Sigma Lithium Corp (SGML) 2023 Q4 法說會逐字稿

Good morning, everyone. My name is Dennis, and I will be your operator today. Welcome to the Sigma Lithium fourth quarter and full-year 2023 earnings conference call. Today's call is being recorded and is broadcast live on Sigma's websites. On the call today is company CEO, Ana Cabral Gardner; and Company Executive Vice President, Matthew DeYoe.

We will now turn the call over to Matthew.

Thank you, Dennis. This morning, before market opened, we announced a final investment decision for our Phase 2 expansion as well as preliminary unaudited 4Q and full-year 2023 financial results.

Before we begin, I would like to cover a few items. First, during the presentation, you'll hear certain forward-looking statements concerning our plans and expectations. We note that actual events or results may differ materially given market conditions and our operations.

Additionally, earnings referenced in this presentation may exclude certain non-core and non-recurring items, and have been based on unaudited financial statements. Reconciliations to the most directly comparable IFRS, financial measures and other associated disclosures will be made available slides will be posted on our website following the call we'll post additional slides with added financial and performance information.

With that, I will pass the call over to Ana.

Hey, everyone. Good morning. We are absolutely delighted that we are announcing the final investment decision and the initiation of construction to double our production capacity from 270,000 tonnes of lithium concentrate per year to 520,000 tonnes of lithium concentrate per year. 2023 was just a transformational year for us. We became a major lithium producer and as an investor operating team, we own more than 50% of Sigma. So we are all in together with all of you, our shareholders.

I'm going to walk you through the key items. The five key competitive advantages that gives us so much confidence to make this investment decisions. First, we we're large-scale, so we became the fourth largest mineral industrial lithium complex globally. Secondly, we are the sixth largest global producer that includes brine in rock. So we got scale.

More importantly, we have low cost. We have achieved the second lowest cost in the industry amongst our peers. In parallel, we are producing a premium nickel material. We call lithium [5.0], which is the quintuple zero. It is irrespectively of environmental and social sustainability, physically and chemically is the best chemical grade and most sustainable lithium in the world has unique metallurgical properties.

So as a result, we made a final investment decision to build double scale to deliver more of that material. So the Phase 2 is going to be the same build team of Phase 1, which delivered Phase 1 successfully on budget and on time. And more importantly, and I think lastly, a key point in this confidence behind the investment decision was that a result of the very successful drilling campaign of 2023.

We managed to increase the project life to over 25 years. So we have now permanence in longevity at 109 million tonnes of mineral resource. We have a forecasted 150 million tonnes of mineral resource.

On the next slide, you can see we want to demonstrate it quantitatively that we've surpassed every lithium industry record and we've achieved full production capacity just at the beginning, just at our second quarter of operations.

We reach 270,000 tonnes of material from September '23 to September '24, meaning on an annualized basis, we have 12 months -- we have reached 12 month capacity and again, within just six months of commissioning. We have managed to produce and deliver in those six months of 2023, 105,000 tonnes of this material.

We caught quite a lot to off the very great market of last year. And as a result of this approved superior properties of the material. We achieved a $1,333 per tonne of average price premium price for the material. Net-net, we're getting a high $1,160 per tonne of this material, again, result solely of the outstanding metallurgical and chemical properties of the product.

We have managed to reach a cash cost at plant, which is the second lowest amongst the Hard Rock lithium producers. And these gets cash costs get lower as we get bigger, because we dilute our fixed costs by a larger production. And more importantly, we've done all of this while generating and conserving cash in our typical Sigma discipline.

In other words, we have a cash position of $109.4 million sitting in our balance sheet. So theoretically, we have an entire Phase 2 plant right there in our balance sheet ready to be deployed. So as a result up, we're initiating to increase our screen initiating Phase 2 to increase our scale in 100%. We started with all the construction activities, mobilization, contracting promo and we'll double capacity to 520,000 tonnes.

So it is more of the same because it is working and it's working extremely well irrespectively of lithium price cycles. And I think lastly, again, we got to 109 million tonnes of audited mineral resource with and it would have an exceptional high grade of lithium oxide, which means that we have over 25 years of life of the project, but our resource lasts longer because it has higher lithium oxide.

So we are a 100% known four largest producing industrial lithium complex in the world, and the only one to produce this 5x 5.0 carbon lithium. Which makes us all very prime proud, because for us in our team industrial operators. You wouldn't be any point in getting here without being able to be in consistency with the supply chain, though, we are honored to be part of. This green supply chain, that delivers this green electric vehicles.

So here's a picture of this industrial plan that kind of makes this magic. This is the clean tech innovation. What you see in dotted red is this third module of the plant. This was a lot of work to put together, but that is actually at the great responsible to deliver the quintuple zero lead to the low cost in green lithium for green cars. And again, it's green lithium for green cars, not brown lithium for green cars.

Why is that? We have zero toxic chemicals is dense media separation centers, centrifugation technology. We achieved zero-carbon. We use zero drinking water. We've been using sewage-grade quality water. We produce the lithium with zero tailing dams, and we use zero data power. Our Power is clean in renewable.

On the next page is an illustration of us in the lithium world in general. And you can clearly see numbers are quite straightforward. We have our starting point at 85 million tonnes, which is equivalent to 2.7 million tonnes of LCE resources. Then we delivered the first leg of the mineral resource update, which got us to 3.3 million tonnes of LCE resources. And then we have the expected a further increase at 4.8 million tonnes of LCE equivalent resources.

On this page, you can clearly see where we are in scale. In brown, you see our peers, all of them in Australia, all of them, lithium industrial mineral complexes in production in purple are the non-producing. So we basically are the four largest lithium industrial mineral complex in production. We are of that scale.

