Sigma Lithium Q3 2023 Earnings Call Transcript

Quartr
Provided by Quartr
November 15, 2023

There are 4 speakers on the call.

Operator

Good day, everyone. Welcome to Sigma Lithium's Third Quarter 2023 Earnings Conference Call. Today's call is being recorded and is broadcast live on Sigma's website. All participants will be in listen only mode. For those on the phone, there will be an opportunity to ask questions.

Operator

Please note this event is being recorded. I would now like to turn the conference over to Matthew Deo, Executive Vice President of Corporate Affairs and Strategic Development at Sigma. Please go ahead.

Speaker 1

Thank you, Jason. Good morning, everyone. Thank you for joining us on our 3Q earnings call. On the call with me today is company CEO, Anna Cabral. This morning, before the market opened and really actually last night, we posted our 3Q financial results as well as SEC filings.

Speaker 1

Before we begin, I'd like to cover 2 items. First, during the presentation, you'll 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 and our operations. And Earnings referenced in this presentation may exclude certain non core and non recurring items. Reconciliations to the most Comparable GAAP financial measures and other associated disclosures, including descriptions of adjustments can be found in the back of the release.

Speaker 1

With that, I will pass the call over to Anna. Anna?

Speaker 2

Yes. Hi, everyone. Thank you, Matt. Well, first of all, it's a pleasure To be here with all of you to present our Q3 2023 financials, we are delighted to present you our Very first operational quarter and we are profitable right at the onset. So with that, I'll go straight into The first page with the operational highlights.

Speaker 2

Well, we're now a large producer. We are forced for good in the lithium industry. And we basically achieved what may be impossible. We are delivering 0 carbons, 0 things, Lithium produced without toxic chemicals, we have basically been producing the very best product In the lithium industry as far as concentrate, we have always managed to do that delivering a very successful ramp up. As you can see, our Greentech plant has reached 90% throughput.

Speaker 2

We've been consistently shipping monthly 20,000 tons Off the Triple 0 Green Bison concentrate, our 4th shipment is expected by the end of November, which is going to be sized minimum 20,000 ton. It goes to Glencore. In fact, on that, I just came back from almost 2 weeks In China, Shendu, all over where we ascertained on the ground the fantastic receptivity of our products as far as Behavior throughout the refining, we'll talk a lot more about that. As a result, we are moving forward with a detailed For the expansion, I mean there's not enough of this material to supply the demand for what we are Bringing as value added. So the selection that the design engineering comes on is connected to the strategic review conclusion.

Speaker 2

Depending on the Strategic review partner of choice or winner of choice, we're going to select an engineering company. But we're going ahead of the because we can basically sell every gram of this product. And there's more. There's going to be a lot more of this lithium. We have also delivered in this quarter a substantial potential increase of the mineral resource.

Speaker 2

We got Phase 4 That's going to be approximately 30,000,000 tons and then a Phase V for another approximately 20,000,000 tons. So we expect Sigma's Total mineral resource all the way to phases 1 to 5 to reach 130,000,000 tons. With that, I'll move to the next page, financial highlights. Every financial target has been We are profitable on the 1st operating quarter, which means That we have an incredible degree of operational efficiency and discipline. We are the 2nd lowest cost producer of lithium concentrate globally, which means we will Thrive in any price environment for lithium.

Speaker 2

And that is the key message of these financials. We crystallizing our position as 2nd lowest cost producer of lithium concentrate. And that's the result of tremendous financial discipline. I mean, we are profitable And we also have a superior product. I mean we do things that no one else does such as Not having a tailing dam, and we deliver a 0 carbon lithium.

Speaker 2

And despite that, we are profitable And we are low cost. This basically demonstrates our resilience To the lithium cycles, we're going to strive in any pricing environment for the commodity. And depending on where the cycle goes, we even have the ability to capture market shares with this 000 lithium. This material is the material of choice For any downstream clients, all the way up to carmakers, which are procuring batteries bound For the European Union, this is all in preparation for the EU battery passport 2026, no matter in the world where these batteries are produced. A bit of the highlights of the numbers, We posted a Q3 revenue of $96,000,000 We also Produced today, 71 71,650 tons of the high grade product.

Speaker 2

The low grade product is 100,000 tons. We also have delivered an adjusted EBITDA of 54,000,000 tons. Our unit operating cost, FOB port is 5 $77 per ton, and we have a very sound net income At $36,000,000 in the 3rd quarter. So very profitable with significant recurring cash generation and liquidity. The next slide shows our production highlights.

Speaker 2

We have the 000 lithium as a commercial success. In other words, there's not enough of our triple zero green lithium to satisfy demand. Some of the highlights of the Q3 and production to date, we produced 38,500 tons of this 5.5,000,000,000,000 green lithium. Year to date Production is 71,650 tons. We have also Successfully ramped up the Green Tech plant without a tailings dam, which means we have 62,000 tons of 000 Green byproduct, year to date 100,000 tons of 000 Green byproducts.

