to the fair value of derivatives.
Speaker Change: Can you help us give a little more context around that, please, and then how you expect it to evolve moving forward?
Alexander Shulga: This survey, a loss relates to inter-company funding by shareholders to Miner XR and represents a non-cash for an exchange loss, and the loans, from shareholders, lack and gain thing to the project. Loans were provided at the market for an exchange rate, generating an exchange gain at the time of the grant. Loans are denominated in USD at the market, USD pass exchange rate.
Alex Shilga: Sure, maybe I'll turn that one to Alex.
Alex Shilga: Yeah, sure Sam. This fair value loss relates to intercompany funding by shareholders to MinerXR.
Speaker Change: and represents unrealized non-cash foreign exchange loss and the loans from shareholders like in Gang Feng to the project.
Speaker Change: loans were provided at the market for an exchange rate and generating for an exchange gain at the time of grant
Speaker Change: Loans are denominated in USD at market to USD-PESA exchange rates, so changes in the market exchange rate in Argentina may result in unrealized gains or losses.
Speaker Change: like for example in Q2 as you as you mentioned.
Speaker Change: market exchange rate of PASA devalued over 40% generating a loss over 113 million. At the same time, if you look back at last year, 2023,
Speaker Change: We recognized a gain of over $250 million.
Speaker Change: So, it is fluctuating, you know, foreign exchange situation in Argentina is dynamic. Unfortunately, we cannot predict how it develops, but yeah, we can see some.
Speaker Change: some fluctuation from quarter to quarter. As I mentioned, this is on intercompany loans from shareholders.
Speaker Change: Okay, that's very helpful, thank you.
Alexander Shulga: Unfortunately, we cannot predict how it develops, but yeah, we can see some... some fluctuation from quarter to quarter. As I mentioned, this is on intercompany loans from shares. Okay, that's very helpful. Please. Your next question comes from Shannon Gill with Quilmark Securities. Your line is open. Hey guys, thanks very much for taking the question. Just to follow on to Joel's question here, I just wanted to know how we can interpret the availability of the KCL plant going forward.
Speaker Change: And your next question comes from Shannon Gill with Cormark Securities. Your line is open.
Speaker Change: [inaudible]
Shannon Gill: Hey guys, thanks very much for taking the question. Just a follow-on to Joel's question here. I just wanted to know how we can interpret the availability of the KCL plant going forward. Is this something somewhat more of like constant rates at lower volumes on one of the trains or is it going to be more choppy with
Alexander Shulga: Is this something somewhat more like constant rates at lower volumes on one of the trains, or is it going to be more choppy with breaks through tweaking or optimizing the processing more? Can we expect more pauses like the one in April to come? Yeah, if you could give some color on that, that would be great.
Shannon Gill: breaks for tweaking or optimizing the processing more, can we expect more pauses like the one in April to come? Yeah, if you could give some color on that, that would be great.
Sam Pigott: Sure, yeah, KCL is, as you know, one of the last plants that we commissioned, still ramping up. We've now operated both trains simultaneously. And I think, you know, running both trains at full production will be kind of critical, obviously, to remove trace levels and impurities and kind of reaching our off-take spec sheet.
Speaker Change: Sure, yeah, I mean the KTL is, as you know, one of the last plans that we committed.
Speaker Change: still in ramp-up. We've now operated both trains simultaneously. And I think, you know, running both trains at full production will be kind of critical, obviously, to
Speaker Change: removing trace levels of impurities and kind of reaching our offtake spec sheet.
Sam Pigott: Right now, we have no expected meaningful downtime to reorient or optimize. Again, we are obviously in a ramp-up phase. I think we've done a great job so far in terms of achieving approximately 70% capacity. But as we push to higher levels and try and sustain them, there could be the need to, you know, need to shut down for a couple days in order to, in order to, kind of fix obvious bottlenecks in terms of reaching nameplate capacity.
Speaker Change: Right now, right now, we have no no expected.
