Q3 2024 Sigma Lithium Corp Earnings Call
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Good morning, everyone. My name is Rob and I will be your operator today welcome to the Sigma lithium third quarter 2024 earnings Conference call. Today's call is being recorded and is broadcast live on <unk> website.
On the call today is company CEO Anna Cabral.
Speaker Change: CFO Raj area on machining company Executive Vice President Matthew D O and Vice President Investor Relations Irina accident Elba, We will now turn the call over to the stigma James.
Speaker Change: Thank you Rob.
James: Good morning, everyone and thank you for joining us on our third quarter 2024 earnings conference call.
James: On the call with me today are company's CEO and co chairperson and Cabral, CFO and CFO Rajiv Mckinney.
James: Earlier. This morning, we published our <unk> press release and posted our financial results, which are available through both the SEC and SEDAR.
James: While we began I'd like to cover two items first during the presentation you will hear certain forward looking statements concerning our plans and expectations. We note that actual events or results could differ materially from changes in market conditions in our operations and Additionally earnings referenced in this presentation may exclude certain noncore and nonrecurring items reconciliations.
James: Patients to the most comparable IRS financial measures and other associated disclosures, including descriptions of adjustments can be found in the back of the release with that I will pass the call over to Alan.
James: Hi.
Alan: Hi, good morning, everyone well this quarter.
Alan: Steve.
Steve: <unk> and low industry cost target, we generated robust free cash flow and we've demonstrated our operational resilience to lithium cycle. We also benefited from a shift in our commercial strategy, which helped us navigate industry season.
Audi in price volatility, enabling us to secure final higher average realized prices compared to the price we will attain benchmark.
Steve: Over the last year, you've followed us on this journey and we are very proud to have transform sigma from any margin producer into this industry leader, demonstrating the operational and financial resilience, while the mature producer showing dependability and consistency.
Steve: Meanwhile, we have vantage to deliver.
Steve: Our climate goals and we reached net zero one year in advance of Hawkeye three to seven years ahead of the industry with our <unk> zero Green lithium, which became a brand well, we're very confident that over the lithium cycle our capabilities to deliver on the execution of our.
Steve: Our strategy will lead to our long term value for Sigma.
Steve: All of its stakeholders.
Steve: So without further Ado I will.
Steve: Initiate this presentation going through the highlights of our quarter.
Steve: Yeah.
Steve: Well on the operational aspects of our operations, we continue to deliver operational excellence. We first people further increase the cadence of quasi monthly volume to 22000 tons per month.
Steve: We also managed to surpass third quarter production targets set initially at 60000 tonne, we've done better than our targets.
Steve: We successfully executed a shifting commercial strategy that helped us weather seasonality, meaning we had seen higher realized prices.
Steve: History increased substantially our resilience.
Speaker Change: Lithium iqos.
Speaker Change: More importantly, we keep on working on our Green Tech plant technology perfecting it we successfully concluded.
Speaker Change: Last one efficiency resolved, we talked about in our Investor day.
Speaker Change: Yesterday, which has the potential to increase production by 10% to 15%.
Speaker Change: Just like we said.
Speaker Change: More importantly, we continue to advance the construction of the second line.
So quite a lot of pictures here of our construction sites.
I think more importantly to all of us.
Speaker Change: Partner employees, we created this culture of <unk>.
Speaker Change: Ownership and operational excellence, which continued to deliver in this zero accidents, we like without onetime achievement. We go now 40, 43 days without accidents with outwork Guy to look.
Speaker Change: And zero fatalities.
Speaker Change: Staying at the very top of the ICM and ranking.
Speaker Change: I'll pass it on now towards Daniel our CFO with monarch oil.
Daniel: So the sequence deliberate.
Financial performance.
Daniel: The principal financial highlights that we have we will.
We find it to be in depth development loan agreement.
Daniel: Fully funded construction of phase III.
We maintain low Cif cash cost at 530 <unk> low.
Sure Scott Tayo industry.
Daniel: Two to $4 5 million in generate operational cash flow.
Daniel: Six 5 million cash in the bank.
Daniel: Continue to lower interest rate of export credit right in line.
Daniel: <unk>, 9%.
Okay.
Yeah.
Daniel: Okay.
Daniel: So we went in Boston as accretion deliberate operational performance targets.
Daniel: Production volumes.
Daniel: <unk>.
Daniel: 207 DNP.
Daniel: Sales volume Pizza, seven 480, threes DMT cash costs.
Daniel: 449, Porto <unk>.
Daniel: <unk> in China 113 portal.
Daniel: Sales revenue.
Daniel: Four to $4 2 million operational cash flow $34 5 million cash in the bank.
<unk>.
Daniel: $5 7 million provision.
Daniel: Provisional price adjustment $23 3 million this provisional price adjustment.
Daniel: Final settlement, obviously, you opened voice.
Daniel: And we create.
Daniel: Had.
Daniel: Cash gross margin of 38%.
Daniel: Okay.
Daniel: I'll talk a bit about the superior industrial performer performance of our Greenback industrial plan. So on production we delivered on very very ambitious target. The strong performance of the plant basically achieved results that would never before achieved in <unk>.
Daniel: Basically it's a result of our unique <unk> technology. So we deliver production above targets of 60237 dry metric tonnes. We achieved last dms recovery of seven 2%, which is a record for this type of technology, let you.
Daniel: And we achieved global recoveries of 55% demonstrating will be going to say next by concluding the optimization project in record time, we are going to boost global recoveries to near the level of DMF recoveries by creating this.
Daniel: Plant efficiency in this quarter and you know the quarters thereafter more importantly, we have this is going to allow us. These changes are going to allow us to process.
Daniel: <unk> basically upside please delete your walk side contained in the daily and two more lithium concentrate now clear demonstration of operational readiness our team managed to execute this shutdown.
Daniel: Only four days and implemented.
Daniel: And installed all the equipment necessary for this optimization project.
Daniel: The team is very ready to build one to you.
Daniel: Now I want to highlight here something that sometimes we missed.
Daniel: We use a different technology than the rest of the industry, we use dense media separation versus flotation.
Daniel: Many reasons.
Daniel: Environmentally our technology together with the dry stacking doesn't create a tailings dam.
