智利化工礦業 (SQM) 2009 Q4 法說會逐字稿

Good day, ladies and gentlemen, and welcome to the SQM Fourth Quarter 2009 Earnings Conference Call. My name is Jasmine and I will be your Operator for today. At this time, all participants are in listen-only mode. Later we will conduct a question and answer session.

(Operator Instructions). As a reminder, this conference is being recorded for replay purposes. I would now like to turn the conference over to your host for today, Mr. Patricio Vargas, Vice President of Finance. Please proceed.

Thank you, Jasmine. I'm sorry. Good morning, everyone, welcome to SQM's Fourth Quarter 2009 Earnings Conference Call. For your information, this conference call will be recorded and it's being webcast live. You may access the webcast later on our website, www.sqm.com.

Joining me this morning as speakers are Patricio Contesse, Chief Executive Officer; Patricio de Solminihac, Executive Vice President and Chief Operating Officer; and Ricardo Ramos, Chief Financial Officer.

Before we begin, let me remind you that statements in this conference concerning the company's outlook, future economic performances and anticipated profitability, revenues, expenses or other financial items, anticipated cost synergies and products for service line growth, together with other statements that are not historical facts, are forward-looking statements and that term is defined under federal securities laws.

Any forward-looking statements are estimates reflecting the best judgments of SQM, based on currently available information and involve a number of risks, uncertainties and other factors that could cause actual results to differ materially from those stated in such statements.

Risks, uncertainties and factors that could affect the accuracy of such forward-looking statements are identified in the public filing made with the Securities and Exchange Commission and forward-looking statements should be considered in light of those factors. I now leave you with Patricio Contesse for the opening remarks before we go to the Q&A session.

SQM reported yesterday earnings for the year 2009 of US$327.1 million. That represents a decrease of 34.8% with respect to 2008, when earnings totaled US$501.4 million and [the average] of the second best net income in the history of our company.

Operating income reached US$441.9 million, 54 point -- percent lower than the two -- US$642 million reported the previous year. Revenues for 2009 totaled US$1.4 billion, representing a decrease of 16% over the US$1.7 billion reported in 2008.

The impact of economic downturn took a total on volumes on our specialty Plant Nutrition, Iodine and Lithium business lines. Additionally average 2009 prices in our fertilizer and lithium business were lower than those recorded during 2009, specifically significantly in the second semester.

The company did, however, benefit from higher average iodine prices and significantly higher potash volumes, while the overall results achieved in 2009 were lower than in 2008, net income and revenues recorded from 2009 were the second highest in the company history.

In relative [terms, we have also outperformed] counterparts in its main business and in particularly those in the fertilizer industry. Looking forward, we expect 2009 to be a transition year with higher volume across all our business line, with lower average prices in our fertilizer and lithium business, increasing production and sale of potash will continue to be an important driver for SQM World in 2010 as it was during 2009.

Expansion plans for potash have moved forward according to plans and for this year we are expecting potash and chlorine production to be slightly higher than 1.4 million metric tons compared to the approximately 1.1 million metric tons potassium chloride and potassium sulfate produced in 2009.

Our future investment plan are in line with those -- this trend and our total production should reach approximately 1.8 million metric tons during 2012. Under current market condition, it is difficult to predict results of 2010, although we anticipate that it's likely that potassium-related fertilizer prices will recover at the end of this year.

Average price of 2010 should be lower than those recorded in 2009. Lower price that would be partially offset by higher volumes in all our business lines and in particular a significant increase in potash volumes.

Thank you, Patricio. Jasmine, we may now go to the Q&A session.

(Operator Instructions). Your first question comes from the line of Cristobal Mora with Santander. Please proceed.

Yes. Hi. Good afternoon. First of all, thanks for the conference call and for your time. I have two questions. First, regarding the recent announcement about the suspension in production in El Toco and Pampa Blanca facilities.

I'd like to know if there will be any one time event associated to this situation and how significant it might be? The second question is related with your results, especially to costs of the potash business. I want to know the reason behind the increase in costs during the second half of the year in this division. Thank you.

I'll talk of Pampa Blanca. We have already done, in the fourth quarter, a charge for this in the range of US$15 million and the total will be, considering what we have -- what should be done in the first quarter, will be in the range of US$18 million -- US$10 million to [US$20 million].

That will be the range of the total costs of the closing of El Toco, Pampa Blanca. Where we already have recognized US$15 million in the first quarter last -- in 2009. Related to the cost of potash, has been sustained at same level. They have not been increasing our costs.

Okay. Thank you.

Your next question comes from the line of Fernando Ferreira with Bank of America-Merrill Lynch. Please proceed.

