Piedmont Lithium Q4 2023 Earnings Call Transcript

Quartr
Provided by Quartr
February 22, 2024

There are 10 speakers on the call.

Operator

you for standing by. My name is Ellie, and I will be your conference call operator for today. At this time, I would like to welcome everyone to the Piedmont Lithium 4th Quarter and Full Year Earnings Call. Please note that this call is being recorded. I will now turn the call over to Aaron Sanders, Senior Vice President of Corporate Communications and Investor Relations.

Operator

You may now go ahead, please.

Speaker 1

Thank you, operator, and good morning, everyone. Welcome to Piedmont Lithium's Q4 and full year 2023 earnings call. Joining us today from Piedmont Lithium are Keith Phillips, President and Chief Executive Officer, who will provide the introductory and closing remarks. Michael White, Chief Financial Officer, will then review our financial results followed by Patrick Brindle, Chief Operating Officer, who will offer an update on our projects. Keith will provide the closing commentary before we transition to a live Q and A session.

Speaker 1

As a reminder, today's discussion will contain forward looking statements relating to future events and expectations that are subject to various assumptions and caveats. Factors that may cause the company's actual results to differ materially from these statements are included in today's presentation, earnings release and in our SEC filings. In addition, we have included non GAAP financial measures in this presentation. Reconciliations to the most directly comparable GAAP financial measures can be found in today's earnings release and the appendix to today's slide presentation. Any reference in our discussion today to EBITDA means adjusted EBITDA.

Speaker 1

Further, references to shipments are lithium concentrate and metric tons are dry metric tons. Please note that copies of our earnings release and presentation as well as a replay of this call will be available on our website, piedmontlithium.com. With that, I'll turn the call over to Keith Phillips.

Speaker 2

Keith? Thanks, Aaron, and thank you all for joining us today for what is now Piedmont Lithium's 2nd earnings call. We're reporting Q4 and full year 2023 results today. For those of you who are new to Piedmont Lithium, I will quickly reiterate our mission and strategy. As one of only 3 U.

Speaker 2

S.-based lithium companies in production today, Piedmont's mission is to be a leading supplier of lithium resources for the North American EV supply chain. Our goal is to support U. S. Efforts to reduce our reliance on foreign nations for critical materials and strengthen our national energy security. Underpinning this mission is our strategy focused on hard rock production and that is producing and further processing spodumene concentrate from assets that we own.

Speaker 2

The big story for us in 2023 was the restart of our Quebec joint venture North American Lithium. NAL successfully commenced operations last March, leading to our first revenue in Q3 via shipments made under our North American lithium offtake agreement. NAL has been successfully ramping up production over the past 10 months and hit record production levels in December. NAL now has the distinction of being the largest lithium operation in North America, the only large spodumene mine in North America and one of a couple of handfuls of spodumene mines controlled by Western Companies anywhere in the world. We are completing a few remaining capital projects in the first half of 2024 that we expect will result in further improvements in production and use in operating costs as NAL looks to achieve full run rate production levels later this year.

Speaker 2

Patrick will talk about these in more detail during his update. NAL is a key focus for us given its status as a producing asset, but we have a strong development pipeline with our projects in Ghana and the United States. We believe Piedmont is well positioned for the long term with growth opportunities across our project portfolio. I'll speak to that more fully on the next slide. We have been very disciplined in our approach to growth, prioritizing a prudent funding strategy while minimizing dilution to Piedmont shareholders.

Speaker 2

Part of the strategy includes managing our cash balance, obviously. We ended 2023 with $71,700,000 in cash and cash equivalents. And in the Q1, we have sold our holdings in Syona Mining and a portion of our holdings in Atlantic Lithium for approximately $49,000,000 in net proceeds. We have an additional number of non dilutive project funding options that we are exploring all in an effort to help ensure that we're leveraged to the lithium price recovery that we believe is not a matter of if, but when. You'll hear more from Michael about our finances shortly.

Speaker 2

So let's take a look at our integrated development pipeline. Over the past several years, we've created a robust pipeline with large strategic projects positioned for development on a sequential basis. At NAL, production is ramping toward target. Production volumes and unit costs are expected to improve in 2024 after the completion of key capital projects. The future at NAL appears especially encouraging given the exceptional drill results announced by Sayana in late 2023.

Speaker 2

Notably, some of the drill intercepts from the 2023 program are thicker and higher grade than any previously encountered increasing confidence in NAL's mine life. With infill and exploration drilling continuing, we expect a resource update to come during 2024, which may offer the potential for further mine life extensions. My point is that NAL is very much a core asset and with our life of mine offtake agreement for qualified Inflation Reduction Act material and is critical important to our customers, I believe NAL will be a great asset for Piedmont shareholders for the long term. Now while this is an earnings call and NAL is our only producing asset, I do want to highlight the exciting growth projects in our portfolio, including our Awoyah project in Ghana and our strategic projects in the United States. The Awoia project continues to advance through the permitting and approvals process in Ghana.

Speaker 2

Awoia is planned to be a large spodumene producer with a high return on invested capital, driven by relatively low capital and operating cost is going to be a great project for us and our partners Atlantic Lithium. Our Carolina and Tennessee projects are both strategically located in the growing battery belt and are critical to the goal of achieving some level of lithium self sufficiency in America. Carolina Lithium is our integrated project that we're designing to include mining, spodumene concentrate production and 30,000 tonnes per year of lithium hydroxide production all on one site. We expect to complete the material permitting process in 2024. Our Tennessee project, which is permitted and also designed for 30,000 tons of lithium hydroxide production provides an additional opportunity to expand downstream capacity when we and the market are ready.

