Sociedad Quimica y Minera Q1 2024 Earnings Call Transcript

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May 23, 2024

Key Takeaways

  • Total revenues for Q1 2024 reached nearly $1.1 billion with an adjusted EBITDA over $400 million, while net profit included a $1.1 billion one‐time lithium mining tax adjustment that had minimal cash impact.
  • Sales volumes surged across all major business lines with record quarterly volumes in the iron segment, fertilizer recovery, and lithium volumes up almost 30% year‐over‐year, partially offsetting lower realized prices.
  • In the Nitrates & Iodine unit, ramp-up of the Pampa Blanca project will add about 1,300 t of new iodine capacity in 2024 and a 38 km seawater pipeline is under construction, while iodine demand is expected to grow ~4% and potassium nitrate demand up to 15% this year with stable pricing.
  • The lithium business is expanding capacity from 210,000 t of carbonate in Chile to roughly 240,000 t by end-2024 and from 40,000 t of hydroxide to 100,000 t by 2025, and with Chinese tolling and Australian projects aims to exceed 300,000 t of lithium products by end-2025.
  • Broader lithium market trends remain positive as global EV sales could reach 17 million units in 2024 (+22%), driving lithium demand above 1.1 million tonnes (+20%), while a potential 30% supply increase is expected to be moderated by high-cost producer constraints, supporting price stability.
AI Generated. May Contain Errors.
Earnings Conference Call
Sociedad Quimica y Minera Q1 2024
00:00 / 00:00

There are 11 speakers on the call.

Operator

Good day, and welcome to the SQM First Quarter 20 24 Earnings Conference Call. All participants will be in listen only mode. After today's presentation, there will be an opportunity to ask questions. Please also note today's event is being recorded. I'd now like to turn the conference over to Irina Achnova, Head of Investor Relations.

Operator

Please go ahead.

Speaker 1

Thank you. Good afternoon, everyone. Thank you for joining SQM's earnings conference call for the Q1 of 2024. This conference will be recorded and is being webcast live. Our earnings press release and a presentation with a summary of the results have been uploaded to our website, where you can also find a link to the webcast.

Speaker 1

Hirago Ioannis, our Chief Financial Officer, will be speaking on the call today Carlos Diaz, Executive Vice President of Lithium Mark Fons, Vice President of Lithium Development and M and A Max Vial, Lithium Market Intelligence Director Pablo Artemiras, Executive Vice President of Nitrates and Iodine and Juan Pablo Bellolio, Commercial Vice President of Iodine and Industrial Chemicals are also available to answer any questions. Our Chief Executive Officer, Ricardo Ramos, unfortunately, couldn't join the call today. Before we begin, I would like to remind you that some statements made during this conference call regarding our business outlook, future economic performance, anticipated profitability, revenues, expenses and other financial items are considered forward looking statements. Please note that the same cautionary language used in our press release and presentation also applies to this call. And now I will leave you with our Chief Financial Officer, Gerardo Llanes.

Speaker 2

Thank you, Irina. Good afternoon, everyone, and thank you for joining us today. As you may know, we reported our Q1 2024 earnings result yesterday. On this call, we will be discussing the key drivers behind these results and sharing our outlook for the year. Our total revenues for the 1st 3 months of the year reached almost $1,100,000,000 with an adjusted EBITDA of over $400,000,000 Our net profit was impacted by a onetime adjustment related to the accounting treatment of the lithium mining tax in Chile from previous years, adding up to almost $1,100,000,000 as of March 31, 2024.

Speaker 2

This is not having a significant cash impact since the majority of this amount, close to $930,000,000 was paid in prior years. During the Q1 of this year, we delivered strong growth in our sales volume across all of our major business lines, reporting record high quarterly sales volumes in the Iron business, positive sales volume recovery in the fertilizer business and almost 30% higher lithium sales volumes compared to the same period last year. This growth helped partially offset the impact of lower average prices realized for the Q1 2024. In our Nitrates and ION business unit, we are proud of the results of the ramp up of Pampa Blanca project, which is expected to reach approximately 1,300 metric tons of new iodine capacity this year. Also a few months ago, we began the construction of a seawater pipeline, which is expected to be completed in 2026.

