Lithium Argentina AG (LAR) Q4 2024 Earnings Report, Transcript and Summary

Hello, and thank you for standing by. My name is Regina, and I will be your conference operator today. At this time, I would like to welcome everyone to the Lithium Argentina AG Fourth Quarter and Full Year 2024 Earnings Conference Call. All lines have been placed on mute to prevent any background noise. After the speakers' remarks, there will be a question-and-answer session. [Operator Instructions] I would now like to turn the conference over to Kelly O'Brien, Vice President, Investor Relations and ESG. Please go ahead.

Thank you for the introduction. I want to welcome everyone to our earnings conference call this morning. Joining me on the call today to discuss the fourth quarter results is Sam Pigott, President and CEO; Alex Shulga, VP and CFO, will also be available during the Q&A session. Before we begin, I would like to cover a few items. Our fourth quarter and 2024 full year earnings press release was issued last evening and the corresponding documents are available on our company website. I remind you that some of the statements made during this call, including any production guidance, expected company performance, update on the regional development plan, the timing of our projects and market conditions may be considered forward-looking statements. Please note the cautionary language about forward-looking statements in our presentation, MD&A and news release. I will now turn the call over to Sam.

Thanks, Kelly. Good morning, everyone, and thank you for joining us today. This year was a landmark year for us, and I'm very proud of what the team was able to accomplish. First and foremost, Cauchari-Olaroz not only met, but exceeded its annual production targets, becoming the largest producer of lithium carbonate in Argentina. Working closely with our partner Ganfeng, we enhanced the organization at Cauchari, adding experienced talent, pulling from both companies to strengthen the operations team. I believe the team's dedication to innovation and focus on operational excellence will continue to set us apart in 2025 and beyond. We will discuss this later in more detail, but on the balance sheet, through several strategic transactions and financing, we were able to bring down project-level debt and extend maturities. At the same time, corporate costs were substantially reduced with more focus on the operations. Finally, we completed a corporate migration, where, in recent months, we moved our corporate domicile to Switzerland. This decision was driven by our shareholders, where we received over 99% approval for the migration. The move should give us added strategic and financial flexibility going forward. On the call today, I will discuss the 2024 operational and financial results and expand on opportunities we see to create value for our shareholders. During 2024, our goal was to produce 20,000 to 25,000 tonnes, and we exceeded the high-end of this range, producing 25,400 tonnes. As targeted, we delivered these strong volumes as a result of consistently increasing production month-on-month. We ended the year reaching over 90% capacity in December, demonstrating the capabilities of this plant and our team. The operations also achieved a significant milestone by receiving three distinct ISO certifications, reaffirming our commitment to excellence and responsible business practices. We are proud of our track record given the well-known challenges in the industry ramping up new chemical plants or expansions. We attribute this success to the experience brought by our joint venture partner Ganfeng and also the culture of collaboration and a single team effort in Jujuy. We expect production volumes during 2025 to exceed production volumes seen in 2024 and have set guidance of between 30,000 and 35,000 tonnes. With the ramp up last year, we identified a number of opportunities to reduce maintenance costs and improve recoveries in both the ponds and at the plant. We are taking several actions to implement changes this year and expect the related planned plant downtime will impact production during the first half of the year. Accordingly, production volumes during the second half of the year are expected to be higher than the first half, and this is reflected in our full year guidance. These actions should result in stronger performance for years to come. As mentioned, we surpassed production guidance during 2024, achieving 85% operating capacity during the fourth quarter. With the achievement of commercial production and in an effort to provide greater transparency, we have included cash costs for 2024. We were quite proud that average cash costs during the year were $7,100 per tonne. During the fourth quarter, the costs were $6,600 per tonne, showing the operation's ability to bring down unit costs as we move closer to design capacity. For 2025, we expect operating costs to be similar to those in 2024, with sustaining CapEx around $600 to $700 per tonne. In January, we updated our technical report on Stage 1, with a long-term cash operating cost estimate of $6,500 based on our current operating performance. We feel quite confident in this long-term estimate and believe that as we continue to optimize costs and look at new processing technologies, which we'll touch on later, we could bring these costs down even further. On the Lithium Argentina side, we maintain a healthy balance sheet with a cash balance of $86 million and no material funding requirements expected at the project level. In 2024, we decreased our general and administrative costs by 30%, exceeding our 25% reduction target and maintaining a lean corporate model. Over the last year, we have been able to improve our lithium margins under challenging