Q3 2024 Lithium Americas (Argentina) Corp Earnings Call
to turn the conference over to Kelly O'Brien, Vice President, Investor Relations, and ESG. You may begin.
Kelly O'brien: Thank you Abby. I want to welcome everyone to our earnings conference called this morning. Joining me on the call to discuss the third quarter result is fan Pigott, President and CEO. Our surva, DPMCFO, will also be available during the Q&A session.
Before we begin, I would like to cover a few items. Our third quarter earnings crunchyly for this year's last evening, and the course on a document that are available on a company website.
I remind you that some of the statements may during the call including any production guidance, expected company performance, gun thanks to strategic investment in past those gun days, the timing of our projects and market conditions may be considered forward the same statement.
Please note the cautionary language about forward-looking statements in our MDMA and news release that was pilot last night. I will now turn the call over to Sam.
Sam: Thanks Kelly, good morning everyone and thank you for joining us today.
Sam: We appreciate your interest in our company and your ongoing support as we progress cachari, oloraz, and navigate the evolving landscape of the lithium market. We are cautiously optimistic on the future of lithium, particularly as we assess market conditions, our operational capabilities and positive changes we are seeing in Argentina.
Sam: Last night, we published our third quarter results and we're pleased to announce that during the third quarter, Kachari Volarau has produced approximately 6,800 tons of lithium carbon, at 21% increase from the second quarter of the year.
Sam: The plant is currently operating at 75 to 80% of nameplate capacity.
Sam: and while we expect this level to be maintained into 2025, we are confident that we will be able to reach 40,000 times in the future.
Sam: Given production, year to date in targets for the fourth quarter, we are well positioned to meet our production guidance of 20 to 25,000 tons of lithium carbon at this year.
Sam: As mentioned in the early release last night, the additional processing cost, which he battery quality left in carbonate, has been reduced from $2,000 to $1,500 per ton.
Well, this change had a positive impact on margins. Market prices of lithium continue to see downward pressure during the third quarter. The most recent realized prices for curring older hours fell to approximately 7,000 per time, fallen into decline in lithium prices.
Looking forward, we continue to work closely with our partner Ganttfang to determine the optimal product mix and quality to address the evolving needs of lithium battery customers and to maximize our overall operating margin. We expect to provide clarity on our 2025 production plans and product quality targets early in the new year.
Sam: We are pleased with the work being done to advance stage to a cachary overalls in the regional development plan around PASCO's Grand Espacing and Salt of Providence.
Sam: The work on the regional development plan is ongoing and should be completed in the coming months.
Sam: We believe that the newly passed riggy regime will provide a number of area attractive fiscal incentives to support large scale investments in the country and will help support the development of our comprehensive growth pipeline.
Sam: We expect to release more information related to the regional development plan in early 2025.
Sam: In closing, we remain optimistic about our strategic positioning and lithium market and the long-term demand to provide the ongoing energy transition. Our operations in Argentina continue to demonstrate strong production capabilities, and we're committed to enhancing our efficiency and sustainability practices.
Sam: As we move forward, we believe our investments in technology and partnerships will further solidify our role as a key player in the global supply chain. We look forward to updating you on our progress in the coming quarters. And with that, we'll open the Florida questions.
Speaker Change: Thank you. If you have dialed in and would like to ask a question, please press star 1 on your telephone keypad to raise your hand and join the queue.
Speaker Change: If you would like to withdraw your questions, simply press star 1 a second time.
Speaker Change: If you're called upon to ask your question and are listening via speaker phone on your device, please take up your handset and ensure that your phone is not on mute when asking your question.
Speaker Change: To be able to take as many questions as possible, we ask that you please permit yourself to one question and one follow-up.
Speaker Change: Again, it is style one if you would like to join the queue.
Speaker Change: and your first question comes from the line of Ben Isaacson with Scotchewank. Your line is open.
Ben Isaacson: Good morning everyone. Thanks for taking my question. This is a purva on Perven.
Ben Isaacson: So my question is that in prior quarters you've disclosed that Pachar, you would be cash flow positive even at current spot levels.
Speaker Change: You mentioned that both spot prices have come down as have some of your additional processing costs. So, is this still the case? Well, Katari still be cash flow-positive, except working capital at spot?
Speaker Change: Thanks for the question. So during the third quarter, we were operating cash flow when adjusted for working capital. As you point out, and we pointed out in our press release, prices have declined. There is about an 18% decline from the second quarter averaged.
Speaker Change: carbonate price to the third quarter. Most recent realized sales price from XR was about $7,000. I would say that while the prices have declined, we've also seen costs come down as we reach higher levels of production and also aim to optimize operations.
Speaker Change: So, for the fourth quarter, we expect to be around break-even at close to current prices. We're working with Ganfeng on our production plan for next year, as well as additional disclosures on costs, and we'll have that available for investors early in the new year.