Speaker 2

In other words, the next target will be to sustain the plant recoveries at this design level, which basically shows global recoveries including ultrafine losses of 65%. We have 3 shipments that have sailed. We have a 4th shipment on the way, sailing at the end of November. Scale will be approximately 20,000 tons to 22,000 tons on that shipment, which means We're maintaining guidance because amongst all of our products, we're going to hit 130,000 tons In equivalent revenues of 000 Green Lithium and byproducts. So for a company that just became a producer, Getting there, having successfully ramped up, if you multiply 22,500 by 12, It means we got there.

Speaker 2

You get to 270,000 tons a year. So the plant works, the dry stacking works, Thales byproducts have been successfully commercial, so there's spectacular demand for that product Given its purity and in the picture on the right of this slide, you can see the 3rd module, which is something that only Sigma Lithium has managed to achieve, dry stacking at ultrafine at 12%. So here we are delivering on our promise to make this supply chain a whole lot more sustainable and The next slide shows the resilience. It shows that Sigma can generate cash at the bare Of the cycle at the bottom of the lithium cycle. In other words, we have low cost And therefore, we have been delivering consistent revenues in large volumes, both in byproducts and also in the main concentrate.

Speaker 2

More importantly, as we have one of the lowest costs in the industry, We are able to essentially maintain this operational resilience and Generate cash flow no matter what. So we have in front of you a simulation hypothetically showing The lithium price is for concentrate reaching $1500 because of our low cost, We are able to get to a significant cash generation, both for Phase 1 and also with the expansion. And then you have the byproducts credit, which we're keeping separate just for The sake of transparency and clarity. Now why do we have such low cost? Well, basically because of decisions we made early During the development, we chose the dense media separation, the DMS.

Speaker 2

And At that, we powered with very, very inexpensive renewable power. So the combination of a simpler Processing flowsheet and low cost renewable power leads us to these Spectacular results right out of the gate in our Q1 with financials. So We are clearly extremely proud of what we've achieved here. Another interesting point On the second on the next slide, we'll show you why. I mean, The product is actually better.

Speaker 2

So despite us selecting dense media separation, which back in the day Because it preserved the integrity of the mineralization of the product And it allowed us to deliver this incredible superior quality. It's visual. When you look at this slide, the next slide With the quality, we have a unique high grade, high purity in coarse grain product. So you don't even need a laboratory analysis to ascertain that the Poors product It's different than the ultrafine that is produced by our peers. And then it's of much And the light green color shows purity.

Speaker 2

So our purity matches Dallas and Green Bushes. Then you look at the bottom, you have products of interior quality, which are the powdered product With loaded with iron oxide and other impurities, sometimes even mica. So It's a picture that says a 1,000 words and this product drives cost savings to clients of up to 30%. The next page is a bit more on quality, on low cost and on this tremendous competitive advantage which translates into Commercial success and also on low cost and cycle living cycle resilience As far as generating free cash flow, essentially the chemistry of the high purity, The triple zero plus low alkali. You see low iron oxide, low mica, And then Moalkalines here, which are low potassium oxide and low sodium oxide.

Speaker 2

So The product is better and is also environmentally competitive, which is an advantage for The European Union valve batteries and again we'll get to it. Batteries are produced all over Asia, the cells And they are shipped to the European Union packing factories. We have a tremendous advantage when supplying to these cell makers in South Korea, Japan, China, everywhere with this product. Why is that? The next slide shows The cost saving math to clients.

Speaker 2

We bring significant cost savings to downstream clients. It matters a lot, especially in a tight market where the downstream is trying to squeeze Cost out of the supply chain, specifically on the refiners. So when you look at the slides here, You can see that there's a potential of up to $6,000 per ton of hydroxide for the downstream, for the refiner, which is part of a downstream supply chain, which is perhaps tolling, which represents a 26% Higher margin for that refiner or battery maker that's going through that refiner. And that is Sigma. And we've been working with Glencore and their customers to premiumize that product in the market.

Speaker 2

So even that 9% price of lithium hydroxide, our premium Our premium lithium concentrate can drive measurable savings to converters, to downstream In the current market, which is a tremendous competitive advantage on quality, on value in use. I'm stressing that point just to demonstrate how our product comes first because we have A chemical, physical, technical, measurable cost savings and we're delivering the best or the most sustainable 3.0 lithium product, and we're not charging for it. The environmental 0 common, 0 tailings, low chemicals is for free, right? So it's a fantastic attribute For clients delivering their sales into the European Union. On this slide here is actually a fascinating exercise that we've produced.

