Lithium Americas (Argentina) Q4 2023 Earnings Call Transcript

Quartr
Provided by Quartr
March 21, 2024

There are 9 speakers on the call.

Operator

Hello and thank you for standing by. My name is Regina and I will be your conference operator today. At this time, I would like to welcome everyone to the Lithium Argentina 4th Quarter 2023 Earnings Conference Call. All lines have been placed on mute to prevent any background noise. After the speakers' remarks, there will be a question and answer session.

Operator

I would now like to turn the conference over to Kelly O'Brien, Vice President, Investor Relations. Please go ahead.

Speaker 1

Thank you, Regina. I want to welcome everyone to our first earnings conference call. Joining me on the call today to discuss the Q4 and full year 2023 results is Sam Pigott, President and CEO of Lithium Argentina Alex Shoba, VP and CFO Alex Michel, Business Development Ignacio Solorio, Executive Vice President, Legal, Government and External Affairs will also be available during the Q and A session. Our earnings were released after the market closed yesterday and you'll find the press release, the MD and A and the financial statements posted on our website. We also filed our annual information form last night.

Speaker 1

I remind you that some of the statements made during this call, including any production guidance, expected company performance, Jiang Feng's proposed investment in Pastos Grandes, the timing of our projects and market conditions may be considered forward looking statements. Please note the cautionary language about forward looking statements in our MD and A, annual information form and news release that was filed last night. Now I would like to introduce Dan Pigott, our President and CEO. He joined Lithium Argentina on Monday. However, he is not a stranger to the lithium industry or Lithium Argentina.

Speaker 1

He joins the company from Ganpeng Lithium, and we are happy to officially have him on the team. I now turn the call over to Sam.

Speaker 2

Thank you, Kelly, for the introduction, and thank you, everyone, on the line for joining our first earnings conference call. It is great to be here this morning having just published our 2023 results. This is our first earnings conference call and we thought it would be well timed on the back of first lithium sales and our transition from development to operations at Kichari Obraz. As we mentioned yesterday in our earnings release, 2023 was a historic year for Lithium Argentina and everyone involved to development, construction and now operations of Kachari Oboraz. This $1,000,000,000 development is the result of the talented and dedicated team of professionals at both Lithium Argentina and Ganzang.

Speaker 2

Since joining the company, I have had detailed meetings with the operators and various members of the team and feel very confident in the production guidance outlined in the earnings release. 2024 is expected to be another positive year as the project improves product quality and increases production volumes. Overall, the ramp up is going well. It's been approximately 9 months since first production and 4 months in operations with the 1st KCL train and we are already operating at levels consistent with other projects in Argentina. Teichari Obraz is currently producing at approximately 50% of capacity and in March the plant has demonstrated it can operate at around 75% capacity over a limited period.

Speaker 2

It will take time to work through these typical ramp up issues to sustain these higher levels of production, but we expect to be operating at close to design capacity by the end of 2024 on a steady state basis. We recognize that the current lithium price environment raises concerns amongst investors about corporate strategies, especially around capital intensive growth strategies. The lithium Argentina is quite simple. By far, our highest priority is to support the successful ramp up of Kachari Obraz Stage 1 and ensure we remain well capitalized through the cycle. The Chari Override is a world class project and we are focused on increasing production volumes and product quality as this will maximize cash flow and give us the most optionality going forward.

Speaker 2

In line with keeping our focus on Kichari Obirod in an effort to maximize longer term optionality with our growth assets and ensure a further cushion to our balance sheet, we entered into a transaction on March 5 whereby Ganfeng has agreed to invest $70,000,000 for an approximate 15% stake in Pasos Grande. As part of the transaction, Ganfeng will lead the regional development plan in the Salta province of Argentina that will incorporate 3 distinct large and high quality assets, those being Pasuelos Pastos Grandes owned by Gansang, Pastos Grandes owned by Lithium Argentina and Sal de la Puna which is a joint venture between Lithium Argentina and Ganfeng. The regional development plan is expected to be finalized by the end of 2024. To reiterate, this transaction has provided a cushion to our balance sheet and allows Lithium Argentina to advance a regional development study at minimal cost and without distracting the existing teams currently focused on Kachari Olaroz. It also builds on the successful partnership with Ganpeng at Kachari where we have seen the benefits of their expertise and experience in commissioning the chemical plant and bringing processing technologies and skills not currently available outside of China to Argentina.