And this is just our first year of operation. So it shows that we have permanence because we are as large as the greatest project in the world sitting in Australia. We joined that club. Here is when we stack us up against all producers, including brian producers. And again, the chart is pretty self-explanatory.

We became the sixth largest producer globally, but because we commissioned our operations with the headwinds of the lithium cycle reaching bottom, we never got the opportunity to be repriced as the large scale producer there we are. And here we're going to demonstrate visually the disconnect. When you see in dark green is the volume in LCE equivalent of 2024 production.

In gray, you can see the market cap current of these companies. Clearly, when you look at Sigma at 37,000 tonnes of LCE equivalent of production for 2024 like right now, you look at our market cap, we're really priced like a developer. So the discrepancy speaks for itself. And the plan for this year in our number one mission is to close that gap. I'm basically doing what we're doing, demonstrating that we're here to stay as a large supplier.

In this next slide proved that we're going into our ninth shipment. We have demonstrated resilience and the sheer metallurgical product quality of this material, we establish shipment cadence basically on month five after commissioning, by reaching capacity on annualized capacity. We've done all of that against terrible headwinds.

So we now have a track record of being reliable, large scale supplier to the EV battery chain. And in the spirit of transparency, we're showing every shipment in every implied price per ton of every shipment.

So we've achieved this on merit up, slightly premiumizing over our peers because the product has what we call value in use superior metallurgical properties and that deliver measurable quantifiable cost savings to the customers. So we're here to stay. We are a large-scale producers. We have force for good in the industry.

On this next slide, a bit more on premium pricing. We're been achieving a meaningful final premium price. This month we were able we were able to close the gap completely eliminated provisional pricing. So that once again validates these outstanding metallurgical and chemical properties of the product. The product is better. It delivers savings.

So we're not capturing all of those savings. We're capturing some of it that becomes our premium pricing. So just now for this shipments, we've achieved $1,333 nameplate price, which included the VAT. Net of VAT is $1,160 per tonnes. So that's a very decent premium for the new producer on the block.

This price again is final and non provisional so it's a meaningful increase over the previous premium prices we already achieved. We showed you on the previous pages. And if you translate that into a variable price or into a reference. That's equivalent to 8.75% of the London Metals Exchange, lithium hydroxide CIF quote.

So it shows that we're grabbing a significant portion of the value of the supply chain. The price discovery was transparent. It was driven through close private bidding and the purpose of it is working partnership with Glencore, our marketing and commercial partner to maximize the value of this superior product for Sigma.

On this next slide, again, more of why do we have value-in-use? what are these chemical and physical properties that allow us to premiumize even against headwinds?

First, it's because the product is high purity, high purity means low iron oxide, low potassium oxide, low sodium, an oxide. These are three, let's say impediments to achieving ultra high purity lithium chemicals at a low cost for our clients. It also has low mica, which again is another stumbling block in the refining process.

What's interesting, though is that when you look at the physical properties of the product, we have a dry course, the dry course behaves and the calcination stayed at the [keel] beautifully as it heats up and it becomes beta-spodiumine. So there are efficiency savings right there in the form of saved energy.

So this whole combination delivers a saving that's measurable. How so? The down streamers just need 7 tonnes of our products to produce ultra-high purity lithium hydroxide. When you look at the comparable products, 9 tonnes to 10 tonnes of that comparable product is needed.

So there's 3,000 tonnes of savings for our clients per tonne of lithium hydroxide, which could technically translate as about $330 per tonne of savings for us if you look at just 7 tonnes. And again, it's visual, you can look at the pictures and you can see the difference. Ours is very light greenish, which means purity, a coarse material versus the muddy, talc-type wet materials for from our competitors.

And again, here's the Quintuple zero, I'll be brief, but we are very proud to say that we've done all of that staying true to purpose, whether it matters or not whether we get a green premium or not, that is not why we do it. We do this because 12 years ago, we started on this journey of being investor operators, the segment to deliver just that. To be at the leading edge of sustainability.

Zero carbon zero chemicals at zero toxic chemicals, no tailing dams, no cannibalization of the community for potable drinking water clean power. So we did exactly what we said we did. We didn't increase our production cost as a result. But unfortunately, we do not get a green premium, but again, our product is up better.

So a bit about okay, a bit about -- the numbers right were built to last. I mean, we built this company with great corneal financial discipline over 12 years. So ironically, this is probably one of our best moments because it's the first year, we have revenues and more importantly, we are able to quantifiably demonstrate that we are low cost.

So we have revenues, we have low cost, we have cash flow, and the consistency of delivery and production of our green tech plant keeps on driving revenues, keeps on achieving that a very low cost, creating what we call commodity cycle resilience. So irrespective of commodity cycles. We're generating cash and we have a very robust business.

As Jim Collins used to say we're built to last. So in 2023, our full year dollar revenues were USD135 million. We shipped 102,000 tonnes of material. We produced 105,000, but the average realized price per ton of material was $1,321 per tonne. Our FOB adjusted cost at plant was $427 a tonne. FOB adjusted cost at Port of Victoria, meaning taking from the Vantage and kitchen going into the Port of Victoria, it was $485 per tonne. So in China, all the way in a Chinese board is $565 per tonne.

So very, very close to the guidance we provided to the market as to expect for the full year as we keep on decluttering or as our friend Joe said, removing the noise out of our financials, given that this was a hybrid year part commissioning part production so in margins, the margins are pretty spectacular.

Our FOB plant margin is at 67% for margin, 63%. Cash cost CIF China margin 57%. At what some people consider to be the bottom of the cycle. This is mathematics, the mathematics of commodity cycle resilience. And as we say, mathematics has no opinion, mathematics is just a fact.

So on the next page is, again more mathematics for full-year. We've already given you the revenues, the shipped amount in the price per tonne. Now let's move on to EBITDA, we posted an accounting EBITDA cluttered, meaning with the noise of commissioning of $24 million from July to December is that when we earned it and less than half a year.