Speaker 2

In other words, Our product will always have demand at premium prices because of the chemical attributes. The chart compares The margin our clients would achieve, the efficiencies visavis buying the competitors' product On spot market, you can clearly see the gain. The spot margin in light green is lower And Sigma's customer margin, even at 9% is actually higher. Why? Because the 9% premiumization doesn't Capture the full cost savings that the client has.

Speaker 2

So it's a win win situation. That's why the demand and acceptance of the product has been so spectacular. I mean, I was in China for almost 2 weeks. I brought my whole

Operator

Pardon me, everyone. Looks like the speaker line is disconnected. Please standby while we reconnect. Thank you for your patience. Pardon me, everyone.

Operator

Thank you for your patience. We have reconnected with the speakers. Anna, you may please proceed.

Speaker 2

Yes. So I got disconnected Accidentally. So I was talking through the slides where we have the chart with the demonstrated efficiencies Driving demand for Sigma products in any market. And I think basically wrapping up that slide with that chart Comparing the premium product driving measurable efficiencies for the client, you can clearly see why the client With the spot, the client today has 2 choices, buy the competitors' product at spot market And buying Sigma's product at a premium value. That's the chart you all see on the screen now.

Speaker 2

And we showed you on the graph that our clients achieve higher margins no matter What happens? In other words, by purchasing Sigma's product, he's always better off. So essentially that drives the commercial success that we've been achieving in this industry. And our commercial teams through Kempton in China, basically working with our partners for the low grade ultrafine And with Glencore for the high grade triple 0 concentrate, and the Funds has been spectacular from carmakers, battery makers and then the solar or refiners themselves. So we're very proud Of what we build, we're very proud to have been able to deliver a product that's not only the leader Or the reference environmentally, come on, it's like 0 common, no one does that, 0 tailings dam, and we don't use hazardous chemicals, but also we actually have Physical and chemical properties that deliver value for the customers.

Speaker 2

So this is I've been going through this point repeatedly to make it Clear that we don't have a demand problem because we, Sigma, will place every gram at our price Given all these competitive advantages and values in use, the next page shows that The summary of all that I've been saying, where does it all lead us? Well, it leads us into A tremendous competitive advantage when it comes to cell making, bound for batteries To be taxed in Europe or bound for cars, they're going to be sold in Europe. As There are battery cell factors located all over the world in China, in Japan, in South Korea. And for now, they shift the cells to battery packers that have their European factories. So this packing taking place in Europe then is directed to the carmakers located in Europe.

Speaker 2

So the sourcing of those cells, The tracking of those cells within the battery maker is actually happening as we speak. And Sigma, our 000 Green Lithium is a recognizable brand. Clients ask for it. They want to have our material. They asked their downstreamers for our material.

Speaker 2

So that makes us very proud. And then when you look at the European auto market this year And our production this year, that's where you can clearly see that there's not enough of our product just to satisfy The European demand, which is fantastic. I mean, remember, again, CATL, LG, SK, Panasonic, They're all based elsewhere, but they are making the cells that will end up in the European cars. And that is the battery pack for 2026 and the supply chains are getting ready as we speak. So the next page, a bit of the 000 green lithium.

Speaker 2

This has been our Our incentives as investors, as operators, as executives, as partners here, this is what we set out to do, Meaning, enabling best in class carbon intensity for batteries and eventually enabling the Holy Grail of the 0 Battery as far as lithium is concerned. In other words, the lithium Hydroxide chemical producer in China today, if it's best in class, meaning using natural gas And using renewable power, he can actually have a total carbon footprint of just 2.5 tons Of carbon, 1st ton of lithium hydroxide. In other words, that's very easy to tackle with carbon credits because this best in class has done the homework as far as replacing coal gas for Natural Gas and replacing coal power for renewable power. So with our material, which is 0, You eventually end up in a fantastic position as far as abating the final abating of the Carbon loads with carbon credits. So again, we enabled the 0 carbon battery For lithium as far as the lithium material is concerned.

Speaker 2

The next slide, I'll go quickly through it because you all are very familiar with that. The triple 0, 0 common, 0 chemicals and 0 tailings. The key elements Our tailings recycling, dry stacking, we have 0 residue mining because we get rid of all the tailings. We sell the buy products for a price that's 10% of the main products. That's an important point.

Speaker 2

The water, We basically reuse all the water, how we source the water with fuels. So this is sewage grade water that comes in, gets Treated in our water treatment station inbound to make it suitable for the Green Tech plant And we end up with a closed system of fully reused water. And more importantly, we power the plant with clean energy. Clean energy in Brazil is 0 point 0 $2 Of $1 per kilowatt hour, I mean, is the cheapest, the lowest cost in the world, Except for the millions were subsidized. So we're in a fantastic position here as far as Renewable power is lower than anywhere.

Speaker 2

It's actually half the price of Canada. So with that, I'll move into operational. Operational and Resource Expansion Update. That's the next page. Moving to the next section.