Speaker 2

During the remainder of the year, I look forward to the completion of the commissioning at Tichari Olaroz, preparation of the development plan for Pasco's Grande Basin in collaboration with Ganfeng, maintaining a financially strong financial position for lithium Argentina and having the opportunity to work with a talented multinational and diverse group of individuals. That concludes the prepared remarks. Now we'll open the line for questions. Thank you.

Operator

Please go ahead.

Speaker 3

Good morning, everyone. Sam, welcome to the job first week officially.

Speaker 2

Can we talk a little bit about

Speaker 3

so you're not disclosing what sales volumes were out of XR or lack for the Q4, but it looks like you are talking about $20,000,000 $21,000,000 gain from the JV from XR in the 4th quarter. Can you talk about are you able to give a little color about what kind of sales run rates are? And when you give a production guide and it's $20,000,000 that wouldn't seem to imply that you had some healthy profits on these tons even if the quality wasn't quite what you want yet. And then you're giving a 20,000, 25,000 to 5,000 ton production guidance out of Cushar El Doros this year. Would we assume that's what the sales would be volumes also out of Cachera?

Speaker 2

Maybe I'll take your the second part of that question first. So yes, the guidance is 20,000, 25,000 metric tons of production this year. That guidance obviously reflects the variability in a typical ramp up. I think things are going very well and there's room to improve there, but obviously that guidance is a reflection of what we believe is achievable today and incorporate some of the expected ramp up issues that are typical in a project like this. I think for the first part of your question, I'd turn it over to Alex Shulga to answer around the $20,000,000 Alex?

Speaker 2

Thanks, Sam.

Speaker 4

This is Alex, CFO. The €16,000,000 for the full year is not only last share of the joint venture operating profit, It does include Lux share of the JV results of operations. But in addition to that, it includes other elements, including a significant non cash foreign exchange gain on some of the local BCS peso denominated dollar linked into company loans. Because of the significant devaluation in the end of 2023, the JV recognized the non cash unrealized foreign exchange gain on such loans in accounting and the €16,000,000 reflects Lakh's share of this gain. For more details on this, please refer to disclosure Note 8 on Page 2425 of the company's financial statements.

Speaker 4

And I'm happy to follow-up or email if you have any more detailed questions.

Speaker 3

Okay. I'll ask one more question. Sam and team, can you talk about the trade off that you're looking at for product quality? So you got to look at what kind of quality can you get, battery grade, if there's different floating definition of battery grade versus technical grade, and you got to look at how much volume you can get out. We know Olaroz, their Phase 2 across the road there is just focusing on technical grade.

Speaker 3

Trouble the trade off in trying to push as much volume as possible, but maybe deciding maybe more technical grade might be the optimal path and upgrading it to battery grade later, certainly elsewhere, maybe by Ganfeng? Just talk about the trade off that you're sort of looking about as you start to ramp the operation and try to maximize profit? Thanks.

Speaker 2

Sure. Well, I think I'll start by just saying that the plant is designed to produce battery grade. And our focus today is on ramping up volumes As a function of increasing volumes, we also expect quality to improve As we reach higher and higher rates at steady state, there'll be less variability flowing into the product. So the intention right now is to move to battery grade. Obviously, we will do whatever is in the best interest of shareholders in maximizing value and we consistently kind of review that with our joint venture partner.

Speaker 2

But the plan is to ramp production volumes, the increased improvement in product quality and move towards battery grade.

Operator

Our next question will come from the line of Ben Isaacson with Scotiabank. Please go ahead.

Speaker 5

Thank you very much and good morning everyone and congrats on the first call and Sam congrats as well. First question is, can you talk about the weather related power disruptions And what exactly happened and how long has it been going on for and what is the mitigating going forward?

