Q3 2024 Sociedad Química y Minera de Chile SA Earnings Call

Speaker Change: Good morning, and welcome to the SQM 3rd Quarter 2024 Earnings Conference Call. All participants will be in listen-only mode. Should you need assistance, please signal a conference specialist by pressing the star key, followed by zero.

Speaker Change: After today's presentation, there will be an opportunity to ask questions. To ask a question, you may press star, then 1 on your telephone keypad. To withdraw your question, please press star, then 2. Please note, this event is being recorded.

Speaker Change: I would now like to turn the conference over to Isabel Bendeck, Investor Relations. Please go ahead.

Isabel Bendeck: Thank you, Obrador. Good morning and thank you for joining SQM's earnings conference call for the third quarter of 2024.

Isabel Bendeck: This conference call will be recorded and is being webcast live. Our earnings, press release, and presentation with a summary of the results have been uploaded to our website where you can also find a link to the webcast.

Isabel Bendeck: Ricardo Ramos, our Chief Executive Officer, will be speaking on the call today.

Speaker Change: Gerardo Llanes, our Chief Financial Officer, Carlos Díaz, CEO of SQM Salar, Mark Fones, CEO of SQM International Lithium, Felipe Smith, Commercial Vice President of SQM Salar, Pablo Hernández, Senior Director of Business Insights.

Speaker Change: Strategy and Development of SQM Salar, Pablo Altimiras, CEO of Iodine and Nitrates, and Juan Pablo Velolio, Commercial Vice President of Iodine and Industrial Chemicals, are also available to answer any questions.

Speaker Change: Before we begin, I would like to remind you that some of statements made during this conference call regarding our business outlook, future economic performance, anticipated profitability, revenues, expenses, and other financial items are considered forward-looking statements.

Speaker Change: Please note that the same cautionary language used in our press release and presentation also applies to this call.

Speaker Change: Now, I will leave you with our Chief Executive Officer, Ricardo Ramos.

Thank you.

Ricardo Ramos: Hi, thank you. Good morning everyone and thank you for joining us today. We have published our third quarter 2024 financial results with positive volume growth in almost all our business lines compared to last year.

Ricardo Ramos: Specialty Plant Nutrition has shown solid dynamics with a market-sized recovery. Volumes in this business line grew more than 20% year-on-year, increasing our revenues

Ricardo Ramos: by more than 12% despite lower prices seen during this period. We are positive in the specialty fertilizer market and foresee stable price behavior in the midterm.

Ricardo Ramos: In Iodine, we have observed a subtle but continued price increase since the beginning of the year.

Ricardo Ramos: We believe that strong demand growth and limited supply could lead to a slight price increase in the coming quarters. We continue to work hard in several projects that should increase our production efficiency, and the seawater pipeline, which will enable us to increase capacity, is moving on schedule.

Ricardo Ramos: In lithium, we are proud that we post our first revenue coming from Moon Holland and today begins our first Spodumene Concentrate Viting event. With this initiative, SGM International Lithium expects to promote fairer and more transparent pricing information, enhancing the lithium market efficiency.

Ricardo Ramos: The refinery is under commissioning, and is scheduled to start operating in mid-2025.

Ricardo Ramos: Regarding our lithium sales, we reported sales volumes of more than 51,000 metric tons of lithium products.

Ricardo Ramos: and 18% growth year on year, demonstrating a strong demand in the market as anticipated prices during the third quarter continue the downward trend. With average realized prices 24% lower than the second quarter this year.

Ricardo Ramos: Although demand continues to grow at a strong pace, mainly driven by strong EV sales growth in China, we continue to see the prices pressured by a temporary oversupply, which has been decreasing considering the production curtailment announced by other market players.

Ricardo Ramos: We believe current market prices are far from equilibrium given the fact that demand keeps on growing at a strong pace while current prices are significantly below the incentive price required for projects announced by different players in the market.

Ricardo Ramos: Our more than 30 years track record in the lithium industry has proved that we have a long-term view in this business and therefore we strongly believe in the lithium market and its fundamentals which are highly related to the clean energy transition that we're living in a strong competitive position and well prepared to continue developing our projects in Chile and abroad to harvest the benefits of this transition.

Thank you.

We will now begin the question and answer session.

Ricardo Ramos: To ask a question, you may press star, then 1 on your telephone keypad.

To withdraw your question, please press star then 2.

Speaker Change: Our first question is from Joel Jackson with BMO Capital Markets. Please go ahead.

Joel Jackson: Hi, good morning, Ricardo and team. I'll ask a few questions.

Joel Jackson: So, my first question would be, you know, you call out in your prepared materials about the industry having some curtailment. You maintain your own sales guidance for this.

for the year, 190,000-195,000 tons. Pricing is still going down.

Does FQM need to cut?

Joel Jackson: Share here cut volume to help support the market. Can prices recover if all the players in the industry don't cut volume?

Hello, Joel. This is Felipe.

Joel Jackson: And for next year, we're not planning any curtailment, I think you asked for. We're just planning to increase our sales in line with increasing production.