Now we adjusted for non-recurring items, which include things such as RSU expenses and commissioning costs. So the purer EBITDA margin at FOB revenues was 18%. But the adjusted EBITDA margin for the nonrecurring items and noncash items such as our stock compensation is 36%.

So again, a very robust EBITDA margin to be expected from us in our very first year. So it is and it is this low, the low production cost that drive our ability to generate free cash flow. As I said earlier, we are draconian when it comes when it comes to cost, we always do more with less. Why? Well, we're all owners were all investor operators. It's not somebody else's money. It's our money.

Every employee, every senior manager is a shareholder. So we look after our money. We look after our expenditures, like you look after, the money that goes into our wall. So full quarter cash unit operating costs at Victoria is $442 a tonne, nonrecurring commissioning expenses amount to about $94 a tonne. So the pro forma Q4 cash unit operating cost of concentrate amounts to $455 a tonne.

My partner, Matt, is going to give you a bridge in a lot more detail in a second. So we're targeting for the third quarter '24 at an average, very close to the guidance, $420 a tonne FOB Victoria, $370 a tonne Plant Gate. These cost initiatives include a number of things, diversifying suppliers and service providers.

We are onboarding contract labor, which was important when we commissioned and that was one of the expenses we adjusted out, meaning the engineers off the construction companies, the engineering companies that stayed behind to help us operate the plant and commissioned the plant.

They are no longer with us. We now have our own teams and we've optimized maintenance schedules, and we are running just like a clock. We have predictability in umbrella maintenance contracts with our main parts manufacturers.

So now I'm passing it on to Matt DeYoe, my partner to go over the bridge for the cost. Matt, you got it.

Thank you, Ana. So our reported FOB costs in the fourth quarter, as we had highlighted in the release, was $549 per tonne. Within 4Q were a number of costs associated with commissioning expenses that more of a 3Q phenomena, but booked within the October November timeframe. The real costs and then we incurred them. But on a pro forma basis, that didn't recur December or January or February.

So we feel very confident that those are, as you say, non-recurring, that would drive a pro forma FOB Vitoria costs about $455. If we strip out the $70-ish per ton in high-grade freight, we end up with a 4Q pro forma plant gate cost of about $385 within the fourth quarter. As far as we said from the $370 that we were highlighting for the 3Q average.

And again, we haven't even really begun to benefit from the transition of contract labor to salaried domestic labor, some of the diversification of our suppliers or the optimized maintenance schedules. So we think we have plenty of room, good line of sight again to hitting that $370 number.

Obviously, as you build this back up to get to what we hope is a recurring reported comps all in, you add back that spot to meet freight royalties and DNA, and you should get to a rough ballpark of where we hope to be at least on a pro forma basis. If you were to think about 4Q.

Other items that impacted the fourth quarter, low-grade trucking and warehousing. We're not trucking our tailings to support anymore at the moment given market conditions, so we don't expect those costs to continue.

As we mentioned those commissioning expenses there, and then we got some tailwinds from equipment tax and credit, so that kind of bridges perhaps and the other line items just from a quarterly impact perspective. So again, I think we feel pretty good with the direction we're headed.

Ana, I'll pass it back to you.

Yes, sir. So here we go. Next page again, this is the bridge to EBITDA. And again, is a very straightforward bridge. We start with sales and we go all the way to the adjusted EBITDA. And I want to make it clear, we're adjusting for not for noncash items and for commissioning costs.

So we delivered what we call an adjusted EBITDA of USD49 million. So we ended up very first year of production with positive cash, adjusted EBITDA and cash operating profit. I mean, considering the downfall in lithium prices. We are all very proud of this accomplishment. So here it is we start with sales in the US of USD135 million.

Then we have operating costs, nonrecurring transport and warehousing, we get to that we get to the gross profit, right? So at the gross profit, then we have SG&A, ESG and others, and then we cash EBIT. So then we start moving back into the items for adjustment, meaning stock-based compensation gets added back because it's a non-cash item is an IFRS accounting item, then we get the D&A added back, and then we get to the EBITA. So all of this is accounting straight from our non-audited financial information.

So then we get to the USD25 million EBITDA, which I just showed you on a previous page. And then we add back the nonrecurring SG&A, which is part mingled with the operating costs there. It's mostly related to commissioning costs. For instance, in commissioning engineering costs alone, we have something around $6 million.

We gave us we have a series of these one-off items. They are not going to repeat, it will to be repeated on an ongoing basis and as a result shouldn't be part of your modeling of the company. So then we get to what we call adjusted EBITDA of USD49 million.

So here a bit of kind of the breakdown of these non-recurring general and administrative expenses and that we discussed before, what are these items, what's in there? It's a mix of things. For example, as you can see, 25% of these numbers are related to the commissioning team on Phase 1 construction 29% is legal. I mean, we had litigation. We had a strategic review.

We were very well advised and very well guided by excellent lawyers, but they are one-off. So more important. We had quite a lot of consulting work, which we're calling audit and accounting services, which were basically helping us put our SAP back on track, classify costs properly. I mean we were kindly support supported by the folks at various consulting firms to get us, put our our back office in order.

So that's, again our investment, a one-off investment in that part of the business. We had non-recoverable VAT taxes of 7.4% and then transaction costs and commercial development and achieving the premium price costs, travel cost money. We spend quite a lot of time in Asia, working with clients working with refineries, working with battery makers, working with end users to test product and establish ourselves.

Again, remember, we started from zero. We did not have a book of clients. So we built an incredible book of clients that premium our product because we work with them to understand into death and to demonstrate value in use that the 28% non-recurring. So we kind of kind of gave you a glance of what are these we call investment items.