Speaker 2

So our plan with each of these three projects is to invest in their development at the right time in the right way and always with a goal of minimizing shareholder dilution. With that, let me turn it over to Michael.

Speaker 3

Thanks, Keith. Turning to Slide 7, as Keith noted in the second half of twenty twenty three, we had several shipments of spodumene concentrate from Piedmont's NAL offtake. In total, we shipped 43,200 dry metric tons of spodumene concentrate last year. From these shipments, we recorded full year revenue of $39,800,000 and gross profit of $5,700,000 which equated to a realized price of $9.20 per metric ton and a realized cost of $7.89 per metric ton. Looking at earnings per share, full year 2023 GAAP diluted earnings per share was a loss of $1.14 Adjusted diluted earnings per share was a loss of $1.64 which reflects a $0.51 improvement compared to an adjusted diluted earnings per share loss of $2.15 in the prior year period.

Speaker 3

We ended the year with $71,700,000 in cash and cash equivalents. Subsequent to year end, we strengthened our current cash position by $49,100,000 by selling our holdings in Syona Mining and a portion of our holdings in Atlantic Lithium. The sale of these shares had no impact on our joint ventures or offtake positions with either Sionna Quebec or the Euwia project with Atlantic Lithium. As of February 21, we hold approximately $8,000,000 in marketable securities. Moving to the next slide, we reported 3rd quarter revenue of $47,100,000 which included provisional pricing for a spot price shipment.

Speaker 3

In the Q4, we recorded a $15,100,000 provisional revenue adjustment for settlement of our 3rd quarter spot shipment. This adjustment was due to the sharp decline in spot market lithium prices from mid Q3 to the eventual price settlement at the end of 2024. Also in the Q4, we recorded $7,800,000 in revenue associated with Q4 shipments. In total, 4th quarter revenue was negative $7,300,000 and full year 2023 revenue was 39,800,000 dollars To better depict the revenue scenario I just discussed, let's move to slide 9. In 2023, we made shipments under spot contracts and under our long term customer contracts, the majority of which on a dry metric ton basis being spot.

Speaker 3

In the Q3, we had 2 shipments, 1 on the spot market and 1 to a contract customer. The spot shipment occurred in September. However, pricing was based on market prices at the time we executed our spot contract in August. As part of our spot contract, Piedmont received a large prepayment. We then reported provisional pricing at the end of the 3rd quarter, yet final price settlement did not occur until the end of December after the ship had arrived at its destination.

Speaker 3

As we know, lithium prices declined precipitously during transit of the shipment. This delayed price settlement is the current practice in the spot market, which is subject to large price swings due to volatility in the spot market. We had 4 shipments in 2023 and 1 in early January 2024, which was scheduled for December, but was delayed due to inclement weather at port. Our shipments took various routes largely due to weather conditions. We'll talk about how we're going to reduce our exposure to the spot market shortly.

Speaker 3

Let's turn to Slide 10 for sources and uses of cash. We began the Q4 with $94,000,000 Given the decline in lithium prices, we work to minimize our expenses, lower capital expenditures and investments in affiliates and ended the quarter with $72,000,000 in cash and cash equivalents. Looking at full year 2023, we had $99,000,000 at the beginning of the year, followed shortly thereafter by a net equity investment by LG Chem of $71,000,000 We had $57,000,000 in capital expenditures and $43,000,000 in investments in and advances to affiliates, thereby ending the year with $72,000,000 in cash. Now moving to our outlook on the following slide. Especially during this current price environment, Piedmont is focused on conserving cash, undertaking measures to reduce expenses and limit capital spending across our global portfolio.

Speaker 3

In February 2024, we initiated a cost savings plan to reduce spending by $10,000,000 annually in deferred capital spending in 2024. We expect to complete our cost savings plan by the end of the first quarter and recognize most of the $10,000,000 run rate savings in 2024. As part of our plan, we reduced our workforce by 27 mainly within our corporate office staff. We expect to record approximately $1,000,000 in severance and related costs associated with this plan in the Q1 of 2024. In 2024, we are projecting to fund capital expenditures between $10,000,000 to $14,000,000 and investments in and advances to affiliates between $32,000,000 $38,000,000 As you can see, in response to current lithium market conditions, our planned funding is significantly reduced from our 2023 funding levels.

Speaker 3

It's worth noting that our current 2024 outlook is subject to further changes in market conditions. The majority of our forecasted capital expenditures relate to Carolina Lithium and Tennessee Lithium. Investments in and advance to affiliates reflect cash contributions to Sino Quebec and advances to Atlantic Lithium for the Ouiya project. Piedmont Lithium expects Ouiya funding to be minimal in 2024 and is evaluating a range of options to fund its share of project capital that would be non dilutive to Piedmont Lithium shareholders. We expect a final investment decision for Uluya to be made by the end of 2025.

Speaker 3

Moving to the next slide. In October 2023, Syona Mining provided a forecast for the 1 year period beginning July 2023 through June 2024, projecting spodumene concentrate production of 140,000 to 160,000 dry metric tons and shipments of 160,000 to 180,000 dry metric tons. Under our offtake agreement with Sionneuve Quebec, Piedmont has the right to purchase the greater of 50 percent of production or 113,000 dry metric tons per year. This is in addition to the 13,100 dry metric ton shipment that sailed in mid January. Our purchase price is subject to a floor of $500 per metric tonne and a ceiling of $900 per metric tonne on a life of mine basis.