Speaker 2

So The next slide is successful commissioning of dry stacking. Here we show that we basically Successfully commissioned our dry stacking. And when you see this chart, which shows recovery, we segregated in the chart The portion of the period when we actually nailed the dry stacking commissioning by delivering The ultra fine downspacked dry stacking at 12% moisture, which meant we could then Accelerate the production from the dense media separation. So you can clearly see us Reaching stability on recoveries and again, reaching the yield levels That we have been striving to do. So that explaining to everyone, yield is How much of every ton of ore that gets into this process, Module 1, crushing, becomes final product, becomes triple euro Lithium concentrate, main product.

Speaker 2

Recoveries dictate how much lithium we actually Recover from the materials, so it's on our productivity, right? In other words, as we calibrate the plant To achieve target production volume, the recovery of the lithia is the lead to volume. So Here at Sigma, we actually have a very high class problem because we need to strive to adjust down The lithium concentrate grade to 5.5%. As you might recall, our first shipment was north of 6%, which is an operational ideal calibration. And that's because we start with exceptional quality feedstock Entering the processing plan.

Speaker 2

So as we achieve that calibration down To get to the market standard grade of 5.5% lithium oxide, we basically Achieve yields and recoveries that increased substantially, as you can see on this slide. So again, Very, very, very proud of what our operational team on-site. Our Two general managers running mining plants have achieved. And we keep on improving. We're now installing a magnetic separator on the Ultrafine circuit, which is going to give us a boost on recoveries, but the work is there.

Speaker 2

We've already gotten it. At $22,500 a month Multiply by 12, we're already annualizing the combined capacity of 270,000,000. The next page, maintaining head grades through successful operational integration. The next page is basically showing that there are no tricks here, right? As we said, our focus has been to lower The grade to 5.5, you can see that the grade is being clearly above 5.5.

Speaker 2

We don't get properly paid for delivering more grades As the industry is delivering 5.5% and below, so the challenge is to bring it down to 5.5%, which is again a very high class product, a testament to the quality of our feedstock. So another important point On the slide is that we're not doing something typically known as hydrating, meaning going To reach areas of the ore body just to achieve a successful ramp up in recoveries and then suffering that In year 2, no, we're not doing that. If you look at the axis on the right, you can see that the head grade has been constant At 1.4%, 1.46%, that is the diluted feed we showed on the feasibility study. So Incredible consistency on the feed, which shows that the challenge is to keep the grades down basically, down from 6%, Down from 6.5%, so that we are able to deliver grades that Are in line with the market as opposed to going above market and not get properly compensated for it. The next slide, Slide 18, shows that we're going to expand.

Speaker 2

The FEL3 detailed engineering is going to this last stage. We're doing the final quoting. As we're going through a strategic review, the selection of the contractor, of the engineering, It's going to be a function of the winners, the next guardian of Sigma. Each one of them has their own views. It could be going to an Eastern construction company, which actually has been building transmission lines and large Scale generation, power generation structures in Brazil for Very successfully, very low cost.

Speaker 2

We're going to be funding it via debt and via operational cash flow. And the plan is to triple production by next year. Why? There's a market for every gram of this product. There's just not enough of it to satisfy demand, and that's just solely if we consider European Union bound sales.

Speaker 2

There's block chaining throughout, there's tracing throughout the supply chain, and we both really want to opt for That's Tracy. As I said earlier, our product has become a brand. And you can clearly see here on The map, how easy it would be to expand even that most of the infrastructure preparation of industrial sites has already been made. The next slide will show our ability to scale up production organically. How big can we get?

Speaker 2

We just unveiled That our mineral resource Phase 4, Phase 5 goes up to 130,000,000 tons. So there's 150,000,000 tons floating over On Phase 4 and 5, so we can easily think through another line and that line could be potentially integrated. Again, It will depend on the winner of the strategic review. And going back to the engineering point, I want to make it clear, PROMO will be there Driving the actual construction in Brazil, what we're talking about is the engineering sort of brain management pairing with Sigma's robust Owners team now has already built 1 and all the engineers that built it are now working with us in an owner's team. So you will be Who would be the foreign engineering company that we would pair with PROMON to support our in house Owners team, right?

Speaker 2

And again, what we are trying to do is to achieve Optimum construction and achieve optimum cost effectiveness of the expansion of the plant. So lastly, on this ability to scale up production organically, This slide shows that post ramp up, this is what we're going to look like. So if you look at the slide on Page 19, you can clearly see that, in other words, we have Phase 1. Then we're going to have a tripling, which is 2 phases built at once, 2 line trains built at once. That will lead us to 766,000 tons and then potentially a 4th line.