This is us investing in the resilience of our business and for the next couple of quarters. And on the previous slide. So just to recap them up number by number. So I'm so this breakdown is if you look at this USD24 million, that bridge the [$25 million] accounting EBITDA up to the $49 million of adjusted EBITDA.

The next page, basically shows you the breakdown of that $24.5 million non-recurring G&A expenses. We tried to give you as much clarity and insight as possible into a number that is an adjustment that is non-recurring. So now we go on to how are we going to look like steady state? Well, we started with the current prices with the guidance we provided, which we stick to it.

So again, the estimated well, the net concentrate price we just obtained is at $1,160, whatever it is on a cycle. It doesn't matter because our CIF costs in China are $510. We believe the recurring SG&A to be about $48 and the maintenance CapEx to be about $18. So the estimated run rate cash operating margin per tonne is $584, which means we make money we've every single ship, right?

So deduct, $1,160, minus $510, minus $48, minus $18. There you have it is a substantial gross margin sorry, is a substantial net operating margin cash margin. So then when we go to mid-cycle this number, get this number gets even bigger because we achieve an even bigger run rate cash operating margin per tonne. So we gave you the per tonne numbers so that you can actually model up in whichever cut-offs you choose.

So we generate cash at the trough of the cycle at mid-cycle. We generate quite a lot of cash. So that's just a demonstration of our unique operational, assistant efficiency. I must say that on this aspect as well, we are in full tenders. We know where the electric vehicles industry is going.

It's now all about producing, cheaper batteries, cheaper cars, lower priced cars. So we are the low-cost producers. So we're here to stay and these low costs are basically mainly due actually to our lower Greentech plant processing costs. It is a dense media separation uses centrifugation uses less electricity.

Yes, our electricity is clean and cheaper. But our process just have basically seven -- six main DMS's, seven main steps, plus the crushers. So we don't even crushed powder. So it is a lower cost Industrial Process period. That's where we gain competitive advantage.

We decided to invest in this technology. We took a contrarian view in 2019, and we proved that this media tech separation technology is not only greener, but it's also more cost effective. So it is in tandem with the future of the industry in each two core characteristics, batteries have to be cheap and we believe materials in these batteries have to be green.

So this is us. So when you pro forma 2024 estimated cash flow, assuming a 270,000 tonnes per year produced. We have the equivalent of $158 million of estimated run-rate cash operations generated at current prices. Mid-cycle will be USD249 million. So pretty robust cash generation.

When you go to '25 with doubling the capacity, we can dilute down a bit the obvious have fixed costs such as recurring SG&A. So that number goes a bit higher. It goes higher than double. It becomes USD304 million.

So again, as we've shown on the bridge that my partner presented, you can clearly see that as actual costs were there, we're delivering actual costs that are closer to guidance because we built the guidance bottom up supplier by supplier before providing it to the market.

And so with all of that, I think I have given you comfort that we've got a very resilient business. We have solid cash generation. So we're building our Board greenlighted final investment decision, and we are initiating the construction to double production capacity to 520,000 tonnes per year.

On the next page, at the picture 1,000 words, you can clearly see that all we got to do is build another green tech line. That will cost about USD100 million and you will add 250,000 tonnes off lithium concentrate production capacity, given our cash at hand, meaning cash at hand of $109 million. In theory, we could actually build a plant right now, just drawing down from our cash position.

Now why is that? And that's what our next slide is going to show. This comes and we have and explained it as clearly we have trade finance, yes, we do. It's revolving because it's linked to our ability to deliver what we just showed you, cadence. Every month, every tonne produce generates permanence of trade finance in Brazil. It's called advancements of export contracts.

ACEs, they last about 180 days, but they are linked to our ability to produce cadence of production. The thing though is that we did not draw down these lines. So meaning sorry, we drew it down, but we did not use it for trade finance. So to make it clear, we have the trade finance. We drew down the lines, but we did not use it to finance the working capital until the client pays us.

Why? Because this is where Glencore step in, in addition to be a fantastic commercial entry partner, they are also our financing backstop As you noticed in previous shipments, they advance on a final and on provisional basis, now, 85% of our boat of our shipments. So we rely on Glencore not only for their incredible marketing and commercial expertise, but also for providing us with the actual trade finance.

So the trade finance lines we have in the banking system here, our city untouched in our balance sheet. So they are drawn and they are untouched in what are we going to do with them or we're going to build a whole plant with them?

No we're not, but they are going to be the cash that will advance the funds for construction as the progresses because the development bank lines of BNDES are on a reimbursement basis so we pay we get reimbursed and the cash position is the demonstration that we have the ability to greenlight this entire construction right now, today with the snapshot you got in front of you.

So as we keep on generating more cash with every shipment, we're extremely comfortable financially. So again, we approved the initiation of construction of Phase 2 because well, we have a track record building on schedule on budget. We actually broke the record of this industry of getting there fast.

So with a total CapEx of $100 million for the 250,000 tonnes of increased capacity, essentially we're going to have on with P2, enough lithium for 850,000 tonnes of EV. So we like to say the signal belongs to the world. I mean we can deliver this to many markets well beyond our borders. We are a global force for good any industry.

The EPCM is mobilizing the fleet for earthworks. We are in active construction. Our mobilization of preparations for the Phase 2 flowsheet is consistent with the processing sheet, the technology to process the process, the material just becomes improved. So is consistency or is consistent with all the lessons we learned with Phase 1.

So we have quite a lot of technological advancements and improvements and lessons learned that we are building or we built into the engineering of our Phase 2. So Phase 2 is a better version of Phase 1. And this comes from savings in engineering, optimized design, offsetting material costs, well, the dry stacking for once, which didn't work in June. So we figure out how to make it work.

We're now going to build a dry stack and it's going to work immediately together with the module to the dense media separation plant. So we got technological improvements all along and this is why we were eligible for the Brazilian Development Bank innovation line because there's innovation all around this flow sheet.