Speaker 3

Note, Piedmont's actual purchases in 2024 may differ from the allotment I just discussed based on how deliveries under our customer contracts are scheduled. As we begin deliveries under our customer contracts, we expect to provide more stable price realizations and reduce our reliance on unpredictable spot market sales. As we have published previously, our supply agreement with LG Chem is to deliver 200,000 dry metric tons of spodumene concentrate over a 4 year period based on market pricing. Our agreement with Tesla is to deliver 125,000 dry metric tons of spodumene concentrate over a 3 year period also based on market pricing. With that, I'll turn it over to Patrick Brendel for our operations and projects update.

Speaker 4

Thanks, Michael. Starting on Slide 14, I'll summarize 2023 NAL operational results. Production at North American Lithium restarted in March of last year. Ramp up has progressed really well in 2023 and in line with our expectations, and we hope to achieve full production on a run rate basis within 2024. In the Q4 last year, NAL produced over 34,000 tons of

Speaker 2

1,000 tons of

Speaker 5

concentrate, representing an

Speaker 4

increase of almost 3,000 tons compared to quarter 3. Q4 saw shipments of almost 24,000 tons, 14,000 of which were sold to Piedmont, with the remainder sold to 3rd parties. For full year 2023, NAL produced nearly 99,000 and shipped more than 72,000 tons of lithium concentrate. More than 43,000 of these concentrate tons were sold to Piedmont, which we then delivered to our customers. Moving ahead on Slide 15.

Speaker 4

Again, Restart has been highly successful after an almost 4 year period of care and maintenance. December's production of almost 14,000 tons of concentrate may be the most concentrate ever produced at NAL in a single month in the entire history of the mine. December's record production was made possible by reaching a mill utilization rate of 80% and global lithium recovery of 66%. We are planning for additional improvements in utilization rates in 2024, which I'll speak to shortly. Based on production achieved from July to December last year and current pace of operations, we believe the target of 140,000 to 160,000 tons of production reported by Siona for their fiscal year July 2023 to June 2024 to be a realistic operational target.

Speaker 4

Our objective for the operation is to achieve full production run rate within this year. The principal driver to achieve full production this year is going to be completion of the Crestor storage dome. One of the fundamental challenges with the design of NAL has always been the limited storage capacity for crushed ore between the crushing plant and the mill. This lack of capacity in effect limits mechanical availability to what is achievable in the crushing plant. Once we complete and commission the crushed ore dome later this coming spring, then management should achieve their target mill availability of greater than 90%.

Speaker 4

Completion of the dome should then result in increases in monthly production rates and decreases in overall cash operating costs for NAL in the second half of twenty twenty four. In the pit, production challenges related to existing underground mine works in our current area of operations will likely persist throughout 2024, but should largely fall away by 2025. Our strategic review of NAL operations remains ongoing together with our partners at Siona with the goal of positioning NAL to operate through all periods of cyclical market pricing. Shifting to exploration activities. What's not on this slide are some of the exceptional drill results reported by Sione in November 2023, which makes us even more optimistic about the long term future at NAL.

Speaker 4

These drill results showed thick, high grade lithium bearing pegmatites that are some of the best intercepts ever encountered on the property. While these intercepts sit outside of the current pit shell, they speak to some of the blue sky potential at the project and we'll have more information after follow-up drill campaigns are completed. Now let's turn to Ghana and the Awuya Lithium project. Awuya is just such a fantastic project with low estimated upfront capital cost, simple dense medium processing, low expected operating cost based on last year's feasibility study. OUI is only about 70 miles from the port of Takoradi, whose bulk terminal is capable of handling up to capesized vessels.

Speaker 4

That terminal has recently been upgraded by the port authorities and the automated ship loading facilities have been in service for a number of months. Awuya's estimated annual production on the basis of mineral reserves only will be in the range of 340,000 metric tons of spodumene concentrate per year. We have an earning right to a 50% ownership stake in the Awuya project, excluding government interest, and we hold a life of mine off take right to 50% of production at market prices. A number of important milestones were achieved last quarter and in the 1st few weeks of this year. Last October, Ghana's Ministry of Lands and Natural Resources granted a mining lease for the Awuya project.

Speaker 4

That's the country's very first lithium mining lease. That lease includes a 13% free carried interest in Awuya for the government of Ghana as well as a 10% royalty. This lease does remain subject to ratification by the Ghanaian Parliament. In the second half of twenty twenty three, MIF, that's the Minerals Income Investment Fund of Ghana, entered into an MoU with Atlantic Lithium to make a total of US32.9 million dollars in investments in Atlantic Lithium at the listed company level as well as directly into the Awuya project. In January this year, MIF completed the first part of its investments under the MOU by completing a US5 $1,000,000 subscription into Atlantic Lithium.

Speaker 4

The discussions between Atlantic and MIF continue regarding the second stage MIF's investment, a $27,900,000 investment directly into the Awuya project in exchange for a 6% project stake. Should MIF complete that project investment, then net of the Ghanaian government's 13% free carry interest, Piedmont and Atlantic Lithium would each hold a net project level interest of 40.5%. Very importantly, from a Piedmont perspective, MIF's investment and the government's free carried interest do not impact our offtake right to 50% of annual spot green concentrate production on a life of mine basis. Atlantic is also advancing other regulatory approvals and permits and they estimate that all of these permits along with government ratification of the mining lease should be received within 2024. That wraps up discussion of our joint venture partnerships.

