智利化工礦業 (SQM) 2011 Q4 法說會逐字稿

Good day, ladies and gentlemen, and welcome to the SQM 2011 Earnings Conference Call. My name is [Fabiola] 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)

I would now like to turn the conference over to your host for today, Mr. Mark Fones, Vice President of Finance and Investor Relations. Please proceed.

Good morning, everyone, and welcome to SQM's 2011 earnings conference call. For your information, this conference call will be recorded and is being webcast live. You may access it later on at our website, www.sqm.com. Joining me today as speakers are Patricio Contesse, Chief Executive Officer, Patricio de Solminihac, Executive Vice President and Chief Operating Officer, and Ricardo Ramos, CFO.

Before we begin, let me remind you that statements in this conference, concerning the Company's business outlook, future economic performances, and visibility and profitability, revenue, expenses, or other financial items, anticipated cost synergies, and product of service line growth, together with other statements that are not necessarily fact, are forward-looking statements as they are defined under the Federal security laws.

Any forward-looking statements are estimates, reflecting the best judgment 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 fact 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 give you our CEO, Patricio Contesse, for a brief comments before we move to Q&A.

Good morning, everyone. Thank you for joining us. It is a pleasure to be here this morning to discuss our 2011 earnings with all of you. As many of you may have expected, 2011 was an historical year for SQM in terms of revenues, which reached $2.1 billion and net income, which totaled $546 million. There are several highlights to our 2011 earnings. For instance, iodine volumes reached historical highs and we saw an increase of average price in this business line increase by almost 40%.

Additionally, the lithium market exceeded expectations as battery growth continued to expand significantly, about 30% of our estimates. We sold over 40,000 metric tons of lithium in 2011 and as today our capacity reached 48,000 metric tons per year. Especially regarding official revenues, increase of the market saw limits [provided] strong demand, leaving us a unique position to maximize profits in this business line as well.

Despite delays in 2011, we [rate] our new MOP and granular MOP facilities in Salar de Atacama and our new potassium chloride facility in Coya Sur. These rates are in line with our desire to focus on growth we have a sustainable competitive advantage. We also submitted a request to the Servicio - Environmental Impact Assessment Service to approve our iodine and nitrate capacity in the future, if the market demand exists.

We see continued volatility in the broader financial markets, but will remain confident in our business and optimistic about our future. We continue to focus on our [total] capital expenditure proposals for 2011 - 2012. In fact, in 2012, we expect total capital expenditures of [$5.5 billion] and continue to explore all opportunities that will allow us to make future demands in our product business line and maximize shareholder value. Thank you very much.

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

(Operator Instructions). And your first question will come from the line of Fernando Ferreira with Merrill Lynch.

Good morning, Patricio. Good morning, everyone. My first question is if you could give an indication of how much your potash sales volumes to the market in terms of MOP and SOP will be for 2012 and how much of that will be granular, relative to standard.

Well, to do this, we have increased our capacity of granular during the second half of last year and improving the quality also during all this period of time. We estimate that that will be in the range of 700,000 metric tons of granular for sales next year. And - I mean, this year. And that is our focus for granular. And then the potassium sulfate this year was to be in the range of 113,000 metric tons compared to the nearly 40,000 metric tons for previous years.

And just to understand if I got that right. 700,000 is granular and 130,000 is SOP, right?

113,000 - 113.

113. Okay. And in terms of your total sales, you sent about $1.1 million to the market this year. What should we expect as total for --

Last year, in total costs, MOP and SOP was $1 million.

Yes.

And this year we're considering $1.2 million.

$1.2 million. Okay. Perfect. And the second question is I was just curious, looking at your outlook for the SPN business in 2012, you mentioned that you expect flat sales volumes because of more competition on the potassium nitrate. Is that because of your seeing more potassium nitrate from other players or is that SOP competition relative to potassium nitrate? So I was just curious to understand what's going on there.

Well, we almost have - did have some stride loss here. So supposedly we will not have those serious problem that they faced last year. Secondly, we selling more potassium nitrate to solar energy plants. So in that - that is - there is - we are passing some of our nitrate - potassium nitrate that we used to sell for fertilizer, now for additional usage.

But overall, we are estimating an increase of potassium nitrate during the year in the range of 5% to 10%, considering [track] fertilizer and industrial business. And at this stage, we see a very strong demand for our potassium nitrate in the fertilizer and even we have been able slightly to increase import prices.

Perfect. And if you can just remind me, what's the premium you can get selling to solar instead of fertilizer. Is that substantial?

No. It's more or less the same, but that is a growing industry that we want the supplier to make them feel that they have a reliable supplier for this new situation that for us is very well relevant for the future.

Okay. Thank you very much, Patricio.

The next question will come from the line of Wesley Brooks with Morgan Stanley.

Yes, first question on the potash base. Volumes in Q4 were quite weak. Could you give us an idea of, specifically for Q4, not the second half, how much volumes were down? And how much of that was driven by the ongoing expansion plans and how much of that was driven by market weakness, please?

We don't give the source of our quarter, but anyhow, clearly, there was some decline in the sales of (inaudible) last quarter. That was due to a problem of development of the plan in the company. If that would not have been the case, we would have been able to sell all the volumes in the normal way. So it was a problem of some quality programs that we are basically solving to sell in Brazil. But now case we - that was the reason not because of the market weakness.