Joel Jackson: Okay, that's extremely obvious there, or direct, thank you. Okay, um...

Speaker Change: The next question I have is can you talk about what's going on at in Australia? So you're ramping up Mount Holland, Spodumene. Did you have any sales in the quarter? It looks like when you released maybe you did. What's your guidance there as you're starting to get close to ramping to conversion plants?

Speaker Change: Do you feel comfort in conversion profitability at that project? And you see a lot of competitors taking down Australian capacity. They're cutting spodumene volume, they're cutting conversion capacity in Australia. Might your joint venture have to look at that as well?

Hi Joel, this is Mark Thoms here.

Speaker Change: And that project continues to ramp up into next year. We've seen monthly production rising in a steady state over the last few months, and we expect that to continue into the future.

Speaker Change: Regarding our conversion plan, also consider the numbers I've just mentioned is 100% for the whole joint venture, so that's 50% for each shareholder.

In regarding to the conversion plant you mentioned

The conversion plan today is 91 percent.

completed already.

Speaker Change: We have already started the commissioning of the Quinana refinery plants. Remember, this is a plant.

Speaker Change: with a capacity of 50,000 tons of lithium hydroxide per year for, again, both partners.

Speaker Change: And commissioning is today above 41% completed. We expect that first product will arrive in mid-next year, again aligned with previous plans. So, confirming our previous plans, we don't have changes, and as Felipe already mentioned, we continue to have ourselves aligned with production.

Of course public knowledge, the transaction is concluded when the condition presents are met. We are working very hard on it and we are very diligent in the process.

Hello. I'm going to answer the first part of the question. Ricardo, Ramos, speaking, as as a specifying the contract as can we

Thank you. Bye bye.

Speaker Change: Okay, and my final question on that would be, considering all the experiences of your competitors, Quenana,

In order to do it as fast as we can, and Our intention both parties sqm and go is to include the process as soon as possible and the process with the community.

Are moving forward, according to our expectations. And we don't have any specific situation that we have to report about the agreement with CEO. It means it's, it's moving.

Speaker Change: competitor conversion plants in Australia, Kwanana, Camberton, see what's happening there.

Have you thought about the possibility that the conversion plants...

Speaker Change: your conversion plan and the joint venture. It could be negative profitability, have startup issues like the rest, and could you consider then, if that's the case, what would make you decide to instead pull the Spodumene in China to get better profitability?

Is moving according to our expectation and things. We expect it's going to be closed as soon as we have every single condition presence met about the second part,

A few questions.

with respect to anti corruption anti-money laundering and other regulatory matters including the foreign corruption Practice Act fcba the company has received a request for

Hi, Corin. This is hero. The company is required to be in compliance with all applicable laws and regulations in Chile and International.

Information on Suba from the SEC, requesting information related to our business operations compliance program. Our allegations of potential violations of the fcpa and other anti-corruption laws.

Said that the investigation is a non-public fact finding inquiry and we are not aware of any conclusion has been reached by the CCC.

Speaker Change: Let me provide a few points there. First, while the quinone refinery is not yet at steady state production, we continue and are actually tolling today in China. We will remain flexible in that aspect that we choose to sell either sodium and concentrate or lithium hydroxide in this near-term future.

Initiated an internal review to identify materials that are responsive to the disease inquiry, and are actively.

cooperating, in the sec's review, by providing the information requested,

regarding your point of other...

Speaker Change: experiences of our neighbors. I cannot comment on that. I can tell you that we have done from the beginning of the project everything possible to assess all issues potential that could arise in the commissioning and production of refinery and Quinana refinery.

the next question is from Gabriel simoes with

Goldman Sachs, please go ahead.

So, all of your production keeps growing. And so we see now I'm calling starting to, to ramp up. Uh, we still saw a slightly lower, uh, sales, volume quarter over quarter.

Hi, thank you for the presentation. Thanks for taking my questions. I have 2 actually, so this 1 is on volume.

And you read a reader. Um, your field volume guidance for a year at 192 1950000, um and this implies a significant reduction in volume to the fourth quarter.

and we have done great extents of additional engineering design.

So I just wanted some more color on the Dynamics of your sales um and to understand what level of production you expect for, for this year, right? And how we should think about the potential gaap.

Speaker Change: and workshops to assess those potential issues. So we expect those not to happen for us. Of course, commissioning is a high challenge. It's a risky period of any project, so we remain attentive to any issues that may arise into the future.

Production and sales for the coming years as well. Alright, so this is the first question and on the second question. Uh, we saw your listing costs come come in, lower than the expected disorder.

Despite the fact that that you were renting up, uh, your operations in Australia. So I just wanted to to have more cover on how that operation impact your costs. Um, and if you could give us

The breakdown of the production costs by geography, that would be great as well. Thank you.

Speaker Change: Regarding the long-term value of Quinona Refinery and the lithium industry overall, we remain absolutely confident that's what we're doing this project. We believe in the value-added perspective of having a refinery in Australia and we remain committed to that.