Speaker 4

Now I'd like to come back to the United States and move to Slide 18, where we can touch on our wholly owned Carolina and Tennessee lithium projects. Both of these projects are strategically located and we continue to advance them on timelines that consider current lithium market conditions, strategic partnering efforts and government debt financing opportunities. Speaking specifically about our fully integrated Carolina lithium project, our main efforts over the past quarter and early this year have been continuing to make progress on our state mining permit. In January, we submitted our ADI number 3 response to Daimler, That's the Division of Energy, Minerals and Land Resources here in North Carolina. This ADI dealt principally with the type of liner under our proposed waste rock stockpile and the monitoring of surface and groundwater around that stockpile.

Speaker 4

After reviewing our responses, Daimler has followed up with an ADI number 4 earlier this month, which includes 2 questions, first relating to monitoring of groundwater associated with our backfilling of pits and technical questions regarding our design drawings for our erosion and sediment control plans. We assess that these questions by Daimler are relatively straightforward in nature and we expect to be able to respond to Daimler within the coming weeks. Upon receipt of our state mining permit, we will then make a decision regarding the timing of a rezoning application for the project. We continue to engage with community stakeholders, including the Gaston County Board of Commissioners in advance of that future rezoning process. Flipping ahead to Slide 19 in Tennessee.

Speaker 4

Last quarter, we purchased a tailing storage facility adjacent to our proposed project site. Owning our own storage facility for our inner tailings has been part of our strategy for Tennessee and will provide significant operating cost savings versus tailings disposal via 3rd parties. Last quarter, we also signed a purchase agreement to buy a large industrial site in Tennessee next door to our proposed operations, which we could potentially use to reduce future project CapEx. Right now, we're kind of evaluating the timing of Tennessee Lithium against the backdrop of prevailing market conditions, financing opportunities and progress on regulatory approvals at Carolina Lithium and at Awuya. That concludes my remarks and in our update on Piedmont's global portfolio.

Speaker 4

With that, I'll turn it over to Keith for an update on the market and our funding strategies.

Speaker 2

Thank you, Patrick. I'd like to conclude our presentation with some thoughts about the market and our funding strategy. There's an old saying in the mining industry, the solution to low prices is low prices. After hitting record highs in 2022, lithium prices have fallen 85% or 90% and appear to have settled at these lower levels. These lower lithium prices have led to lower equity valuations for lithium companies and with share prices lower and interest rates higher, the cost of capital has risen significantly for new project development.

Speaker 2

The economics of new projects are obviously more challenging and we expect more greenfield lithium projects to shift their timelines to the right. To the extent strong demand growth continues and new supplies fall short, a strong recovery in lithium prices could be in our future. The next slide shows you the trailing 24 month 12 week average reported pricing. As you can see in the right hand chart, prices appear to have stabilized. We are hearing from many market observers that inventories throughout the system are down significantly.

Speaker 2

In some cases, cathode producers have less than 5 days of inventory on hand, down nearly 75% from early 2023. Battery manufacturers have made over $80,000,000,000 in commitments to newer expanded manufacturing to build out the EV supply chain in recent years and that is just in the United States. We believe the demands from these downstream manufacturers will equate to significant new pressure on prices, which contribute to the global expectations that demand will outstrip supply in the latter half of the decade. While lithium supply and demand near to balance in 20 24, the low price environment is causing cracks in the supply growth story. And now since the supply reductions and project delays are picking up, As some examples, we've seen core lithium suspend mining operations in the Grant open pit.

Speaker 2

Talison has revised production guidance lower. Albemarle is deferring capital for its planned mega site in South Carolina and just this week we've heard that Train 3 at Wodgina is not ramping up. The market is challenging right now for many project developers. Our sense is that delays in supply chain development combined with the growing demand in the EV industry may underpin the next lithium price recovery. Forward pricing curves are incontango and we are well positioned to capitalize on any upswing in prices via our offtake agreement at NAL.

Speaker 2

With a ceiling price of $900 per tonne, the offtake agreement is structured to capture meaningful upside in a rising price environment similar to a call option on lithium prices. Now let's look at what's driving the demand growth story, electric vehicles and energy storage systems. There's a false narrative circulating in the market right now about EV sales. The industry actually record sales in 2023. This includes the month December where 1,500,000 new EVs were sold, which is more EVs sold in the entire year of 2017.

Speaker 2

Moving into 2024, in the seasonally slow month of January, the EV industry saw 69% year over year growth globally and that growth is not just happening in China. In the U. S, 1,400,000 EVs were sold in 2023, representing a 50% increase from 2022 and North American EV sales grew by 41% year over year in January. So I would say we're moving from a period of exceptional growth to tremendous growth. As you can see in the EV sales bar chart, penetration rates are expected to grow each year, but it's not just the number of EVs being sold, the size of each battery is also important, particularly in the U.

Speaker 2

S. Where drivers want to go long distances. Larger batteries obviously require more lithium. The energy storage segment is also presenting a new channel of demand. A once nascent market, energy storage has become a significant market for lithium producers and ESS demand is expected to grow almost 50% in 2024.