market conditions. In 2024, Fastmarkets' battery-quality lithium carbonate price fell another 27%. Lithium carbonate being sold from Cauchari-Olaroz today is largely going to our partner Ganfeng for use in the LFP market. Our pricing is based on battery quality and market price adjusted for the quality of the product, which contains trace levels of impurities. During 2024, as quality improved, we were able to decrease the pricing discount significantly. For 2025, it was further reduced, leading to an over 50% improvement from our first sales. Overall, we are very pleased with our current pricing arrangement, which is supported by third-party quotes. As market prices recover, we expect this adjustment to shrink significantly as roughly 50% relates to fixed cost. Looking forward, we continue to focus on improving and stabilizing our product quality and to maintain flexibility to be able to sell our product directly to customers globally as the LFP market develops. Alongside the operational success, we also improved and derisked the financial position of Cauchari-Olaroz throughout the year. Project-level debt was reduced from $350 million at the start of last year to $210 million on a 100% basis. This was accomplished by reducing debt at the joint venture with a significant portion of the proceeds from the Pastos Grandes transaction and favorable changes in the FX. We were also able to replace the short-term dollar-linked debt with long-term bonds and bank facilities. In November, in response to Milei's financial reforms, we were able to raise $50 million in a domestic Argentina bond offering at an 8% interest rate with a three-year term. Working with Ganfeng, we were able to access low-cost debt from international banks. A further $100 million of short-term debt was replaced with long-term bank facility at attractive rates. And more recently, we received an additional $150 million bank facility, which we expect to be available in Q2 to draw on as needed to give us additional financial flexibility. The terms are even better than our existing long-term debt and highlights the benefit Ganfeng brings both technically and financially to this project. With that, it's clear that we've built a strong foundation to support our future growth plans. Working with our partner, Ganfeng, as the global leader in lithium processing, we see a strong opportunity to leverage advanced processing technologies to enhance these plants. As part of this, we are excited to announce that we will be installing a 5,000 tonne per annum DLE demo plant at site. This plant is expected to leverage higher concentration brine from the solar evaporation pre-lining concentration ponds and use a technology that includes solvent-extraction-based DLE that was developed by Ganfeng. The demo plant will integrate at the Stage 1, where it's expected to streamline the downstream process to lower reagents, increase recoveries, improve product quality and keep water usage low. This new technology has been validated in China using brine from Cauchari-Olaroz and will now be demonstrated at site with the commercial scale demo plan. In early March, a province of Jujuy granted the required permits and development is underway on the plant in China. Commissioning is expected to begin by the end of 2025. Based on the ongoing development work, we expect this new technology to support our future growth plans for Stage 2 at Cauchari-Olaroz and is being used for regional growth plan in Salta. We remain optimistic about the continued need to low-cost and large-scale lithium operations like Cauchari to meet growing demand, especially for projects with existing infrastructure, strong processing expertise and proven teams that can lower costs and reduce execution risks. With our partner Ganfeng, we are considering plans outlining over 200,000 tonnes per annum of LCE capacity in Argentina. While we are not committing to any significant capital investment today, given the long lead time items and successful results from Stage 1, we are accelerating the development work to define our long-term plans at Cauchari and in the region. At Cauchari, we are considering an additional 40,000 tonnes per annum of LCE capacity for Stage 2. We have completed substantial work on the upstream pond design and look to integrate this work with new process and technologies. Similarly, we continue to advance a regional development plan on our properties in Salta. Here, in collaboration with Ganfeng, we are in advanced stages of finalizing a multi-phase development plan with a combined LCE capacity targeting 150,000 tonnes per annum using similar solar evaporation ponds and DLE process. This plan incorporates resources from Ganfeng as well as Pastos Grandes project and are jointly on Pastos Grandes and Sal de la Puna projects. We believe that the newly passed RIGI regime will provide several very attractive fiscal incentives to support large-scale investments like this in the country and will help support the development of our comprehensive growth pipeline. In closing, we have strong fundamentals and a clear vision. We will build on success of the largest lithium operation in Argentina, incorporating the latest and best technology available for our brine resources and advancing future growth plans while we take advantage of new RIGI incentives available in Argentina. Our performance has demonstrated the strength of our team and our ability to execute at scale. We are optimistic about our strategic position in the lithium market. A low-cost operation, world-class portfolio projects and a collaborative partner put us in an excellent position to capitalize on this growing market. That concludes our prepared remarks, and we will now open up the line for questions.