Speaker 2

That's the obvious strategic choice. I mean, it's just the obvious strategic choice. In other words, Ramping up, we're going to be big. We are forced for good in the industry. We are One of the looking next majors potentially going above 100,000 tons out a year, depending on How that sort line is going to be strategically directed to perhaps Intermediate Chemicals Integration, which leads me to the next The slide the next slide shows that all the finalists in the strategic review I mean, the strategic review has now moved to finals.

Speaker 2

The groups have bundles in consortium, which is very healthy because there's efficiency And every consortium has expressed the wish to produce intermediate chemicals in Brazil. Why? It's Quite straightforward. If the industry is going to leave China, partially, it has to go To a geography attached to a company that can actually deliver competitive products. I mean, Even when you think China, which is what we've been doing for the last 2 weeks, they are The sole producers of lithium chemicals globally, as we all know.

Speaker 2

So when you think Supply chain exam, we actually gained quite a lot of insight because it's on their interest too to build intermediate chemicals We call it double 0, meaning 0 carbon, 0 waste. They do a fantastic job on waste In China. And the location of this country to deliver intermediate chemicals Has to be a country like Brazil wise. We have cheap abundant renewable power at 2centakilowatt hour. We have abundant natural gas at a competitive price.

Speaker 2

We have a very large Domestic market that can clearly digest, that's the word they use all the byproducts. And those are very Key characteristics because the byproducts go into a cement based construction industry and Into a cleaning products, the surgeons of domestic industry and Brazil has both. So Brazil can actually deliver 0 waste, just like China can. And we can also deliver 0 That is why we can coexist with what is still a China centered chemicals supply chain, by delivering less volume of a Extremely sustainable product that will key up, as we showed in the previous slide, the lowest carbon and Here, 0 carbon lithium hydroxide chemicals. So we can actually enable The development of the lithium hydroxide chemical industry globally by delivering Chemicals to Chemical, Intermediate 00, 0 Waste, 0 Carbon in Brazil into anywhere in the world.

Speaker 2

Another interesting point in Brazil, we also had skilled labor For chemistry, Brazil never deindustrialized. So we have quite a large chemical industrial park in Brazil. And for basic Chemicals, the level of specialization isn't the kind of specialization required To be an alchemist, as we call our Chinese friends, I mean, they are the alchemists with the crystallizers With their ability to do this at an incredibly low cost, we would just be doing intermediate chemistry, which is basic chemistry. And for that, We do have the human capital in the country. So now I'm changing tack and talking about how big, How relevant, how strategic relevant is Sigma?

Speaker 2

So moving on to Phase 4 and Phase 5. That's the next slide. On Phase 4 and Phase 5, What we have here is a substantial additional growth in the Scale of the mineral resources. It's what we've been telling all along. On Page 22, what we have is Just a recap of how big we are.

Speaker 2

We have 4 properties and we've been focusing our Drilling in the middle property called Guaraca de Cedillo because that property concentrated most of the previous Artisanal mines that were operating when we purchased this when we purchased Sigma in 2012. So it's efficient to concentrate it here. So phases 1, 2, 3, 4 and 5 are all here. And this phase alone deliver 130,000,000 tons for Sigma's mineral resource potentially to be confirmed by the 40 three-1 100 and 1. And therefore, it just gives us The reservoir, let's put it that way, the scale of resources that would Allow us to keep growing, to keep on increasing scale, to think about integration with one of the lines, to basically be the foundation to our growth large scale plan to be the next to a Major because this is the kind of scale of mineral resources required for a company that plans to be the next little major.

Speaker 2

On the right, you see the map that we put forth with the exploration update announcement for Phase 4. That was just an exploration update. We were just trying to give investors a flavor of what's coming. We're going to put out A342101, Mercedes 4 and 5, so increasing it upwards of 50,000,000 times. The next slide is the closing comments.

Speaker 2

I think how do we wrap it all up? What does it all mean? What does it mean All that I've been saying here as far as our share price, creation of shareholder value and what's going on in the industry. Well, we have not yet been rerated as a producer. That fully full rerating Is yet to occur.

Speaker 2

And the screen makes it obvious. There are producers which are delivering At tiny scale, and proportionally, they're getting evaluation per production that's way higher than ours, right? And their developers, they're getting evaluation to 5 year forward production that is way higher than ours. So this is The work that my partner here at A10 took on to Sigma while we don't conclude Matthew Dejo came to lead. I think there was a bit of confusion about what's Matt doing at Sigma.

Speaker 2

Well, He's joined A10. He's our partner, A10, and he came to help the principles of A10 set conduit to Sigma, namely Marcelo and I and Olomar to basically be the main investor interface in order to communicate all that we've been doing to hopefully bridge that gap. The gap is tremendous. We're basically a third of our producer peers, non majors, and we do plan to close this disconnect on fundamental value alone. And our cost is so competitive that as far as profits, which we just delivered Straight out of our maiden financial quarter and cash flow generation that this company could be valued at anything 3x forward EBITDA, which is a very attractive value proposition, right?