Hi. This is Carlos Diaz. Let me

Answer you regarding to the production in sqm salar Chile.

Thank you.

Mean, 1 180 is going to be producing our chemical planning and to faster.

for DJ egg, we expect the the production is going to be close to 210 that

Speaker Change: The next question is from Ben Isaacson with Scotiabank. Please go ahead.

And the other 30,000 is going to be produced in China in our own plant in the shin Plus

I'm calling agreement that we have with the third parties, so this year is going to be close to 2010.

And for next year, we are considering to produce around 230,000.

and,

Speaker Change: Restocking when you see new supply coming on or do you expect the market to just kind of grow at a linear pace in 2025?

Part of those. It was we be producing. Most of those will be producing our chemical plant in Chile and there

Binary part processing in in China. So and obviously, as a Felipe Calm before the sale should be aligned with the with that increase.

Thank you.

Speaker Change: Hey, Ben. This is Pablo Hernandez. So, from the globalism demand, we believe it remains strong. Of course, we expect it to surpass.

130,000 tons of survival concentrate 5.5% lithium oxide content. That's again 100% G Venture. So 50% each partner

Hi Gabriel, I can comment on Mon Holland. So as mentioned on, hold on for a year, 2024 is the range and mention of 110 to

Speaker Change: over 1.1 million this year, and more than 20% higher than last year. By the remaining of the decade, of course, we expect that leasing demand could reach around 3 million tons, and we maintain a forecast of 16% to 18% growth on a yearly basis for the next five years.

For next year, the guidance is somewhere in a range between 160 to 119,000 tons. Again of sodium and concentrate 5.5% the full m project

Speaker Change: The main driver of the lithium demand growth, of course, is the EV market, and the EV is more concentrated, concentrates more than 70% of the global lithium demand today, and that share, of course, could increase to over 80% by the end of this decade.

the cost of goods sold line that we report on the financial statements is included the payments that we make to CFO associated with the lease agreement that we have that led us have access to

Gabriel. This is Gerardo regarding your your your question about cost is important to consider that within the

The comment but also keep in mind that this time for the first time we included sales also coming from a Holland approximately 900. Tons came from M Holland and

Sales are not subject to the lease payments that we make to court for so, so that probably is a, is affecting your estimates on, on, on cost, uh, regarding production cost.

Speaker Change: The EV penetration right now is roughly 20% and we expect that to reach 50% by 2030.

in general, we we don't have anything special to to comment at this moment and as a Mark was saying is in commissioning so that is

Speaker Change: Out of that demand, China concentrates close to 80% of the listing demand, and the EV sales in China could surpass more than 11 million units this year, and 17 million globally, if you think about EVs in 2024.

Of course, having somewhat of an impact in the in the current cost when compared to the long-term cost.

All right. Thank you.

The next question is from Cesar, Perez navo with btg pactual, please go ahead.

Speaker Change: In terms of the global supply, we expect that to continue growing aligned with the demand, with some new projects potentially being disincentivized, those announced by some of our competitors, if price remains at the current levels.

Yes. Um, good afternoon.

Gentlemen, uh, I have 2 questions. Uh, how much did sgm International account?

Of the 51,000. Tons of lithium sold in the third quarter and

No.

How much would this represent of the roughly 45 48,000 metric tons implied for the fourth quarter of 2024? And my second question would uh uh, relate to iodine. As you mentioned, uh, demand was strong in the third quarter to the level. Where

Great, thank you.

Speaker Change: Second question is on the iodine market. Can you just give us a reminder as to the size of the market right now? How is it growing but more importantly how much new capacity do you expect to come online in 2025 and 26? Thank you

S even had to tap into into your own inventory, to serve industry demand, uh considering the Outlook that you portray in the first half of 2020.

Hi Ben, this is Juan Pablo.

5 and the likelihood that competitor Supply may be delayed and or, uh, be insufficient to meet, uh, uh, overall demand.

How how prepared and and equipped is, is sqm to undertake, uh, additional volumes that the street may not provide.

Hello, Cesar. This is Mark again, as kardo just mentioned.

Uh, during the third quarter is going International lithium sales represented, 900 tons of lithium hydroxide.

uh, for the current quarter in progress, we expect

Similar volumes in the range of 1,000 to 1,200 tons of Freedom again.

Thanks.

Thank you, Mark.

Hello Cesar. Pablo speaking.

Yes, as we commented before the, I demand this year, it's been strong. The growth will be 7%.

Moderated close to 2.5%. And as we commented also before, by the second half of next year, we see that initial capacity will come from third party.

However, next year we see a growth more more

uh,

We we don't see a big effect in the sales that we pretend to do next year.

So, we believe that our level of sales will be similar compared to what we expect to sell this year. So that means that we will use part of our inventories, but

All right. Thank you very much.

This concludes our question and answer session.

I would like to turn the conference back over to Isabelle bendeck for any closing. Remarks.

This is the end of the third quarter conference call.

Thank you everyone for joining.

Connect.

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