Speaker Change: Understood, thank you. And my kind of follow-up question, at what point in 2025 are you folks expecting production levels to increase meaningfully? I know you mentioned you're still kind of having those conversations with Ganfeng, but
Speaker Change: Are there challenges still in sustaining that quality at the higher production levels right now?
Speaker Change: No, I think we're genuinely pleased with how volumes have progressed throughout this year. So, currently at 75 to 80%. You know, what we've said is that we expect to exit the year around those run rates and into early 2025.
Speaker Change: Again, we are working with Ganfeng on the production plan for next year and we'll have that available to all investors early in the new year.
Speaker Change: Thank you.
Speaker Change: And your next question comes from the line of Corinne Blanchard with Deutsche Bank. Your line is open.
Corinne Blanchard: Hey, good morning 7team
Corinne Blanchard: Just maybe the first question on pricing. So you got about $8,000 up at home for this quarter and then you mentioned $7,000.
Corinne Blanchard: I suppose that's what you thought you saw in October.
Corinne Blanchard: Can you give a little bit more detail, because I think the average price in China was about $10,500 since early October.
Speaker Change: Is Van the prime that you are referencing, minus the VAT and minus the $1,500 for either impurities, or how should we think about that?
Speaker Change: No, that's correct. So the China price, the reference price that most people see in China is inclusive of VAT, so that needs to be stripped out as well as the additional processing fee.
Speaker Change: Okay, and then on the processing sheet, like, do you think, like, should we model out further, like, a good chain that maybe, you know, you drop to, like, below the 1,000 through 2025?
Speaker Change: I mean I think it's something that we're we're evaluating just in terms of how the qualities progress like obviously this year the focus is very much been on volumes
Speaker Change: and there we've, you know, I think we've certainly...
Speaker Change: achieved our expectations.
Speaker Change: And so, you know, as, as, you know, quality becomes more focused next year.
Speaker Change: Certainly, we'll kind of continue to update the market and investors on what that means in terms of our realized pricing.
Speaker Change: You know, I think carrying on through the rest of the year using 1,500 is probably the right number to use, but going into next year when we come out with our production guidance on volumes, we're also going to come out with guidance on product mix.
Speaker Change: Okay, that makes sense. Maybe just as a follow-up, so can you talk about the Convair, you know, what you're thinking about doing with them? It's a big topic of conversation with investors, so I just wanted to get clarity on this.
Speaker Change: Sure, I mean for us, you know, the focus is really on the
Speaker Change: Kachari Stage 1 and refinancing XR short-term debt.
Speaker Change: You know, I think that the convert, it's due in January 2027. It has a very attractive interest rate of 1.75%.
Speaker Change: So we're in contact with the Convert holders and you know, we're very confident. We'll be able to refinance When the time is right, but certainly close closer to maturity. I don't know Alex
Speaker Change: if you have anything further to add on that point.
Speaker Change: Hey, Sam. No, I think you hit the, you know, the response here. I think...
Speaker Change: You know at the current interest rate 1.75% looks very attractive
Speaker Change: We feel confident we'll be able to refinance this, but we don't want to jump ahead and, you know, we will deal with this when we are kind of closer to its maturity. We still have some...
Speaker Change: a little less than two years. Yeah, we'll focus on this.
Speaker Change: next year.
Speaker Change: Okay, great, thank you.
Speaker Change: And your next question comes from the line of Joel Jackson with BMO Capital Markets. Your line is open.
Joel Jackson: Good morning, everyone.
Joel Jackson: I look at your financials and Actar's financials. It looks like you ended the quarter around 90 million of cash, the JV around 14, you put in 65.
Joel Jackson: to J.B. across the quarter. If we're kind of break even here, can you talk about, like, what are you thinking about for your cash needs, J.B.'s cash needs? And, you know, if you've got to maybe think about
Joel Jackson: getting some buffer or cushion in the near future.
Speaker Change: So, we've brought down XR's debt level to approximately $200 million.
Speaker Change: and we are actively engaged along with Genfeng on replacing that with longer term debt. So I think from the joint venture level, I think we're in a very good position.
Speaker Change: I'd say at the project, you know, where prices are today...
Speaker Change: And we've kind of taken a look. There's some improved sentiment in China, but we're really building this business and planning for this business based on, you know, lower for longer pricing. And what we're seeing today is this business does not draw a lot of capital to sustain operating needs.
Speaker Change: and I think that's you know that's going to be continually supported by what we're seeing in terms of where operating costs are headed.
Speaker Change: So I think we're in a very strong position today, not just from what we've been able to achieve.
Speaker Change: de-levering the joint venture and efforts to kind of term out
Speaker Change: some of the short-term debt there. I think LAC's cash balance is, you know, sustained in a healthy position today. And in terms of what we see needing to support this business under a lower for longer scenario, you know, we have no immediate
Speaker Change: needs to kind of buffer, create a buffer.