Speaker 2

The next slide shows why are we going to be the next year to major. We are already one of the world's largest producers at 270 1,000 tons per annum, where we are now. If you take our monthly production shipment That's going on at a cadence multiplied by 12, that's what we get. So we got here. We are becoming one of the little majors because Then with the expansion at 760,000 tons per lithium of concentrate per year, I mean, we get to the super club of companies that can produce an equivalent of 100,000 tons LCE per year.

Speaker 2

So We have a special product, high purity coarse lithium. We have a very low cost. And we have the triple zero carbon neutral Drystack, no tailings dam, which will fully sell these byproducts ultrafine. So it's a very unique Contact your position. And then I want to close this call and thank you because You've been believing in us since the beginning.

Speaker 2

And the least we could do to all of our investors is What we've been doing, we're delivering like clockwork on every front and now we delivered costs, meaning We just crystallized our position as 2nd lowest cost producer in the world. Again, when you do by products math on our cost, You get to a number that's literally on top of that's literally matching the all in sustaining costs we put out at the BFS, which is a testament to our obsession with operational efficiency. So every front, consistency, focus, relentless. I mean, in fact, I want to leave you with that thought. When I was in China, I received probably one of the biggest compliments there's ever been there where they told me, well, you actually Outwork us, you burn the 3 AM oil.

Speaker 2

And I said, well, that's what needs to happen In the century where Asia is driving the work ethic, right? So we're literally out working and working as Hard as our competition. And that's what we want to leave you with on this earnings call. And I really want to thank you For staying with us, trusting on us, even in this price environment where lithium enters A down cycle, we're here to stay because we've tried, tried in an environment of down cycle, given that we can produce free cash flow and earnings no matter what. So with that, I'll pass on to Q and A.

Speaker 2

And I want to thank you very much for listening to this call.

Operator

We will now begin the question and answer session. Our first question comes from Joel Jackson from BMO Capital Markets. Please go ahead.

Speaker 3

Hi, good morning, Anna and everyone. So Anna, I think I read in your disclosure that you still expect 500,000 tons of spodumene production or sales next year. That would be about double what 20 what your run rate is now. It means can you talk about the milestones you've got to hit? Because you haven't put the feasibility study out yet for Phase 2, 3.

Speaker 3

So what do you have to hit? When it's in production? How do you have to ramp? How have lessons learned that you can get to 500,000 tons of production for next year?

Operator

Pardon me, everyone. It appears the speaker line has again dropped. Please stand by while we reconnect. We thank you for your patience. Pardon me, everyone.

Operator

We have reconnected with the speakers. Anna, you may proceed.

Speaker 2

Yes. So Can you just ask

Speaker 3

the question again?

Speaker 2

Yes. Can you please repeat the question, consent to Sure.

Speaker 3

I would love to. Sure. So in your disclosure, you talk about 500,000 tons of spodumene production in 2024 to next year. We're very about double the run rate right now. So what has to happen you haven't put the feasibility study out yet for the expansion.

Speaker 3

What has to happen for you to ramp up, get in production and get to 5,000 tons next year? Maybe you could talk about lessons learned from Phase 1?

Speaker 2

Absolutely. Well, we learned quite a lot, as you all know, specifically when it comes to the trans stacking Of the tailings, which significantly delayed us reaching nameplate capacity of the production. So We refined that circuit. We learned a lot on flocculation and chemicals that we could use In order to make that circuit very efficient, again, it's the 1st circuit in the world, it's an innovation we pioneered it. So we got it down to a T now, it's dry stacking beautifully.

Speaker 2

So that was factored into the new engineering. So I think this was actually a very important learning because all the learnings from actually commissioning this plant and enhancements To the flow sheet, we're going to are going to be factored already on the design. And so we've seen we are very confident that what we have now is a fantastic flow sheet because it comes battle tested by all the pain and all the lessons We've been through in the commissioning.

Speaker 3

So what milestones you have to hit? Like would you have to be commissioned do you have to be Commissioned by this date to hit 5,000 tons next year. What's the milestone? Maybe walk us through that?

Speaker 2

We're basically it's interesting because we use The same slash and cut that we applied to Phase 1, Even though we don't foresee waiting like April, May, June, July, June, in a stride, I mean, because With the dry stacking circuit that works from the get go, we can actually unleash and turn on plant 2, which is the dense media separation immediately, Because now we know what is the right flow sheet for actually getting to the 12% moisture, which is the ideal moisture to be maintained in the cake that goes Into the membrane of the dry stacking filter and hence go into the conveyor belt into the dry stack. So that was actually the one You know, black box we have to solve. Again, it's innovation, right? And this is why we've been here as financial sponsors and investors for 6 years. We promised that to our stakeholders in Brazil and we delivered it.