Daniel: Also importantly for our other stakeholders for our shareholders. This technologies will allow us in great part to achieve some of the lowest cost in the industry.
Daniel: As a result of the more.
Daniel: The simplicity of the processing of lithium that takes place in the Dms, so demonstrating that.
When we saw total production cost.
Daniel: Cost at plant gate at $395 a ton.
Daniel: $113. It does come from the processing Dms costs.
Daniel: In fact, when I use this points here to highlight another cost savings that will take place in the next quarter, we installed mobile crushers as part of this optimization projects, which are temporary costs. So $25 a ton are going to drop from this cost in the next quarter.
Daniel: Okay.
Daniel: So in the next slide is a demonstration of that operational performance.
Daniel: So we were able then to resume our trajectory of increasing production levels. So the increased production performance has also translated into higher sales volumes for the company as you can see here over the last.
Daniel: Five quarters up.
Speaker Change: When you look at the last four quarters, you have Dan our annualized sales volume.
Speaker Change: We are expecting to be able to continue on this trend and sell 60000 tons.
Speaker Change: In the fourth quarter of this year.
Speaker Change: As we said.
Speaker Change: This culture, the strong culture of safety <unk> processes.
Speaker Change: What drives this operational excellence.
Speaker Change: Our team works motivated knowing that we have the processes and the safety culture to allow them to return to their families safely every day. So again, we continued on our transit zero fatalities 443 days without lost time to accident or injury.
Speaker Change: Achieving our FY <unk>, which is the index through which we calculate this 124, which is the second lowest in.
Speaker Change: All of the ICM rankings, among all of the global metals and mining companies some of them much bigger than ours.
Speaker Change: Okay.
Speaker Change: So we are talking about.
Speaker Change: Yes.
Speaker Change: As I mentioned, we signed the industrial transaction.
Speaker Change: This is very targeted.
Speaker Change: Target that'd be good.
Speaker Change: The total amount is $487 million, that's fine us 99% of our Capex the exposure only device phase III.
Speaker Change: The first loan disbursement is pending bank guarantee.
Speaker Change: And.
This design will reimburse capex expenses since one quarter of <unk> going forward.
Speaker Change: This demand is.
Speaker Change: Good day maturity is 16 years, the Grace period is 18 months.
Speaker Change: Sure.
Speaker Change: Fixed rate.
Speaker Change: We do really.
Speaker Change: Good rate two five in dollar.
Speaker Change: And there is no requirement of collateral assets.
Speaker Change: So we've been deaths, we are raising our long term partnership for developing new funded through.
Speaker Change: To finance our.
Speaker Change: Expansions.
Speaker Change: Unlike the U of.
Speaker Change: <unk> phase III lithium intermediates and others.
Speaker Change: We are playing.
Speaker Change: Okay.
Speaker Change: So with that we got confidence to continue to plow through and advance to our plant two construction.
Speaker Change: So you can see the areas here and this is kind of a different picture than what we used to show.
Speaker Change: We used to showing yellow the plant and then in green the infrastructure. So now we kind of switched over the area. So that you can see the whole construction area to the left of the plants going all the way in in something around two to three square kilometers year within our already licensed environmental areas.
Speaker Change: Executing earthworks and engineering according to plan exactly as plants.
Speaker Change: Well moving on to cost target.
Speaker Change: Again, we delivered on all of our cost targets as always Nathan. This is because we have a very strict cost discipline here at Sigma. So we just maintained what we've always done and therefore, we remain as one of the lowest cash cost in the whole industry. So this actually this this.
And cadence and consistency and discipline and maintaining low cost is what actually demonstrate how resilient our company is to all the lithium cycle.
Speaker Change: We're always going to be in the black.
Speaker Change: Now more importantly that execution discipline of keeping a lid on costs and maintaining low cost level.
Speaker Change: <unk> generated positive cash flow in the third quarter. So again.
Speaker Change: We are we are weathering the floor, which happened in the third quarter of the lithium cycle. We just did another data point I mean this.
Speaker Change: Positive cash flow generation is another data point about the resilience of our business. So as you can see in these four charts.
Speaker Change: Operational cash flow generated which was $34 5 million U S dollars. All the figures here are in U S dollars.
Speaker Change: In April after continue on delivering this earthworks and a construction for phase II, capex investments, which amounted to $5 million in the quarter.
Speaker Change: But more importantly, even allow us to repay some of the existing credit debit lines because given.
Speaker Change: Given that the NDS with finding.
Speaker Change: And finally, we have now the confidence of not having to maintain such a large cash balance given though we're not planning to fund. This construction with upgraded credit lines anymore, even though those trades pretty light up kind of cheap. So we retired $40 million in export credit debit again in <unk>.
Speaker Change: Clear sign off.
Speaker Change: Cash flow generation and financial resilience, all the while though we still managed to maintain a very healthy cash balance during the year. So just for comparison purposes. We show the cash balance in December and then the cash balanced in September at the end of the third quarter.
Speaker Change: Now this base.
Speaker Change: Basically up is very important dates because in the quarter. We managed to further adapt our commercial strategy. So we visited from Sally to the trader as a principle to selling to the trader as a distributor. So again another data point that enabled us to weather the.
Speaker Change: Lithium market says enel <unk> significantly strengthening our commercial position.
Speaker Change: And this is quantifiable household first graphically intuitively in a chart at the bottom the like Great line shows the <unk>.
Speaker Change: The benchmark fast market Spodumene index right Bulletin price index since the beginning of the year and then in the bars here you can see.
Speaker Change: Where we priced our boats up with niche each shipment.
Speaker Change: So you can see it there by June as we switched and adapted our commercial strategy. We started a managed to price our both above the bullets in fact market prices and we consistently met we consistently continue to achieve that throughout August then we will.
We're able to push back the final say resale of the product by the traders are distributed all the way to the seasonality in October close in trading these purchases seasonably in again managing to price are both above the benchmark price.
Speaker Change: Now in the chart above you can see that in percentages and how these contracts. So what happened for example, during the winter seasonality and then the pickup in prices in the spring the changes quantifiable.
<unk>.
Speaker Change: In the winter seasonality, we were 25% below the benchmark index, because we didn't pick up that seasonality as we were basically selling to the trader and the trade. It was the principal he has full discretion on the resale.