Hi. Good morning everyone. I have two questions. The first one on the lithium side, I'd like to know how much of the price cut was already implemented in the first quarter. Looking forward 2010, do you see room for another price cut, given that we're seeing several new projects being developed or starting to be developed in lithium?

The price, until the third quarter 2009, was in the range of US$6,000. We ended up in the range of US$5,000 in the fourth quarter of 2009. During the -- we are -- we have an estimate for this year in the range of 4.6%. We have, right now, higher than that. So that means slightly decreased during the year to get to the 4.6%.

Okay. Thanks, Patricio. And my second question is on the SPN business. You mentioned that 2010 volumes should be stronger than 2009. Can you elaborate a little bit more, how much stronger you think the volumes could be in 2010? Because volumes are still well below the levels we saw in 2006 and 2007.

In nitrogen general, will be in the range of 20%. We are considering that volume. We estimate iodine to be in the range of 10% to 15%. We see in the lithium, in the range of 40% -- of 20%, 25% more.

Okay. Thanks, Patricio.

It is about 40% because we are producing about 40% more. Or, well, I mean in total products. But regardless, in [total potash] sales, it's about 100%. Because we produced 1.4 million metric tons, but of course we are having more potash free to sell as such, so we are selling approximately 1 million metric tons compared to 0.5 million last year.

Your next question comes from the line of Tim Tiberio with Chardan Capital Markets. Please proceed.

Good afternoon. My first question is around iodine pricing. Could you perhaps just give us some color around where pricing is currently and what your outlook is for 2010, obviously with the recent production reduction?

Well, what we said about production reduction, that doesn't mean that we're going to sell less iodine. We're estimating about 10% to 15% more because we have inventories. So there is a recovering volumes and the market is growing, that permits us to have that view, in terms of sales in 10% to 15%.

So the reduction in production of ni -- i -- i doesn't mean we're going to sell less. We're even told -- already previously that we're going to sell more. In terms of pricing of iodine, we are slightly more or less in the same rate.

Okay.

We are about -- yes, we are about half a dollar less.

Okay. Thanks. One last question, have you provided any updated CapEx guidance after the recent announcement?

No, we -- we normally, we give three years, but we have not yet had a, let's say, a number formalized for 2012. By the year 2010 and '11, it should be in the range of US$600 million, US$650 million.

Okay. Great, thank you so much for your time.

Your next question comes from the line of Francisco Schumacher with Raymond James. Please proceed.

Hi. Good afternoon. This is Francisco Schumacher. My question is, well, I have read some reports on some technical difficulties that are still present to produce lithium car batteries, for example, in the cost side and I wanted to know what's your updated expectation on the timing of this demand to start having an impact on that lithium market?

This is Patricio de Solminihac. Regarding the lithium batteries for cars, there is a lot of information, what our views are. First, there is already, I will say, a much more consensus that electrical cars will be there.

Second, that the lithium-based technology for batteries, of different kinds, will also will be more probably the winner in this race. Third, that we don't see a real effect up to 2012, 2015 and then growing forward.

You don't see between 2012 and 2015?

We don't see that the amount of electrical cars that would be built would be enough to really have an important effect on the demand for lithium.

Until 2015?

Yes.

Okay. Thank you very much.

Your next question comes from the line of Cesar Perez with Celfin Capital. Please proceed.

Yes. Good morning, gentlemen. Could you please provide some pricing guidance on potassium chloride prices in the current year and also give some guidance over potassium nitrate prices and the premium we could see over the course of the year? It would be very helpful for model. Thank you.

Okay, well, potash prices, I think they are relatively quite public today and they have been lately some negotiations from China, in the range of US$350 per ton and in India, US$370 per ton. We have been seeing prices in Brazil in the US$400 per ton.

So it's really hard to say an average, but they were at US$380 per ton in Brazil now they're in the US$300 per ton and -- US$400 per ton. They were below US$70 -- US$370 per ton in India, now it's getting to US$370 per ton.

So that is the range of pricing that potash is moving today. We have sales in our -- we have reviewed our price of potash should continue to recover. We have a more optimistic view for the end of the year, but it's hard to tell exactly in what range it will be.

The other thing that we are seeing, in terms of demand, that potash is a big demand at this moment, everywhere in the world, not only for SQM, but the other players too. So we have seen some recovery in price, but more significantly, a significant recovery in the volumes being sold everywhere around the world. In this moment, potash prices are in the range of what I'm telling you.

Okay. And, and Patricio, could you -- ?