Speaker 2

It is an exciting development, but it's also a challenging project, almost 38 kilometers long with a total elevation of over 1,000 meters running from the Pacific coast near the city of Iquique to our Nuevo Victoria operations. Once completed, the pipeline will have a capacity of 900 liters per second and will allow us to expand our production capacity even further while delivering fresh water to some neighboring communities. We have seen positive demand trends in the iodine and potassium nitrate market since the beginning of the year. Our outlook is that the iodine market demand could grow by approximately 4% this year, approaching 2022 levels. Our ION sales volumes are projected to increase in 2024 compared to last year with an expected stable average sales price with a possibility of a slight upside.

Speaker 2

We are similarly optimistic about the potassium nitrate market outlook with expectations of up to a 15% growth in the demand this year. Our sales volumes are also anticipated to follow a similar pattern. Potassium nitrate prices have been relatively stable over several quarters, and we believe this trend could continue for the remainder of the year. In the lithium business unit, having completed expansion of our lithium carbonate capacity in Chile to 210,000 metric tons, we're now focusing on a series of initiatives that should allow us to increase this capacity to 240,000 metric tons by the end of the year, mainly through process improvements, increased quality and efficiency of the existing production facilities. Our lithium hydroxide capacity in Chile has reached 40,000 metric tons per year, and we expect to complete this expansion to reach 100,000 metric tons per year during 2025.

Speaker 2

In China, we completed the modification of the Dishim Lithium Hydroxide conversion facility with a total capacity of 20,000 metric tons per year. This project represents years of innovation and development of a chemical facility to refine lithium sulfate produced in the Salar Adacaba to battery grade lithium hydroxide. At the same time, we have reached agreements to toll approximately 20,000 metric tons of lithium sulfate coming from the Salar de la Cama into lithium hydroxide in China. All of this together with the initiatives we're working on in Australia should let us reach a total production capacity of more than 300,000 metric tons of lithium products by the end of 2025. Turning to broader lithium market.

Speaker 2

We have observed some encouraging trends during the 1st month of this year. Strong demand growth have been driven by electric demand market, mainly in China, which accounts for almost 75% of global lithium demand. We anticipate that the total EV sales could reach 17,000,000 units by 2024, representing a 22% increase from 2023. And total lithium demand could exceed 1,100,000 tons in 2024, representing a 20% increase compared to the previous year. Given this demand growth, we have anticipated our sales volumes outlook for this year, expecting to sell close to 200,000 metric tons.

Speaker 2

The expected growth in global lithium supply this year could be up to 30% compared to 2023. However, given current lithium prices, the expected supply from high cost producers could be affected providing some price stability as has been seen since February this year. Before concluding and opening the line for questions, I would like to ask Marc to share with us some of the recent developments in our lithium initiatives abroad.

Speaker 3

Thank you, Gerardo. Good afternoon, everyone. From an Australian and international lithium perspective, 1st QM, it has been a very eventful and exciting start to 2024 with spodumene concentrate production commencing at the world class Mt. Hood and lithium project jointly owned with our partner Westfarmers and the completion of the Azure Minerals acquisition with Hancock Prospect. We are very fortunate to now have access to 2 globally significant lithium deposits, which we are progressing with 2 equally significant Australian partners, Westfarmers and Hancock Prospectum.