Now in the summer seasonality up the situation changed completely because seasonality typically that sort of fluctuation 25, 30%, 20% to 25% we inverted. So we picked up all the above benchmark pricing seasonality, we reached 190.
10% of the benchmark price seasonality, meaning capturing more value for our business.
Now this change is quantifiable also.
Speaker Change: Mark to market up closing up some of these previous trade that we made that we did in this quarter. So as a result of these changes in commercial strategy.
Speaker Change: Also changed the way our commercial relationship with traders is conducted so essentially we concluded. This final accounting is a noncash settlement of sales new voices from the previous quarters, just turning a page on our way to do business that we no longer engaging.
Speaker Change: Given the robustness of our position today now this is important to understand our financial statements because when you look at the sales revenues booked update GAAP.
They have a provisional price adjustment, which is essentially the goals out of all of these trades.
Speaker Change: For this quarter.
Speaker Change: Just as a residual value of $7 7 million U S. Dollar from the trades up shipped in the fourth quarter of last year and did arrive this year.
Speaker Change: Then we have $15 $6 million from the trade shifts and arrived this year, but now when you look at the year to date, that's when you see how most of the overall effect of all of these provisional prices that we've been booking in marking our sales book to market throughout the year are concentrated in.
Speaker Change: The both the shift the boat downward shift in the fourth quarter of last year. So it's a function of how the fluctuations actually in houses.
Speaker Change: Significant decrease in lithium prices in the fourth quarter.
Speaker Change: Actually caused this mark to market of our open sale of books.
Speaker Change: And therefore lead to about $20 million of the overall annual provisional price.
Speaker Change: Adjustments.
Speaker Change: Over $29 million.
Speaker Change: Of the total so we can clearly see a concentration in the fourth quarter of 2023, but that basically concludes the way of doing business that way as you can see in how we are managing our commercial strategy in the present and going forward.
Speaker Change: Another data point on that is that this commercial assertiveness resulted in higher financial price.
Speaker Change: Higher financial prices achieved in the third quarter. So you can clearly see it and you can basically calculated back to our financial debt in the third quarter, because we manage to up.
Speaker Change: Gentry, our resales up through the traders are distributed.
Speaker Change: Both the winter seasonality in the fall restocking cycle, all we managed to achieve higher realized prices actually if you think about just this week, we were managing to get price indications for $900 for the October ship had repriced at both when we.
Speaker Change: Shifted it would have been 750, which was the bulleting. So it's again.
Speaker Change: Data points that indicate that we have made.
Speaker Change: Perfect.
Speaker Change: And in our commercial strategy by increasing the control of how our re sales.
But again this was just enabled by the change in the performance of our business, which drove us to obtain higher try to create a larger up trade finance credit lines.
Speaker Change: And therefore managed to have this sort of commercial control over our trading partners.
Speaker Change: This slide is a bit of a more details why working for them because we've talked about the cash generation. So up we went to dissect a bit how the cash position.
Speaker Change: How the cash position floated from the beginning of the quarter to the end of the quarter. So the first the first element here is that the sales revenue for the quarter up before the non provisional price adjustments.
Basically brought a positive $445 million that we had a working capital increase here of $56 million, but then within that there was a portion.
Speaker Change: From the collection of accounts receivables from the previous quarter. So netting it out we ended up with a 32 positive $1 million right.
Speaker Change: Hosting item that generated quite a lot of questions in the previous quarter, but where we are demonstrating year now that it was basically mark to market of curve.
Speaker Change: Currency, we just had a small foreign exchange fluctuation and again the results from the Brazilian real volatility given that our costs are in Brazilian reais, our revenues are in dollars.
Speaker Change: So.
Speaker Change: The small volatility in fact here the currency is our.
Speaker Change: Ally, because we have dollar revenues and we have emerging market currency denominated costs right.
Speaker Change: And I think lastly.
Speaker Change: You can see that this robust operational cash flow generated allowed us to basically up.
Speaker Change: Up retreated.
Speaker Change: Tired drawn button, but non use trade credits finance debt. So we just repaid $40 million in trade credit finance that and again tying back to what was that he was saying. This is because now we have the confidence that the Mds signed binding them. So essentially we won't need to keep this large.
Speaker Change: <unk> balanced strong draw straight lines in order to fund our construction in the next 12 months.
Speaker Change: Again. This is another slide just to reinforce our comfortable liquidity position.
Speaker Change: So you can see our cash position.
Speaker Change: It's 65 six.
<unk> dollars again, all numbers in this presentation are U S dollar.
Speaker Change: And then when you look at the short term that it offsets.
Speaker Change: The $59 2 million U S dollars, which our current short term trade lines, which are still in our balance sheet and we're actually gradually lowering that number as we advance.
Speaker Change: Towards the first disbursement with the NDS Theyre still million $8 here, which refer to the short portion of the long term debt with synergy capture one of our shareholders, which you can see here in the long term debt portion of the slide.
Speaker Change: More importantly.
Speaker Change: This slide demonstrates that we have robust access to liquidity and improved interest rates.
Speaker Change: Results from.
Speaker Change: Consistent operational performance so essentially.
Speaker Change: For trade credit lines.
Speaker Change: <unk>.
Speaker Change: Deliberate and assessed and evaluated by banks based on performance risk performance risk is the ability of the company to produce sell deliver the product X 40 every single month now as you've seen our production and sales changes now over five quarters.
Speaker Change: Over a year basically more than a year.
Speaker Change: It basically allowed us to have this robust access to export.
Speaker Change: Export credit lines facilities at much improved interest rates because of this consistent operational performance. So at the bottom here, we actually break down our interest rate cost by type of that facility. So you can see that our expert credit lines with us.
Speaker Change: The Brazil, Shanghai, one of our biggest export trade partners actually dumping effects, where trade partner in five and a half the sand in U S dollars fixed and that's incredibly attractive the.
Speaker Change: The overall trade finance indeed.
Speaker Change: Domestic Brazilian market, it's sitting at 9%, which again is a substantial decrease from the 15% where he used to be just at the beginning of this year. When we haven't yet established this one year long operational performance cadence.
Just to recap the MBS that sits at a very comfortable two 5% $60.
