智利化工礦業 (SQM) 2012 Q4 法說會逐字稿

Good morning, and welcome to the SQM Fiscal Year 2012 Earnings Conference Call. (Operator Instructions). Please, note this event is being recorded.

I would now like to turn the conference over to Mark Fones, Vice President of Finance and Investor Relations. Please, go ahead.

Good morning, everyone, and welcome to SQM's fiscal year 2012 earnings conference call. For your information, this conference call will be recorded and is being Webcast live. You may access the Webcast later on at our Website, www.SQM.com.

Joining me today as speakers are Patricio Contesse, our 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; anticipated profitability, revenues, expenses, or other financial items; anticipated cost synergies; and product or service line growth, together with other statements that are not historical facts, are considered forward-looking statements as that term is defined under federal securities 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 statements. Risks, uncertainties, and factors that could affect the accuracy of such forward-looking statements are identified in the public filings made with the Securities and Exchange Commission. And forward-looking statements should be considered in light of those factors.

I now leave you with our CEO, Patricio Contesse, for brief comments before we move to Q&A.

Good morning, and welcome to SQM 2012 earnings conference call. I will start with a brief introduction before I open up the lines to questions.

We are pleased with our performance throughout 2012. We posted higher sales volume and revenues in our potassium, industrial chemicals, and the lithium and derivative business line when compared to 2011.

In addition to these strong results, we finalized some major capital investment during 2012 and plan to keep this momentum during the next year.

For 2013, we expect the lithium-iodine demand to still grow in a healthy rate. We also expect new supplies, mainly from existing competitors, which has been under development in recent years, to enter the market. Furthermore, as a result of our recent expansion, we will increase our sales volume in 2013 in the potassium business line and expect to see market demand recover.

We do see some new challenges related to the fertilizer side when the markets may [closed] at the lower prices that were seen in the early months of 2012. We also believe that the product delay for solar thermal energy storage probably will have an effect on our industrial chemical business line.

In general, we believe our unique synergies, diverse products, and our various competitive advantages will support us in our effort to maximize shareholder value and profits in the coming years.

I thank you for joining today. We'll now answer any question that you may have.

Operator, we will go now to Q&A session.

(Operator Instructions). [Andy Cash], SunTrust Robinson Humphrey.

A question around lithium. Could you talk about any plans that you might have to expand your lithium carbonate or lithium hydroxide capacity? And when do you plan to do that, if you plan to do that?

It's part of our CapEx to have an expansion to the lithium capacity. We are today at total capacity of 48,000, and we're looking forward to be in the range of 60,000 in the near future.

Okay. So near future? Probably in the next 12 months?

Next year.

Next year being 2014?

Yes.

Okay. I was just up at the lithium -- the conference up there in Canada -- Toronto, Canada, the mining conference. And Lithium Americas was up there and Canada Lithium also up there. Are you expecting either one of those companies to be successful making lithium carbonate, or do you think that they'll be unsuccessful.

[Hard to make any judgment]. There are too many (inaudible) in the world saying that they're going to come with new expansions or new facilities. And, last year, the only one that really had appeared and with a lot of [problems] was Galaxy. So very hard to comment because of what happened -- the reality of new product coming on stream.

Anyhow, the demand on the other side in terms of lithium is very strong (inaudible). That means that it's (inaudible) without a big disturbance from newcomers if that does happen to be.

Okay. Do you think that -- ? Well, who do expect will add capacity this year and next year?

Excuse me?

Which companies do you think will add lithium capacity?

I think, besides SQM, what would happen with the Australian operation Talison and the operation with China (inaudible). Of course, the Canadian companies talk about the chances or possibility that [we have in our mine]. I think those are the ones that we see coming on stream.

So, it sounds like -- just to make sure I understand, you expect Talison and Galaxy to add capacity?

Galaxy I'm not sure about. I don't think so. I think Talison because of their position with the Chinese company that could develop some new potential to possibly produce more in China (inaudible).

Okay. I understand. And, then --

I think that is something to be seen. I'm just speculating on that.

Okay.

The only ones we've heard is the ones you have mentioned in Canada that could come on stream. The other ones are still -- beside ourselves, I don't see any other in a complete way coming on stream in the near future.

Okay. So Canada Lithium is a possibility.

Yes.

Okay. And then FMC has been having some difficulties in their plant in Argentina. Do you think that that situation is corrected? Do you think they're producing now? Or is that -- ?

We're not quite aware. We know they did have problems. They (inaudible) operation (inaudible). They have announced that they have (inaudible). If they have announced it, it must be true.

Okay. All right. Thank you very much.

Fernando Ferreira, Bank of America Merrill Lynch.

Patricio, I just had a question on iodine -- if you can discuss a little bit how the supply evolving recently -- we've seen spot prices come to a closer level to contracts. And then you mentioned in the press release that you saw new supply coming to the market and also new expansion in 2013. So, just from a supply perspective, what should we expect in 2013 and 2014, please?

(Inaudible) price is normal. Once things start to stabilize, the principal market should come nearer to what is a normal contract price. And that really [has gone on].

On the other hand, we have announced in public (inaudible) and develop a new plant and that it's producing more this year than the last year. Clearly, that on the supply side, will affect our supply, ourselves, in volumes. As far as we know, and we have said so, (inaudible) have announced since a long time ago their expansion plans and what they were doing in that operation.

Sure. And the strategy going forward will be like 2009, to try to -- I know it's difficult to say -- but to try to keep prices stable and take volumes as a result?

As far as I know -- it's something we cannot discuss that logic because it's part of our strategy.

Sure. Okay. Thank you.

