Good day, and welcome to the SQM First Quarter 2021 Earnings Conference Call. All participants will be in a listen-only mode. After today's presentation, there will be an opportunity to ask questions. Please note this event is being recorded. I would now like to turn the conference over to Kelly O'Brien, Head of Investor Relations. Please go ahead.

Good morning. Thank you for joining SQM First Quarter 2021 Earnings Conference Call. This conference call will be recorded and is being webcast live. Following this call, you will be able to access the website to the webcast at our website, www.sqm.com. Our earnings press release and our presentation with a summary of the results have been uploaded to our website where you can also find a link to the webcast.

Thank you. Good morning. We thank you for joining the call today. Our earnings during the first quarter this year increased around 50% when compared to the same period last year as a result of higher sales volumes in almost all our business lines. We are seeing positive price trends in our fertilizer markets, and as expected, an increase in average prices in the lithium market in the inflection point that we saw in the fourth quarter last year. Our diverse portfolio and a strong production performance should continue to have a very positive impact on our results throughout the year. As we mentioned last night, global fertilizer markets have seen stronger demand as a result, we expect our average price in both the SPN and potassium nitrate business lines to be higher than average prices reported during 2020. The agri market is recovering and our sales volumes increased 30% when compared to the fourth quarter last year. We expect this momentum to continue leading to an increase of sales volumes in 2021 of 10% to 15% compared to last year. Finally, lithium market indicators have been very positive over the past few months. Demand growth for electric vehicles during the first quarter of the year was more than double what we saw last year.

We will now begin the question-and-answer session. First question will be from Corinne Blanchard of Deutsche Bank. Please go ahead.

I think first I would like to get your view on nameplate capacity versus sales volume for this year and also maybe for 2022. With both expansion for hydroxide and carbonate now due next year rather than 2023, how do you view your sales versus full capacity? And do you anticipate inventory payout?

Hello. As you may know, we are increasing now to the 120,000 metric tons at the end of this year, considering the good performance on our facility during second half last year, I think that it's reasonable to expect to have a total production for this year close to 90,000 to 95,000 metric tons. That's my target for this year. Next year, it's going to be an average because we will start with 120. And at the end of the year, we expect to go to the 180. That's why I think having a production a total production for next year, close to 140,000 metric tons to make sense. It is something in our plan we have today.

Okay. That's very helpful. So yes, I'm assuming you guys are just trying to say whatever you produce, it's very interesting. And the second question is on lithium pricing. And obviously, I think we all agree with us in the bottom in 4Q and price started to improve in 1Q? And if you look at Chinese crossing since late August 2020 in fee borne pricing as well in the past few months, yes, we all see like a positive trend. How -- I just wanted to try to get your view on where do you see pricing going toward the end of the year? Do you see it going by close to 10,000 at on? Do you see it still below or above this level?

Well, Corinne, thank you, Pablo Altimiras speaking. Well, as you know, price always is a result of the supply and demand. In the demand side, we have been seeing a very positive trend for the demand. Actually, we are increasing our estimation for this year. So, in that, we are -- we see that the positive trend. So how -- I mean, so you are right, we have been seeing a positive train pricing. However, the price always is not a unique price. You need to consider that we have different qualities, different types of customers, different volumes that you commercialize with them, different commercial strategy. So we don't have one price that can reflect the total reality of the market. But having said that, because of the positive trend of the demand, I can say that today, we have been seeing prices in a double digit. In the future, well, that everything will depend on supply and demand balance.

The next question will be from Joel Jackson with BMO.

This is Robin on for Joel. I have a few questions. I'll just ask them one at a time. I just had a follow-up on the pricing discussion. I mean I appreciate there are legs of the spot market, but even so the April export data from Chile didn't reflect higher pricing yet. So I guess I'm just trying to get a sense of when exactly we can start to see that maybe on a monthly basis even and by how much you mentioned quality, one of your Argentinian peers who has struggled the quality of the past has even guided to like $7,000 to $8,000 a ton for the June quarter. So is that like a floor expectation for Q2? Is that reasonable?

Well, I mean, first of all, export prices do not capture all the information of the market. So that's one thing that we need to be careful when we take a look to those prices. So that's my first comment. Regarding to our strategy, I can say that in the first quarter, the majority of our sales were agreeing and contracted during 2020. So that's explained the result of the Q1. However, the reality for the second half is different and more than 50% of the sales will be lose under the prevailing prices reality at that moment. So that's the strategy that we have now.