Speaker Change: And then our current long term debt with the synergy capture our various gene shareholder see it's at $12 three.
A percent for that current long term debt, which again is an extremely benign facility and we're very grateful percentage of capital for having delivered at this vote of confidence in December 2022 in order to commission our plant life.
And again speaking of that where we have it we're going to continue to deliver on our strategy. I mean again, we're low cost for generating operational cash flow, we managed to adjust our commercial strategy to navigate lithium cycle. So we are going to deliver on our strategy to increase production capacity.
Speaker Change: <unk> again.
Speaker Change: And so a quick recap here, we are expecting to reach a thousand.
100000 tons per year off.
Speaker Change: LTE equivalent production capacity by the end of 2006 and here we kind of.
Speaker Change: <unk>.
Breaking it down in block, how we're going to get there.
Speaker Change: More importantly, we are going to build 20000 tons equivalent of LTE of concentration capability to fully back integrate into a potential lithium sulfate chemical plant. This is a key part of our strategy if anything because it will be executed.
Judy: Judy the metallurgical reductions of our own premium.
Judy: Lithium concentrate so we will go to a bank on our own metallurgical premium pricing for our shareholders, which is in the order of 20% to 30%. So looking at this update so where are we whereas here entering 2025. This is where we had it.
Judy: We are completing that we're executing the plant two construction so that the capacity there in LTE equivalent is showing 34000 tons. Then we have the phase one which is delivering at 37000 tons equivalent now we continue on this construction.
Judy: And we have more pictures.
Judy: From the book posted on online to showing the already cleared the area to prepare for earthworks stood out so basically we will clear in fourth.
Judy: Phase III.
Judy: As well.
Judy: Which will be essentially.
Judy: Approximately 30 35000 tons out of the 54000 tons over here.
Judy: It's important to note is that that's not yet funded so the blue are the forces are not yet funded so.
When we look at the.
Judy: Overall, when you look at the full on.
Judy: When you look at the food on a capacity increase here.
Judy: See that we're going to have a 105000 tons of lithium concentrate capacity.
And then we're going to we plan to have 20000 tons of <unk>.
Judy: Integrated chemical literal meter.
Sophie: Sophie <unk>.
Bethany: Bethany by 2027, so this is sort of how we.
Bethany: Set out our strategy.
Bethany: We are going to execute it in the typical prudent and conservative way that we've always done and this is what enabled us to deliver on these.
Industrial facilities on budget and on target and more importantly, with a financing structure that is conducive to the company's.
Bethany: Cash generation and repayment capability. So that discipline is what enabled us to get here and that discipline is what will enable us to get there.
Bethany: Yeah.
Bethany: So my closing comments so over the year.
Bethany: Transform Sigma we're very proud of what we've built because we transform Sigma and we placed this company as a leading global lithium producer more importantly, we've demonstrated that we're one of the most resilient up lithium companies to all the cycle.
Bethany: That is the result of the operational discipline, the low cost and obviously the industrial prowess to allow us to deliver this when a large scale we have a phenomenal team we've got with value here, we have mapped the lag we have all of our.
Bethany: Technical general managers sitting on site. So we're very very proud of the commitment of our team.
Bethany: Just recapping what we've done in nine months this year.
Bethany: Essentially we achieved the financial independence, so we manage to.
Bethany: Basically adapt and strengthen our commercial strategy.
Bethany: We signed this transformative development bank loan we began building what we believe to be a lifelong partnership.
Bethany: Progress.
Bethany: In the lithium industry in Brazil, together with the NDS.
Bethany: Then we managed to declare a final investment decision on phase two and mobilized to deliver the Earth works for the construction engineering you can see are happening also last semester, we increased our mineral resources by 40% so demonstrating that we got an ample rather.
Bethany: War of mineral resources, and mineral reserves should deliver on deep production capacity target, we just outlined on the previous page.
Again, we'll begin phase two construction and achieved the cost guidance, we set out at the beginning of the year in.
Bethany: One of the first conferences.
Bethany: And we surprised the market in our ability to be disciplined and to get there given that at the time, our financials were still clutter from the commissioning expenses. What's next well is going to be boring now we gonna be executing on time on budget and we're planning to.
Bethany: Have a phase two commissioning in the third initiate commissioning in the third quarter of 2025, so with that I close the presentation.
Bethany: And we move on.
Speaker Change: To the Q&A, Matt answer you.
Matt: Thanks, Dan.
Rob we will pass it on the Q&A I think we have a few questions on the on our lines you'd like to start moving to the list.
Speaker Change: Thank you we will now begin the question and answer session. If you would like to ask a question. Please press star one on your telephone keypad you raise your hand and joined the queue if you'd like to withdraw your question simply press Star one again.
Speaker Change: Your first question today comes from the line of Steve Byrne from Bank of America. Your line is open.
Steve Byrne: Yes. Thank you.
Steve Byrne: A couple of questions really direct ticket your commercial team.
Steve Byrne: Are they proceeding any changes in interest level.
Speaker Change: From you.
Speaker Change: Converter customers.
Speaker Change: And your spodumene is that interest level changing are they seeing increased interest.
That issue.
Speaker Change: Flipping.
Speaker Change: And is there a change here because of any any increased interest in your products because it has the.
The processing, Danny shapes or is there a sense out there that.
Speaker Change: Playing demand maybe inflicting here.
Speaker Change: So question on that and then also how far out.
Speaker Change: Do you book orders is there.
Speaker Change: Anything there that you can comment on for us with respect to what you see.
Speaker Change: Net realized pricing could go to from here in this quarter or next.
Speaker Change: Are there any inflection that you are seeing.
Speaker Change: No very good question.
Speaker Change: The first the first question is.
Speaker Change: You hit the nail in the head here.
Speaker Change: As we now have basically a year of data points or at the time, we decided to make this change we had about six months of data points on the performance of our material with the customers. It became clear to us that because we haven't been able to fully monetize the metallurgical premium of our product our product.
Speaker Change: Always sale.
Speaker Change: But not only that it would always sell and you would see as a source of blending material, whereas a source of.
Speaker Change: Gross margin by the tolling and the downstream or is that engaging tolling arrangements because that all gets metallurgical up premium is actually.