Speaker 2

ESS has already surpassed demand from the traditional portables market where the commercialization of the lithium ion battery began. All that is to say, we are still in the early stages of a decades long revolution. Moving to the next slide, let's look at what it will take to support the development of this American supply chain. Today, China produces more than 80% of the world's lithium hydroxide. There's widespread recognition across the industry that the U.

Speaker 2

S. Is woefully behind in both critical minerals production and in downstream battery and EV manufacturing. I mentioned the massive investments that are being made by battery manufacturers in the U. S. Those plants are going to need approximately 780,000 metric tons of lithium hydroxide, which is 40 times more than the current domestic production capacity.

Speaker 2

So we should expect significant shortfalls in lithium here in the U. S. Over the next 5 to 10 years. Our strategy is to position Piedmont to take advantage of the near term and long term market dynamics by combining focused cost savings actions with prudent growth in our project portfolio. On to the next slide, our financing strategy is centered on maintaining financial strength while minimizing equity dilution to Piedmont shareholders.

Speaker 2

At the corporate level, we've taken a series of actions to fortify our financial position. We initiated a cost savings plan aimed at reducing run rate cash expenses by $10,000,000 in 2024. We reduced our headcount by 27% earlier this year. While this was a difficult decision, we believe we maintained a strong core of employees capable of executing our long term strategy for the next bull market. We also reduced our equity ownership in our joint venture partners.

Speaker 2

Sayona and Atlantic are both strong partners of ours and we are committed to the NAL and Awoia assets, but our shareholdings in the 2 parent companies were essentially non productive assets that we were able to turn into cash and cash is king in this environment. Importantly, neither of these share sales will impact our project ownership or economics. We are also mindful of our project related expenses. As Patrick mentioned, there are a series of efforts underway at North American Lithium, which will enable us to continue ramping the project to nameplate capacity, while hopefully reducing operating costs. Our Ghana funding in 2024 is focused on advancing the project through necessary permitting and approvals.

Speaker 2

We anticipate funding will be modest in 2024 prior to final investment decision and the project level investment by MIF, the Sovereign Wealth Fund in Ghana, if and when completed may defray partner funding requirements. For our U. S. Projects, we are managing the pace of spend while positioning the project for execution in the future bull market we anticipate. Lastly, our sales strategy is to begin deliveries under our long term customer contracts and reduce our exposure to the volatile spot market.

Speaker 2

This transition should occur in 2024 and we hope it will lead to price realizations that are both stronger and more stable. On the next slide, we'll discuss how we think about funding our business and future operations with a goal of minimizing dilution to Piedmont shareholders where possible. We ended 2023 with $72,000,000 of cash and have since taken action to strengthen our balance sheet through the sales of Sayana and Atlantic stock for net proceeds of approximately $49,000,000 As we think about our projects, there are numerous funding options available and we continue to evaluate what makes the most sense. At North American Lithium, in addition to the operating cost improvements expected this year, we are working with Sayana to evaluate a number of project level funding opportunities that could alleviate pressure on the partners to fund operations and sustaining capital projects. NAL is currently unencumbered with no debt, no royalties and other than the Piedmont offtake agreement, no committed offtake.

Speaker 2

Needless to say, funding options at NAL are plentiful. As discussed earlier, we expect 2024 funding at Aloia to be modest. We are hopeful that the project receives all approvals later this year so the construction could begin in 2025 and we are assessing several non diluting funding options here as well. We intend to apply for project financing from the Development Finance Corporation, which could provide a majority of the capital for the project. And our life of mine offtake Awaia's production may be able to underpin substantial customer financing for the project.

Speaker 2

Our strategy for funding our U. S. Projects remains the same, maximize project debt funding via the Department of Energy's ATVM loan program and fund project equity largely through contributions from potential strategic partners. Given their locations in the United States, strategic interest in these project is robust, but to maximize value for Piedmont shareholders, the right time to put this financing in place is when lithium markets have begun to recover. Before turning to Q and A, we want to share slide that puts Piedmont alongside some of its equity market peers, mostly spodumene companies trading in the U.

Speaker 2

S. And in Australia. As a multi project company, Piedmont is sometimes seen as a little complicated to model and value, but I would just highlight a couple of things. At approximately 100 and $50,000,000 our enterprise value is by far the lowest amongst this peer group. I contrast that with our significant spodumene reserve base and our large planned spodumene and lithium hydroxide production volumes versus the peer group.

Speaker 2

Our hope is that if we can develop our projects while minimizing dilution to our shareholders that we will see our valuation move closer to these peer benchmarks. That concludes our presentation portion of the call. Thank you for your time and attention. We'll shift to Q and A.

Operator

Thank you so much. We are now switching to Q and A. Our first question comes from David Deckelbaum from TD

Speaker 5

Keith, I was curious if you could give us

Speaker 6

some color. You shared your view on the market and the eventual turn you outlaid. I think the plans that Piedmont has to kind of weather this downturn. I'm curious as you think about projects, especially in the United States, how would you characterize the environment for offtake and customers? Have you seen the marked shift in customer sentiment and the potential ability to secure offtake agreements over the last several months in conjunction with this lithium price downturn?

Speaker 2

Hey, thanks, David. Thanks for the comments and thanks for the question. No, I think customer interest remains very high. There are a number of companies having offtake running processes to secure prepaid offtakes for different projects. Atlantic Lifting is doing that with a lawyer.

