Standard Lithium Ltd (SLI) 2024 Q4 法說會逐字稿

Ladies and gentlemen, thank you for standing by, and welcome to Standard Lithium fiscal fourth-quarter and full year conference call. All lines have been placed on mute to prevent any background noise. After the speaker's remarks, there will be a question and answer session. It is now my pleasure to turn today's call over to Salah Gamoudi, Chief Financial Officer. Sir, please go ahead.

Thank you, and welcome, everyone. Joining me on the call today are David Park, CEO and Director; Andy Robinson, President, Director, and COO; and Mike Barman, Chief Development Officer. As a reminder, some of the statements made during our call, including any forward expectations, company performance, and timing of projects may constitute forward-looking statements. Please note the cautionary language about forward-looking statements contained in our press release, which also applies to this call. I'm pleased to introduce our newly appointed Director and CEO, David Park.

David joins us after nearly three decades at Koch Industries, one of our key strategic partners. He began advising Standard in 2023 and has played a key role in helping to systemically derisk our business, including with the consummation of our partnership with Equinor. David, it's great to have you onboard. I'll now turn the call over to you.

Thanks a lot for the introduction. Since joining Standard in September, it's been a pleasure to be many of our investors, analysts, and key local stakeholders. The company has carefully navigated a complex economic environment over the last fiscal year. We're ending 2024 stronger than ever, having partnered with global energy major Equinor and with the support of cornerstone investors, including Koch Industries.

While the retreat in lithium pricing from all-time highs in 2022 and broader cooling of sentiment in the electric vehicle and energy transition space has pressured the sector, we're focused on what's within our control. For us, that means continuing to derisk our business and move our world-class lithium brine projects forward. The most significant derisking event for Standard and our shareholders occurred in Q4, with the close of a project level investment and partnership with Equinor. Equinor is a global energy major that has made a strong commitment to growing its renewables and low-carbon solutions business. We're thrilled to have them onboard.

Our teams have already been working closely together over the last few months. We believe our partnership with Equinor validated the quality of our assets in Arkansas and Texas, our direct lithium extraction process, and the expertise of our team. Standard clearly communicated over the past fiscal year, the importance and benefit of having strong strategic partnerships, and we delivered on this vision. The world-class potential of our southwest Arkansas project was further validated last week with a CAD225 million conditional grant from the US Department of Energy.

This award is one of the largest ever received by Arkansas and/or a US critical minerals project. It will help ensure American energy and supply chain security by breaking our reliance on China. This project is expected to add up to 300 construction jobs and 100 direct permanent jobs, as well as many more indirect jobs and millions of additional dollars in community benefits to the area. Equinor and the US Department of Energy carefully evaluated our assets teams and plans over the last year, as Koch did a few years before.

All three determined that Standard Lithium and the smack over is where they want to invest. Concurrent to securing a strategic partner, we work to advance and derisk our projects. Specifically at Southwest Arkansas, we completed a pre-feasibility study secured our brine production rights and purchased a 118 acre parcel of land that we expect to house the project's central processing facility. We continue to refine the scope as part of the FEED and DFS work.

Standard now envisions a larger project developed in two phases, producing 22,500 tonnes per annum each of lithium carbonate. At our demonstration plant in El Dorado, Arkansas, we successfully installed and commissioned the first commercial scale daily column in North America supplied by Koch technology solutions. Its performance has exceeded our expectations and design parameters to date, and it was an important step in derisking our DLT flowsheet. The good work advancing and derisking our projects has been supported by the build-out of our executive team over the last year.

This included the addition of [Salagen Moody], who has brought structure and best practices to our finance accounting functions. He's ensuring the company is well prepared for the next phase of growth as we move forward towards development and production. Mike Barman joined as our Chief Development Officer, bringing over 20 years of experience in investment banking and relationships with him. He's currently focused on advancing discussions related to offtake and project financing.

While market sentiment and lithium price may ebb and flow, Standard is focused on what we can control. And for us, that means continuing to derisk and advance our world-class lithium brine project. I'll now hand it over to Andy, who'll provide more insight on our projects and DLE process that's helping us unlock our Smackover resources in Arkansas and Texas.

Thanks, David. As you mentioned, we're focused on advancing and de-risking our largest and highest grade projects within the Smackover formation. Over the last fiscal year, we executed two drilling programs that yielded the highest ever reported lithium brine grades in North America. The potential in East Texas continues to excite us, and we're strategically expanding our land position in the areas that have the highest quality resource and the best quality rock. Our exploration results in East Texas delivered lithium concentrations up to 806 milligrams per liter and an average concentration of 644 milligrams per liter, as well as meaningful concentrations of potash and bromine.

