Lithium Americas (Argentina) Corp (LAAC) 2024 Q2 法說會逐字稿

Thank you for standing by.

My name is Bailey, and I will be your conference operator today.

At this time, I would like to welcome everyone to the Lithium Argentina second-quarter 2024 earnings call.

(Operator Instructions)

I would now like to turn the call over to Kelly O'Brien, Vice President of Investor Relations and ESG.

You may begin.

Thank you, Bailey.

I wanted to welcome everyone to our earnings conference call this morning.

Joining me on the call today to discuss the second-quarter results as Sam Pigott, President and CEO of Lithium Argentina; Alex Shulga, Vice President and CFO will also be available during the Q&A session.

Before we begin, I would like to cover a few items in our press release with second quarter 2024 results were issued last evening and the corresponding documents are available on our website.

I remind you that some of the statements made during this call, including any production guidance, expected company performance down things strategic investment with us as governments, 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&A and news release that was filed last night.

I will now turn the call over to Sam.

Thank you, Kelly, and thank you, everyone, for joining us today.

Since our last earnings call, we remain focused on our strategic efforts, supporting the successful ramp-up of Qatari overall, ensuring that the company remains sufficiently capitalized and advancing our long-term growth plans with our partner, Ganfeng, I'll begin with an update on the ramp of the Qatari over US has mentioned in the earnings release last night.

We are very pleased with the progress being made and remain on track to achieve 2024 guidance.

During the second-quarter, production volumes reached approximately 5,600 tonnes of Lithium carbonate, an increase of 24% compared to the first quarter of this year, and we have achieved monthly production records in each of the past three months.

Production has now been sustained at around 70% of design capacity and we have been able to surpass these production levels achieving close to design capacity for limited periods of time.

The focus is now on maintaining the higher production levels near design capacity last night, we also provided further insight into our current pricing formula for the sale of Lithium carbonate from Qatari overall and additional financial information on the project.

We are working to find the right balance between increased disclosure to the market.

As we manage the variability typical and a new operation undergoing a ramp-up.

We realized periodic or backward-looking information during the ramp up may not always give an accurate picture with significant changes often month over month or within a quarter once the operation reaches commercial production expected later this year, we intend to provide increased disclosure and additional financial metrics on the project.

With the current market, while the current market conditions remain challenging, Qatari older US remains well positioned with minimal capital requirements ongoing and positive operating cash flow adjusted for working capital tied to the ramp up of production.

Even in the current pricing environment, we expect to remain operating cash flow positive with costs continuing to decline and better realized pricing.

This quality continues to improve.

At the close of the second quarter, Lithium Argentina had $96 million in cash before completing the $70 million granted transaction, which is expected to close imminently following receipt of Chinese regulatory approvals.

Proceeds from this transaction are expected to strengthen Lithium Argentina's balance sheet, including using a portion of the proceeds to reduce debt at the project level along those same lines in May, working with Ganfeng, we successfully secured an $80 million bank credit facility for the project to replace existing short-term debt with more flexible long-term plan.

Finally, we continue to carefully advanced original development plan, surpass those granted space and then stage two expansion Cauchari.

Focus today remains on completing the ramp-up, but we remain cautiously optimistic following reasons.

The recently passed ready incentive bill in Argentina that includes an attractive investment framework and important clarity on FX regulation to support our longer-term growth plans.

I have officially been part of the Lithium Argentina team for five months now.

And while there is still a long road ahead, I'm increasingly confident in the ramp of the Qatari overall, supported by the right team in Argentina and partnership with Ganfeng.

As the project reaches steady state, we see Qatari overall providing a powerful platform for long-term growth in Argentina.

With that, I'll now open the floor to questions.

Thank you.

(Operator Instructions)

Ben Isaacson, Scotiabank.

Hi, Sam and Kelly, this is [Provo] on Ben Congrats on the quarter.

My first question is I have just taken a look at your offtake agreements for the last, I think 3,800 tons of Phase one production that's yet to be committed and you plan to get these out the door assuming additional offtake or are you considering marketing them yourselves and potentially selling them.

Thanks for the question.

So at this point, we plan to retain this uncommitted share of offtake.

This gives us flexibility longer term as well as the uncommitted offtake on Stage two.

And so but you're during the ramp up, even though we haven't committed this portion to anything.

I think at this point, we expect to sell that product to through downtime.

Got it.

Think you.

And then my next question, you mentioned the debt profile of the operating company Nexstar and given some of the given the plan to do some of those proceeds from the past as kind of a transaction towards reducing leverage?

And can you give any color on what other or the scope of the refinancing that we might keep and potentially what those terms will look like at a high level?

Are there still capable?

