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: F O Raj area of machining.
Speaker Change: Executive Vice President Matthew deal and Vice President Investor Relations Irina Axa, Nova we will now turn the call over to the stigma James.
Speaker Change: Thank you Rob.
Speaker Change: Everyone.
Speaker Change: Thank you for joining us on our third quarter 2024 earnings conference call.
Speaker Change: On the call with me today are company's CEO and co chair person, Anna Cabral, CFO and CFO Rajiv Mckinney.
Speaker Change: Earlier. This morning, we published our <unk> press release and posted our financial results, which are available through both the SEC and SEDAR.
Speaker Change: 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.
Speaker Change: <unk> to the most comparable FRS 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.
Hi.
Hi, good morning, everyone well this quarter.
Speaker Change: <unk>.
Speaker Change: Production and low industry cost target, we generated robust free cash flow and we've demonstrated our operational resilience to lithium cycle.
Speaker Change: We also benefited from a shift in our commercial strategy, which helped us navigate industry seasonality and price volatility, enabling them to secure final higher average realized prices go see.
Speaker Change: Here too the prize pool it seen benchmark.
Speaker Change: 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 operation and financial resilience of our mature producer showing dependability and consistency.
Speaker Change: Meanwhile, we have vantage to deliver all of our climate and we reached net zero one year in advance of Hawkeye G. 27 years ahead of the industry with our principles zero Green lithium, which became a brand well, we're very confident that over the <unk>.
Speaker Change: They can cycle our capabilities to deliver on the execution of our strategy will lead to our long term value for Sigma.
Speaker Change: All of its stakeholders.
Speaker Change: So without further Ado I will.
Speaker Change: We initiated this presentation.
Speaker Change: Moving to the highlights of our quarter.
Speaker Change: Yeah.
Well.
Speaker Change: The operational aspect of our operations, we continue to deliver operational excellence, we firstly prefer to increase the cadence of quasi monthly volume to 22000 tons sold per month.
Speaker Change: We also managed to surpass third quarter production targets set initially at 60000 tonne, we've done better than our targets.
Speaker Change: We successfully executed a shifting commercial strategy that helped us weather seasonality, meaning we have seen higher realized prices the industry increased substantially our resilience to lithium.
More importantly, we keep on working hour one hour Greentech plant technology Professor yet we successfully concluded.
Speaker Change: Last one efficiency revolve, we talked about in our Investor day at the Investor Day, 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 plant.
Speaker Change: Quite a lot of pictures here of our construction sites.
Speaker Change: 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 with all onetime achievement. We go now 40 43 days without accidents.
Speaker Change: <unk> guided to.
Speaker Change: And if the euro 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 secret deliberate.
Daniel: Financial performance.
Daniel: The principal financial highlights that we have with.
Daniel: We find it to be in depth development loan agreement.
Fully funded construction of phase III.
Daniel: We maintain low Cif cash cost at 530 <unk>.
Daniel: Lowest quartile industry.
Daniel: Two to $4 5 million in generate operational cash flow.
Daniel: <unk> 5 million cash in the bank.
Daniel: Continue to lower interest rate of export credit right in line.
Daniel: <unk>, 9%.
Daniel: Okay.
Daniel: Okay.
Daniel: So we must be in person as efficient delivery operational performance targets.
Daniel: <unk> borrowings.
<unk> thousand 257 DNP.
It was 157 to 480 threes DMT cash costs.
Daniel: 449 portal.
Daniel: <unk> in China 113 portal.
Daniel: <unk> revenue.
Daniel: Four to $4 2 million operational cash flow $34 5 million cash in the bank.
Daniel: <unk>.
Daniel: $5 7 million provision.
Daniel: Provisional price adjustment $23 3 million.
Daniel: This provisional price adjustment.
Daniel: Final settlement, obviously, you open voice.
Daniel: And we create.
Daniel: Cash gross margin of 38%.
Daniel: Okay.