Speaker 3

Moving first to Mon Holland, last year, we commenced production at the newly constructed mine and concentrated facilities, exporting our first shipment of spotty main concentrate this month to be told in China. During this calendar year, we expect to produce a total of between 120,000 and 150,000 metric tons of spotty main concentrate, that's SQM's share, and to toll close to 5,000 metric tons of lithium hydroxide. However, given the timing of tolling and quality certification requirements, we do not anticipate seeing these volumes on the market until the end of the year. In the meantime, work continues on the Kwinana Refinery with construction of our 50,000 tons per year facility at about a 75% to 80% complete and expected to be in production by mid next year, following commission later this year. We'll keep progressing with studies and environmental approvals for the Mt.

Speaker 3

Holland mine and concentrator expansion, which would effectively see Mt Holland's doubling its polymeric concentrate production facility after FID is taken. Moving now to the recent acquisition of Azure, which owns 60% of the Andover Lithium Project in Western Australia also concluded this month. Together with Hancock Prospecting, we acquired all the outstanding shares of Azur Minerals Limited and jointly became owners of 60% of the Andover Lithium Project. This significant investment by SQM further highlights our belief in Western Australia as one of the world's prominent hard rock lithium mining jurisdictions. We're extremely happy with this acquisition and with our new partner Hanco, who will provide excellent product development and mining expertise in Australia to complement SQM's market leading lithium knowledge.

Speaker 3

We believe our business model of partnering with great local companies to discover and develop Tier 1 lithium assets places SQM in a prominent position in the global hard rock lithium market. In 2024, we will continue to work the good work that Azur has done and work towards our resource estimate for the Andover project as well as providing additional capabilities, continue with studies and regulatory approvals activities as well as product definition and product development. While work still needs to be done to finalize this resource estimate, we're certainly looking at a deposit of global significance. Outside of these 2 major projects, as you may have seen in our public announcements, we continue to work on, monitor and invest in various early stage exploration projects in Australia with the aim to finding new high grade lithium prospects with the potential for scale.

Speaker 1

Thank you, Marc. Operator, we will now open the lines to questions.

Operator

Thank you. We will now begin the question and answer session. Today's first question comes from Ben Isaacson with Scotiabank. Please go ahead.

Speaker 4

Thank you

Speaker 5

very much and good morning everyone. So I have three questions. I'd like to ask them 1 by 1 if that's okay. First question is, I noticed in your presentation that the plant in China in Sichuan, it's increased by 10,000 tonnes. It was 30,000 last quarter and now it's 40,000.

Speaker 5

Can you just explain that please?

Speaker 6

Sorry. Ben, this is Carlos Diaz. Yes, our capacity in China is 20,000 metric ton in the Sichuan, the Xiny plant. And the other 20,000, we are going to produce starting from lithium sulfate by with Toller. So in total, it's going to be 40,000, but 20,000 for our own factory and the other 20,000,000 for Tollers.

Speaker 6

But both are coming from lithium sulfide, sorry.

Speaker 5

Yes, right. Second question is on the Azure acquisition. So you have a 50% stake in 60% of Andover, if that's right. Can you just talk about what next steps are for the project over the next 12 months or so CapEx spending? And what should we expect to hear from you over the next year?

Speaker 3

Thanks for the question, Joel. Yes, you're right on the math on the acquisition of the at the end Andover Lithium project, it's 50% of the 60%. So regarding next steps, as I mentioned, we are now aimed in 3 main things is a resource made an estimate, driving more detail into what was already advanced by the Azur team. As you know, Azur issued an exploration target, which was a definition in between 100,000,000 to 2 140,000,000 tons of mineral at between 1% to 1.5% lithium oxide content. So the maiden resources segment will give us a more detailed view on that.

Speaker 3

At the same time, we are advancing on regulatory approvals, which usually in this case of capital investments in the resource industry, a critical path is aimed to those regulatory approvals. So we are advancing on those as well as starting pre definition with our partner Hanco. So for the future and the short term future, you won't see any capital requirements driving from Azure in next steps of development yet until we move into the DFS and FID.

Speaker 5

Great. Thank you. And just my final question in the iodine market. So the price was around $70 or so and it's kind of slipped back a little bit down to the mid-60s. Now it looks like things are strengthening again.

