Good day, ladies and gentlemen, and welcome to the First Quarter 2012 SQM Earnings Conference Call. My name is Jeff, and I'll be your coordinator for today. [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. Mark Fones, Vice President of Finance and Investor Relations. And you have the floor, sir.

Good afternoon, everyone, and welcome to SQM's First Quarter 2012 Earnings Conference Call. For your information, this conference 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, 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 forward-looking statements, and that term is defined under the 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 thank you for joining us. We posted strong earnings during the first quarter of 2012, and we are pleased to be able to discuss them with you this morning. Our positive start to the year and strong result were a result of increased average prices in all business lines, when compared to the first quarter of 2011, and an increase in gross margin. In our iodine business line, the market has remained tight and prices were up 10% when compared to the fourth quarter of 2011, while cost pressure has remained relatively stable. We continued to see strong demand for all uses of iodine. [indiscernible] market demand continued to grow, and as a result, we see [indiscernible] in lithium, a relative increase of over 10% compared to the same volume in 2011. The [indiscernible] revenue in our potassium business line were up compared to the first quarter of last year. Recently, we have seen signs of improvement in global potash demand, and potash has been selling in countries like Brazil, et cetera. In SPN, volumes were down as a result of increased supply and demand was lower than expected. We remain confident that this market will recover during the remainder of 2012. Capital expenditure plans are moving forward, and we still expect to invest over $500 million during 2012. About 70% of our CapEx during 2012 would be related to new expansion of volumes. We'll continue to monitor the financial market and developments with you very closely and remain optimistic about the remainder of 2012 for SQM. Thank you very much.

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

[Operator Instructions] Our first question comes from the line of Ben Isaacson with Scotiabank.

Just one question on potash, and then I want to turn it to the iodine market. Can you talk a little bit about the shift in mix in terms of where your potash was sold this quarter versus last year and how you see that evolving over the next year or 2?

Well, basically, as you're aware, we ramp up the granular and compacting plants last year, that is permitting us to sell more in the sale this quarter than we used to sell last year. That has been the most significant change.

And how much potash do you sell in Latin America, not including the Brazilian market?

Really, we sell -- not much, but we sell in Argentina, Chile, Peru, Ecuador and Colombia. And at the end, all those volumes should be in the range of 100,000 metric tons.

Okay, great. And maybe I'll just ask a couple of questions on the iodine market. If I remember it correctly, you closed down, I think, it was 1 or 2 iodine plants a couple of years ago. Now I don't know if those are still shut down or not. But obviously, the market is starting to tighten up a little bit. Do you think you would open those up again soon?

Well, this year, we our constraining [ph] sales slightly less than last year. So still our [indiscernible] there, our total capacity in the venue of 12,500 but we're selling less than that. But even though, we are increasing our capacity to 15,000, so we expect to be used for the future, not for today. Particularly this year, those capacity not often -- we are not producing at total capacity.

Okay. And the iodine prices that have increased quite recently. Is that entirely due to demand growth? Or are there some supply challenges globally?

It's a mixture of both. Demand has increased, but also there are some lower supply from producers in Chile.

Okay. And then my last question on iodine. Can you talk about your costs and how you see those costs changing? I think you mentioned in your initial comments you see the cost being relatively stable. Can you provide a little bit more color in terms of costs and therefore, margins?

I would say that unfortunately, we don't disclose our costs in iodine. I apologize for that.

Okay. So in a flat iodine price environment, do you expect your margins to stay relatively flat?

Yes.

Our next question comes from the line of Rodrigo Ordoñez with Santander.

I have 2 questions. First, regarding the SPN division where you saw increasing competition, and this affected sales. Can you talk a little bit more about this? You were affected in prices or volumes? And the second question is about the global market. In the press release, you showed that European consolidated sales decreased more than 40% compared to last year first quarter. Is this a consequence of the economic slowdown in Europe? And in line with this, how is it affecting the economic scenario to SQM operations regarding the situation in Europe and the chance of a slowdown in China?

I'll just say, related to SPN, we saw, in general, the fertilizer market relatively weaker in the last quarter of 2011 and the first quarter of 2011, not only for our SPN but other products. We see that is not changing. We figured it, so our forecast for the year reasonably, as we have thought in the budget for the year. Of course, there are some less sales in SPN, assuming that Haifa has normalized their operation. But we see the next quarter -- the second, third and fourth would be much greater than the first quarter than we have -- than you have -- we have.

Okay. And regarding the second question, the thing about the economic scenario and the influence to SQM?

The impact of European market today, we -- have not really been significant for us, and industrial chemical was selling okay. The fertilizer was, I think, with what was going on in the market in Europe, clearly, the currency of -- the weakness of the European market affect us on return in terms of the fertilizers that we sell there, not industrial chemical. We continue to sell them in U.S. dollars, basically. And the fertilizer we sell in euros, so clearly we are affected there and there we care. But prices of SPN are relatively good, but product prices in Europe are relatively low because of the exchange currency. But we have not seen in our business significantly or importantly affected of what's going on in Europe up to now.