Speaker 2

So we're not going to have that weight anymore. So that cut Commissioning significantly, I mean 4 months is quite a lot. And then more importantly, yes, more importantly, we also know What the issue is with the water, when we first started this, we didn't realize that the water was actually sewage grade and we had to build A sewage treatment station to actually get the water from the river and remove the solid Pico residues and make it suitable for the plant. So there's a myriad of labs in here that factor That we actually incorporated into the design of these new these 2 new plants. And therefore, we see a construction timeline moving a lot more streamlined, way more than the first Construction timetable.

Speaker 2

And then I think on the bigger picture, when you look at that page and I can go back to that slide, that is like If the moderator could please go back to the slide, which is Page 18. Visually, you can see that we have to do a lot less Industrial site preparation than we had to do for Phase 1 because we built Phase 1 from scratch. So we had to prepare 1 square kilometer kilometers of industrial area, Which we don't anymore given that the fixed green tech and infrastructure are already here. The 5 being of 6 kilometers that brings this water, the sewage water from the river into the Treatment station is already here. So a whole lot of what we call industrial site infrastructure is here.

Speaker 2

We're licensed, as you can see in the expansion Little square of that slide, again, moderator could go to slide sorry, slide 18, that will be very helpful. We're actually tackling the earthworks on faster areas, which again should shorten earthworks by 4 months Because we don't have to do animal capture, we don't have to do what we call vegetation classification. There's a whole lot of That's that are skipped because we're going into what we call anthropicized vegetation areas. So a lot of savings, A lot more streamlining. So what is the key piece of the puzzle now that we got all the work teed up?

Speaker 2

Who is going to drive engineering? Because obviously each strategic partner, buyer, Potential M and A counterparty here has a preference. And we don't want to impose our preferences to them. And given that we're now literally the last leg of it, there's no point in gun jumping with an engineering company. ProMoe will be there.

Speaker 2

That's the Brazilian company that's done a marvelous job in managing over 1,000 people we had on-site during construction. So they're the experts of executing on the ground. And then we'll pair them up with an engineering company, which will drive equipment procurement. I mean, equipment procurement German can be basically concentrated in different parts of the world depending on the strategic Potential acquirer counterparty of Sigma. And we'll do this together.

Speaker 2

We'll be here Helping the next guardian of Sigma to succeed. That's what we want. The success of the next guardian is the success of Brazil.

Speaker 3

Just following up on that, I'll pass over the baton. But as you talk about the strategic review, and you're Talking about words like guardian, counterparty, a lot of broad like different terms there. How maybe you can give a sense of sort of how is the process gone, The range of bids, the range of kind of plans or proposals and how have you been managing this in an environment of, Okay. Yes, lower lithium prices, but it's a commodity, things go up and down, and people can now handle that. How have you managed it in a time of clearly lower lithium multiples in the industry across the year.

Speaker 2

Look, the screen is not a benchmark for a strategic buyer. I mean, it's sort of They don't think quarters. You don't build a resilient business on a quarter to quarter basis. I'll give you an example. When it gets to 2028, It isn't like someone is going to appear 2 quarters earlier and say, oh, now I need to figure this out.

Speaker 2

I mean, These discussions are happening now. Battery Passport Europe 2026 is a reality, and it affects battery makers All over the world, batteries made in China, cells made in China, cells made in Japan, cells made in South Korea, Cells made everywhere are affected by it. So there's going to be a lot of lithium needed into The materialization of the plan of some of these Gigafactories that have been announced and are being built all over or are operating Right now. I mean, so ultimately, it's 2024 practically speaking. So the plans for the remainder of this decade, which is the decades of looking are happening as we speak.

Speaker 2

And I mean, I'll give an example. CATL announced this year in the Shanghai Alto Show that they're going to deliver the 0 carbon battery. There will be 0 carbon in 2025, 0 carbon battery comes in 2,035. That just shows that this is a global concern. It isn't something that just affects the Western because as you all know CATL supplies the world.

Speaker 2

So this is a global Conversation and what is Sigma? And just let's leave commodity cycle Aside for a moment, because again, we demonstrated that we'll try no matter what, right? Sigma is a company that The Clean Shareholder Registry, there's not a single strategic here. It's basically financial investors We have a financial sponsor, so we can deliver a transaction without the interloping that's been plaguing Recent strategic movements. 2, we have an encumbered sizable Thousands hundreds of thousands of units, which means we are easily integratable for massive top line M and A synergy.

Speaker 2

So we are almost like the perfect target and we are in a country that is We're extremely welcoming to mining. The population 1 fit, we actually managed to demonstrate that there's a new Model for the industry of mining processing to be followed in terms of lifting the people and sharing prosperity And not being less profitable, I mean, come on, we posted a profit, right? So I think we represent quite a lot for the industry. So this is just a long way to say that the So this is just a long way to say that the process is going incredibly well. And I can't say much more given Sort of the imminence of it, right?