[Operator Instructions] Our first question will come from the line of Joel Jackson with BMO Capital Markets. Please go ahead.

Hi, there. It's Evan on for Joel today. It looks like you're expecting Cauchari's realized price discount to benchmark covenant prices to reduce by about $1,000 per tonne versus Q4 realizations. How much of this reduction is coming from VAT accounting versus reduced quality penalties?

Evan, thanks for the question. Yeah, you're right. So, in Q4, the total adjustment was just over $3,000 a tonne. What we disclosed with this Q4 year-end was that, that total discount will drop to $2,100 per tonne. That's a pricing arrangement that considers both taxes, VAT, logistics, as well as the processing fee. Roughly 50% of that is fixed and 50% of that is variable. So, it is an indication that product quality continues to improve.

Okay. Perfect. Thank you. And just one more, if you don't mind. Is Cauchari-Olaroz cash flow positive at current lithium prices? And what improvements are possible in this regard, assuming flattish lithium prices in the future?

So, at today's prices, we're operating cash flow positive. I think what we've done in this disclosure is an effort to improve transparency. So, we've released operating cash flow, sustaining CapEx. And I think, in Q4, as we got to 85% operating capacity, I think we've demonstrated that unit costs are trending down with volume. So, I think this year, the focus is very much on stabilizing operations. That means improving recoveries as well as producing a higher-quality and more consistent product, which should all improve margins going forward.

Our next question comes from the line of David Deckelbaum with TD Cowen. Please go ahead.

Hey, everyone. Thanks for taking my questions today. I was just curious, just to follow up on the pilot plant, just -- can you just articulate the benefits of this process with future expansion at Cauchari and perhaps other projects in the region relative to your prior design? What's sort of like the primary bullets that you hope to achieve with this DLE tech relative to maybe the incremental cost that it would deliver?

Sure. So, I think, firstly, this DLE is being integrated into Stage 1. I think it's important to note that this is one part of the process. So, specifically, it's the solvent extraction modules that will be integrated into our Stage 1, where we already have existing infrastructure on camp, we can tie into the existing pre-concentration ponds, and we can tap into the existing IX and carbonation plant. So, it's really to validate this technology focused on our growth plans. The benefits really from this DLE plant are a lower pond footprint overall, so targeting approximately two-thirds of the footprint that would be used in a conventional expansion, in addition to which the SX plant should validate higher recoveries as compared to conventional. So, it's both a validation process, which is critical for our growth plans, and the major outcomes are lower CapEx intensity versus conventional and slightly improved OpEx.

Got it. And I guess, is there -- are there plans or technologies or processes that you're exploring that would go into the current flow sheet to help upgrade the product locally as opposed to selling it as a technical grade?

Yeah. I mean, on Stage 1, we continue to work with Ganfeng on this year on optimizing product stability and improving product quality. So, what we saw through last year was continued improvement in product quality heading towards battery quality. We saw the adjustment reprocessing fee come down considerably, I think 50% improvement versus our first sales. So, we continue to see improvement in terms of the realized pricing for the product. I think, the goal remains amongst the shareholders to be in a position to sell this product globally without having to go through China and having to be reprocessed. So, it's something that we continue to work on with Stage 1. I think for the DLE demonstration plant, which is really oriented towards our growth projects, the expectation is that it could improve product quality off the bat, but it's not to say that Stage 1 is not going to achieve a position where we don't experience discounts in the future.

Our next question comes from the line of Corinne Blanchard with Deutsche Bank. Please go ahead.

Hey, good morning, everyone. The first question is on the cadence that we can expect throughout the year. Can you just give a little bit more detail around the scheduled maintenance? And how much of an impact in production would that bring in the first half? And then what would be the expectation for the second half?

Thanks, Corinne. So, what we saw in Q4 as we got to 85% operating capacity and then in December we pushed about 90% operating capacity, we identified certain areas to optimize just in order to kind of sustainably achieve near nameplate capacity. So, we're undertaking those changes in the first half of this year with a planned downtime. So, the expectation is obviously for the second half volumes to be higher than the first.

All right. Thank you. And then, maybe to come back on the cash cost profile, I mean, obviously, 4Q was showing improvement. How much more room over the next 24 months do you have to get those costs maybe below $6,000? Or should we expect $6,000 to $7,000 being kind of your run rate?