Speaker Change: Enabling a 20% to 30% cost savings to the customers, which we're not priced in the product.
Speaker Change: We have that confidence that we would always be able to sell our entire cargo loads.
Speaker Change: With that phone confidence, we worry, but we decided to switch into what we call. The trader is distributed distributor of commercial vault policy strategy why because that is that is how we win.
Speaker Change: We managed to navigate this seasonality by essentially all.
Speaker Change: Nigel we did traded to resell the product just after seasonality, which ties back to your second question, we kept on thinking lawyers.
Speaker Change: Orders in the order book throughout the year and this is sort of how we get our own data points on the ground off this switch in sentiment from the other element.
Speaker Change: Is there which is up a pickup in demand in China, given the mutual result, after stimulus in the new energy vehicle industry.
Also sales.
Increase of 44% in September show that.
Speaker Change: Bye bye bye collecting orders throughout.
Speaker Change: The down cycle of the low of the summer and then answering in the fall and then throughout the fall we were able to ascertain up what what was the what was the change in sentiment directed that and that's very easily.
Speaker Change: Triangulated with a G fast.
Speaker Change: And therefore execute all the the trade extremely well basically.
Speaker Change: At once almost like within very few days of spacing out throughout some of those weeks in October.
Speaker Change: Now the second part of your question was also very important because as we were answering.
We can't time, the market perfectly obviously, but as we were just entering the period of restocking and this seasonality. The benchmark were showing 750, but we were able to collect orders and bulk trades at 820, 800, so a $70 per ton difference to benchmark, which is sizable right, but then.
Speaker Change: More interestingly interestingly as we held back part of it.
As the traders distributor was able to hold back part of part of the resale of the October cargo.
Speaker Change: Just now this week, we've seen data points of $920 and again now we learned this very easily triangulated with the <unk>. So this ability to actually navigate the seasonality meaning.
Speaker Change: Contrast that to us failing.
This shipment.
Speaker Change: On the water throughout the us.
Speaker Change: The summer low cycle, we probably would have had shipments price of $700, which were some of these.
Our benchmark indices showing at the time, so we unfortunately experienced ethane.
Speaker Change: Earlier in the year, because our trader was the principal so we didn't have the ability to co control final retail decisions.
Speaker Change: With the relationship change into greater as distributors. So we're very proud of what we achieved but again it took us months.
Speaker Change: It took us a few months.
Speaker Change: Of being actively in the market, having our commercial team we have commercial people in China now to be able to gather what we believe is a pretty good reading.
Speaker Change: Off the market dynamics.
Speaker Change: Asia.
Speaker Change: And then maybe just one follow up on that.
Speaker Change: Shuttered capacity in Australia recently are you holding back again.
Are you pursuing any increased interest in buying from your customers.
Speaker Change: Well I think.
Speaker Change: There is a deeper issue behind this.
Speaker Change: And that's related to traceability.
Speaker Change: Lithium sourced from artisanal mining illegal lithium and all that we've been.
Watching in the markets this year.
Speaker Change: Uh huh.
Speaker Change: As we all know the volume of the shut capacity wasn't meaningful to actually have a real effect in the market you had a psychological effect in the market because it kind of demonstrated that some of the mines and higher cost jurisdictions are not economic at current lithium prices.
Speaker Change: But that leads to the question of who is economic and current lithium prices and essentially when you run the math you have the two large scale producers in Australia. There are economical because they have the scale and they're very efficient and then Latin America, and then Africa, but then you examine some of the supply that comes from.
Speaker Change: Africa, that's okay industrial lithium fair gain excellent lifting to people, but some of that supply is not traceable.
Speaker Change: I think the market that the real market dynamics, we are experiencing.
Speaker Change: On the ground in the industry. This quarter is there any increased scrutiny over the source.
Speaker Change: Raw materials off that chemical and some of the car makers. They are very aligned to sustainability and ESG practices, I actually leading that charge charge with their supply chain. So we've been seen joined the procurement initiatives between battery makers.
Speaker Change: Makers are clients right, we think quite a lot of interesting developments.
The real development here is now that the spot lighting industry basically.
Speaker Change: Basically.
Speaker Change: Asking well do your employees were helmets iron ore mines traceable.
Speaker Change: Our seasonal are you ethically sourced a year led to which probably will displace.
Speaker Change: A much larger quantity from some of these materials mind incomplete disregard to the 21st century and and the new era.
Speaker Change: Value, we deemed residual in valley valuing human beings that we see.
Speaker Change: Taking place in the century.
Speaker Change: Your next question comes from the line of Katy La Chapelle from Canaccord Genuity. Your line is open.
Speaker Change: Hi, Anna Congrats on a good operational quarter.
Speaker Change: I understand the provisional pricing adjustment a little bit more of this quarter. It was quite a bit higher than what I was expecting.
Speaker Change: I noticed in your prepared remarks, you stated that it was related to a shipment from Q4, so I'm just trying to understand.
Speaker Change: Why such a significant delay like why was this only being reported now in Q3, and then going forward or any of these adjustments are expected to continue into the fourth quarter or are we kind of through the worst of it now.
Speaker Change: No I mean, it would close out.
Speaker Change: This opened trades and we this is basically an accounting closeout of the trains.
Speaker Change: And essentially you can see in the year to date up.
Speaker Change: Yes.
Speaker Change: Yes, we can see in utilities, that's why we did year to date every quarter. We've been getting this question is about this provisional price adjustments. So I'll start with the victory in the year to date as you can see here.
Speaker Change: Basically most of it is related to the fourth quarter of last year right. So 19 $20 million of the 29 is related to the fourth quarter last year. So why did they like it because its straight stayed open and they will be rolling into these commercial relationships and saddled with the previews.
Speaker Change: With a preview.
Speaker Change: The cash.
Speaker Change: Portion of the previews.
Speaker Change: Shipments as we change the contract and changed the commercial relationships completely we just closed out this in our books.
Speaker Change: Essentially what we're showing here is basically the complete closeout. The vote is open trades up G to decrease due for basically all the.
Speaker Change: Tracy.
Speaker Change: The six boats.
Speaker Change: All the way from the fourth quarter and the first quarter closeout complete completely on an accounting basis, right. So and interestingly enough. This closeout generated a positive cash inflow of $7 million.
