智利化工礦業 (SQM) 2003 Q4 法說會逐字稿

The first question comes from Manuel Salazar from Santander.

Good morning, gentlemen. I just had a question regarding freight costs. We have been hearing that they are going up significantly. I wanted you to give me an idea if possible, of how this might affect you and if you had any sensitivity as to (for example) a $1 increase in freight costs per ton. What impact would that have in your costs and in your P&L?

Well, as we stated clearly, the freight costs are impacting the operation during this year. Even though that, as we said also, given that negative situation we expect that the net income and operating income for this year will be better than last year. So we have been able to overcome that negative situation by the price and volume and other factors, and the company is going on.

Do you have any idea how?

You have to say that we have 1 million metric tons more-or-less, just to give you very roughly, so every $1 is $1m, let's say.

Okay, thank you.

I would just like to insist that clearly that is affecting everyone everywhere. We have put that in our estimate and even with that we expect better results of the company anyhow.

That is great. Thank you.

The next question comes from Cesar Perez-Novoa from Celfin Capital.

Good morning, gentlemen. Congratulations for your fiscal year 2003 financials.

My question is in regard to the Specialty Fertilizer division. You had pretty strong revenue growth in the year and the quarter as well. However, gross margins dropped in the second half of the year, implying a loss, which from my understanding comes from the maintenance downtime at the Salar operations. How much margin improvement should we expect going into 2004, and also if we should expect any price increase for your Specialty Fertilizer division?

For that, I should say that we have to consider the gross margin. During 2003 compared to 2002 we bought a lot of tonnage from PCS Yumbes, Potassium Nitrate. So clearly we made basically there a trading activity, and until 2005 onwards that production will not be ours. That is impacting the gross margin anyhow. They would have captured the market, and we will have the benefit of better margins from 2005 onwards because that volume will be coming from our own operation and we will not be buying as we are doing in 2003 and will continue to do through 2004.

Secondly, anyhow that situation explains most of why the gross margins are in the level they are because we are just making trade activity there. We estimated the gross margin for 2004 would increase even with that, because (answering your question) the market is quite demanding and we expect that even though also the freight cost [indiscernible], we will be able to improve our gross margins because of the environment in the market and the growth of demand.

Thank you.

Our next question comes from Manuel Salazar from Santander.

Good morning again. Just going back to PCS Yumbes, have you already made a decision on what is going to happen with that production facility? Is it going to stay where it is or are you going to move it?

Today we are analyzing all the aspects clearly. We think that we will replace it by our own production where we have lower cost and where we can concentrate operation. We did not have the final decision, but we think that concentrating in our current operation should be much more competitive.

Okay, thank you.

Our next question comes from Cesar Perez-Novoa.

Gentlemen, my second question comes from basically your Buty Lithium plant in Texas. How much revenue should this plant contribute to SQM's financials? Also, if you could provide some indication of when will your Chilean Hydroxide plant be available and fully in production.

We estimate that Buty Lithium for this year is negatively affected. We are already starting production in the quality. We were delayed considering our expected date before but fortunately [the technical problem] has been [solved]. Even though that we think that this year is going to be negatively affecting the company even though that the results will be better as we explained already before.

We should be starting to obtain [benefit] for the Buty Lithium from the next year onwards.

In terms of the Lithium Hydroxide, we expect to have the plant by 2005. As you know today we are selling a stockpile we bought. So we do not make too much margins there because it is apparent we bought, we did not produce it. From 2006 onwards we will have our own production, with the margins that that production should give us, which would be much higher than what we have today.

We have already put the order for some equipment. Everything is working quite well. We should at the last quarter of 2005 be operating that plant.

Okay.

Cesar Perez-Novoa, please go ahead.

Yes, my final question, gentlemen, is in regard to the consolidation process for SQM. Last year you have been pretty active in acquiring assets throughout Chile and also abroad. I would like to know if you are contemplating further acquisition opportunities, either domestically or abroad?

We have nothing concrete to comment about it. Clearly, we are always searching for opportunities. If that comes clearly the public will know, but at this stage, I think we are financially prepared. We are always concentrating on our core business. Whatever happens there, if something was hit, clearly we would be behind. At this stage we have nothing really concrete to say about it.

Okay. Any opportunity in the downstream products or going into the downstream market?

There may be but we have defined a very specific niche where we can go downstream, not very broadly anyhow at this stage. We have nothing concrete yet to comment about.

Okay, very well. Thank you.

The next question comes from Manuel Salazar.

I just wanted a little more information on the Lithium Hydroxide. If I remember correctly, margins are very similar to the Lithium Carbonate. Are you going to increase production or are you going to be shifting some of the calcium carbonate production into the Lithium Hydroxide?

For that we would have to increase production because today we have a captured market for Lithium Hydroxide when we bought the stockpile. If you don't mind I will put it in quotes, because the mine is ending. The stockpile is ending by 2005. We have increased Lithium Carbonate because we already have a market for Lithium Carbonate, whatever the number is today, so we will have to increase over that the Lithium Hydroxide that today we are selling from the stockpile. So if we are selling approximately 3,000 metric tons of Lithium Hydroxide that comes from that stockpile, by 2006 we have to increase that tonnage from the Lithium Carbonate plant. So by 2006, at least, we would have to have 3,000 more production in our facility.

Would that require pumping more at the Salar?

Not now, we have an extra, as you are aware of, we announced a year ago or a year and a half ago that we have increased capacity to 28,000 metric tons of Lithium Carbonate in our plant. We are already working in concentrating solutions for 2006. Today we are in a production of about 23,000-24,000 so we have an extra capacity for this production coming for 2006.

Anyhow, we are planning for the next future to increase capacity over that. Until 2006 we feel comfortable about the 3,000 at least, or more, metric tons, as we will have to have availability in our own Lithium Carbonate plant.

Just a final question regarding the pumping at Salar. If I remember correctly there was a limit to what you could pump and you were doing some studies at the Texas lagoon, if I remember correctly. Is there any timing as to when you might be able to present this and if possible in the future to release this limit on pumping?

We have to say that in the operation we have two strains of pump, one is rich in [potash] and Lithium and the other one is not rich in Lithium and is richer in [potash]. So, in that line of that strength where we are pumping already without a high concentration of Lithium that is less [indiscernible], when we need more Lithium than we will need, we will change for the solutions that have low content of Lithium with high content of Lithium. So even without increasing the capacity of pumping, we will be able to increase significantly our production of Lithium in the future anyhow.

Besides that, we are doing what you said. We think that where we are, have any linkage technically with where the [indiscernible] are, that our awareness of the authorities, that even if we are not yet in time to convince them we have not that problem because we can change the solution today with a low concentration of Lithium with a higher concentration of Lithium.

There are no further questions at the moment. I will hand over the call to you, Mr. Vargas.

Okay, thank you Irma. Thank you all very much for participating in this conference call. We hope to have you with us in the next conference call. Good-bye everyone.

Thank you for participating in today's call. You may now disconnect.