And regarding -- in terms of the slowdown in China?

In China, we sell very little fertilizer, in general, so it does not affect us. Lithium has been very strong in China and iodine, too. In fertilizer, really we do not sell too much. And we have diversified more to Brazil than to China because of the characteristics of our products, especially in potash.

Our next question comes of the line of Fernando Ferreira with Merrill Lynch.

I just had a follow-up on iodine. When do you expect supply, demand to be balanced again or the market to be less tight than it is at the moment? Is it still 2012 or you think this tightness might continue for the next couple of years?

I think the headline today is [indiscernible] supply and demand. We -- there has no any decline with our iodine today. We are slightly increasing our inventories, so we are very good. So we feel quite stable scenario in that sense and some of the problem that are facing our competitors give a space for next year because if demand continues to grow, so we can give space [indiscernible] to solve the problems. But up to now, we see a stable situation of where we are today.

Okay. And then related to potash, I'm not sure if I got it right, but do you still plan to sell 70% of your volumes into Brazil this year?

Not 70%. What we are saying, we are selling about 700,000 metric tons of granular product, and that's nearly 70% of our total sales. But clearly not everything is going to Brazil, all of that. So we are not really selling 70% in Brazil. But we are increasing for some 300,000 metric tons of granular ton and compacted to 700,000. But it doesn't mean that everything is going to Brazil.

Our next question comes of the line of Wesley Brooks with Morgan Stanley.

My first question is on SPN. If I'm not mistaken, at the beginning of the year, you pushed up prices a bit there. I'm just wondering, have those price increases gone through given the slightly weaker demand. And has the restart or at least the production increase from Haifa impacted pricing at all? Do you expect it to impact pricing or just more on the demand side?

I think what happened with SPN, you are right that we increased some prices. And -- but we see that, I guess, not being really there because, in general, fertilizer were weak in the last quarter of last year and in the first quarter of this year. So it still was not different in that sense. We see a strong recovery for the next quarter -- second, third and fourth. Anyhow, there had been a correction in price in Europe because of the euro currency and the only reason that we should sell for the quarter less than last year would be because Haifa has normalized its operations. But beyond that, we don't see any other reason.

And then my next question, just thinking about the global potash markets. We've got a -- from a big picture perspective, we've got an interesting situation where Brazil and the U.S. is looking very strong. India, Europe and parts of Asia are looking quite weak. I'd be interested just to get your thoughts on what that means for the global pricing outlook and also, if you think that has -- that might have any impact on the SPN business as that kind of plays out.

Our view related to potash that the prices would be sustained. We don't see a decrease, and we don't see an increase. Volumes are catching up again. We witness what you have said anyhow. So we have -- the prices stay as they are, and we've seen we are in a good relation with SPN. And in our case, I must say that SQM sells 100% of the volume of potash we produce.

Our next question comes from the line of Giovana Araujo with Itau.

My first question, Patricio, is about the potential allocations of potash to Brazil. If you can share with us what's the current share of Brazil in your total potash allocation and what's the mix -- the current mix between granular and non-granular potash?

We are estimating to sell this year in the range of 1.1 million metric tons of potash, and that will be 700,000 metric tons of granular and compacted and 400,000 standard. We have slightly low potash than last year, and we are increasing significantly for granular capacity to 400,000. I hope that answers your...

Okay. And a second question, balance in the prospect for prices and volumes for this year in each of your business line, would you say that your operational performance in the second half of this year will be even stronger than we saw in the first quarter?

I think operation has been quite well, in general, on most sides of the company. So we see a quite stable situation in terms of costs and normal operation during the year. I don't see any major problem during the year.

Our next question comes of the line of Hilary Brand [ph] with Lenyin [ph] Partners.

I want to get back to volumes and prices. I know you said especially about this specialty plant nutrition a couple of times. But can you just repeat those numbers for your expectations for the volume for 2012 and prices and then also the volumes and prices in your other businesses?

As you know, I didn't [indiscernible] so they were more or less [indiscernible], speaking of that. But if you have listened, we see until now a very good scenario for our volumes and prices in all areas of our business. So we think we will have average prices in all our products higher than what they are last year and volumes slightly less in iodine and slightly less in SPN because of the Haifa.

Okay. Volumes slightly less in iodine and slightly less in SPN, but average price is roughly around the same?

Pricing, we have seen already higher that what they were last year.

And do you expect that trend to continue this year?

We see -- I don't see the prices would move downward or upward.

I'm sorry, could you please repeat that? I think my line quality is not very good.

I'm telling you that we don't see upward or downward in prices for the rest of this year.

Okay, so no upward and downward movements. And then I have a question about CapEx. Could you please share with us what you spent in the first quarter and I guess, repeat what you expect to spend for the rest of the year?

We communicate we are looking forward to spend slightly more than $500 million during the year, 70% is related to increased capacity. We are working to increase capacity in nitrate, in iodine, lithium and potash for the year and for next year to come.