And again, innovation as all of you innovators know, is not a new Ricoh thing is it some of various optimizations in industrials like we are crude out a processing plant. So the sum of all this innovations, the sum of all these optimizations leads us to the incredible production cadence and consistency that we were able to reach.

So the next slide. Well has a lot of meat. This slide has a lot of information, a lot of detail, but we wanted it to be just that we wanted to do a side-by-side of what was Phase 1 and what is Phase 2 and where are the savings. This is public information so we can refer back to it. I'm not going to spend too much time on it, but essentially and where are we saving is a bit of everything really, right?

And we're saving on spare parts because we're an operating entity. So we don't need to build an inventory of spare parts. We're saving 50% of engineering because, we have we have a plant that works. So we're basically doing the design off of a plant that we already have with the improvements. And there's a bit of environmental savings.

And to the extent that, for example, we do not need to build an entire wood treatment station like we did before. Given that we use few words water from the Jequitinhonha River. So, it's a sum of various savings that leads us to a plant that is going to cost about 20% less than Phase 1.

On a total construction CapEx basis is kind of roughly 10% less, which is 10% less of a very inexpensive plant. So given the track record, given that we've done this before, given that the team is exactly the same.

Everyone who built this is here. Keith Prentice is leading it I'm here. Felipe, which was Chief Controller of procurement, is back here. So it's kind of the back is putting the same team back on the field to do what they do best built on time on budget, and we're hiring promotion again, which done a spectacular job for us in a previous project. And we're hiring directs again, we've done a spectacular project, assembling this in record time.

The next slide is a bit more meat. We'll put a labels on this. But the purpose here is just to illustrate that when you start construction up, you don't really have all the costs so month one, is a crescendo, right?

So you start with our work civils foundations, which cost about $10 million, but it's not $100 million, which means it's back loaded cost. The disbursements start to increase as equipment gets order prepaid or intermediate payments and then later on delivered to site.

So this slide kind of illustrates that that construction of a plant is backloaded, even though we have the cash sitting in the balance sheet, we could do all of it front-loaded in theory, that's not how we really works. And this is why we're so relaxed. On the other hand, in typical financial prudence, we're going to build one plant at a time. So that's an important point to leave you with.

We're building a plant this year and then next year, we'll build another one. So the next step more on the construction process. So construction activities are starting this month for earth civil works, foundation. infrastructure installation, mobilization of equipment. We're going to have about 200 extra workers involved with the Jequitinhonha.

So more of the prosperity that we brought to the region, we're going to probably launch than any change, which is a city closer to us. So the first step, the very first step was licensing. So we were already awarded a license or fully license to build the two operator, that's an incredible accomplishment. We have the LO, the operating license for this plant already.

Why? Because of the track record, we demonstrated that we are impeccable So we got something that is typically granted to industry in Brazil. But rarely to industry connected to mining. So we got the same industrial, okay. Industrial cloud as a high-tech industry because we demonstrated to be good protagonists of mineral transformation.

Our plant is innovative, is Greentech. It changed the conversation in the sector. So we got the operating license right at the get-go. So we're fully licensed as soon as we done building we can start selling products. Then we got the financing as we shown you, we got the cash balance. It's linked to trade lines. Trade lines exist based on production on an 80 days revolver. So we're good to go.

Then we've done the engineering work. We are FEL3-quoted from leaded so we have the number to Precision is USD100.5 million. BNDES has honored us with an innovation line. We're very proud to be part of this global companies that has been extended development bank financing in this country.

And we are planning to honor the taxpayer money that's been given to us by, again delivering this on time and on budget. And this is a backstop financing because again, it's a reimbursement line. So we did the cash on hand in order to submit the reimbursement that BNDES covers.

So we made the FID. This is kind of what leads us to do final investment decision. There's been months to work months of work going into the ninth month of work that led us to this moment of starting mobilization, it wasn't overnight.

The next page, is again, complete detailed engineering CapEx with FEL-3 accuracy. This is how we keep it on schedule this how we keep it on budget. This is the secret sauce of building responsibly. We don't get it wrong because we quote suppliers. We are license we have a permanent mining license for the -- area. So we updated project execution plan.

We're doing procurement. We do import logistics if a final investment decision for Phase 2, our Board couldn't be more comfortable. Remember, last time we green-lighted final investment decision. It was in 2020. It was in the middle of COVID, and we did not have cash generation so this is kind of why we sound so relaxed.

On the next page. We're relaxed, but we're vigilant, we're relaxed, but we didn't lose discipline. So we're going to do Sigma style one step at a time. So this chart has a lot of information, but is a modified chart that you already know. Year-by-year, we're showing in dark green sources of cash flow, what are the what are the industrial capacity modules we got running, right? So '23, we produced 105,000 tonnes of Lithium concentrate cash flow right. We finished building it. We're done.

In '24 in orange. We're showing what we're building up in the greenish here is what's being green-lighted to build. So where almost doubling capacity. We go from [270] to [520]. And we're putting this because that nameplate, right? We probably can go higher. But if nameplate, we're going to have the benefit of the cash flow off of Phase 1.

So cash flow from one module of the industrial plant, construction of another module, that's being greenlighted. In brown is what hasn't been greenlighted but this is where we're going. This is the industrial plan that we submitted to BNDES with a hole in our development strategy for the lithium valley, when it comes to Sigma.

In '25, we're going to have the benefit of Phase 1 running cash flow, Phase 2 running cash flow, depending on where we are. We may or may not even deliver a dividend, let's see. But Phase 3, it's going to be greenlighted to be built most likely integrated with a lithium sulfate plant. Why? Well, because of that meaningful gain the value in use that we are currently providing to the clients for very little premium.