So you've seen no impact as your international competitors have from market weakness? And in the first quarter as well, no impact from what's going on in the global markets?

If - that's true. We will be able to sell more than in the first quarter look for us by promising percents. You have to remember in 2009 that we sold whatever we believe is important. It should not be any different in this year.

Okay. Excellent. Thank you. And then, on the iodine side, could you give us some indication of where the 2012 contract prices settled? Obviously, they were being set around the time when spot prices spiked. So the range of where they could be, I guess, could be very big. Could you give us some idea on that, please?

Well, we have two factors last year that affected us. We have [launched] some contracts and (inaudible) very high] and the average price went to more than the cost. Given this year we don't have the spot marking, so we have now just the contracts - the renewal of contracts. And I must say that the average price issued will be higher than not the average price of last year. And we don't disclose exactly the price. Sorry about that.

Thank you. Thank you. And my last question was just on the announcements about, actually, offering contracts to new lithium producers. Do you have any more clarity as to whether SQM will be allowed to bid for those contracts to produce lithium or whether you will be excluded from that?

No, we're not excluded.

You're not excluded.

No.

So will you be - I mean, you obviously intend to bid for those new rights.

That is something to be decided and we have to know more of details of what the [price is]. We don't have that clear information.

Excellent. Thank you very much.

Your next question will come from the line of [Rodrigo Rivones] with Santander GGM.

Hi, Patricio. Hi, everyone. I have two questions. First, regarding the (inaudible) of productions of competitors in your line and mid-trade productions such as [Cosaya] and [Hifat]. Do you know what's the status of them and what are you expecting from prices once competitors resumes the activity?

Well, it's - clearly, we see not in Hifat, so not significantly. So, those, from that side, that it's going on a special pressure having for the [year]. The - we have been able to - the market has been very slow in potassium nitrate demand, besides this big increase that we have for the (inaudible). That's the main reason behind this issue, not because of weakness or significant weakness on the competitor.

In the case of Cosaya, you probably know that they have problem with water prices, as been told by the authorities. I don't see, in the near future, them coming on stream in this production because of the serious league of problems they have to sold lots of environmental permits that they don't have. So I don't see that they can increase in, so far, the production that they used to.

But you have to remember there is the new production in Chile coming on stream. (inaudible). They should come in the market - we don't know exactly the model in a staffing position, but clearly we will that effect in the market.

I cannot disclose exactly pricing situation, so that is part of our strategy. How we deal with this business. The only thing that I already said before - we forecast an average price higher than previous years.

Okay. Great. Thanks. The other question is regarding the CapEx for 2012. What is the guidance for that and if you can make a breakdown for the CapEx.

We are investing, as we said, slightly more than $500 million. About 30% of that CapEx is related to the increase of forecast of salt lake - [Camaso] Lake. And then we have also about nearly $170 million related to maintenance CapEx. And then we have a big development of increased production in nitrate in the first region and some in the second region.

Okay. Great. Thanks, Patricio.

Your next question will come from the line of [Antonio Berato] with Itau BBA.

Hi, everyone. Good morning. Sorry if you have addressed my question before. I just joined the conference call. But my question is about if we could expect any kind of margin benefits coming from the increase in the granular potash that you guys are planning. And considering that, granular potash sells at premium and that you might be able to place more of the started in Brazil, for example, at a lower cost. Should we expect any kind of margin benefits from the potash side because of this expansion?

Well, related to - if we are making the change of mix from standard to granular, permit us to be more involved in the Brazilian market, where for us we had higher margins and we have achieved the costs to get - to there and to other markets like, for example, the tariffs. So for us, it's very important and relevant aspect that very few have interest in this year.

Okay. Thanks.

Your next question will come from the line of [Dean Groff] of Deutsche Bank.

Hi there. Good morning. This is Dean Groff stepping in for Ben Isaacson. Just to follow up on the last question there. Could you maybe --

Louder, please, because we don't hear you well.

Sure. Okay. Is that better?

That's better.

Excellent. So with the increased granulation capability and following up on the last question there, could you maybe quantify how much MOP you could redirect from the Asian markets into Brazil?

Sure. We are estimating, for last year related to this year, not only for Brazil, but in - as a whole, we are obtaining 400,000 metric ton approximately that we will have in 2011 to 700,000 metric ton approximately that we will have during this year. So it's about 300,000 metric tons more of granular product that we are forecasting for this year.

Okay. And what would be the - what would be the shipping advantage if that extra 300,000 was being diverted from your Asian markets into Brazil?

Well, if they go to Brazil, it is much cheaper than going to China. Also a capital in - and prices of granulized higher than - there is more significant in terms of pricing, but also cost achievement would be in the range of $10, $15 - in that range, per metric ton.

Okay. Great. Thank you.

There are no further questions at this time. I would now like to turn the call back over to management for closing comments.

Well, thank you all very much for joining us today and we hope to have you with us again in the future. So good-bye, everyone. Thanks.

Thank you very much. This concludes today's conference. Thank you for your participation. You may now disconnect. Have a great day.