Speaker Change: $7 million because that was the remained unpaid portion of those trades that actually we got to receive and we were no longer rolling out into the subsequent both to absorb either upward adjustment or negative cash adjustments. We can go through that in quite a lot of detail we view in a call we.
Speaker Change: A page in our posted materials online to kind of show that a massive network is very good work. If we allocate all of these these adjustments to each respective quarter you can clearly see how.
Speaker Change: How they even each other out.
Speaker Change: And so that.
Speaker Change: The trades are actually accurately Martin our book.
Speaker Change: And again this was a closeout of all the open book trades right. So.
Speaker Change: Mostly related to the fourth quarter now why the fourth quarter, because that's when the price dropped precipitously.
Speaker Change: We had done the markup.
Speaker Change: He had been we suffered the cash hit throughout the year, but then the accounting book given that this both got shipped in the first quarter, we were evaluating whether adults price directionally correct, because they seem to low as compared to the benchmark in December but as.
Speaker Change: We all know the prices actually fell lower than the benchmark to capture throughout the fourth quarter. So.
It was what it was so it took us a while because we will closely examine each one of those deliveries to be absolutely sure that that was the actual correct realized price.
Speaker Change: Got it.
Speaker Change: A follow up question I, just want to pivot a bit too to phase three and four you are talking about.
Speaker Change: Those expansions lore I know, it's still early days, but how are you thinking about maybe the capital cost for both of those.
Speaker Change: Or how youre thinking about funding those cars.
Speaker Change: We are sitting almost in 2025 to 246 between 27% pretty soon.
Speaker Change: I mean, we have <unk>.
Speaker Change: Usually quite a competitive advantage in now.
Speaker Change: Development Bank relationship would be India, what you're seeing in front of you with what we presented the NDS with as our.
Speaker Change: Please industrial developments launch.
Speaker Change: Industrial development plans for <unk>.
Speaker Change: Processing lithium and for aggregating even more value to lithium in Brazil, delivering the lithium chemical so they've been an incredible partner for Sigma and so essentially the way we see the Sunday well first the amount of funding as you recall and we posted a slide again.
Speaker Change: Online it's more of the same we're going to build a third plant exactly like the second which is exactly like the first mine was the infrastructure.
Speaker Change: Looking at the the final Opex for this second plant is going to cost us around 98 million 95 million U S dollar depending on the BRL rate, which works to our favor because about 70% of the equipment is actually nationalize this Brazilian right. So.
That's one two plus three will be the same so our typical DMF green tax loss costs about that much of a $100 million now the current infrastructure supports three lines and this is why we highlight 105000 LTE right. That's.
What's built in infrastructure on side well in order to build a fourth concentrator there what else do we need to do well, we need to add capacity in there.
Speaker Change: The water treatment area and in the substation, adding more transformers to power the fort like that is not a whole lot more infrastructure that should be around.
Speaker Change: $15 million to $20 million in infrastructure versus the 50 million U S dollars and infrastructure that we spent to put it all there why because the industrial side to prepare the what the pipeline that brings the water the.
Speaker Change: Sewage water from the <unk> River to site is already there is a 60 kilometer pipeline all of it is there and that takes care of a fourth unit, but operationally, we need more water treatment capacity and we need more.
Speaker Change: Now the <unk>.
Speaker Change: Intermediate lithium chemical we Havent concluded the studies, so we will be talking about the Capex. There was to conclude the study, but again I will advance that we will done we'll do this the Sigma way, which is the China way, we've demonstrated that with building quite cheaply in Brazil.
In fact, we are looking to partner with the larger producer of Cal side rotating kill equipment in China, which is used by all of our Raleigh, North Carolina and used by everyone around the world in order to deliver this unit.
Speaker Change: It's simple.
Speaker Change: Rotating Q and a assay leach.
Speaker Change: Acid Leach units, so forecasted Leach unit.
Speaker Change: That's a positive mean acid leach lithium itself. So it's not all the way down to specialty chemicals now with that we plan to become the linchpin of our global chemical to chemical supply chain, and perhaps making life easier stood out.
Speaker Change: The northern Hemisphere.
Speaker Change: For all of our potential customers that would want to set up specialty chemicals in their own territories will be shipping chemicals.
Speaker Change: We will be up cycling the waste here in our cement industries in Brazil, So zero waste.
Speaker Change: And therefore, we ship a clean up chemical materials and they don't have to deal with the waste generated in this reduction process, which is why March is 12 tons of waste per ton of chemicals.
Speaker Change: Not to belabor. This because again, we will release more details on the study, but I think just to address the goal is to not compete against China.
Speaker Change: And the carbonate or hydroxide markets given given what we see is a highly subsidized.
Speaker Change: Business Theyre in pretty competitive margins. Our goal is to still sell into that market and bank. What we think is the value in use we have domestically as well as the local economics, sorry Ana.
Speaker Change: <unk> China in fact, the lithium what's best for this strategic decision was that we received significant interest from our.
Speaker Change: Our clients in China, because I think the Cherry on top is that we can deliver negative carbon lithium sulfate to China, so perhaps it could even enable zero carbon lithium.
Speaker Change: Cognizant chemicals in China and help the carbonize the entire lithium supply chain. So again interest from everywhere. We are here to deliver a product that's going to be globally competitive half. The market is China half. The market is the rest of the world So combative or isn't something we're doing.
Speaker Change: A part of the market it is again like our.
Speaker Change: Lithium oxide concentrates is a globally competitive up a product and a that we get the development bank financing.
Speaker Change: Their mindset is to finance or.
Speaker Change: We call the industrial champion the Brazilians Brazilian winning companies that actually are gaining market share and positioning Brazil globally in key export industries in this case critical minerals lithium.
Our next question comes from the line of Joel Jackson from BMO. Your line is open.
Joel Jackson: Good morning, everyone I'm going to ask a few questions one by one if that's okay.
Speaker Change: Just maybe following up on Casey's question.
Speaker Change: So if we think into Q4.
Speaker Change: Should pricing be similar to Q3 can I think about <unk> given production. So can I think about read and costs being similar.
Speaker Change: And you said you've closed out.