Speaker Change: Okay, and then can you help us, Sam, with
Speaker Change: If the JV can do 25,000 tonnes, 30,000 tonnes, 35,000 tonnes, 40,000 tonnes, you know, over time, how might cost scale down? Is it just simply linear? Is it better than linear? Can you give us a bit of mall markers and granularity and how to think about it?
Speaker Change: I mean, certainly volumes help. They don't tell the entire story. You know, as we've carried on
Speaker Change: advancing this operation, hitting higher steady state of production, there are going to be ways to optimize our cost structure in Argentina.
Speaker Change: And so you can take kind of two obvious buckets of cost. One.
Speaker Change: kind of reagents. So price and specific consumption, so price times volume.
Speaker Change: And I think, you know, as we better understand the plan, it's operating more consistently, I think we'll be able to.
Speaker Change: you know, improve certainly in terms of the specific consumption.
Speaker Change: And then the other bucket of cost is labor, and certainly there will be areas to kind of improve our cost structure there, and it's really just a function of kind of getting into this steady state operation, so it's a combination of both.
Speaker Change: Thank you.
Speaker Change: And your next question comes from the line of David Dekelbaum with TD Cowan. Your line is open.
David Dekelbaum: Thanks for taking my question, Sam, for the update today. I'm hoping that maybe as you look into next year, you know, given in the context that we're expecting this just regional development plan update,
David Dekelbaum: You know, what should investors expect to learn from that that update and I guess it put in the context of what How are you thinking about lithium Argentina's capital needs for for next year? You know once you're at the point now where HRA phase one is relatively ramping towards capacity But you know how much incremental sort of
Speaker Change: What capital calls will there be for next year?
Speaker Change: I mean, I think we understand very well that
Speaker Change: The market conditions today are putting a lot of focus on companies' balance sheets.
Speaker Change: Our approach from the beginning has been to advance our two attractive growth plans, the Regional Development Plan.
Speaker Change: as well as kind of doing some preparation work around a potential expansion without spending much money. And so the Regional Development Plan really benefits from a tremendous amount of work
Speaker Change: money and resources that went into both, you know, a feasibility study on Pathos Grandis and then obviously Genfeng.
Speaker Change: has spent a lot of time and money developing Pesuelos. These assets will all be put into a regional development plan. We certainly are cognizant of
Speaker Change: You know, being able to advance these projects only when there is a rationale that benefits our shareholders.
Speaker Change: and so today today really the focus is getting this plan advanced, finalized, delivering it to the market. I think what what it will show is a new way to think about how to incorporate
Speaker Change: and improve kind of the environmental impact in terms of the finance and strategy. Listen, I think we're very aligned with shareholders here. We obviously don't want to overexpose ourselves to capital commitments that the current market wouldn't support.
Speaker Change: I appreciate that and helpful color and then just as a follow-up just on the clarification on next year and sort of thinking about running it at 80% of capacity you know as we go into 25
Speaker Change: You talked about product mix elections with your partner Gangfang. How do we think about that evolving over time? I mean, are you seeing that there is a greater desire to kind of produce a technical grade longer term versus the original plan for
Speaker Change: you know, for the sake of efficiency, or is it more a case of
Speaker Change: Is there more desire on Gangbeng's part for you to be producing technical quantities for a longer period of time?
Speaker Change: I think it's, I think it's in part just a reflection of how dynamic the market is. You know, specifications for certain segments of the battery market have tightened considerably, I would say.
Speaker Change: And so it's just looking at our operations and trying to optimize them to maximize the operating margin.
Speaker Change: So that is, you know, potentially producing a, you know, a product at a lower cost, better efficiencies, and really just a trade-off calculation. Kachari Oberoz was designed to produce, you know, a battery-grade spec.
Speaker Change: that will continue to be a potential target but we're really working with Ganfang to just ensure that we're optimizing the margin of the project.
Speaker Change: and so I'd say one further comment it's like but you know both shareholders are very much aligned in
Speaker Change: in maximizing margin. I don't think this is, this is not a scenario where Gantag is telling us to produce a certain product and we're going ahead with it. You know, ultimately this is a project, we'll produce a product.
Speaker Change: that can either be sold into China or outside of China. And so that's the long-term view. And we'll have more to disclose around product mix with the production plan and guidance for 2025 early in the next year.
Speaker Change: Appreciate that, Sam. Thank you.
Speaker Change: And your next question comes from the line of Seth Goldstein with Morningstar. Your line is open.
Seth Goldstein: Good morning, thanks for taking my question. I wanted to follow up on an earlier question and ask about Qatari phase 2. What price makes sense to move forward? You said it could be a pretty low incremental investment, but how are you thinking about that in relation to prices?