So if you recall at today's prices of $14,000 per tonne of lithium hydroxide. If you quoted for technical-grade, it doesn't matter because our $3,000 are intact. One needs 7 tonnes of our material to do a ton of let's say lithium sulfate or intermediates of food chemicals, we need less units, less quantity of our material.

So what's the rationale, if I can calcination? And we do the acid wash ourselves which is what it's called intermediate chemicals, lithium sulfate, we're capturing that $3,000 for ourselves. So that becomes extra cash flow. So the decision will be made in '25 because we've got a whole year to see if we can premiumize to that value-in-use if we can, we're just going to do it ourselves because calcination is a kill and acid wash is an acid wash.

These are intermediate chemicals. It's basic chemistry. Brazil is an industrial country. So the human capital and the capabilities are here. We are not going to do specialty chemicals. What we'll be doing then is shipping less volume to specialty chemical refineries all over the world, including to our dearest Chinese customers who already agreed to buy this material from us sole ship lithium sulfate intermediates to China to Texas, to Europe, to Japan to South Korea, to all over the world. So that's the '25 plan.

And then in '26, we're going to sit and we're going to enjoy the industrial site we built. So these are our plans for the next two years. So we're going to be quite busy up when what I also want to share with you is that none of the activities related to the strategic review has impacted at all our ability to think to make a strategic plan to execute to deliver to continue to do what we do best, which is to execute.

And that leads us to our concluding remarks. I mean, we have completely transformed Sigma from. And you can see the picture. It's a 1,000 words. It was a construction site in March '23. You can look at the left what we have now is the six global largest producer of lithium across the board. Brian's hard rock in the four largest mining industrial complex in the world.

We delivered everything that was under our control completed the DMS commissioning initiated production in April '23 at nameplate capacity by four quarter. We delivered a dry stacking, so we have zero tailing dams, not a drop of water to spare. We reuse the water. We reached net zero, which again has been for years in the making and we also deliver the Quintuple zero lithium that we all love here.

We increased Mineral Resources significant to give longevity to our ambitious industrial plan. So those industrial plans now are backed by 104 million tonnes of reserve resources, mineral resources, [43-101] audited, in and expanded expected mineral resource off 150 million tonnes. And we're quickly in the process of converting part of the 109 into additional reserves up and we got to consistent monthly shipments.

What do you expect from us this year as well? Mobilization, we're beginning construction. We're going to deliver the mineral reserves, we're expecting to increase by 40%. We got 54 million tonnes of mineral reserves. We're going to increase dosing 40%. And again, is just to add longevity, solidity and permanence to our industrial plans, are we going to audit further the 150 million tonne mineral resource, and we're going to commission Phase 2.

So we're very, very, very enthusiastic about 2024 in, again, a lot less worried than when we did this the first time because we have the first execution under our belts so we know what we got right? We know what we got wrong and we're going to trying not to make the same mistakes making mistakes in humans.

We're not going to make the same mistakes twice. So here we go two eyes have experienced a producer with cash on hand, marching into doubling the size of this company and hopefully, hopefully being able to up getting priced, at least in tandem with what we produce today.

And I'll go back to this slide if the market could only give us the credit for the producer we are today, we would be quite happy because right now we're kind of price cheaper than a developer. So that's kind of what gives us so much confidence to be more than 50% owners of this company here and a management team and work all ours to deliver this 2024 milestones to our investors.

And to all of you, I want to close this with a huge thank you for supporting us. Encouraging us sticking with us and believing in us, and this is my accountability to you. We're delivering exactly as we promised on every element that we can control.

Now, we're moving on to the Q&A. Matt?

Thank you, and I'll pass it to Dennis to open up the Q&A.

(Operator Instructions) Steve Byrne, Bank of America.

Just think you are, is it fair to assess your net cash position in the first quarter as dropping by $30 million? Is that is that a fair assessment? And if not, what what unusuals might have led to the cash drain? I'm asking because you're moving forward with an outlook or of generating free cash flow in the subsequent quarters, I just want to make sure that squares with what what the results were in the first quarter.

And Matt, do you want to take the question or should I take it?

Ana, you can grab this.

Yes. So Steve. Well, we give we give you the snapshot of the cash for now. So $109 million is March 30, cash position, right? So that's an important point. What happened between then and now, well, we drew down that and this is why we wanted to give you clarity on the trade lines, right?

We drew down the trade lines, but we did not use it so up. So what we have there is a combination of drawn trade lines, but unused trade lines. And then if you if you take the the cash page here, you're going to see that we got there. You go. Can you see this page?

Yes. So we got $88 million of this trade lines that were drawn, but unused right. And then the balance is just cash generated. Now when you look at the back of the year end cash, there was a $12 billion advance interest payments that was made on the long-term loan we have from a shareholder in our balance sheet.

So maybe that's probably the the deal that we call the clutter. When you look at the cash position in December. Not sure if I answer your question.

When you say that the two.

We can take it offline too. The math is a little bit I think your math is a little off.

Okay.

And then maybe net debt, our net debt would have increased only modestly between year-end '23 and March. And then obviously, as we've been able to kind of particularly more recently in our press releases, we're now locking in price at pretty good economics. So we would expect cash to accrue quite considerably.

Should markets kind of sustain these levels, which we are now seeing that they are doing. But we can we can talk a little bit more offline.

Exactly the contrary because if you look at the pipeline, yes, if you take a snapshot of like today, and that's an easy snapshot, right? We got $100 million of long-term debt. I'm from shareholders.

We got all USD, USD10 million from BDMG, so that's long-term debt, not amortizable, but the interest on the long-term debt has to be paid upfront. So we it was decreased from the cash position in December 31 it wasn't paid, then it was paid in January. Then what we've done, we drew all the trade finance lines, but we didn't use it. We got $90 million. We got $88 million unused.