Speaker 2

There are several others doing it. We continue to have very healthy conversations with people about uptake. I think for the U. S. Projects we have, these are big projects.

Speaker 2

They require a lot of capital. So for us, it's really about what's the right time to be asking people to write significant checks, whether those are loans or equity checks. And realistically, what we think is maybe the bottom of the market isn't the ideal time to do that. So we've had a lot of good conversations with people. We continue those.

Speaker 2

We're meeting with folks at all times, but we don't feel a lot of pressure to move those forward those projects forward aggressively in this market. So we'll be patient with that.

Speaker 6

I appreciate that color, Keith. And then maybe just talking about Diana and NAL, I think you highlighted that funding is plentiful. But I guess with price or low price duration really being the question here, if this situation is prolonged now with a spodumene pricing environment, sort of the $800 $900 a ton range for SE6, What do you think like the most likely responses for NAL over the next year to year and a half just to manage through that process?

Speaker 2

Listen, we're assuming we expect prices to improve in due course. We're modeling, we think conservatively, which is the prices stay at a current level. I think as we think about NAL and this operations review with Saion is ongoing, we're very optimistic about the outcome of some of the capital improvement projects and where cash costs go. So number 1, we think the cash cost of the project will improve meaningfully during the course of this year. Secondly, with our customers and with other prospective customers, we're having, I would say, constructive conversations about pricing, potential floor pricing arrangements, etcetera.

Speaker 2

It's a very strategic asset. This is North America's only significant spodumene producer. Materials obviously IRA qualified, it matters to people. So I think there's chance you'll see something. And I would say the joint venture itself has unallocated tonnage of 75,000 or 80,000 tons a year.

Speaker 2

That's very valuable. There are people who want that material, who and we haven't secured that yet. We frankly haven't been focused on it, neither has Sayana. We've been focused on the operating side, but there's a real opportunity there to bring in capital. So our hope is that we get through this capital program, we see operating costs improve as expected And we are breakeven.

Speaker 2

We would love to be breakeven at these prices and positioned to capitalize on a future recovery. Cycles in this industry don't necessarily last that long up or down. So you'd hate to be taking 12 or 18 months to ramp back up if there was a recovery.

Speaker 6

Absolutely. Best of luck. I appreciate all the responses and all the information that they gave. Thank you. Thanks.

Operator

Our next question comes from Greg Lewis from BTIG. Your line is now open.

Speaker 7

Yes. Hey, thank you and good afternoon and thanks for taking my questions. Patrick, thank you for all the detail on Carolina Lithium. I guess as we think about being having received ADI number 4, which I guess addresses the groundwater and the sentiment control. How much what else should we be thinking about before we get the permit completion?

Speaker 7

Is that kind are those kind of the final hurdles? Or are there should we expect some more back and forth over the next few quarters?

Speaker 4

Yes. So it's a good question. The state always reserves its right to continue to ask questions up until they render a decision on our permit. So it's not inconceivable that additional question sets could come. What I would say is if we look at trend of the number of questions that we've received per ADI starting in the fall of 2021 until now, They each reduce a number in success of ADI.

Speaker 4

So this last round is to what we would consider very straightforward, somewhat technical questions in nature that require us to make some updates to our design drawings and return them back to the state. And I'm hopeful that we'll be including the process in the not too distant future.

Speaker 7

Okay, great. Thank you for that. And just realizing that lithium pricing is volatile, let's just assume a more positive outlook and a recovery here in the next couple of years. As we think about Ghana taking FID and trying to gauge CapEx, you noted the $124,000,000 of CapEx for Ghana. If we kind of look and just use the curve as a guide, how should we think about the split and timing annually of that $124,000,000 in CapEx for Piedmont for Ghana?

Speaker 4

Yes. What I would say is that management at Atlantic is working very hard on approvals for the Awuya project. There are a number of them to clear an EPA permit, a tailings permit, ratification of mine lease, and approved resettlement action plan among others. Their expectation is that they will receive all of those approvals within this calendar year. And starting by 2025, we could then expect with all those approvals in hand to start funding our obligations towards construction.

Speaker 5

Okay, great. Thank you for the time everybody.

Speaker 2

Thanks, Greg.

Operator

Our next question comes from Bill Peterson from JPMorgan. Your line is now open.

Speaker 8

Yes. Hi, good afternoon, everyone, and thanks for taking the questions. I guess coming to the NAL optimization efforts, and I might have missed it, but I guess how much of the cash cost improvement, I guess, on a per ton basis could you see NAL once the strategic initiatives like the crushed ore dome and tailings facility outline are implemented?

Speaker 2

You want to take that, Patrick?

Speaker 4

Yes. I would say on a trend basis, we could expect to see as much as CAD400 or CAD500 per ton cash cost from where we were in the second half of last year to where we might expect to be at the end of this year once we're at full ramp, taking into consideration the Dome and other optimization activities?

Speaker 2

Yes, Bill, it's obviously pretty significant. I mean, the dome the absence of a crushed ore dome means we just take a lot of downtime in the plants when the crushing facility needs maintenance. So the elimination of that should increase production meaningfully with no more people, no more power, etcetera. So unit production cost should improve quite significantly.

Speaker 8

Yes. Thanks for that. And then I guess as we think about 2024, I know you obviously prefer LTA versus spot, but how should we think about the mix as we progress through 2024, I guess realizing we have at least one spot here in the Q1? And then how should we think about the pricing structure of these LTA sales as we progress through the year?