Potassium nitrate is related to that. So if potassium chloride have went in the range of average of US$300 per ton lower, that they were a year before. Also compare the average price of potassium nitrate are in the same range.

All right. Okay. Fair enough. Thank you.

(Operator Instructions). Your next question comes from the line of Eugene Fedotoff with Long Bow Research. Please proceed.

Good morning, thank you for taking my question. I'm sorry if I missed that, but Patricio, could you tell us what your expectations for lithium volume is for 2010?

We're estimating higher sales compared to last year, in the range of 25% compared to what it was last year.

25% higher?

Yes.

Thank you. And --.

25%. 25%. 2, 5.

2, 5? Okay.

2, 5. 25% higher.

Okay. Thank you. Can you --

We just mentioned to you how bad was the first quarter of 2009 compared to the first quarter with the -- what we are estimating for this year, we see an increase of 64% -- but clearly not the year, just to see how bad was the first quarter in terms of volumes in 2009. So we see a recovery here. Which should -- maybe not yet achieving the volumes 2008, but we -- add to that volume.

I see. Could you provide a little bit more color? You said that you're seeing strong growth in lithium from electronics market and you also mentioned that you see demand returning from markets that previously have stopped using lithium. Can you provide a little bit more color on those markets too?

I'll give you -- this is Patricio de Solminihac. Yes, when the crisis start, there was not only the diminishing of the consumption of these electronics equipment, but also the diminishing on the inventories in all the chain and that was the tough effect on the total volume.

So now the inventories are recovering and, of course, they are recovering the end-sales of consumption of those electronics equipment. That is a very good effect on the additional demand for lithium.

Regarding other uses, there was an important diminishing in the use in glass that we are seeing now with the new prices, more competitive using in glass and also some -- we are starting to see, and hopefully more in the future, in the aluminum sector also.

Great. Thank you very much.

Your next question comes from the line of Cesar Perez with Celfin Capital. Please proceed.

Gentlemen, hello again. I know it's very hard to tell at this stage, but assuming technology helps build up of lithium batteries, how fast can SQM really expand its branch operations in this [LR]? I have seen a lot of statements in the press recently and I would like to dig a little bit more regarding that aspect.

This is Patricio de Solminihac, Cesar. We do have today an installed capacity and ready to go of more than 40,000 tons. We believe that we never have ran at that stage, but we believe that we can even, with the actual [plants], we had get to grow to 44,000 tons.

So we can really get a more volume to the market very, very quickly, besides the inventory that we have. An additional increase will be need in order to increase the plant. From the brine point of view, we have enough brine to support, today, much more than 60,000 tons.

Okay. Thank you very much, Patricio.

(Operator Instructions). Your next question comes from the line of Brian Chase with JPMorgan. Please proceed.

Hi, gentlemen. Thank you for your time. Just very quickly, you've mentioned that demand for potash is improving. In your view, how realistic is the Potash Corporation forecast for 50 million tons in 2010? In addition, what level of demand do you think that we would need to reach for these larger players to start being able to exercise their supply management tactics again?

Well, I think it's hard to tell. But our view is a range, is not a number and I would say that my -- our view today would be in the range of 45 million metric tonnes to 50 million metric tonnes the demand in the market. That is our view. I think in certain way, the supply management is coming back again because we have seen that some prices are getting slightly higher again.

If you will not have that possibility of supply management, you will not be able to choose that, because still demand is below the capability of many producers to have more potash, besides inventory, that were held up by several producers a year ago. So I think if we have seen between US$10 to US$20 market getting up lately, is because the certain way (inaudible) by management policy.

Great. Thank you.

Your next question comes from the line of Consuelo Baraona with MetLife. Please proceed.

Hello. Thanks for the call. I just wondering on the cash and the debt. You already went to the market and your cash stock increased. I just wondered, what are you expecting for the next year in the cash level? Are you expecting to go to the market again with a new bond? Thank you.

I only will say that the -- we don't see the total debt of the company increase. The structure or not, we can see for different possibilities or not. We have to look forward at that as steady or not. But the total debt of the company should not increase.

Okay. Thanks. What about the cash? Are you expecting to increase? Are you expecting to have a minimum level?

Yes, we have -- we estimated our minimum level should be in the range of US$200 million as a cash. So there probably would be some reduction in our cash, but the total debt of the company will not be increased.

Okay. Thank you.

At this time, there are no further questions. I would now like to turn the call back over to Patricio Vargas for closing remarks.

Thank you, Jasmine, and thank you all very much for joining us today. We hope to have you with us in the next conference call. Goodbye, everyone.

Ladies and gentlemen, that concludes today's conference. Thank you for your participation. You may now have a great day.