These grades are unparalleled anywhere other than a handful of projects in Chile and Argentina. Over the coming next few quarters, we plan to reenter and reassemble three existing wells within our growing land position. We're doing this to confirm and expand our understanding of the existing resource and to assist our efforts in producing a maiden resource report for a portion of our landholdings in East Texas. We also expect to be drilling one well in the region to advance our understanding of the potential resources there.

When all this work is being done in close partnership with the Equinor team. At the Southwest Arkansas project, a PFS reported a resource 1.8 million tons lithium carbonate equivalent, with an average lithium concentration 437 milligrams per liter across the approximately 30,000 acre total project area. Our understanding of the resource potential of the Southwest Arkansas project has matured over the last year. We've now fully integrated all the findings from last year's PFS drilling, and we're completing additional resource evaluation work during the next couple of quarters.

The improved quality of the reservoir, combined with a higher grade resource, means that we've been able, with the assistance of our design team to contemplate an increased overall production of up to 45,000 tons per year of lithium carbonate. We anticipate completing this larger project in two phases of 22,500 tons per year. The recent CAD225 million grant awarded by the US Department of Energy to the Standard Lithium and Equinor joint venture for the Southwest Arkansas project is reflective of this larger project scope. And also, based on feedback from potential customers, we have shifted our focus from hydroxide to carbonate and the current feed design work is based on a flowsheet that will produce a battery quality lithium carbonate product.

Standard Lithium and Equinor project team continues to work through all the necessary design and development work required to get the FEED study completed. The recent announcement of the DOE grant adds another level of support to the project. The combined team will be working on several parallel and complementary work streams over the next few quarters, including unitization, the royalty process, offtake, and project financing negotiations, vendor and contractor evaluations, as well as additional technical refinement of the project. So we've got a very busy phase for the JV team will be working as diligently as possible to move the project towards the final investment decision.

The key to unlocking all of our globally significant lithium resources in East Texas and Southwest Arkansas is successful execution of a direct lithium extraction process. I've said it before, the only way to know if your flow sheet works is to operate it continuously for long periods of time, with large volumes of brine was pumped directly from your resource into your flowsheet. That's why we continue to spend time and money to operate our demonstration plant. We've been running this plant in Arkansas for the last four years.

And in April, it became home to the only truly commercial scale DLE column in operation in North America. We successfully commissioned the column in partnership with Koch technology solutions. A partnership with Koch has been fundamental in building a shared understanding of how the early works with Smackover brines. To date, we've processed over 21 million gallons of brine through a demo plant, and we've run over 9,500 cycles where the coke technology performance to date for the commercial column has exceeded expectations, with lithium recoveries consistently exceeding 95% and the rejection of impurities being greater than 99%.

This is the technology that's now been proven to work. And with that, I'll turn the call over to Salah, who will speak to our quarterly and fiscal year results.

Thank you, Andy. For our fourth quarter and full year ended June 30, 2024, we reported a rare event for a pre-revenue developing company and that we had net income before taxes of CAD212.8 million and CAD182.5 million respectively, or CAD0.97 and CAD0.83 per basic share. This compares to net losses in both the fourth quarter and full year 2023. Net income for the quarter was primarily driven by gains recognized related to the minority interest we sold in our Southwest, Arkansas and East Texas projects to Equinor. For the formation of the joint venture with Equinor, we retained a 55% interest in both the Southwest Arkansas and East Texas projects until the 45% interest to Equinor in each of the projects in exchange for gross and net consideration of USD160 million and USD133 million, respectively.

Further, our balance sheet was strengthened by our Equinor partnership, which provided immediate USD30 million cash payment to us at transaction close and a commitment by Equinor to sole fund both the Southwest Arkansas and East Texas projects of USD40 million and USD20 million, respectively, post close. We ended the year with a working capital balance of approximately CAD40 million cap. As we have mentioned on previous calls, we are committed to advancing and de-risking our projects while minimizing our cost of capital. For us, this means pursuing funding via: One, strategic partnerships; Two, offtake and potential customer financing; Three, low cost project debt; and Four, other forms of financing such as grants and parent company level equity financing.

We told you we'd secure a strategic partnership and we did that. We told you that we'd proceed government grants and we have been conditionally approved for one of the largest grant awards to be awarded for a domestic critical minerals project from the DOE. We are now pursuing customer offtake agreements and the requisite project level debt to help us take steps forward in finalizing capital formation at Southwest Arkansas.

And as well, we are ensuring the company has the required liquidity to keep increasing our leasehold footprint in East Texas. With that, I'll turn the call back over to David for closing remarks.

Thanks a lot. At standard, we're focused on what's within our control. For us, that means continuing to derisk and advance our portfolio of projects. In 2024, we did what we said we were going to do and secured a strategic partnership with Equinor, while delivering key project milestones and globally significant drilling results from our Smackover assets. Now, it's time for us to prioritize, focus, and execute.