Daniel: I'll talk a bit about the superior industrial performer performance of our Green Tech industrial plant. So on production, we delivered on very very ambitious target. The strong performance of the plant basically achieved results that were never before achieved in <unk>.
Daniel: Basically it's a result of our unique <unk> technology. So we deliver production above target of 60237 dry metric tonnes. We achieved last Dms suite covering up seven 2%, which is a record for this type of technology and let you.
Daniel: And we achieved global recoveries of 55% demonstrating what we are going to say next by concluding the optimization project in record time, we are going to boost global recoveries to near the level of BMS recoveries by creating this.
Plant efficiency in this quarter and in all the quarters thereafter more importantly, we have this is going to allow us. These changes are going to allow us to reap profits.
<unk> basically.
Daniel: Likely dilute your walk side contained in the daily and you more lithium concentrate.
Daniel: Now, it's clear demonstration of operational readiness, our team managed to execute this shutdown.
Daniel: Only four days and implemented.
And installed all the equipment necessary for this optimization process. So the team is very ready to build one to you.
Daniel: Now I want to highlight here something that sometimes we miss.
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.
Daniel: Knowledge is what 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.
Daniel: Demonstrating that.
Daniel: When we saw total production.
Daniel: Cost at plant gate at $395 a ton.
$113 a ton come from the processing Dms cost.
Daniel: In fact, I want to use this points here to highlight another cost savings that will take place in the next quarter. We installed mobile crusher. This part of this optimization projects, which are temporary costs of $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: 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 and when you look at the <unk>.
Daniel: Fourth quarter, you have Dan our annualized sales volume.
Daniel: We are expecting to be able to continue on this trend and sell 60000 tons in.
Daniel: In the fourth quarter of this year.
Daniel: As we said.
This culture, the strong culture of safety <unk> processes.
Is what drives this operational excellence are key.
Daniel: <unk> works motivated knowing that we have the processes and the safety culture.
Wow 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.
Daniel: Achieving our FY <unk>, which is the index through which we calculate this 124, which is the second lowest in all of the ICM rankings among all of the global metals and mining companies some of them much bigger than ours.
Daniel: Okay.
Daniel: So we're talking about.
Daniel: Yes.
As I mentioned, we signed up in that low one transaction.
Daniel: This is very tough target.
Speaker Change: Target that'd be good.
Speaker Change: The total amount is $487 million debt finance, 99% of our capex exposure on phase III.
The first loan disbursement is pending bank guarantee.
Speaker Change: And.
Speaker Change: This design.
Reimburse capex expenses since one quarter of <unk> going forward.
Speaker Change: The third one.
Speaker Change: Good day maturity in 16 years, the grid parity is 18 months.
Speaker Change: Yes.
Speaker Change: Fixed rate.
Speaker Change: We do really.
Speaker Change: A good rate to five in dollar.
Speaker Change: 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.
Speaker Change: To finance our.
Speaker Change: Expansions.
Speaker Change: Unlike the U the cycling phase III lithium intermediate and others.
Speaker Change: Exploration that we are playing.
Speaker Change: Okay.
Speaker Change: So with that.
Speaker Change: We got confidence to continue to plow through and advance to our plant two construction.
Speaker Change: 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 <unk>.
Speaker Change: In something around two to three square kilometers year within our already licensed environmental areas. So we're executing earthworks and engineering according to plan exactly as flawed.
Speaker Change: Well moving onto costs 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.
Nathan: Thanks, Tim and cadence and consistency.
<unk> disciplined maintaining low cost is what actually demonstrate how resilient our company is to all of the lithium cycle.
Nathan: We're always going to be in the black.
Nathan: Now more importantly that execution discipline of keeping a lid on costs and maintaining low cost level.
Nathan: Generated positive cash flow in the third quarter. So again.
Nathan: 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.
Nathan: Positive cash flow generation is another data point about the resilience of our business. So we're looking seen these four charts.
Operational cash flow generated which was $34 5 million U S dollars. All the figures here are in U S dollars.
Nathan: In April after continue on delivering this earth works and our construction for phase II, Capex investment, which amounted to $5 million in the quarter.