Speaker 2

Sure. I'd say in the 1st couple months of this year, really February March, the Puna area in Argentina experienced a really unusual number of electrical storms, which impacted some of the reliability of our power to site. So this is something that we're working on to mitigate going forward, just increasing the support systems there, improving redundancies. It's something that we're well advanced and taking care of. So it was really just unusual weather.

Speaker 2

So how

Speaker 5

should we so is there still risk and will that risk be eliminated

Speaker 2

I would say that as we push throughputs through the plant, it obviously puts more strain on the power system, but we've identified what needs to be fixed and we're pursuing a solution.

Speaker 5

Perfect. And then my follow-up question is you talked in the press release about expectations for positive cash flow from operations this year. Can you give us just some color on your assumptions in terms of the economics to achieve positive CFO? What kind of pricing are you thinking about, etcetera?

Speaker 2

We're thinking about recent pricing, so maybe just take an average of the year to date.

Operator

Our next question will come from the line of David Deckelbaum with TD Cowen. Please go ahead.

Speaker 6

Good morning, everyone, and congrats again, Sam and team on the first inaugural call here. Perhaps just to dig into the weeds a little bit more, I was hoping just on the guidance side, if you might opine on what your expected operating cost now is on a per ton basis sort of ex DD and A in this 1st year? And then what you're thinking now as you get to capacity relative to your original expectations?

Speaker 2

So I mean, I think most people appreciate we're in the middle of a ramp up at Kachary Olaroz. Costs are largely tied to volumes. And as we reach steady state, we'll provide more details. I would say on the cost side of things, we're also going through a transition from construction to development. And so the cost will change, the cost structure will change.

Speaker 2

So I think it's too early to provide you with any of that guidance. But when we have a cleaner sense, once we reach more steady state production, be providing that information along with our partner Ganfeng. But in terms of operating costs, I mean, what we have said is that we expect to be operating cash flow positive in 2024 based on recent pricing, which to Ben's question is kind of an average of battery quality China year to date.

Speaker 6

Yes. I appreciate that. Maybe just further into some of the guidance details. I'm trying to get a sense of I think you all announced that in light of the current environment, you're reducing corporate overhead and spend by 25%. Obviously, as we think about the Kichari expansion, it seems like that's a wait and see.

Speaker 6

How do we think about the capital that you're looking to spend this year? I know that you know that you're going to do away with sort of excessive exploration work at Pastas Grande. But how do you see just this base CapEx evolving this year? Or is it kind of iterative right now as you're considering multiple different opportunities that are out there?

Speaker 2

Yes, I mean, I'd say that we're in a very fortunate position to not have material capital commitments going through this year. As disclosed in our documents, we have $13,000,000 of CapEx remaining to be spent. The priority for us is to get through ramp up at the steady state production. Stage 2 will follow that. It will follow a successful completion once we get up to near nameplate capacity by the end of this year.

Speaker 2

In terms of our decision to cut back on other corporate expenses, it's in part related to this transaction with Gansang and the development plan that they will be leading for the Pazos Grandes region. So we didn't anticipate we don't anticipate spending material capital on that plan given that we already have a wealth of information from the work that's already been done by us and our predecessors on the path that's grounded space.

Operator

Your next question will come from the line of Santosh Sesadri with HSBC. Please go ahead.

Speaker 7

Yes. Hi, good morning, everyone. And congratulations, Sam, for your new role. So I have a couple of questions here. Firstly, can you provide some time line on the ramp up to battery grade specifications?

Speaker 7

Because I was under the impression that debottlenecking your KCL plant will help you achieve higher production rate as well as battery grade product. I can see your production rates are increasing, but you're still technical grade product. So if you can provide some color on that, that will be helpful.

Speaker 2

Yes. I mean, I think that the priority Sorry, there was a second question.

Speaker 7

Yes, go ahead. I'll wait for the second part of the question. Okay.

Speaker 2

Yes, the priority for us is ramping up volumes and getting to this steady near nameplate capacity by the end of the year. Volume or full quality will improve as we push through production. As we increase throughputs and achieve steady state productions and ever greater throughputs, It's going to help with the variability of our product and the product quality will improve. The battery plant is designed to do battery quality specifications.