Speaker 2

Yes, you're right. So we made a spot shipment in January. It was initially scheduled for December. Our focus right now is very much on transitioning to transitioning our shipments to our long term customers and having the joint venture take its essential share of the material and sell that on the spot market until we have a long term offtake agreement in place for that. So ultimately, it depends on how fast our customers can take the material.

Speaker 2

They each have one of them has a lithium hydroxide plant of their own, they're going to be ramping up this year. The other is taking it through a tolling facility elsewhere. And it really depends on how fast they can take it. And we intend to provide more clear guidance on shipment volume, hopefully, in our Q1 earnings release once we have more clarity on that. And right now it's just premature.

Speaker 2

We are we do have the eligibility to take 126,000 tonnes this year, normal 113,000 tonnes plus the 13,000 tonnes that was delayed into January. We still hope to do that. We would hope that the vast majority of that is contract shipment. And right now, we foresee maybe 1 or 2 more spot shipments over the course of the year, maybe not, depending on how fast our customers can take the material.

Speaker 4

Yes, Bill. And if I might just add, if you think about operations at NAL and the commitment from Piedmont, what I would say is the greater part of our expenses in support of the joint venture are front loaded in the first half of the year. The dome should be complete in sort of the April, May timeframe. And so we expect to have significantly reduced financial commitments to the joint venture in the second half of the year. And as Keith said, we've really backloaded the lifting schedule between ourselves and the joint venture tons towards our customer contracts under long term agreements in the second half of this year.

Speaker 4

So conditions from our perspective should improve.

Speaker 8

Okay. Thanks for sharing the insights.

Speaker 2

Thank you.

Operator

Our next question comes from Greg Jones from BMO Capital Markets. Your line is now open.

Speaker 9

Hi, good afternoon, Keith and team. Thanks for taking my question.

Speaker 2

Thanks, Craig.

Speaker 9

With the cash balance at year end at $72,000,000 and the plans that you're describing to minimize capital spend into 2024, can you share any color on the decision to divest the holdings of SAYONA within the quarter versus continuing to hold given where share prices across the sector has been recently?

Speaker 2

Yes, Greg, great question. Listen, we thought about this off and on. We frankly considered selling SAYANA and Atlantic shares months years ago at higher prices. And in retrospect, that would have been a good thing to do. But as we kind of head into 2024, and we thought about the environment we're in and the uncertainty we face, I mean, we're very bullish.

Speaker 2

I'm exceedingly bullish medium term. I don't have a I have a fairly cloudy crystal ball for the next quarter or 2. And we just thought there was an opportunity in the Atlantic situation, we had an opportunity to sell those shares at a pretty significant premium. And in the Syona situation, their shares obviously have traded really well this year and traded up recently. And I think in part on the good news of the mobile and DFS.

Speaker 2

So there was an opportunity for us to monetize those and really take funding at the Piedmont level. I wouldn't say off the table, but a lot of people ask me, when are you going to run out of money? When will you need to raise equity? And frankly, we think we just did. By selling the Cianna shares and the Atlantic shares in total, we raised around almost $50,000,000 That's a lot for us and it kind of positions us to get comfortably into 2025 without having to worry about dilution at the Piedmont level.

Speaker 9

Thanks. On the Q3 call, there was some discussion around the strategic partnering process and the ATVM loan application that's underway for Tennessee. And I think the commentary at the time that could potentially take 9 to 12 months to reach a resolution or a conclusion there. With today's release, there was also mention of Carolina potentially approaching a conclusion on the permitting side. How do you think about the timing and the staging of those two processes or projects if those timelines sort of come together at the same point?

Speaker 9

Is there a view as to staging 1 versus the other? Or how do you think about the timelines currently?

Speaker 2

Yes, it's a great question. We think about it a lot. We're feeling optimistic about the kind of Carolina permitting process now. We're sort of 6 plus months ago as we were getting permitted in Tennessee, it appeared that was certainly the project to move forward most quickly and first. And we entered into the ATVM discussions, we entered into a series of strategic discussions.

Speaker 2

I guess I would say the Department of Energy is aware of and interested in both of the projects. I think the strategic parties are interested in both of the projects. We'll see how the Carolina permitting process evolves here over the next several weeks months. And I think in this market, we're not in a hurry. I mean, these are big projects.

Speaker 2

Ultimately, they're $1,000,000,000 plus projects. This isn't the best time to try to fund them. But we've laid the groundwork. We're in touch with all of the strategic parties that we care and there are a number of them. We have a great relationship with the DOE.

Speaker 2

So those are processes once we decide once we have more clarity on each of the projects timeline, we'll make a clear decision then. And hopefully that happens over the next several months.

Speaker 9

Great. Thanks very much. That's all for me.

Speaker 2

Thanks a lot, Greg.

Operator

Our next question comes from Noel Quarsh from Tuohy Brothers. Your line is now open.

Speaker 5

Hi, good afternoon.

Speaker 4

Hi, Noel.

Speaker 5

Hey. Just had a few things I wanted to run by you. Talking about the energy storage market and of course we've certainly seen lithium pricing cycles before. And if we look ahead to pulling out of this down cycle, I just wonder sort of what that source of demand, how that might sort of affect, I guess, the shape of the curve heading out of it. So I'm just thinking about the contrast between now and say the last rebound.