Nathan: But more importantly, even allow us to repay some of the existing credit debit lines, because given the NDS, which signed an and.
Nathan: 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 a clear.
Speaker Change: Hi, all.
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 based.
Speaker Change: Basically up is very important dates because in the quarter, we managed to further adapt our commercial strategy.
Speaker Change: 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 lithium market seven now chaz analogy significantly strengthening our commercial position.
Speaker Change: And this is quantifiable household first graphically intuitively in a chart at the bottom delight great lines shows up.
Speaker Change: The benchmark fast market Spodumene Index Bulletin price index since the beginning of the year.
Speaker Change: In the thin bars here.
Where we priced our boats up with niche each shipment.
Speaker Change: So you can see it there by June as we switched and the <unk>.
Speaker Change: Our commercial strategy, we started a managed to price our boats.
Speaker Change: The <unk> market prices and we consistently met we consistently continue to achieve that throughout August then we were 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.
Yes.
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.
Speaker Change: Now in the summer seasonality.
The situation changed completely because seasonality typically that sort of fluctuates, a 25, 30%, 20% to 25% we inverted.
Speaker Change: Picked up all the above benchmark pricing seasonality, we reached 119% of the benchmark price seasonality, meaning chattering more value for our business.
Speaker Change: Now this change is quantifiable also.
Speaker Change: Mark to market up closing up some of these previous trades that we manage that we did in this quarter. So as a result of these changes in commercial strategy.
It also changed the way our commercial relationship with traders is conducted.
Speaker Change: Essentially we concluded this final accounting is a non cash settlement of sales new voices from the previous quarters, just turning a page on our way to do business that we no longer engaging given the robustness of our position today now this is important to understand.
Speaker Change: 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 traits.
Speaker Change: For this quarter, we just had the 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: And 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 this provisional prices that we've been booking marching 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.
Speaker Change: It's a function of how the fluctuations actually and how this significantly.
Speaker Change: Significant decrease in lithium prices in the fourth quarter.
Actually caused this mark to market of our open sale books.
Speaker Change: And therefore lead to about $20 million of the overall annual provisional price adjustments.
Speaker Change: Adjustments 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 higher.
Speaker Change: Higher financial prices achieved in the third quarter. So you can clearly see it and you can basically calculated back to our financials that in the third quarter, because we managed to up concentrate our resales through the traders are distributed.
Speaker Change: In both the winter seasonality in the fall restocking cycle, while we managed to achieve higher realized prices actually if you think about it just this week, we were managing to get pricing indications for $900 for the October ship had repriced at both.
When we shifted it would have been 750, which was the bulleting. So it's again.
Speaker Change: Data points that indicate that we have made the perfect pivot.
Speaker Change: And in our commercial strategy by increasing the control of our re sales.
Speaker Change: 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 detailed webex thing for them because we've talked about the cash generation. So up we went to bisect 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.
Speaker Change: The first.
Speaker Change: First element here is that the sales revenue for the quarter up before the non provisional price adjustments.
Speaker Change: Basically brought a positive inflow of $45 million. This 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: An interesting item that generated quite a lot of questions in the previous quarter, but where we are.
Speaker Change: Trading year now that it was basically mark to market.
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.
And so.
Speaker Change: The small volatility in fact here the currency is our.
Ally, because we have dollar revenues and we have emerging market currency denominated cost strides.
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 like <unk>.
Speaker Change: Tire 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 I would say this is because now we have the confidence that the Mds signed binding data. So essentially we won't need to keep this large.
<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 at.
Speaker Change: It's $65 6 million U S. Dollar 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: Of this $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, there's 10 million $8 here, which refer to the short portion of the long term debt with synergy capture when about 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.
Speaker Change: These consistent operational performance so essentially.
Speaker Change: For trade credit lines art.
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 has basically allowed us to have this robust access to.
Speaker Change: Export credit lines up facilities.
Speaker Change: Much improved interest rates because of this consistent operational performance. So at the bottom here, we actually break down our interest rate cost by stifle that facility. So you can see that our expert credit lines.