Speaker 2

The release, I

Speaker 3

think, is

Speaker 2

very self containing, yes.

Speaker 3

Sorry to cut you off, but thank you very much.

Speaker 2

No, it's all right.

Operator

We have a question over the webcast from Marcelo Azzem at Everest Capital. Good morning, everyone, and congratulations for the results. Does the company expect EBITDA margins and net margin to improve over the next few quarters? Does the company expect net margin to reach 75% as reported in institutional presentations?

Speaker 2

We do. We do. And I think it's part of the process of leaving this period of commissioning. As You can tell by the bridge of EBITDA we posted on the institutional presentation on our website, the further we move, the less Clouded by non recurring items, our financials become. So we will become more streamlined and more clear.

Speaker 2

The ability to deliver superior margins. Obviously, that We need to we're now showing simulations against a price backdrop that has gone down and that obviously affect our margins, right? So when you we were not running at $1500 per ton of 000, let him concentrate. We are cheating right now, dollars 1800, dollars 1900. This was the price For shipment calculation using the formula on spot hydroxide of 23,000.

Speaker 2

But again, What we are trying to show is that we are profitable, structurally profitable because our cost is so low. We're well below the marginal cost required for the industry to meet the supply expectations of demand. Even when you look at softer demand back Drop, drop. Even when you look at what we call the full bear cave, we're always going to be here. We're going to make more profit, Less profit, it's a commodity after all, but we are resilient to cycles.

Speaker 2

And that's what makes Sigma very special, a fundamental Asset, fundamental company here. We're here no matter what. So we are this super major in volume that Has managed to keep costs very low. And I think it connects to the previous question, going forward, as we expand, Our cost will go down because the G and A, it's a bit of what happens to Talison. They're so big, The G and A gets diluted over they are now at 1,400,000 tons of concentrate.

Speaker 2

So it's a giant number. That is about 5 times our size. So we're tripling. So The more we increase the scale of production, the less the G and A matters because it gets diluted down. So When you look at the fundamentals of the cost, it just gets better by simply basically diluting down the fixed cost over a larger number of units, right?

Speaker 2

So essentially this is actually the demonstration of the resilience of the business. I mean we can expand confidently because the cost actually decreased.

Operator

There are no more questions in the queue. This concludes our question and answer session. I'd like to turn the conference back over to CEO, Anna Cabral, for any closing remarks.

Speaker 2

Well, I want to really thank all of our investors that have believed in us, that have stayed with us. We have a very Steady roaster of top investors that have stayed with Sigma over the cycle, almost like financial sponsors that we are. And the fundamental investors here have seen through the value. And what we are hoping to do is To reward them beautifully with the execution, the flawless execution, the strategic vision, In addition to the strategic review, we do see Sigma as a key Instrumental player in the global lithium industry, a real force for good because we brought the conversation of 0 carbon, 0 tailing and environmental sustainability and social sustainability and lifting the people and achieving Social goals, achieving climate goals, while delivering sheer profitability On the metrics, while delivering an incredibly profitable and incredibly resilient business. So it has not affected us at all to be the most sustainable lithium company in the world as far as metrics, which shows a way forward for the industry.

Speaker 2

It's a matter of will, right? It's a matter of cost discipline, operational efficiency, and then you become Well, we are, which is the bedrock of the 0 carbon battery. So we're very, very proud of this quarter. We're very, very proud of being profitable in the first operating revenue quarter, and that's thanks to you all and to your unwavering

Operator

The conference has now concluded. Thank you for attending today's presentation. You may now disconnect.

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Key Takeaways

  • Sigma Lithium turned profitable in its first operating quarter (Q3 2023) with $96 million revenue, $54 million adjusted EBITDA, $36 million net income, and an ultra-low $577/ton unit cost, ranking as the second-lowest cost lithium concentrate producer globally.
  • The Greentech plant ramp-up hit 90% throughput, shipping ~20,000 tons/month of its zero-carbon, zero-tailings “000 Green Bison” concentrate, with 71,650 tons produced YTD and a fourth ~20,000 ton shipment due in November.
  • Phase 4 and 5 exploration added ~50 million tonnes of resource, lifting total mineral resources to ~130 million tonnes and underpinning organic expansion from ~270,000 tpa today to ~766,000 tpa in the next phase.
  • The 000 Green Bison coarse-grain, high-purity concentrate delivers up to $6,000/ton in downstream refiners’ cost savings (≈26% margin boost), fueling strong demand from battery makers preparing for the EU Battery Passport 2026.
  • Sigma is in the final stages of a strategic review to select an engineering partner and funding structure (debt + cash flow) to triple capacity next year, navigating lithium price volatility but benefiting from its low-cost, high-quality position.
AI Generated. May Contain Errors.
Earnings Conference Call
Sigma Lithium Q3 2023
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