Speaker 2

Yes, it's a good question. Candidly, we don't we at Piedmont don't spend a lot of time directly thinking about the energy storage markets. It's not where our focus has been. We're focused on the EV business and the customers we have now and the customers we're spending time with, the strategic parties are all aligned with frankly spodumene concentrate to lithium hydroxide for vehicles. So having said that, ESS is a really important part of the overall lithium kind of macro story.

Speaker 2

It's growing more quickly. It's at an earlier stage, but it's growing more quickly than EV demand for lithium. So it's really helpful. I mean to some extent lithium units are fungible and to the extent they're committed into energy storage, grid storage solutions that's great for demand generally and I think it will have an impact. And I think the share of lithium going into the ESS business is growing even though demand for each of the other components like EVs is also growing very quickly, but ESS is growing more quickly.

Speaker 2

So you're right, it was an insignificant part of the market or a less significant part part of the market 3 years ago when the market began to turn 4 years ago now. And it will certainly be a bigger part going forward.

Speaker 5

Great. Thanks. And I guess when you talk about sort of non dilutive funding options and you talked a little bit about timing and maybe this not being ideal. But I guess when you talk about potential partners looking at sort of the medium term, I'm just wondering, is sort of the rate environment a significant piece of what potential funders might be thinking about or are they just more sort of big picture macro, assuming that we have sort of a near term choppiness in pricing and then return to a more normalized pricing for sure like a subsequent leg of whatever financing you have. Any thoughts there?

Speaker 2

Yes. I hope I answer the question that you were kind of where you're getting at. I guess I would say, I mean, the strategic parties we're talking to tend to be very large companies. In the automotive business, the battery business, other businesses, mining and oil and gas, there are a variety of parties. These are big projects, so they tend to attract big companies with strong balance sheets for whom the financing environment that might affect a smaller company like ourselves is somewhat less significant.

Speaker 2

So there's and these are companies often who have made very significant commitments of their own to capital projects that they need for which they need supply. They've either building EV plants or they're building battery plants or they're building cathode plants. And spending all the money to build those plants and being unable to secure supply is a serious issue for them. So there's a real focus on it. So I don't think it's having quite a significant impact on those discussions.

Speaker 2

And really, we don't have anybody on the strategic side telling us to slow down. They don't need the material. It's quite the opposite. People are wondering, why don't why won't you do a deal with me now? For us, the issue is a little more, A, we're having the deliberation about Carolina versus Tennessee timing, just given the pace of permitting and everything else.

Speaker 2

And B, there's the process of going through the ATV M loan process, which is a multi month process obviously. And it's really whether this is the time we think we want to kind of lock in equity and debt commitments for a project that is large in a market that's not as attractive as it was a couple of years ago and not as attractive as we think it will be a couple of years from now. So we're just being patient. I mean, one of the threshold questions we think about every day, we're all shareholders, and is we're focused on building a business successfully. At the end of the day, we want to do it in a very prudent way with while minimizing dilution to our shareholders, full stop.

Speaker 2

So we're not going to race into a $1,000,000,000 cross project where we give away a lot more value in a bear market than might be able to preserve in a stronger market.

Speaker 5

Great. And just the last one from me. You talked about some of the encouraging drilling results up at NAL and so that sounds like it offers the potential for some upside to past expectations. I wondered if maybe a little bit of postmortem, we're so focused on current production and shipments. But last year, the ramp up to the rescatter of the plant and everything, I wondered if there's a positive way you could sort of postmortem on sort of how that period went relative to expectations.

Speaker 5

Anything else encouraging about the process that that might be a good clue to what further development stages might look like?

Speaker 2

Yes, I'll take a crack at that. Listen, we're 10 months into production at NAL. These are projects that generally take a year or 2 to ramp. I think we feel really good about the ramp. I mean, the only thing that we wish had happened differently is pricing.

Speaker 2

We started the process in a bullish market, pricing kind of fell month over month over month, which just makes it more challenging. But I think the team on the ground is doing an exceptional job. It's a great team. It's some components of the team that was there years ago, but really a fresh new leadership team has done just a great job. And I would highlight North American lithium, it's a special asset.

Speaker 2

It's been around for a while. It was started really in 2012, 2013, 2014, in retrospect, way too early before the EV market had developed. So it had a couple of false starts, but I think it's an asset now that has scale. It has a big resource, it's got big upside base in the drill results, it's in production, it's basically it was built And some of the final capital is going into it now. And you contrast that with greenfield projects where there's a lot of capital to raise and all the ramp process we're almost done with every other project has to go through.

Speaker 2

You think about greenfield spots and main projects or others, they just will not by of necessity take time to ramp, some more than others. So I think we're at the tail end of that and I'm hopeful we're at the tail end of that coming into a period where operating costs will continue to improve with these capital projects being done and the price that begin to recover, there's an opportunity for very substantial profitability at that asset pretty soon. So we're excited about that.

Speaker 5

Great. Thanks a lot.

Speaker 2

Thanks a lot, Noelle.

Operator

As of right now, we don't have any pending questions. We I would now like to hand back over to the management for the final remarks.

Speaker 1

Thank you all very much for joining us today and for your interest in Piedmont Lithium. As I noted at the top of the call, our earnings release and presentation as well as a replay of this call will be available at our website. So with that, we thank you and have a good day.

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Earnings Conference Call
Piedmont Lithium Q4 2023
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