Speaker 5

Can you just give an overview as to where are we going over the next 2 or 3 years? It seems like there's not a lot of supply coming on and demand growth remains really resilient even in a weak kind of macro market. So does this tightness continue over the next couple of years? Thank you.

Speaker 7

Hi, Ben. This is Juan Paulo. Well, talking about the iodine market, as we mentioned in our release, we are seeing a recovery in the demand compared to last year. Last year went down about 4%. Now we're looking at growing again this year.

Speaker 7

That's why we believe the price is going to stabilize. And talking about the next 2 to 3 years, the drivers of the demand are still the growth of the contrast media industry, the LCD market and other healthy purpose of the iodine. So we see that demand growing. Maybe not at the 4% that we are going to see this year, but still growing. And on the same time, we expect that new supply may arrive to the market.

Speaker 7

We know that some competitors has made some move to acquisitions for old projects that should be online in the next couple of years, okay?

Speaker 8

Great. Thanks again.

Operator

Thank you. And our next question today comes from Joel Jackson with BMO Capital Markets. Please go ahead.

Speaker 8

Hi, good morning. I also have 3 questions. I'll do one at a time. First question is, you were very clear a few months ago, it's happened before the SCRAM that you were going to produce a bunch of lithium. The market may not be able to take it and you would build inventory without the tons for later, which is you do that for a lot of reasons.

Speaker 8

But usually what happens is you sell the tons anyways. So the decision not to build inventory or as much inventory into a lithium price market has been pretty flat in the last few months. Is that explain that decision commercially? Is that a view you expect lithium price to be very stable here and so no point to hold inventory back?

Speaker 6

Hi, Joel. This is Carlos Diaz again. Well, as always, our strategy is to produce at the full capacity and expanding in line with the expected market growth in order to be always prepared to serve the need of our customer. You know that lithium price hit bottom level in China by the end of February 24 after we wish we observed a quick recovery of almost 10% until mid April. And for several weeks after that, price fluctuation were quite moderate, potentially indicating more stability for the rest of the year.

Speaker 6

So the outlook for the rest of the year will depend, as always, in the supply of demand balance.

Speaker 8

Okay. You talked about capacity reaching 300,000 tonnes at the end of 2025. Let's call that a production level for 2026 if you choose to produce that full utilization as you just mentioned. If you can hit capacity of 305,000 tons at the end of 2025 and you were to run full out, what does that mean for actual production volume in 2025? Obviously, 305,000 tons is the capacity at the end of the year.

Speaker 6

Well, this year, we expect to produce around 210,000. That is according to our capacity in Chile that we were worried was mentioned by Gerardo and the capacity that we have in China and additional in Australia. But for next year, we're still reviewing that. But what was announced, it was 250,000,000 this year. It was 240,000,000 in Chile, sorry, and 40,000 in China.

Speaker 6

So 280,000,000 next year. That is going to be the same capacity. Yes, that is going to be the capacity and 3.10 in the year 2025. How much we're going to produce? Well, we have to see obviously how is the market, how the customer need and so on.

Speaker 6

But I always expect to sell according to our capacity. I mean, it should be close to that.

Speaker 8

Okay. My last question has to be sorry. My last question, it has to be asked. It's kind of a 2 part. So what is the last sticking point on finalizing this MOU with Codelco, which you said is going to happen within a week here, end of May?

Speaker 8

And then, Corrado and team, how concerned are you that Tianqi is going to use its legal options to force a shareholder vote? And then are you preparing for the potential that if any complicated and complex outcome that you will get their Tianqi stake put it to you, how are you preparing to possibly handle this financially?

Speaker 2

Hey, Joe. How are you? This is Gerardo. As you can imagine, the deal with Codelco is quite a complicated deal with a lot of details. And we have been working really, really hard to meet the deadline.