Speaker Change: The brand New <unk> guide one of our biggest export trade partners actually dumping effects, where trade partner is 5.5% in U S dollars fixed and that's incredibly attractive.
Speaker Change: We're all trade finance.
Speaker Change: <unk>.
Speaker Change: Domestic Brazilian market.
Speaker Change: <unk> of 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.
Speaker Change: Operational performance cadence.
Speaker Change: Just to recap the NDS that sits at a very comfortable two 5% to $60.
And then our current long term debt with the synergy captor, our various gene shareholder see it's at $12 three.
Speaker Change: <unk> percent for the 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.
Speaker Change: 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.
Speaker Change: <unk> again.
Speaker Change: So a quick recap here, we are expecting to reach a thousand.
Speaker Change: 1000, 100000 tons per year of <unk>.
Speaker Change: ELC equivalent production capacity by the end of 2006 and here we kind of.
Speaker Change: <unk> and <unk>.
Speaker Change: Downing 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.
Speaker Change: The metallurgical reduction of our own premium.
Lithium concentrates so we will get a bank on our own metallurgical premium pricing for our shareholders, which is in the order of 20% to 30%.
Speaker Change: Looking at this update so where are we whereas here up entering 2025. This is where we had we are completing we'd been at we're executing the piceance.
Speaker Change: <unk> 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 project and we have more pictures up from the book posted on online too.
Speaker Change: Showing the already cleared the area to prepare for earthworks stood out so basically we will clear in fourth.
Speaker Change: Phase III.
Speaker Change: As well.
Speaker Change: Each will be essentially.
Speaker Change: Approximately 30 35.
Speaker Change: Out of the 54000 tons over here.
Speaker Change: It's important to note is that that's not yet funded.
Speaker Change: Blue are the forces are not yet funded so.
Speaker Change: When we look at the.
Overall, when you look at the full on.
Speaker Change: When you look at the food on a capacity increase here.
Speaker Change: See that we are going to have a 105000 tons of lithium concentrate capacity.
Speaker Change: And then we're going to we plan to have 20000 tonnes of integrated chemical up literally mean through.
Speaker Change: <unk> sulfate capacity by 2027. So this is sort of how we are.
Set out our strategy.
Speaker Change: And we're going to execute it in the typical prudent and conservative way.
Speaker Change: That we've always done and this is what enabled us to deliver on these industrial facilities or <unk>.
Speaker Change: And on target and more importantly, with a financing structure that is conducive to the company's cash.
Speaker Change: The ration and repayment capability. So that discipline is what enabled us to get here and that discipline is what will enable us to get data.
Speaker Change: So my closing comments so over the year.
Speaker Change: 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 demonstrated that we're one of the most resilient up lithium companies to all the cycles.
Speaker Change: That is the result of the operational discipline, the low cost and obviously the industrial prowess to allow us to deliver this on a large scale. We have a phenomenal team we've got with value here, we have mapped the lag we have all of our.
Speaker Change: Technical General manager sitting on site. So we're very very proud of the commitment of our team.
Speaker Change: Just recapping what we've done.
Speaker Change: Nine months, how this ear Sn.
Speaker Change: Essentially we achieved a financially independent so we managed to basically.
Speaker Change: Basically adapt and strengthen our commercial strategy.
Speaker Change: We signed this transformative development bank loan we began building what we believe to be a lifelong partnership Prague.
Speaker Change: Progress in.
Speaker Change: In the lithium industry in Brazil, together with the NDS.
Speaker Change: 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.
Happening also last semester, we increased our mineral resources by 40% so demonstrating that we got an ample reservoir of mineral resources and mineral reserves should deliver on deep production capacity target, we just outlined on the previous page.
Again believe began phase two construction and achieved the cost guidance, we set out at the beginning of the year.
Speaker Change: One of the first conferences.
Speaker Change: 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. So what's next well is going to be boring now we gonna be executing on time on budget and we are planning to.