Speaker Change: Yeah, I just say on Kachar obviously the focus is stage one. We do have a separate team there working on phase two planning. I think part of that is obviously evaluating
Speaker Change: some advances that particularly GenFang has made around processing technology that can build off of you know what we've what we've been able to demonstrate around stage one in terms of enhancing recoveries, lowering the environmental impact.
Speaker Change: In terms of like.
Speaker Change: pushing the go button and advancing that plan you know first first we have to we have to finalize the plan.
Speaker Change: Second, I think we have to be able to assess where we are in the market, look at what the existing cash flow from Qatari is, evaluate our financing options.
Speaker Change: that would be available to support that growth and then ensure, obviously, it integrates well into the rigging program in Argentina.
Speaker Change: So I think that's how I'll leave that answer for now.
Speaker Change: Okay, fair enough. And then...
Speaker Change: In order to
Speaker Change: take the $1,500 extra processing fee down significantly to $1,500 and even eventually zero
Speaker Change: Would you need to make a material additional investment to improve the quality, or is that, would it be not as much incremental capex?
Speaker Change: I mean at this at this point we we have not identified the need for material incremental capex
Speaker Change: Partly, it's a function of getting to more steady state production. That will deliver two things. One, it will allow us to hone in on the impurities that are currently outside of the acceptable spec sheet. The other big part, of course, of kind of maintaining more steady state production is the variability.
Speaker Change: within those impurities will be much easier to manage. So it's something that we're evaluating obviously this year to focus very much on.
Speaker Change: Production volumes
Speaker Change: At the same time, we have seen improvements that's been reflected in this lower.
Speaker Change: Lower reprocessing or additional processing costs in China
Speaker Change: So it's really something that we continue to monitor and going into next year, the focus will, as we've said before, pivot towards quality, but at this point, we don't see material investment associated with quality.
Speaker Change: with quality improvements.
Speaker Change: Okay, great. Thanks for taking my questions.
Speaker Change: And your next question comes from the line of Mohamed Sidibe with National Bank Financial. Your line is open.
Mohamed Sidibe: Morning guys and thanks for taking my question. First question would be just on the quarter over quarter increase in production. Could you give us maybe some color on what drove that increase? Was it, Brian, well availability? Was it on grade? Was it on recovery? Any color would be appreciated.
Speaker Change: I mean I think it's it's a function of the team knowing how to operate the plant better, improving uptime reliability. You know it's a large plant.
Mohamed Sidibe: somewhat complex, a lot of moving pieces and so you know it's natural that it takes the team some time to understand how it operates.
Speaker Change: You know the user manuals are one thing, operating it in real time is another and so I think that's that's been a large
Speaker Change: large contributor to the increase in production. I'd say, you know, going forward that will probably remain the case. It's about
Speaker Change: pushing into higher production levels and being able to sustain them. You know, maintenance is a big thing, identifying preventative maintenance, being able to identify things before they
Speaker Change: before they break or risk creating any downtime. So I think that that's been kind of the most broad and significant contributor to the production levels increasing.
Speaker Change: Okay, great. Thank you. And then just a follow-up question on the cost front. You mentioned that, of course, as volume increases, that would benefit costs, but that you would look to optimize costs either on reagents and labor. Can you remind us of what percentage of your costs are coming from labor and reagents, if possible?
Speaker Change: So, yeah, I think reagents would be the most substantial part of our costs that
Speaker Change: You know, there is some kind of variability as the plant is kind of ramping up. I don't think we, you know, we're ready to provide you kind of a guidance and sort of those percentages that will come out.
Speaker Change: Next year we provide full guidance.
Speaker Change: I just want to say, I guess if you refer to our technical report
Speaker Change: that would give you an idea of those percentages. So reagents would be kind of 30, 40 percentage or so. But again, you know, it depends on the level of production and HIG will be in a better position to provide this.
Speaker Change: outlook early next year with our guidance.
Speaker Change: Sounds good, thank you. And just my final question, Sam, if I may. Just on the GM lockup that expired in October, do you have any color on that or have you had any conversation with them in terms of their ownership?
Speaker Change: Um
Speaker Change: Yeah, yeah, I mean we've maintained a dialogue with GM since the separation. Yeah, I mean the lock-up...
Speaker Change: is no longer in place. I think GM has, as you probably all know, been fairly focused on increasing their investments with Lithium Americas and SacrPass, but we have a good ongoing dialogue.
Speaker Change: I don't think we're in a position to speculate as to how they view their shares in Lithium Argentina from a strategic perspective, but we certainly have an ongoing and open dialogue with GM.
Speaker Change: And ladies and gentlemen, that concludes our question and answer session and this will conclude today's call. We thank you for your participation and you may now disconnect.
Speaker Change: Thanks for watching!