That does not mean -- it's not because I don't want to be. But, clearly, I don't want to give tools to our competitors.

Craig Shaw, [SLM].

I had a couple of questions on SPN. I was wondering if you think we have seen the worst of the impact from -- I believe it's Haifa getting back into the market last year.

And the second question I have on SPN was -- it looks like gross margins came down a bit in the fourth quarter. And I was just curious if you could explain why that was. Thank you.

Well, if we -- Haifa introduced the most it could in 2012. They don't have extra capacity. So the most they can do this year what they did last year. And, anyhow, we've heard that they have not put any decision. They have (inaudible) some problems with some (inaudible). But, anyhow, the worst-case scenario, they can't affect the market more than they did last year because there is no extra capacity (inaudible).

In terms of (inaudible), we have to say that potassium nitrate is somewhat related with potassium chloride, not in the nitrate but in the chloride. So, as chloride goes down, we will have ratios (inaudible). The pricing (inaudible) inside the formula, and it was very historically high. And they're still historically high. But, anyhow, they had an adjustment related to the potassium chloride (inaudible) in terms of price. So that (inaudible).

Also, in terms of (inaudible) speaking not only for potash or potassium nitrate or whatever, in Chile we have very recent prices-- costs to be increased. One is the US dollar value, and one is a very tight situation of employment; more importantly, in the mining. Anyhow, the general economy -- unemployment in Chile is practically none in terms of practical. They say 6.2%, but, from a practical point of view, it's almost none. And that creates a big tension between suppliers in line of the labor force. And skillful people are even more scarce. So that will affect the general costs of the mining industry. And we are not an exception on that.

Okay. Thank you very much.

(Operator Instructions). Juan Tavarez, Citi.

My first question is regarding your potash segment. Specifically, could you remind us how much new capacity was added in 2012 and how much still has to be executed for 2013? And maybe give us a sense of your overall utilization rates in the segment for this year and next year.

In terms of production, we're in the range of 2 million metric tons. We are making investments to go to 2.2 million to 2.25 million tons in the next year and a half now. So that is the situation in terms of supply, in terms of production of our potash situation.

And do you see a normal ramp-up phase for this production, or are you expecting to utilize less of your in-stock capacity?

This year will be more or less the same as last year in terms of production. We don't see -- but, clearly, we are going to sell much more this year compared to last year, and (inaudible) somehow the less return because of price. We are estimating in terms of volumes in potassium, MOP and SOP in terms of 20% more volume, even though the production is the same. That is due to the quality of the inventory went up in 2012. And now we are improving, and we are going to be able to [sell this year].

Okay. Great. And can you remind us? How much are you forecasting for CapEx for this year and how much would be towards expansion and how much is maintenance CapEx?

[I will leave the detail to] Ricardo Ramos, our CFO, but it was in the range of $500 million investment for this year.

We have an investment for the year close to $500 million. And, during 2012, it was close to $440 million. The most important projects under development today is expansion of potash, as Patricio explained. We expect to increase our potash capacity close to 250,000 metric tons of capacity. The other main projects are related to the (inaudible) and iodine production, where we're finishing our expansion in the (inaudible) region. We are finishing some key projects in quality and new capacity and new products in the (inaudible) area, projects that were started, I think, one and a half years ago and we are finishing now, here in 2013. Those are the main projects that we have for this year.

Okay. Great. Thank you.

Fernando Ferreira, Bank of America Merrill Lynch.

I just had a follow-up on the potash side. These volumes that you mentioned, Patricio -- how much do you think or do you expect to sell to the market this year in MOP and, then, how much you expect to sell into Brazil as well, please.

Well, in terms of volume, we reached a volume of 2.2 almost for 2012. We are looking (inaudible) -- in that range for this year, about 300,000 metric tons more. We are estimating the sales -- the volumes in the range of 700,000 metric tons.

Okay. Perfect. Thank you.

Mike Harrison, First Analysis.

I was just hoping to dig in a little bit deeper on the lithium pricing activity scene. Second half pricing looks like it was down versus the first half. And I was wondering if that could be attributed a little bit to differences in price activity in battery-grade lithium carbonate versus technical-grade lithium carbonate. Did you see any differences in how those prices were tracking during the year?

I must say that we have different information than you in terms of price. Prices were, in 2011, in the range of $4,500. And, last year, the pricing was in the range of $5,000. It could be maybe $10 less, average one semester or one quarter to the other. But pricing has been more or less the same (inaudible). And they increased more than 10% during 2012 and 2011. And so the market of lithium is very, very strong, and demand is growing very, very fast. So we are quite optimistic in that business.

If I do the math, though, around your volumes and sales during the second half of 2012 compared to the first half of 2012, it does look like pricing came down during the course of the year. Is that not correct?

(Inaudible) a different mix. You have lithium hydroxide or lithium carbonate or lithium [chlorine]. And, clearly, those have different price and may sell more volume than the other. The average (inaudible). In terms of lithium carbonate equivalent, we have been selling in a very (inaudible) price during the year and higher than 2011.

The market also will grow. The volume last year (inaudible) 10%. So very, very strong in demand during 2012 compared to 2011. The market is growing over two digits in terms of demand.

All right. And, as I think about the difference in pricing between battery-grade materials and technical-grade materials, are you seeing greater pricing strength right now in battery-grade materials and maybe a little bit weaker pricing in technical-grade?

No. We are seeing a strong position, as I told you before.

Okay. Thank you very much.

This concludes our question and answer session. I would like to turn the conference back over to Mark Fones for any closing remarks.

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

The conference is now concluded. Thank you for attending today's presentation. You may now disconnect.