Have a phase two commissioning in the third initiate commissioning in the third quarter of 2025, so with that I close the presentation.
Speaker Change: And we move on.
Matt: Up to the Q&A, Matt answer you.
Matt: Okay.
Matt: Thanks, Dan.
Speaker Change: Rob we will pass it on the Q&A I think we have a few questions on the on the line that 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 to raise your hand and joined the queue. If you would 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.
Steve Byrne: From you.
Speaker Change: Converter customers.
And your spodumene is that interest level changing are they seeing increased interest does that flattish.
Speaker Change: Flipping.
Speaker Change: And is there a change here because of any any increased interest in your products because it has the.
Speaker Change: The processing, Danny shapes or is there a sense out there that.
Speaker Change: <unk> 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 say.
Speaker Change: Net realized pricing could go to from here in this quarter or next.
Speaker Change: Is there any inflection that you are seeing.
Speaker Change: No.
Speaker Change: Good questions.
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 sell.
But not only that it would always sell and you have seen as a source of blending material, whereas a source of <unk>.
Speaker Change: Gross margin by the tolling and the downstream or is that engaging tolling arrangement because that all gets metallurgical up premium is actually.
Speaker Change: Namely, 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 commercial vault policy strategy why because that is that is how.
Speaker Change: We managed to navigate this seasonality by essentially Organising, 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 gather our own data points on the ground of this switch in sentiment from the other element.
Speaker Change: That is there which is up a pickup in demand in China, given the mutual results after stimulus in the new energy vehicle industries in the Alco sales.
Speaker Change: Increase of 44% in September show that so 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 the 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.
Speaker Change: We got time to market perfectly obviously, but as we were just entering the period of restocking in the 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 but theyre more E.
Speaker Change: Truthfully interestingly as we held back part of.
Speaker Change: As the traders distributor was able to hold back part of part of the resale of the October.
Speaker Change: Just now this week, we've seen data points of $920 and again now we're learning. This is very easily triangulated with the G. Fast so this ability to actually navigate the seasonality meaning.
Speaker Change: Contrast that to us failing.
Speaker Change: 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.
Speaker Change: A benchmark indices showing at the time, so and we unfortunately experienced that vein.
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.
Speaker Change: Are you are you pursuing any increased interest in buying from your customers.
Speaker Change: Well I think.
Speaker Change: Theres, a deeper issue behind this and thats related to traceability.
Speaker Change: Lithium forced from artisanal mining illegal lithium and all that we've been.
Speaker Change: Watching in the markets this year.
Speaker Change: And as we all know the volume of the shaft capacity wasn't meaningful to actually have a real effect in the market.
Speaker Change: 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 are very efficient and then Latin America, and then Africa, but then you examine some of the supply that comes from Africa.
Speaker Change: That's all kids industrial lithium fair gain excellent lifting to people, but some of that supply is not traceable.
I think you had 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.
Speaker Change: Some of the car makers, they are very aligned with 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 development. So the real development here is now that the spotlight in the industry.
Speaker Change: Basically.
Speaker Change: Asking well do your employees were helmets iron ore mines traceable it did.
Speaker Change: Our teams are no are you ethically sourced your lithium which probably will displays.
Speaker Change: A much larger quantity from some of these material mined incomplete disregard to the 21st century and and the new era.
Speaker Change: Valuing the individual and 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: Want to 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 the 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 is expected to continue into the fourth quarter or are we kind of through the worst of it now.
No I mean, it would close out.
This open trades and we this is basically an accounting closeout of the trains.
Speaker Change: And.
Speaker Change: Actually you can see in the year to date up from them.
Speaker Change: Yes.
Yes, we can see in the 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 picture 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 do you feel like because its straight stayed open and they will be rolling into these commercial relationships and saddled with a preview.
Speaker Change: With a preview.
Speaker Change: With the cash.
Speaker Change: Portion of the previews.
Speaker Change: <unk> 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 of all these open trades up G to G III 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 bought you received and we were no longer rolling out into the subsequent boat to absorb either upward adjustment or negative cash adjustments.