So when you think about the overall position of it met that we got roughly USD110 million sitting long term, and that's a very benign shareholder plus development day. And we got these trade finance lines, which are in Brazil kind of a unique animal there, kind of a revolver which our sole function of our ability to produce.

So we wanted to show that when you look at the cash position, if you did that one oh nine minus the trade finance is actually generated cash, right? And if you tried to kind of triangulate that with the cash in December, probably the big item that's missing is the payment of about USD12 million of Advance 2024 interest for the long-term shareholder our line.

Okay, thank you for that. And maybe one follow up on the idea of at least considering going downstream into lithium sulfate. Do you have any preliminary cost estimates of what that project might cost? And would do that at the mine where you would their operator calcine at the site, and the some of that material would then be put back into the excavated areas?

Well, that is the centerpiece of BNDES industrial strategy. We we we will put it whatever natural gas is going to be made available to us at the lowest cost per BTUs. Most likely. I mean, Brazil is a very large oil and gas producer offshore. The gas is available in what we call the presalt ports of which the Victoria port where we are is one of them.

So if we can get the affordable dollar per BTU of natural gas at the Board, where we are already most likely we're going to put it at the Board, which is very much it makes most sense. And one of our partner clients has basically announce to do exactly what we're going to do with one of our peer companies in Australia.

It's the obvious thing to do, and we were the first to talk about this to do lithium sulfate. It is the natural evolution for a lead lithium concentrate producer. And we demonstrated why now what's the advantage of Brazil clean, cheap power.

I mean electricity costs, USD0.02 per kilowatt hour. We can obtain a very, very favorable a dollar per BTU gas contract at a result board at the short. And we do have a study, which in fact, you know, it's very similar to what our peers going to announce in Australia of how much this plant's going to cost. I can't divulge it now, but this was one of the centerpieces of the conversation with BNDES.

This is the ambition, and it's pretty straightforward because it's basic chemistry and intermediate plant is a killer in an acid wash, the keel make spodumene into better budgeting and the asset was up, it produced the self it.

Now what is the real key in a key competitive advantage? We built into this company, whereas eTools detailing what do you do with 12 tons of stock (inaudible) week asset tailings generated per tonne of lithium sulfate? That is the question.

The very few places can answer sustainably. And here in Brazil, we have an answer to that why these materials can be recycled in the construction industry because it is a cement based construction industry we have in Brazil, these materials become concrete binding number one. And number two, they are aluminum sulfate. So they're used by the cleaning products industry, which in Brazil is of massive scale.

We have 230 million people obsessed with cleaning. So we have one of the largest cleaning products industries in the world, so we can absorb all of the tailings. So we can do this BUREAU tailings and there are very few places in the world that can do this zero tailings. Most plans involve shifting these toxic sulfuric acid tailings by both elsewhere, too.

It got to a developing country with a lot of people or you got a cement based construction industry and a large cleaning products industry. But we have this market right here, we are here. So that is also a key competitive advantage to do in intermediate chemicals because we solve a key piece of the puzzle for everyone even for China.

For China, we can deliver what we call intermediate negative. We can deliver carbon credits that allows China to do zero-carbon chemicals for the West. We're going to deliver a chemical to chemical supply chain with zero carbon in zero tailings. So the West doesn't have to worry about licensing or worry about storing or doing what have you with 12 tonnes of toxic sulfuric acid low the tailings generated in the intermediate chemical process. Waste is the key to where these industries are going to be located.

How to use how to actually recycle and reuse the waste responsibly from an environmental perspective. And in fact, that's what China does very well today. That's what we can do because of these reasons you need a large cement base construction industry and you need a large cleaning product industry to take all the aluminum sulfate.

Pretty good. Thank you.

You're welcome.

Joel Jackson, BMO.

Good morning, Ana, everyone, and I have a few questions. I'm going to ask them one by one. So can we talk about SG&A. You talked about earlier this year about trying to get SG&A down to, I think about $11 million American run rate annualized. I think you get about a CAD10 million clean run rate in Q4.

So getting there are CAD10 million, excuse me, in the fourth quarter. Can you talk about what you think SG&A will look like in Q1 and Q2 of this year? Q1 of this year, what was how much of that how much of the burn rate might be in SG&A if it's the strategic review?

Yes. Well, if you look at this slide, Matt, you can take it as well, and please help me here. Okay. You see that we posted $42 million, right? When you look to the right, you see the $24 million. So if you deduct $24 million from $42 million -- we're still double the guidance we gave you. We tried to give you guys a reason of why is that?

And we do believe that this cluttering of SG&A will not be here in all its entirety in Q1, but some of it's still going to be here such as the legal, we still have, the teams working on our SAP.

So the Q1 is still going to be work in progress. We're still going to be getting there, Matt, when we look at the bridge, though, and that goes back to your point, Joel, on the on the on the operating cost, we're almost hitting, right. So the SG&A becomes a working progress of actually decluttering and evolving into what we call steady-state SG&A.

But on the operating side, we're almost at the guidance we gave BMO conference and for for what we call our run rate operating costs. Matt, do you want to complement?

Sure. I mean, Joel, some of this is going to be tightening up where we need to have where we can. Obviously, this is kind of a recurring number. So to the extent we have litigation or amid the strategic review, those will be additive. But from a bottoms up perspective, if you think about the costs that really take to run the corporation, it's a pretty lean back off.

And we hope we'll get additional scale as we ramp phase two because we won't have to add nearly as many heads as we were when we double capacity, right? We'll get key operating leverage through SG&A and port traffic, primarily as we doubled but from our perspective, if we take a more stringent approach to spending and perhaps spending that's more in line with.

You would say where the economics of the market are versus if you rewind to really the first half of the year, our land price expectations were much higher and we were spending to ramp that facility. We think we've got a pretty credible path to getting there. But it's a little bit more of a lift perhaps than than the operating cost side. But the numbers are the same that our team feel very comfortable about.