Speaker Change: Glenn close stuff, but again for pricing can we think about it being similar to Q3 better worse.
Speaker Change: Sure.
Speaker Change: This is this is this is basically third quarter you can see on the screen.
Speaker Change: So we actually booked final trades at 820.
Speaker Change: We will go over the market oscillated, because it became very volatile.
For a while in October but it's here can you just great Yep Yep.
Speaker Change: Yes, there you go.
Speaker Change: So.
Speaker Change: Yes that is so you can see <unk> screen exactly. So this is this is third quarter pretty close refinery in fact, a 20th of trade we booked final.
Speaker Change: So you're going to get the same ballpark.
Speaker Change: And we are showing you the great adjustment as well.
Speaker Change: So from it's from 6% to five 2%. So that's kind of the question now right. So essentially how this great work here at Sigma we're probably one of the few companies that could be delivering 6% without that much loss to volume spot because nobody else is and this is not appropriately priced to clear the right.
Joel Jackson: What we do Joe is we set our product to Australia and quality.
Joel Jackson: We harvest what is.
Joel Jackson: What's been offered by our Australian peers, and what kind of grade they are offering in the market.
Adjust our plant.
Joel Jackson: Now to that great because it's very easy to adjust that right <unk>.
Joel Jackson: Hardest to adjust up so that we benefit from a red explanation of increasing volumes when when we when we when we conduct that process or bank debt over inventory.
Speaker Change: Okay. That's helpful. And then a couple of questions. So I wanted to ask about production of phase one and then thinking about phase two so I'll ask a couple of questions at once here. So as recently as a few quarters or a quarter ago Youre really talking about 2000 2000 ton production run rate now you felt into 20000 tonnes.
Speaker Change: So 20000, a month now you've seen that you sell the 20000 amongst the first part of the question is what's kind of change between the 22 to 2020 and the second part of the question is I think you've maybe made a big contractor changed for phase two to talk about that it seems like you expect very little Capex on phase two in Q3, so talk about the contractor changed how much capex you.
Speaker Change: Spent on phase II, so far you've been October November so a couple of questions there sorry.
Speaker Change: Well, let me talk about the production for 60000 as guidance.
Speaker Change: Because essentially we conducted our efficiency project this quarter. So we're.
Speaker Change: We're hoping to guide and beat guidance again.
Speaker Change: But the cadence of 22000 is actually very good it's a great observation.
We've always we've tried to achieve decade, but what we what we.
Speaker Change: The real accomplishment as we harness our operational capabilities here and increase the performance excellence was to shorten.
Speaker Change: Space.
Speaker Change: Sure.
Speaker Change: The number of days interval between each shipment so as we announced the shipment you can easily Astro thing that by looking at the announcements they became shorter and shorter in now they're close to 30 day cadence right. So this kind of gives you an indication of where we go meaning we're shipping 22.
Speaker Change: Every month, so multiply by 12, that's it.
Speaker Change: As we haven't done that throughout the whole year, so, we basically guiding and hoping to be guidance, but ultimately here is debt free.
Speaker Change: Frequency decrease.
Speaker Change: The same volume that is actually the real accomplishment because with that we are increasing the total quarterly production.
Speaker Change: So that was your first question then your second question is about phase two so we were planning to publish a more comprehensive update on phase two shortly and that will have the capex the.
Speaker Change: The Capex disbursed total for the phase II, but we estimate now that we have the first be Mds disbursement indefinitely important points <unk> made that I'm going to reiterate the first is both loved the Mds expanding of the bank guarantees. So when he happens when we get the first actual cash into banking.
Speaker Change: So that reimburses us for all of the Capex spend in arrears.
Speaker Change: The moment <unk> announced.
Speaker Change: Law, which was February nine of this year. So everything we are spending capex crude out get reimbursed at once in that first disbursement by the India. So it gives us sort of a boost because we've been using some of the cash generated to pay four topics for instance, this quarter.
Speaker Change: <unk> was $5 million, but then we kind of get to recoup death at once as a boost of cash inflow, we estimate now that fit.
Speaker Change: Probably close to $25 million and again, there are fluctuations here because of the devaluation of the real currency right, but just to give you guys. A number in dollars you should be around $20 million to $25 million right.
Speaker Change: And again.
Speaker Change: It's mostly real expenditures. So that's the numbers that we have incurred on to date on on the topics.
Speaker Change: The third question was around the contractual change in in phase two and what have you. It wasn't really a change what we've done and that's a very good question too because we wanted to clarify that point. We've maintained the same engineering company DRA that actually works on our filed feasibility study in <unk>.
Speaker Change: During the 43, 101, which we will be updating us together with the annual filings.
Speaker Change: We haven't changed and that was a significant change but it is a natural change is the way we want to manage that construction because in the phase one construction, we relied on a local engineering company we are.
For safety for local management local engineers for basically running construction because we didn't have a construction team in house or project management capabilities in house.
Speaker Change: Or much of that so we weren't entirely reliant on our engineering contractors to actually deliver that constructive.
Speaker Change: That is the change.
Speaker Change: This constructor is being done in house, we've our team we've all personnel because we have probably one of the best project teams in the whole industry based on all that.
Speaker Change: Executed in the very blunt one throughout the last 12 months in terms of implementing operational efficiencies, so, especially that project team has.
Speaker Change: Already being clearly demonstrating there.
Speaker Change: Credit wise to do some problems in this slide which sits in the pit in the filed material actually showed that we executed a full.
Speaker Change: Plants shut down with two major pieces of equipment.
Speaker Change: Our scalable and commission four days.
Speaker Change: And I, even put here what the plan was and the real was and we were having like three three daily calls with the team to kind of follow the progress of how this was being executed but essentially that we called the efficiency project for the Green tax plus.
He has been executed over many months, but it was actually constructed in four days right. We got all the equipment to site. We got it already we shut down the plant for the equipment up it was marvellous to see how well oiled machine, we have in terms of our <unk>.
Speaker Change: Maintenance teams project management all of it right. So in fact, the results of that I'm going to reiterate.
Speaker Change: We're already partly reflected.
Speaker Change: In third quarter, but it is going to be mainly reflected now in the fourth quarter and that will that will be a.