Yeah.

I mean, we're open to all credit facilities.

So we in May, we secured an export credit facility for $80 million.

We expect that type of facility, which is accounted for in the overall debt on XR.

We expect that to be able to roll.

And we expect to use a portion of the proceeds from the PG co-transaction to deliver XR significantly.

And then we're also working with Ganfeng to pursue longer-term financing options to take advantage of the improved financing conditions in Argentina that are an example of that would include evaluating a local bond offering in Argentina, which could allow us to take advantage of an improved lending conditions there.

All right.

Thanks for the color.

Thank you.

Joel Jackson, BMO Capital Markets.

Good morning, Sam and team.

Just a first quick question.

When you said in the press release last night, you know, assuming the current market dynamic continues the Lithium price commentary, what is and do the operating cash flow positive, excluding net working capital changes?

Sorry, what do you think is the current operating environment for pricing?

What were you referring to?

Exactly what levels?

So I mean, we look at the battery grade price in China.

So $11,000?

Yeah.

Okay, and so the pricing across the first half of the year was much higher than that.

And depending on assumption you would make on what your actual sales volume was from the JV you were making, maybe the JV is making maybe $2000 a ton of profit.

Why at first half pricing, we know that spot pricing is lower.

Can you comment on that?

I mean it would seem like you're very razor-thin margins here at spot prices at XR.

Yeah.

I mean the expectation for it since the beginning of the year, we've been running this business on very conservative assumptions around pricing.

And that seems to be a very prudent thing given where the market is today and our expectation through the back half of the year is as production volumes ramp, we expect costs to decline.

I think we've been very pleased with the trajectory of costs through the first half of the year and expect that trend to continue.

And then in terms of the kind of realized pricing that we're receiving, we disclose the pricing formula, which is a snapshot of where we are today.

But we would expect that realized pricing to improve, given that the trends on quality have improved and therefore the reprocessing cost comes down.

So we're confident that in today's current pricing environment, we remain operating cash flow positive adjusted to for working capital tied to the ramp up.

We expect costs to continue to decline as volumes progress, and we expect the realized pricing relative to battery grade spot market pricing in China to improve its quality does.

That's helpful.

And then, you know, I think you took down the pool and a lot of part of the circuit in April sometime in the spring, right to sort of the fixed telecom now ramping back up and focus on quality.

That's correct?

Yeah.

And then now that you've had a few more months and the re-ramp after you do some fixes and some optimizations, are you now as a team now at XR thinking about some changes to the design changing in maybe how the KCL plant works or other things like you tried to, like others, new ideas you guys have with 3% more run time that you want to implement?

And what would that look like if true and?

Yeah, I mean, the plant shutdown in April was very effective.

We've seen it in the last three months where we've kind of progressively higher and higher production volumes.

And the part of part of this ramp up is about learning how the plant operates at higher and higher production levels and being able to sustain them as I think there's a lot of optimization work that is ongoing.

I wouldn't say that we're certainly not looking to change the design of the plant.

I think we've been very pleasantly surprised by how it's been operating, but certainly tweaks and minor optimizations along the way are going to be necessary to kind of continue to ramp up, achieve higher levels of production and then expand them.

It's a tougher question, and it kind of makes you look at the how you are now and how you're able to recently, we all know what happened, Lithium environments, and we're seeing a lot of different companies start to push off projects, curtail conversion plan, a lot of things happening in different regions of the world.

And you're obviously tied to, again, following in some of your future goals, new investing in the different basins and also in Argentina, your partner and XR with their view on things would matter.

Do you see, you know, a difference now in how some of your partners look at the market and how that might affect, you know, investment decisions by ourselves and then going forward.

I mean, the short answer is no.

I think that a bit more color on that is I think it's kind of heightened the focus on lower cost operating assets.

So I wouldn't include high-quality prime projects within that.

So I think there's certainly been a bit of a redirection in market participants and strategic positioning around which assets are developed.

And I think we're very fortunate to have a partner like saying that continues to invest through the bottom of these cycles.

I think this industry is prone to it's very aggressive bull and bear markets.

The long-term outlook, I think is what drives us and certainly what drives Ganfeng investment decisions.

And I think when they know when we and they look at which projects should get developed, I think we're very pleased with the portfolio that we have today.

Thank you.

David Deckelbaum, TD Cohen.

Thanks for taking my questions, guys.

And Sam, thanks for the time.

I did want to ask if you could just kind of help us quantify as you're in like the final stages of ramping towards battery grade.

Can you just sort of refresh us on what your operating cost target is and sort of how meaningful you think some of these cost optimization on endeavors are going to be with regards to lowering your operating costs, which still appears to be in sort of that $6,000 per tonne type level?