Speaker Change: You know, a medical downtime to reorient or optimize.
Speaker Change: Again, we are obviously in a ramp-up. I think we've done a great job so far in terms of
Speaker Change: achieving approximately 70% capacity but you know as we as we push to higher levels and try and sustain them you know that there could be there could be the need to you know need to shut down for a couple days in order to in order to
Sam Pigott: But right now, we don't we don't see anything that would indicate that it would be needed. David Deckelbaum, MacMurray Whale, John, Okay, great. So the biggest one, I guess, in Q2 would have been the April one, but no meaning filled down time between the end.
Speaker Change: to kind of fix obvious bottlenecks in terms of reaching nameplate capacity, but right now we don't see anything that would indicate that that would be needed.
Speaker Change: Okay, great. So the biggest one, I guess, in Q2 would have been the April one, but no meaningful downtime between then and the end. Got it. Okay, thanks so much.
Kelly O'brien: There are no further questions at this time. I will turn the call back over to Kelly O'Brien for closing remarks. Thank you everyone for joining the call this morning. We look forward to reconvening next quarter and remind you that we are available, all of us, to help answer any questions or concerns before then. Thank you. Have a good day! This does conclude today's conference. You may now disconnect. David Deckelbaum, Noel Parks, MacMurray Whale, and John Kanellitsas
Speaker Change: There are no further questions at this time. I will turn the call back over to Kelly O'Brien for closing remarks.
Kelly O'brien: Thank you everyone for joining the call this morning. We look forward to reconvening next quarter and remind you that we are available, all of us, to help answer any questions or concerns before then. Thank you. Have a good day.
Speaker Change #100: This does conclude today's conference. You may now disconnect.
Speaker Change #100: you you
Sam Pigott: Got it. Okay, thanks so much. Yeah.
Sam Pigott: We expect costs to continue to decline as lines progress, and we expect the realized pricing relative to battery grade spot market pricing in China to improve this quality thus. Okay, that's helpful. And then, you know, I think you took down the plant, a lot of parts of the circuits in April, sometime in the spring, right, to sort of fix this up.
Alexander Shulga: So changes in the market, the exchange rate in Argentina may result in and realize gains or, like, for example, in Q2, as you mentioned, the market exchange rate of PASA devalued over 40% in redding up a loss of over 113 million. At the same time, if you look back at last year, to southern 1023, we recognized a gain of over 250 million. So it is fluctuating for an exchange situation in Argentina's dynamic
Sam Pigott: Can you help us give a little more context around that, please? And then how you expect it to evolve moving forward? Sure, maybe I'll turn that one to Alex. Yeah, sure, Sam.
Sam Pigott: And then in terms of the kind of realized pricing that we're receiving, we disclose this pricing formula, which is a snapshot of where we are today, but we really expect that realized pricing to improve given that the trends in quality have improved, and therefore the reprocessing cost comes down. So we're confident that, you know, in today's current pricing environment, we will remain operating casual closures if adjusted to working capital times for ramp-up.
Sam Pigott: Once the operation reaches commercial production, expected later this year, we intend to provide increased disclosure and additional financial metrics on the project, in relation to the current market. While the current market conditions remain challenging, Kachary Olerovs remains well-positioned with minimal capital requirements ongoing and positive operating cash flow adjusted for working capital tied to the ramp of those productions. Even in the current pricing environment, we expect to remain operating cash flow positive with costs continuing to decline and better realized prices as quality continues to improve.
Sam Pigott: We expect to use a portion of the proceeds from the PG Co-Trans action to deliver XR, and then we're also working with Ganttank to explore longer term financing options to take advantage of the improved financing conditions in Argentina. And that, you know, an example of that would include evaluating a local bond offering in Argentina, which could allow us to take advantage of improved lending conditions. All right, thanks for the call. Thank you. Your next question comes from the line of Joel Jackson, BMO Capital Markets, so the line is open. Morning, Sam and team.