Speaker Change: Potential increasing production of another 10% to 15% and another picture just to show that and I really want to show the pictures. So you'll see here the screens on the ground.
Speaker Change: Three days later, they were up and running.
Speaker Change: This is discrete to upgrade deals refined circuitry improve the speed mix, so essentially optimization of capacity were.
Speaker Change: He's like my time, while I have you so that we optimize our DMF capacity to 230 tons an hour just probably 240 to 150 tonnes an hour and you hear the same with magnetic separators, so you've seen them on the ground.
Speaker Change: Literally in three days, they were up and running which is for all of you who know magnetic separators is an incredible accomplishment from our industrial team. So again the purpose here is to clear out again up.
Speaker Change: The iron oxide and also remove the ferrous silicon.
Speaker Change: And recycled ferrous silicon so.
Speaker Change: We're very proud of the commitment and the the prowess of our teams and particularly our industrial team.
Speaker Change: Our final question comes from the line of Shannon Gil from Cormack Securities. Your line is open.
Shannon Gil: Thanks, very much guys.
Just following on from Joe here can we expect.
Shannon Gil: Increased recoveries in Q4 with the ongoing plant optimization and.
Shannon Gil: In Q1 of next year as you move from using mobile crushers to fully optimize phase one plant crusher can we expect continued recovery increases can you just speak to recovery there.
Speaker Change: Absolutely. So you made two excellent questions and I want to bring this points back again.
Speaker Change: Essentially.
We are indeed going to experience increase in global recoveries.
Speaker Change: And I want to take the opportunity to clarify.
Speaker Change: Salad tandem is understanding about our plant recoveries I mean, we're basically getting to plant recoveries in a dense media separation. There are that is the highest in the world. This is never ever been achieved at seven 2% of Dms recoveries, but then you look at our global recoveries, meaning total recovery.
Speaker Change: It's 55% so that gap is up for grabs.
Speaker Change: Opportunity for operational improvement, how so by managing to reprocess and to treat and concentrate the fines.
Speaker Change: There are responsible ultra Pfizer are responsible for this difference.
Into that Dms Green tax land.
Speaker Change: We have two projects that we are planning to achieve that the first one we just execution executed. So absolutely. Yes. That's the answer we expect these recoveries to kind of reach brief close to 60% or perhaps more in global recoveries, because what we've put here.
Speaker Change: <unk> was a circuit that.
Speaker Change: In addition to optimizing the capacity of the DMF itself will actually improve the recoveries of the lithium oxide in the ultra fine.
Speaker Change: One.
Speaker Change: Then mobile crushers mobile crushers was a different matter what happened to mobile crushers. It wasn't design engineering.
Speaker Change: Change in other words, we.
Speaker Change: We contracted a move out crushers in it we are.
Speaker Change: A local Brazilian supplier and the method through which this crusher executed their tasks instead of having up the motor and the screen separate slides on each other.
They're designed was one where the screens of Nomura was connected and they would slides together so any issues of screens would mean it would have to stop the crusher, we've been dealing with it most of the years and then finally, we had enough of it decided to put in to mobile crushers in op.
Speaker Change: In June and July to basically pick up the balance of our main crushers. So that we would run our crusher at a lower capacity and then change the way that flow.
Speaker Change: In other words, we went to the original parts manufacturer in South Africa called Viva <unk>, and we're getting the new search than you.
Speaker Change: The new circuit, where screens a motor vibrate separately, so that the crusher is more resilience.
Operationally.
Speaker Change: Therefore, we expect the crusher to be annoying hindrance, because again, we have this incredible dense media separation green tax law, and we're having issues with the crusher, which is kind of basis is the most basic part of our circuit. So think about it we fixed the module three the dry stacking which doesn't.
Speaker Change: Existing the industry that was last year, then we perfected the dense media separation to process lithium like no. Other in the world. So we basically evolved this technology and we were getting stopped we lower production volumes because of the crossover was kind of.
Speaker Change: You know Sam right. So we decided to tackle it at once and essentially put mobile crushers, which figure temporarily so theyre costing an extra $25 a ton, but then in December we commissioned the first and then in February we decommissioned the second build a nice stockpile to actually change that.
Speaker Change: Crusher flow sheet.
Speaker Change: I'd say one more thing.
Speaker Change: Changes comes back on.
Speaker Change: On phase II.
Speaker Change: All of this investment all of this work will come.
I believe that work we have to do again, so Leslie Keating.
Speaker Change: Capitalized.
Speaker Change: No.
Rob: Great. Thanks. Thank you that was it Rob if you want to and if you want to make any closing comments.
No again I want to thank you for your trust for your confidence for believing in us executing through.
Speaker Change: Doug the lithium market ebbs and flows.
Speaker Change: We demonstrated we are one of the most resilient businesses in the industry. We're in the low cost environment. This has now been re.
Speaker Change: Under written by some of our co op co Packer tourists in other parts of the World, which we're all welcoming here in Brazil. So.
Speaker Change: Again, I want to leave the quarter call, we've a message of what we call sober.
Speaker Change: Optimism because one thing for sure. We recently reached a floor given that so much of the traceable compliance production of lithium is not profitable at these levels. We are but unfortunately, most of the production of traceable material is it and the industry is clearly.
Speaker Change: You know increasing the game raising the game on procurement and.
Speaker Change: And focusing on examining.
Speaker Change: Examining traceability of the products. So we believe that with the removal of quite of a lot of and traceable material, mainly coming from Africa, we're going to see we saw the floor being placed in the industry and we're going to see us.
Speaker Change: A decent here in 2025, and I think from there as you can see that in demand.
Speaker Change: The dynamics is there China has been posting very very robust.
Speaker Change: EV growth numbers for a market that large and with the penetration that large the debit was 44% October is reaching 50% easy uptake is over 50%, which is a record number China will be probably almost 60% of the global EV industry by the next quarter or so is extremely.
Speaker Change: Healthy there what are the key recipients of the stimulus the various stimulus being directed the economy. So again, it's a message of sober cautious optimists entering into the fourth quarter.
Speaker Change: Thank you.
This concludes today's conference call. Thank you for your participation you may now disconnect.
Speaker Change: Please wait the conference will begin shortly.
Speaker Change: Okay.
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