And can you share what percentage of that you spent in the first quarter?

In the first quarter, we spent, how much? About $80 million we spent during the first quarter. But we are basically estimating -- if you look at that, maybe just more than $300 million only, but really we are on track [ph] according to our budget.

And then I have a question about FX. At what the average level this year would you expect to -- what would you expect to have a positive impact on your margin compared to last year?

Can you repeat the question, please?

Regarding FX, at what level of the dollar would you expect to have a positive increase on your margins compared to last year?

We have increased our margins. The first quarter, we were in the range of 45% gross margin, and we think that trend should be same for the rest of the year.

I'm sorry, could you repeat the last thing you said again?

We think that the margins we have obtained in the first quarter are more or less the same we are going to have during the rest of this year.

Our next question comes of the line of Tim Tiberio with Miller Tabak.

My first question, if I recall correctly, you sell a lot of your iodine volumes under contract pricing. Seeing that iodine spot prices really started spiking in the first half of 2011, can you give us an idea of how much of your annual volumes have been repriced since we saw an upward movement in iodine prices last year?

We have -- last year, we have about 75% of contracts and just 25% freelance [ph]. So the average price last year were -- the spot market, very high at the moment, but the spot market today does not exist. So basically, the price that we have to pay is the average price that we have got for the new negotiations we have made on the contract that end in last year.

Okay. And where do you think average pricing is on a contract basis? We've seen prices on a kilogram basis.

We don't really give, unfortunately, in the iodine because we're always negotiating so we don't give really, and unfortunately, we don't disclose this value in the 10-K.

Okay. But it sounds like you fully repriced and taken advantage of the recent pricing move for your volumes in 2012?

Well, we were estimating lower volumes because with this newcomer in Chile called Algofta [ph] belong to traditional [indiscernible] in Chile and [indiscernible]. So that's the factor why we thought that we're going to sell less volume this year. And that's the very reason why we are estimating lower volume because we see in their handling demand very, very strong. There is a newcomer with new orders.

And just shifting to the SPN business, we have seen some weakness in the Mexican markets related, I think, to the bumper tomato crop. Can you give us an idea of how much of an impact that was in Q1, and whether you think that's a temporary impact and maybe how long you think that will take to rectify itself in the North American markets?

What we had last year are very strong in SPN. Remember, we sold as much as we sold last year. And the reason of our decline today are we don't see that weakness in the market basically because Haifa has normalized their operations.

Okay. And just lastly, I know you...

[indiscernible] causing this average, I think, in favor and in process [ph]. You mentioned one. That's again for the other factor that we are selling more like in the field of tobacco for example today. So we see the market modest. The main reason we're selling slightly less is because Haifa operations have been normalized.

And just one last question, I recall over last 2 quarters, you really stressed the potential for new business in the industrial segment, particularly the solar salt project. Is this going to be more second-half-weighted? Looking at the decline in the first quarter sales numbers, how should we see -- think about this from a linearity perspective?

We are -- we think in 2012, the numbers are going to be what we have said. And we are reviewing the numbers for 2013 because of the situation could become lower than we're expecting before.

Our next question comes of the line of Felipe Co (sic) [Mercado] with Citigroup.

My first question would be if you guys could give us an update on the capacity increase on the potash. You mentioned in the press release that you expect production to grow over than 25% versus 2011. I just wanted to check if there are investments and how it's proceeding this capacity increase in terms of ramp-up. And also regarding the iodine, we are seeing a strong market for iodine. We have a tight supply. When do we expect -- can we expect capacity increase for 2012 this year or maybe for 2013? That would be my first question.

Okay, we have -- in the completion of -- our capacity in iodine is 12,500 iodine equivalent. We should be by 2014, '15 around 15,000. So we're working on that, and it means more nitrate. Also, we are increasing our capacity in this year already in potash from slightly less than 1.7 million last year to nearly 2 million this year. And we're looking forward in near future to be in the line of 2.5 million, pursuing some SOP also in that production. Also, we are looking forward to increase our capacity there.

And in this capacity increase, how much -- would you guys increase also the SPN capacity along with this potash capacity?

Well, we have -- we are the only company with spare capacity. Today, we have about more than 200,000 metric tons of spare capacity. So we think that in the next 4, 5 years, we should increase our capacity in SPN and not before that. 3 years, 4 years from now, we would see a new capacity.

Okay. My second question is regarding...

We're the only one exploiting the growth of the market.

My second question would be on prices. We've seen a tight market in iodine, and also, it looks like you will have a very good year for lithium. I just wanted to check if you guys are looking for a price increase in this product or if there is enough -- the scenario or the environment is good enough to have more price increases in these both products?

No. At this moment, we are very cautious on that. [indiscernible] is impacting [ph] our economy, so we think a stable situation for the rest of the year in price.

And it looks like that was our final question.

Well, thank you all very much for joining us today, and we hope to have you with us on the next conference call. So goodbye, everyone.

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