Speaker Change: Can go through that in quite a lot of detail we view in a call we have.
Speaker Change: Page in the posted material online to kind of show that a massive network is very good work. If we allocate all of these these adjustments to each respective border you can clearly see.
Speaker Change: How they even each other out.
And so that.
Speaker Change: The trades are actually accurately marks in our book.
Speaker Change: Again this was a close out 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: <unk> done the markup.
Speaker Change: 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 where adult price directionally correct, because they seem to low as compared to the benchmark in December but as we.
Speaker Change: Oh, no the prices actually fell on the lower than the benchmark to capture throughout the fourth quarter. So.
Speaker Change: It was what it was so it took us a while because we were closely examining each one of those deliveries to be absolutely sure that that was the actual correct realized price.
Speaker Change: Got it.
Speaker Change: Maybe 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 more 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 for try 46 between 27%.
Speaker Change: Pretty soon.
Speaker Change: Well I mean, we have obviously quite a competitive advantage in now this <unk>.
Speaker Change: Development Bank relationship with the NDS, what Youre seeing in front of you with what we presented the NDS with as I can.
Speaker Change: Complete 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 funding 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 topics 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 as Brazilians right. So.
Speaker Change: That's one two plus three will be the same so our typical DMF green tax loss costs about that much a $100 million now the current infrastructure supports three line and this is why we highlight 105000 LTE right. That's.
Speaker Change: 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 is the substation, adding more transformers to power that Fort line that is not a whole lot more infrastructure that should be around 50.
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 brings the water the sewage water from the <unk>.
Speaker Change: Ticketing AOI to revert 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 power.
Speaker Change: Power.
Speaker Change: Now.
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 we're building quite cheaply in Brazil.
Speaker Change: In fact, we are looking to partner with the larger producers outside rotating kill equipment in China, which is used by all of our Raleigh, North Carolina and used by everyone around the world.
Speaker Change: In order to deliver this unit is quite simple.
Speaker Change: <unk> is a rotating kill and eight active leach active leach units. So forecasted Leach unit. So that's a positive mean acid leach lithium cell. So it's not all the way down to specialty chemicals now with that we plan to become the linchpin of our global Kevin.
Speaker Change: Two chemical supply chain, and perhaps making life easier stood out there.
Speaker Change: Northern hemisphere.
Speaker Change: For all of our potential customers that would want to set up a 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 App.
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 dash.
Speaker Change: We get the development bank financing.
Speaker Change: Their mindset is to finance.
Speaker Change: On the 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.
Speaker Change: 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 think into Q4.
Speaker Change: Should pricing be similar to Q3.
Speaker Change: When 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 some of the.
Speaker Change: Glencore stuff, but again for pricing can we think about it being similar to Q3 better worse.
Speaker Change: So far.
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 over the market oscillated, because it became very volatile.
Speaker Change: For a while in October but it's here can you just great Yep Yep.
Yes, there you go.
Speaker Change: So.
Speaker Change: Yes that is so you can see we're all seeing the same screen exactly. So this is this is third quarter and it's 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 does great work here at Sigma we're probably one of the few companies that could be delivering 6% without that much loss to volume, but because nobody else is and this is not appropriately priced clearly right.
Speaker Change: What we do Joe is we set our product to Australia and quality.
What we harvest what is <unk>.
What's been offered by our Australian peers, and what kind of grade they are offering in the market and we adjust our plant.
Speaker Change: Should that great because it's very easy to adjust that right <unk>.
Speaker Change: 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 of them 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 sales 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 <unk> 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.
Speaker Change: We've always we've tried to achieve decade, but what we what we.
Speaker Change: The real accomplishment as we harnessed our operational capabilities here and increase the performance excellence was to shorten.
Speaker Change: Space.
Speaker Change: Sure.
The number of days interval between each shipment so as we announced the shipment you can easily ascertain 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.
Speaker Change: 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 NDS expanding of the bank guarantees. So when he happens when we get the first actual cash in the banking.