We look forward to working with Equinor to advance Southwest Arkansas through DFS and feed and concurrently progress, East Texas, where we see the potential to develop what could be one of the best lithium resources in the world. The key to developing long-term value for our shareholders is delivering on our commitments. And for us, that means advancing our projects in a timely fashion within budget. As Salam mentioned, we'll continue to prioritize our lowest cost of capital options to finance the next phase of our company's growth. And we're confident that with the support of Equinor and Koch, we'll build a world-class US-based sustainable lithium business. Thank you. Operator, back to you.

(Operator Instructions) Greg Jones, BMO Capital Markets.

Good afternoon. This is [Max Euro] on for Greg Jones from BMO. Regarding the larger scale project plan for Southwest Arkansas, can you provide some color on the proposed plan to produce lithium carbonate rather than a hydroxide that was outlined in the PFS?

Hey, Max, it's Andrew Robinson here. I mean, that was principally based on feedback from the off-take community. So discussion over the last year, and formerly, the general guidance was very much towards a preference for a carbonate product in the timeline that were contemplating for commercial production. So in that late '27, '28 period for initial production, the feedback was very much for a carbonate product. And so that really informed the switch in the flowsheet.

Got it. Thank you. That's helpful. And for the deal we award, assuming the final negotiations are successful, could a potential administration change in the US put the receipt of the board it risk at all?

This is David Park. Yes, theoretically well, first, the award of the money for the DOE grant has been allocated by the U. government. So if the terms and conditions are not finalized prior to a change in administration, there is a theoretical possibility that it could be at risk. However, we've been told by the DOE as recently as today that they are driving to completion of these grants by the end of December.

Okay. Got it. Thank you. That's very helpful. That's all for me for today. I'll turn it back over to the queue. Thanks, guys.

Noel Parks, Tuohy Brothers.

Hello, good afternoon.

Good afternoon.

I just have a couple I wanted to run by you. I'm just interested in the collaboration with the Equinor team started in practical terms, how does that work? You mentioned that you're going to be reentering and we sampling existing wells and doing a new well, and I'm assuming there's data generated from that. So I'm just interested kind of how the spin mechanics and how they might weigh in on you know, based on the results you get, how you might proceed?

You know, it's Andrew Robinson. Yeah, I mean, what we formed, you know, is effectively a true joint venture. So the projects are run on an integrated project management team basis. And so for example, for the Southwest Arkansas project, there is a project team which is made up of a series of Standard Lithium and Equinor personnel as well, working together in an integrated manner. The strengths that Equinor bring, yes, very much on the subsurface side of bringing a lot of drilling, reservoir engineering, well completions, pumping fluids, processing type informational experience, as well as then some of the important aspects relating to health, safety, social environment, and then wider project execution on large scale, project management discipline and processes.

And so, truly an integrated approach. The teams are communicating on an hourly basis as the projects are progressing. And yes, there is a very deep and wide and collaboration and chips through joint use and production of the data. Does that give you an idea now?

Certainly, that's great. And then, regarding the additional one sampling and drilling you're going to do, can you just sort of maybe characterize what it is, you're looking to identify from incremental data?

Yeah, sure. I mean so for Southwest Arkansas, some we're looking to do some fill in to do some really confirmatory drilling there to make sure that the input for the final commercial production model, i.e., that the true reservoir production model have been sufficiently ground tourist stress tested that the appropriate conservatism built into our production modelling work, which will incorporate the data from the forthcoming re sampling and drilling work. So really, it's confirmatory with a view to them then developing the commercial production model. In East Texas, it's a little more, obviously a little more exploratory there. So we're seeking to gain sort of greater geographic definition as we continue to expand our leasing footprint in the region.

We're going to be stepping out with our drilling some of some new areas that we've been leasing. And really, we have been looking for rock properties. They we're looking to take coal, permeability testing, et cetera, as well as obviously take brine samples for geochemical analysis together to get a view for grade. And then, one of the things that you sort of will see announce not immediately, no, but certainly during the first half of 2025, we'll then start to do some initial process testing on the brine from East Texas.

So that during the calendar year '25, we're guiding towards putting out a maiden resource statement as soon as we can likely sort of middle of the year. And then, hopefully, not too long thereafter, we can start to think about a preliminary economic assessment as well. So we can start to start to put in place some of that sort of hydro met treatment work, and we can start to talk about project economics, that kind of thing.

Great. And then just a last one. You mentioned that, of course, you have successfully commissioned the column on the demonstration project with the technology. And I'm just curious, is the license process of that already in place? I'm going to talk more to ask about, is that complete and fully priced or anything? Or is that something still to be done or to be negotiated?

That is a process which is currently coming to closure now. And also, it's been a license process, which we're hoping to complete in the very near future. Obviously, we've been working together on the technology in a very significant and collaborative way, so that's something we hope to conclude very quickly.

Great, that's all for me. Thanks a lot.

We have no further questions at this time. This will conclude today's conference call. Thank you all for your participation. You may now disconnect.