I mean, I think the ultimate objective is to we expect costs once we reach steady state to be in line with some of our low-cost producing peers in Argentina as we ramp up, obviously, cost is largely a function of volumes.

There's a high degree of fixed costs within our business.

And so getting volumes up towards the end of the year will be a major driver of that.

And then into next year, there's going to be a lot of room to kind of optimize the business across numerous things.

Reagents for one been a big bucket of costs.

I think we've seen a lot of great work led by Dan saying, and the team that generics are in terms of lower in specific consumption of reagents.

And I think that trend will kind of continue next year once we reach steady-state.

So and ultimately, this would be one of the lower cost projects, certainly in South America and in line with.

But our peers in Argentina.

Appreciate that.

And then if I could just ask for a little bit more elaboration on.

I know in the comments you said that the discussions around expansion of the 20,000 tons that chart a continued to advance.

Can you give a little bit of insight into what those discussions are right now?

And I'm just curious, like as you look to deliver at the XR level.

Is this a matter of conversations just within the existing XR kind of partnership?

Is there advancement of talks of and thoughts of bringing in additional parties before considering expansion?

Yeah.

I mean so the development work both on Stage two and the regional development plans continuing for the regional development plan, the ongoing work right now is really around technical collaboration with them.

I'm kind of pulling together the reserve and resource model, the hydro geological models.

And then we're obviously collaborating to explore the benefit to DOE technology to complement conventional solar evaporation process and for the regional development plants, specifically, Ganfeng is in this plan is bringing a lot of expertise from and our experience in Mariana and globally and within China.

And that combines with the early works studies that we're completing right now on the reserves and the hydrogeological models.

And so I think we're trying to position this business to be able to obviously support the ramp-up, but also put us in a very strong position, capitalize on the opportunities for growth at the right time.

Obviously we will have more to say on these development plans.

Both is the regional development plan and expansion plan once those studies are complete, which in the case of the original development plan, we'll have a lot more to say by the end of the year.

Appreciate the color.

Santhosh Seshadri, HSBC.

Yeah, thanks very much.

I assume, firstly, a renewal increase the battery-grade specs, but increase towards the back of better rates, but eventually should we expect your average cost to go up or maybe stay flattish as it becomes incrementally difficult to bring down cost side given the additional pricing involved?

And my second question is Ganfeng fulfilling its commitment levels in the current low demand scenario where your peers are finding it difficult to sell them back again?

Thank you.

Thanks for the question.

I'll answer the second first.

Yes, Ganfeng is continuing to take as much of the product as they can get from.

The second question is there is a bit of a there is a bit of a trade-off.

So as we obviously as we and rich near nameplate capacity on a sustained basis, we expect operating costs to fall in order to get to battery quality product.

There are a few additional steps that need to take place.

These are material.

I wouldn't classify them as material to the comp.

So the expectation is that producing better material grade at steady-state production should have a very immaterial increased to two overall costs compared to producing know the quality that we're producing today.

Thank you.

Just a follow-up on that, do you think that incremental cost will be lower than the $2000 discount that you're getting over?

Yeah.

Thank you.

Mohammed Sidibe, National Bank Financial.

Thanks for taking my question a bit of modeling questions here.

Some should we assume that most of the production that you've had in the first half of 2024 was sold again, thank all of it, or could you maybe help me reconcile the production and sales number?

So I mean, entitled to 80% of offtake from the first 25,000 tons of production.

The remainder to bank check, which is a tire oil and gas company so Ganfeng is taking the vast majority of product today in terms of reconciling kind of production and sales there.

Obviously, as we're ramping up and increasing production levels, there is and a bit of a lag between production and sales.

So there's a bit of a mismatch there.

And we expect that mismatch obviously normalize as we as we approach and sustain steady-state production towards the end of this year.

Great, thank you.

My second question, you mentioned that you expect to reach commercial production by the end of the year.

Can you qualify that is that the level of capacities averaging 90% capacity, is that a specific amount going through the plant side?

Could you give me some color on that, please?

So I mean, that's reaching higher production levels on a sustained basis over several months or so, Alex Shulga was on the call, I'm not sure you want to if you want to step in and answer that question.

Yeah, sure.

Some on accounting area here and there are some policies in Brazil approach from accounting office standpoint, how to define commercial production as several criteria that are being used on.

One is achieving certain level of capacity on the other one is being able to maintain that level of production of capacity for a prolonged period of time and quality of the product.

So we are monitoring all this criteria and when we feel that we have met the requirements on the project will be our consumer and commercial production, which will mean start of depreciation of all fixed assets, including the processing plants, are currently processing plant is not depreciated as well as you know, not and discontinuation of capitalization of certain a few costs.