Okay. And so what's the monthly burn rate on this strategic review?

It varies. That's the problem. And this is what we call shooting a moving target. You know, it really varies. And that's one of the items I don't control. That's that's one of the reasons why we can't fully the cluttered is it's one of the non predictable elements is there. It totally varies on the flow of drafting documents and structuring and things that come our way.

But I would say is much alleviated this year is much, much alleviated because we don't have to do structuring. We don't have to do the heavy lifting of what a transaction is going to look like document already being overly mark. So it's different. It's a lot easier, but it's still here, right? Still cluttering the numbers. But it would have been unpredictable item is still totally outside of our control.

Okay. You said Q1 spot you mean production was 53,000 tonnes that was [60,000] to 59,000 tonnes in Q4. So you're down about 7,000 tonnes in the quarter sequentially. Talk about why you had lower utilization in the first quarter?

Well, it is a funny quarter in Brazil is kind of we have our own version of the Chinese Lunar New Year. There's something called Carnival, where it's pretty hard to get people to operate at capacity. So we kind of lose most companies lose 10 days. If we whipped up our team as we did we lost about five, six days where people kind of show up, not exactly so now truly productive.

Any happens is cultural. These people have been working, you know, like crazy, right so Carnival is a problem. And then we also caught the You will recall the pressure of all of the first week of the year because we put all systems go to deliver the 2023 last shipment, which sailed I'm not sure if you remember this, but it literally sailed on the 30th, right?

So the first week of January was like yes, we're going to relax. No, we won't because we're going to have to make first quarter. So it was a combination of what we call our collective vacations, where we're working with down shifts in the first week of the year, plus the Carnival. And it's kind of always like that.

This is it is the Brazil version of the Lunar New Year you might have built into your calendar first quarter has Carnival in Q1 has the hangover of New Year and in our case it was a hard handover because let me tell you to make that shipment. We made people work 24/7 crazy hard.

Our general manager for the plant didn't spend Christmas nor New Year with his family and his new granddaughter in South Africa. Demand stayed here. He didn't meet his granddaughter to make that shipments. So that was the level of commitment of this team. They were like really all out to ship and they're both in December and make the cut off for the year, right?

Okay. And just finally, on you gave color around So you've obviously given Q4 pacing, we talk of what the what the April shipments going to be final for the two shipments in Q1. Can you give an idea of what pricing looks like and how much is provisional on that?

Yes, well, I think what you see on the screen is a pretty good indication where we sit on the first on the first on a Q1, with fluctuations. But we're kind of averaging the industry a little bit of a premium, but now really Q1 was a tough quarter up from an industry perspective because you see what happened in Q1, clients were stocked, but they were still buying our product.

Why was that because of this slide, given life was so difficult for the clients, they were putting other products aside in processing our product just to bank the margin that we are literally giving to them and we were told as much. So we just the fact we had people buying full boats in paying us, I mean not a full premium, but a tiny bit of a premium up.

I meant something for us. But what they were really doing is that they were banking this much, you know, extra margins that's provided by the methodology of the product that's going to be delivering for free. So it was a fascinating quarter. We learned quite a lot. And we just got a team coming back from China for like the wood there for 32 days, and they were told just that.

So part of this enormous premium we were able to obtain in this very we call price discovery process where we got 18 clients to Dutch auction bid. This boat was a result of, you know, the clients having experienced this for now six shipment, seven shipments and ascertaining for themselves that they do need at times less, sometimes three times less of our product versus the comparable.

So they're banking that difference, right, which kind of ties back to the question, Steve was asking us about why lithium suffered while we wanted money, too. So that's this is this is value in use floating around. We are going to get it to a premium or we're going to just bank it ourselves in a lithium sulfate plant. We're not going to let Hank for that long. But one thing at a time now is to double.

Sorry, so Q1 pricing would be similar to Q4 pricing or like your actual average delivered price or a little higher or lower?

You can use --

Explicitly glide 1Q, yes, Joel.

It's okay, it's index is a good indicator.

That's what I was asking. Because you're giving Q4 and you're giving kind of April, but you're not giving mark the February, March --

About $100 of a difference, right so there's $100 floating. So you can just take a big, but it's we don't have the finals, right, because there is still some provisional, but it's going to be between this number and the number we achieved for the last auction, somewhere in between.

Okay. That's good. Thank you very much.

And at this time, there are no further questions. I will now turn the call over for any closing remarks.

Well, I just want to thank everyone for the support for the patience and for sticking to us. I mean, I think we are on to build up probably one of the most resilient lithium businesses in the industry. We're building the next major the mathematics show show this numbers talk as for themselves, Matt is no opinion, and we're here to stay.

So and you look at when you look at this picture, we now have the longevity, which was the missing link of the sustainability when it comes to project years of Sigma given that we have prioritized cash flow. And now it's clearly demonstrated why it was so important because we were able to it the tail end of the bull market, and we earned quite a bit of cash.

So then this year, we reprioritize lengthening the project life. So we're one of the greatest forces of the industry, the fourth complex, when you attribute the names of the projects to the owners, we're the third largest lithium industrial mining complex in hard rock with quickly closing in on the, number five producer by next year, we're going to probably be on top of number four and number three.

So and it's a force for good So here we are aiming to be number three very soon with a product that is clearly metallurgically better from a physical and chemical scientific standpoint. So is the mathematics of savings for our clients, the mathematics of value use numbers, our numbers.

So thank you so much for being here with us for supporting us, for encouraging us, and for been partners with our team. I can only close by saying we're in this together. I have never sold a single share of this company. So we're here to stay and we're here to you know, follow this journey with you.

This concludes the Sigma Lithium fourth quarter and full-year 2023 earnings conference call. Thank you for participating. You may now disconnect.