Speaker Change: So that reimburses us for all of the Capex spend in arrears.
The moment, the NDS announced.
Speaker Change: Law, which was February nine of this year. So everything we spent in 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 for Capex 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 is.
Speaker Change: It's mostly real expenditures. So that's the numbers that we have incurred on to date on on the topics.
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 it'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 filing.
We have 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.
It's 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 were entirely reliant on our engineering contractors to actually deliver that constructive.
Speaker Change: That is the 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 of that will be executed in the very blunt one throughout the last 12 months in terms of implementing operational efficiencies.
Speaker Change: Francie, so, especially that project team has.
Speaker Change: Already being clearly demonstrating there.
Speaker Change: Credit wise to do some promise in this slide which sits in the pit in the filed material actually showed that we executed a full plant shutdown with two major pieces of equipment.
Speaker Change: Our scalable and commission in four days I mean.
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 plant with.
Speaker Change: <unk> executed over many months, but it was actually constructed in four days right. We got all the equipment side, 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 there's 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 discreet to upgrade deals refined circuits to improve the speed mix, so essentially optimization of capacity were.
Speaker Change: These like my kind of what have you so that we optimize our dms capacity to 230 tons an hour just probably 240 to 150000 now and here the same with magnetic separators, so you've seen them on the ground.
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.
Speaker Change: The iron oxide and also remove the ferrous silicon.
Speaker Change: And recycled ferrous silicon so well.
Speaker Change: We're very proud of the commitment and D. The prowess of our teams.
Speaker Change: Teams and particularly our industrial team.
Our final question comes from the line of Shannon Gil from Cormack Securities. Your line is open.
Thanks, very much guys.
Speaker Change: Just following on from Joe here can we expect.
Speaker Change: Increased recoveries in Q4 with the ongoing plant optimization and 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.
Speaker Change: We are indeed going to experience increase in global recoveries.
Speaker Change: And I want to take the opportunity.
Speaker Change: <unk> bye.
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.
Speaker Change: Concentrate.
Speaker Change: There are responsible for Pfizer are responsible for the difference.
Speaker Change: Into that Dms Green tax plant, 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.
Close to 60% or perhaps more in global recoveries, because what we've put here was a circuit that.
Speaker Change: In addition to optimizing the capacity of the DNS itself.
Speaker Change: Actually improved the recoveries of the lithium oxide in the ultra fine.
Speaker Change: One.
Then mobile crushers mobile crushers.
Speaker Change: It's 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.
Speaker Change: A local Brazilian supplier and the massive two weeks this crusher executed their tasks instead of having up the motor and the screen separate slide known each other.
Speaker Change: They're designed was one where the screens of Nomura with connected and they would slides together so any issues of screens would mean it would have to stop the pressure we've been dealing with it most of the year and then finally, we had enough of it decided to put in to mobile crushers in.
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 changed the way that flow.
Speaker Change: Yours 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.
Speaker Change: Operationally.
Speaker Change: Therefore, we expect the crusher to be annoying dandruff, 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 profitably to them like no. Other in the world. So we basically evolved this technology and we were getting stopped we lower production volumes because of the cros that it was kind of.
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 with the commission. 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.
Leslie Keating: That work, we have to do it again, so Leslie Keating.
Speaker Change: Capitalized.
Speaker Change: No.
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 underwritten 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 the 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 exam.
Speaker Change: Examining traceability of the products. So we believe that with the removal of quite of a lot of untraceable 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 you know 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 of their large the debit was 44% October is reaching 50% easy uptake is over 50%, which is a record number of China will be probably almost 60% of the global EV industry Baidu.
Speaker Change: By the next quarter or so is extremely healthy there what are the key recipients of the stimulus the various stimulus being directed the economies. So again, it's a message of sober cautious optimists entering into the fourth quarter.
Speaker Change: Thank you.
Speaker Change: This concludes today's conference call. Thank you for your participation you may now disconnect.
Speaker Change: Please wait the conference will begin shortly.
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