Speaker 2

Last year, we had the deadline to issue something by the end of the year. And at the end of December, we issued this MOU. And now we're working to make sure we have all the contracts finalized by the end of the month, and we keep on working on that. There is no particular sticking point as you ask. It's just that it's a complicated transaction.

Speaker 8

Now on the Tianqi shareholder vote, are you preparing financially to be able to have to protect yourselves in the chance that in a very complicated legal situation Tianqi puts its shares to you?

Speaker 2

I mean, the transaction as it was asked at the beginning of this year to the CMF has to be approved by the board, and we're planning that it will happen this way. And then once the contracts are signed, we will proceed with all the details to have the JV ready by the beginnings of next year. But we're not planning for anything else as the process should go as the regulator instructed.

Speaker 8

Okay. Thank you.

Operator

Thank you. And our next question comes from Gabriel Samos with Goldman Sachs. Please go ahead.

Speaker 4

Hi, thank you for taking my questions. So my first question will be on the lithium expansion. So given the increased capacity guidance that you gave for 2020 financing, I would like to understand where these investments will be made. So basically, you already mentioned the 10,000 tons additional in towing in China, but we'd like to understand what would take for you to get to the increased 30,000 ton capacity in Chile, right? So if you need additional investments to get to that capacity, does it only need improvement in terms of efficiency or does it require investment in more refining capacity as well?

Speaker 4

Just to understand how close you are already to your capacity in terms of refining and in terms of brine extraction? So that's the first question. [SPEAKER CARLOS GOMES DA

Speaker 6

SILVA:] Okay, Gabriel, thank you for your question. Well, it was already explained a little bit by Gerardo, we in the last year, we have been focused to increasing the capacity in Chile as a lithium carbonate, and now we're focusing in increasing as a lithium hydroxide. We already reached our capacity of 210,000 in lithium carbonate, and now we're working to adding and to focusing on the bottleneck of area of carbonate line and increasing the lithium recovery. This initiative have a lower CapEx intensity when compared with the new production line. So it is not significant as it was when we're building new lines because more focusing the bottlenecking.

Speaker 6

And we're working obviously to keep it increasing in the future now the lithium hydroxide, and they need to reach the 100,000 metric ton, let's say, at the last quarter of the next year. I don't know if that answers your question.

Speaker 4

It does. It does. Thank you. And I have just one more question on the lithium costs, right? So a few quarters ago, you mentioned that you'd start to focus on increasing the efficiency in production.

Speaker 4

So not only to increase production, but also in terms of costs, right? So in this quarter, the cost that you reported was already better than our estimate, but we just like to understand what is the sustainable level of production costs that we should see for SQM's lithium production in the future, particularly in the Sala del Surma, right? And when you would expect to get there given the initiatives you are making right now? Thank you.

Speaker 6

We expect the future cost as stable on same level that is today. We expect to reduce, obviously, because we are increasing capacity and gaining synergy. But for the other side, we have, I don't know, higher costs because we are with the focus to produce a higher quality. So always, you have more cost when you try to get in a better product. So as a summary, I would say it's going to be a stable cost compared to what it's been this year and last year.

Speaker 4

Okay, perfect. Thank you.

Operator

Thank you. And our next question comes from Caren Blanchard with Deutsche Bank. Please go ahead.

Speaker 9

Hi, good afternoon and thank you for taking my question. I have 2 questions. The first one to come back maybe on the MOU and TNG situation. So let's say you get the MOU finalized and signed at the end of next week basically. Can T and G still continue creating some issue around this?

Speaker 9

Or would like if you sign the deal next week, would I just seal the deal and basically kind of order regulatory affair that you have, had issue with? Would that go away?

Speaker 2

Hi, Corinne. This is Gerardo. Well, we are working on the final documents on this agreement with Codelco that was described on the MOU that was published at the end of last year. The approval process on our end was discussed or was asked to the regulator in Chile, the CMF, at the beginning of the year. And the regulator was quite clear on the way this has to be approved, which is at the board level.