I think what we demonstrated in Q4 is that, obviously, unit costs are very sensitive to overall volumes. And so, in Q4, at 85% operating capacity, 8,500 tonnes, unit operating cash costs were approximately $6,600. So that's not achieving nameplate capacity. In addition to which, there are a number of priorities this year as we optimize and stabilize production that should lead to lower costs over the next, as you say, 24 months. One of them is reagent consumption. As production stabilizes, I think we'll have a much clear understanding of how we can lower specific consumption across our reagent portfolio. In addition to which, as we transitioned out of the ramp-up last year into steady-state production this year, we have a -- we're in a better position to make important changes in terms of the workforce at camp, which should then drive down costs as well. So, I would say the tech report, which pointed to a $6,500 per ton estimate was really a function of what we could demonstrate to the QPs at the time. I think we're not going to be satisfied at that operating cost. Certainly, Ganfeng and us are very committed to making this one of the, if not the lowest cost producer in Argentina and competitive globally.

Our next question will come from the line of Shannon Gill with Cormark Securities. Please go ahead.

Thanks very much, Sam and team, and congrats on your full year results. In terms of just following up on the Phase 1 optimization that's planned this year, including this first half planned downtime, is this really good to optimizing just the final purification steps? And in specific, is this the [KCL] (ph) plant ramp up to battery-grade lithium? Can you provide any like timelines on when you hope to get to battery grade and/or nameplate?

The optimization work that we're doing right now is to be able to sustain near or at nameplate capacity. And so, in Q4, as we kind of guided through last year, the objective was to reach near nameplate capacity, which we did in December at over 90%. The optimization work here is really around reducing overall kind of maintenance costs as well as we've identified certain areas that need to be augmented in order to support near nameplate capacity. In terms of the battery quality objectives, I mean, this is a strong aligned priority for both shareholders to be in a position to sell this product globally, which means a final product being sold globally. So, it's something that we continue to work on. The product quality continues to improve. Part of that is production stability and product stability, ensuring that trace levels of impurities are consistent, which all should deliver improved realized margins for the project and the shareholders.

Okay. Thanks for that. And just to follow up, I suppose, on timelines, beyond the planned demo plant being completed at the end of this year and commissioning starting then, can you give any insight into the timelines for when we'll see maybe an updated technical report for Phase 2 or more information on the sort of Pastos Grandes plan of operations there?

Sure. Yeah. So, on Cauchari Stage 2, we've completed a lot of work internally on the upstream pond capacity and the well fields. The plan now is to work with Ganfeng to integrate this into the new DLE technology. So, we're working with them on this process and expect to have a lot more to disclose later this year. On PPG, we've received the initial development plan from Golder, and we're reviewing this with Ganfeng. Right now, based on the work completed, I think we're very pleased with this draft report, but obviously need to kind of align and work with Ganfeng to finalize this and expect to have this disclosed this year.

[Operator Instructions] And our next question will come from the line of Mohamed Sidibe with National Bank. Please go ahead.

Hi, Sam and team, and thanks for taking my question. My first question would be on your third-party loans, and congrats on the refinancing of the long-term debt there into 2027. I just wanted to get a better understanding of what you expect from the $150 million that is expected to close in Q2 2025. Will that be used to repay the portion that was now recovered or refinanced from the $150 million, or do you have any other plans for that?

Thanks for the question. The additional $150 million is being secured largely through Ganfeng at extraordinarily attractive rates. So, the view on that is we're going to use a portion of it to repay existing short-term debt at the project level and the rest we will use as -- to provide us with greater financial flexibility. So, this is a facility that's not going to be immediately drawn, obviously, but it's prudent in this market condition to just add this flexibility, particularly at the interest rates that we've been able to achieve.

Yeah, thanks. That's very clear. And then, just a second question, just a follow-up on DLE plant. And from my understanding, so you're looking for better recoveries there. Would you be able to give us any color in terms of the magnitude of recovery potential improvement that you could see from an implementation of that plant, or it's still early works on that front?

I think it's too early to say. I mean, the purpose of this DLE demonstration plan is to validate this technology for our growth plans. I would say, it would be in order of magnitude of about 8% to 10% improved recoveries on a universal basis.

And that will conclude our question-and-answer session and our call for today. Thank you all for joining. You may now disconnect.