Speaker 7

Great. And how to think about the pricing discount to your JV partner, Ganfeng, given the product quality differences?

Speaker 2

Yes. The pricing today that we receive is tied to battery quality prices, which are then adjusted based on product quality and the cost to further process this product by Ganfeng in China. So as the product improves, which we've already seen the discount to battery quality that we received is expected to narrow. And yes, so it's tied to battery grade, less an adjustment for power quality, which is improving.

Operator

Our next question will come from the line of Noel Parks with Tuohy Brothers. Please go ahead.

Speaker 8

Hi, good morning. Sorry if you've already addressed this. But I was just wondering, looking at the stage of production and operations at the stage 1, Just wondering, do you have any rough sense of sort of the delta in terms of cost inflation now live in production versus what sort of the original planned levels were? Just kind of a sense of where kind of where we've come versus kind of the original studies?

Speaker 2

I mean, I'd say that the largest cost on an operating basis for any brine project are the reagents and reagent prices have been very volatile. There has been quite a bit of inflation since the technical report was announced, but we expect that our costs will be on a steady state basis reflective of other operations in the vicinity.

Speaker 8

Great. And just looking ahead, I guess, just sort of the expansive resources, including personnel and so forth. As the region continues to build out among several different areas with new projects getting off the ground. Do you have any sense of any particular constraints, resource constraints, just looking out over the next few phrases, the next few years?

Speaker 2

I mean, human capital is hugely important. I guess we all know Argentina is very active in terms of lithium projects. So we're very happy that we've built the team along with Ganfeng within the joint venture project. But that's certainly an area that I think that the country will face challenges is attracting appropriate talent. I think in our case, we're very fortunate to have a joint venture partner in Ganseng and access to their world class expertise in commissioning and operating these very large lithium chemical plants.

Speaker 2

I mean the other area is kind of logistics. There's a lot of reagents that move through the northwest part of Argentina and that'll just increase as more projects come online. And this is part of the thinking around our the investments that Gansang made in to pass those grandes and kind of assessing a regional development plan for pass those grandes where we can be better coordinated with our existing joint venture partner Kichari, which is kind of thing.

Operator

Our final question is a follow-up from the line of David Deckelbaum with TD Cowen. Please go ahead.

Speaker 6

Sorry to come back for seconds here, but I was hoping to ask just sort of what information we might expect to receive with this regional development plan. What's going to be included in that around planning and disclosures? And should we think about this as a fulsome development plan for Kichari, Pastas Grande and beyond over sort of like the next several years? And will there be additional feasibility studies that go into that? The

Speaker 2

plan right now is for again saying to leave this regional development plan focused on the assets in Salta that would include Zuelos, Pazuelos, Pazuelos, Pazuelos Grandes and Salve La Puna. We expect to have more information towards the end of the year.

Speaker 6

Fair enough. Thank you, guys.

Operator

With that, I'll hand the call back over to Kelly for any closing remarks.

Speaker 1

Thank you. I want to thank everyone for joining the call today and we look forward to your participation next quarter. Have a great day.

Operator

Thank you all for joining. This will conclude today's meeting. You may now disconnect.

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Key Takeaways

  • Stage 1 Kachari Olaroz is operating at ~50% capacity (75% tested in March) and Lithium Argentina expects to reach near-design output by end-2024 with 20–25 kt of KCl production.
  • Ganfeng will invest $70 million for a ~15% stake in Pastos Grandes and lead a regional development plan covering three high-quality assets, to be finalized by end-2024, enhancing optionality without diverting capital.
  • The company aims to deliver positive cash flow from operations in 2024 based on recent battery-grade pricing, retains only $13 million in remaining CapEx commitments, and has cut corporate overhead by 25%.
  • Although Kachari Olaroz is designed for battery-grade KCl, initial outputs have been technical grade with quality expected to improve and battery-grade discounts to narrow as ramp continues.
  • Unusual electrical storms in early 2024 caused power disruptions, prompting redundancy upgrades; regional growth will also require navigating reagent logistics and skilled labor constraints.
AI Generated. May Contain Errors.
Earnings Conference Call
Lithium Americas (Argentina) Q4 2023
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