Speaker 2

So once the contracts are ready, the Board will meet, will review the details of the contracts and will take a decision. On the Codelco side, to be quite honest, I'm not that familiar on how the process goes on their end to get the approval steps, but this is what should happen on our end.

Speaker 9

Okay. And the second question would be, what do you see like industry wide in the channel, like in term of inventory? Are you seeing again your restocking move, Anthony? Or is it still like a static post?

Speaker 6

Corinne, we have a healthy inventory. If you see this year, we expect to produce 210,000 and to sell 200. So only we will have to have more inventory in the chain because we are increasing the sales, and we want to have enough inventory to for supplying to our customer. We have inventory in Chile and in China, a lot of inventory there because obviously, our main sales, more than 70% of our sales is done in China. We have a different warehouse.

Speaker 6

And in Korea, I think I I would say that that's the most important place where we have inventory. We are in a healthy position now of inventory, and we want to keep it in that way. We're not speculating with the price and so on. We just sell what the customer need and according to our production.

Speaker 9

Okay. Thank you.

Operator

Thank you. And our final question today comes from Cesar Perez Novella with BTG Pactual. Please go ahead.

Speaker 10

Yes. Good morning and good afternoon and thank you for taking my questions. Regarding the $1,100,000,000 tax impact booked in the Q1 of 2024, must we now assume that going forward our estimates must now include a higher mining tax? Is this reasonable to assume for the quarters ahead? And my second question is actually more clarification.

Speaker 10

For the incremental 30,000 that you plan to increase in the Carmen complex by 2025. You just mentioned that you will manage to achieve this via higher recovery, which is less capital intensive. Can you comment how much less intensive this is on a per ton basis? And is this already included in the $1,300,000,000 CapEx you reiterated in your press release for 2024? Thank you.

Speaker 2

Hi, Cesar. This is Gerardo. Regarding the one time tax hit on the Q1 is related to the interpretation that the tax authorities have on the lithium mining tax, where they understand that it's subject to mining tax, the lithium is subject to mining tax and we are of the understanding that it's not. We have had this dispute for a few years. It has been described in detail on our financial statements.

Speaker 2

But because of the ruling of the appeals court in April, we have changed the accounting treatment of this tax, which by the way has been paid by the company every time we have been invoiced by the tax authority. So that's why it doesn't have a significant cash impact on our balance sheet. Now going forward, this the treatment of these tax payments should continue to be exactly the same as it is today or as it was reflected on the Q1 financial statement as a function of the mining tax in Chile. To give you an idea, the impact in the Q1, which is again a function of the price of lithium and the profitability of the business, was approximately 8 $1,000,000 Going forward, we will continue to book that as tax expenses depending on, of course, how the legal case continues.

Speaker 10

All right.

Speaker 6

Cesar, Carlos Diaz again. Well, as I mentioned before, at the beginning, we're focusing on increasing the capacity, adding the new lines. After we finished that, now we are focusing on the bottom negative area where we expect if we increase those equipment or unit, we can easily increase the total capacity of the same plant. There is no new lines. It's just doing the bottom of those areas.

Speaker 6

So that is what we estimate, let's say, dollars 70,000,000 could be a little bit more, but a range around that, and to gain another 30,000 metric ton. If you do the math, it's around $2,300 per tons. But just because it's a double negative asset, you cannot ask me to produce and to increase more the capacity with the same cost, right?

Speaker 10

No, I understand.

Speaker 6

Thank you.

Speaker 10

Okay. Thank you very much, gentlemen.

Operator

Thank you. And this concludes today's question and answer session. I'd like to turn the conference back over to Irina Axnover for closing remarks.

Speaker 1

Thank you, everyone, for joining today, and we look forward to having you on our next call. Goodbye.

Operator

Thank you. This concludes today's conference call. We thank you all for attending today's presentation. You may now disconnect your lines, and have a wonderful day.

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