Thank you.

And then my follow-up question just is on the liquidity front.

As it relates to the third party loans or the Argentinian level.

I know that you have about 200 on 100% basis and I'm calling this out here at $280 million debt.

That is due before June 30, 2025.

Could you give me some color on the cadence of that repayment?

Would it be more weighted towards 2025?

Or is it fairly split across the next four quarters as you guys continue to advance your refinancing efforts?

Alex, do you want to take that question?

Yeah, sure.

Absolutely.

It's some of it is spread between the remainder of 2024 and '25.

And we are actively working on refinancing this of this short-term debt, and we achieve certain level of flexibility by replacing some of the short-term loans with more flexible bank, more traditional bank loans.

So yeah, it is spread between '24 and '25.

And we do have, as I mentioned some flexibility on timing of repayments, we are able to extend and roll some of the loans.

As Sam mentioned, we secured an $8 million facility, which is which is expected to be to be rolled as well.

So, I hope this addresses your question.

Yeah, that's pretty helpful.

Thank you very much, guys.

Corinne Blanchard, Deutsche Bank.

Mike

[Milton].

First of all, congrats on the 70% capacity.

My question relates more to pricing on, can you talk about the discount, the $20 discount per ton and how you expect that to of all in future quarters and years?

Yeah.

So the current $2,000 processing fee is a reflection of the cost incurred by Ganfeng in China to remove trade levels, impurities and sell into the battery grade market.

Am We we're constantly reviewing quality and it's gradually improving.

So we expect that process in tier to narrow between now and certainly the end of the year.

The expectation, of course, is once we exit the year towards nameplate capacity on a sustained basis, we'll prioritize quality.

And once we achieve a better grade spec as the plant is designed at that, that adjustment, we'll no longer be required.

Okay, thank you.

Very helpful.

And then the other question I have is related to mineral SR.

On the 100% level, there was a $113 million loss related to the fair value of derivatives.

Can you help us under give a little more context around that, please, and then how you expect it to evolve?

Sure.

Maybe I'll turn that one to Alex.

Yeah, sure, Sam.

This fair-value loss relates to inter-company funding by shareholders.

Generics are and represents unrealized noncash foreign exchange loss and the loans from shareholders locked in gains, thanks to the project and loans are provided at the market, foreign exchange rates and generating foreign exchange gain at the time of grant loans are denominated in USD at market to USD exchange rate.

So changes in the market exchange rate in Argentina may result in unrealized gains or losses, like, for example, in Q2 in Q2, as you as you mentioned, market exchange rate of Passoa devalued over 40% and reading out a loss of $113 million at the same time if you look back at last year to 2023, we recognized a gain of $250 million.

So it's some it is fluctuating, you know, foreign exchange situation in Argentina has dynamic.

Unfortunately, we cannot predict how it how it develops.

But yes, we can see some fluctuation from quarter to quarter.

As I mentioned, this is on inter-company loans from shareholders.

Okay.

That's very helpful.

Thank you.

Shannon Gill, Cormark Securities.

Hey, guys.

Thanks very much.

Asking the question just to follow on to Charles' question here.

Just wanted to know how we can interpret the availability of the KCL plant going forward.

Is this something somewhat more of like constant rates at lower volumes on one of the trains or is it going to be more choppy with some breaks through tweaking or optimizing the processing more?

And can we expect more positives like the one in April at the time and you actually give some color on that, that would be great.

Sure, yeah.

The I mean, the KCL is, as you know, one of the last plants that we commit [Syltone] ramp up.

We've now operated both trends simultaneously.

And I think running both trains at full production will be kind of critical, obviously, to removing trace levels of impurities and kind of reaching our offtake inspection, right now, we have no expected meaningful downtime to reorient or optimize.

And again, we are we are obviously in a ramp up.

I think we've done a great job so far in terms of achieving approximately 70% capacity.

But as we as we push to higher levels and trends sustain them that there could be there could be the need to source some you don't need to shut down for a couple of days in order to in order to kind of fix are these bottlenecks in terms of reaching nameplate capacity.

But right now we don't we don't see anything, and that would indicate that, that that would be needed.

Okay, great.

So the biggest one, I guess in Q2 would have been the April 1, but no meaningful downtime?

No.

Okay, got it.

Thanks so much.

There are no further questions at this time.

I will turn the call back over to Kelly O'Brien for closing remarks.

Thank you, everyone, for joining the call this morning.

We look forward to reconvening next quarter and remind you that we are available all of us to help answer any questions or concerns before that.

Thank you and have a good day.

This does conclude today's conference.

You may now disconnect.