Okay. And my second question is on the proposed copper royalty changes in Chile. So is the lithium structure viewed as a model for this? Or are there changes that could be expected in the lithium royalty structure as well?

Yes, this is a discussion about some royalties or taxes in Chile, as you may know. We have no information other than what has appeared in the press. As you may know, it has been preliminary discussed, and it has to be analyzed by the senate finally by the government. Anyway, we set our preliminary opinion to the different industrial and mining groups in which we participate.

Maybe just one last quick follow-up to that. Given the recent political changes in Chile as well, do you foresee any potential increased spending for environmental reasons, maybe the tax structure or anything like that? Or is it business as usual on your side, no matter what the political climates like.

Okay. We continue to be very excited about our business strategy and our significant CapEx program. And we will continue, of course, advancing our sustainability agenda. We went public with our sustainability agenda last year. We will continue to do so. We think we are perfectly aligned with the demand of the community in Chile and the world demand in terms of being very active in terms of environmental activities. That's why we think that is just we confirm our role in terms of implementing all our bank change of sustainability. All those expenses or investment regarding the sustainability agenda that we made public last year are already included in the CapEx program for the next four years.

The next question comes from P.J. Juvekar with Citigroup.

I look at your lithium contracts and they have tended to be shorter term in nature. Then you look at one of your larger competitors who's also trying to get some index pricing in their contracts. So how do you see the market evolving in terms of contracts? Do you think the market and the big buyers, the battery companies, the EV companies are likely to go towards more index-based pricing to some extent?

Okay. Thanks for the question. I mean, yes, you are right. I mean some customers are trying to have more visibility about prices. So it's something that in SQM also we are looking at, but the thing is that this is still the development. So that means that depending on customers, different customers wants to produce in different ways related to pricing. So if in SPF, we are flexible. So in some cases, we are considering to escorts under the indexes in other not because it ups to customers. But it is something that we are following for sure.

Yes. I think it's not one clear message that the costs are higher. You have some product lines where costs are lower, some of the product lines where costs are slightly higher. So product lines where costs are at the same level. We don't foresee any cost situation nowadays, of course, with monitor, as you know, we're located in Chile, the bag of the U.S. dollar is very important for us. That's why if the dollar goes up and good for us. And if the dollar goes down very bad because we have a lot of expenses in Chile peso, Nowadays, the dollar is according to our original projections. That's why it's not a big news. And I think we can continue with our original cost plan. Of course, having this price of copper in the north, that is very high. And the new corporate price means that the pressure of the labor force in the north of Chile is going up, the same with the contractors. And something we are working very hard in order to improve our -- to increase our productivity in order to avoid any additional cost. But as a bottom line, we don't foresee any cost issue or a significant issue during this year as compared to the previous year.

And just a quick housekeeping question. You had built up inventory last year that you were selling now. How much of that inventory is still left?

Depending on the business line is inventory where we have -- we are very comfortable with the level of investor we have today. Even though we are under the increase in sales volumes this year, that's pretty good news that having inventory allow us to have the flexibility, if we have additional volume sales. I think our volume strategy in inventory volume study is a very good one, and we continue to be very good for the Company in order to perform our business strategy. I don't foresee any big moves in the total inventories during this year.

The next question will be from Isabella Simonato with Bank of America.

My question is on the SPN and the potash business line. On the power side, we are seeing prices rallying, especially in the last couple of months. Your prices are going up, but maybe not as much as we're seeing on the spot prices. Can you provide us an outlook for the next couple of quarters? How you're seeing potash prices performing? And similar questions to ESPN, I mean, you are guiding for a volume recovery this year. And of course, high growing prices are supportive of prices. But what sort of acceleration do you anticipate in the coming quarters?

Isabella, yes, you're right, interstate potash price is going up. We have had some agreements previously to this new price trend. Certainly, I think that prices will be higher during the second quarter and very positive oil pricing in potash during second half of the year. I think second half of the year, prices will be significantly higher than the prices that we are seeing in our sales of the first quarter. As you know, in the SPN or specialty plant nutrition business, the relation between potash price and production it's not sold directly. It means that when they go down, we don't go down the same level. And when they go up, we don't go up at the same level. Anyway, having a very potash environment is a very good news. I foresee better pricing, not at the level of the potash in terms of percentage increase. But we think that prices during second quarter this year, especially second half of this year will be better than what we observed during the first quarter.

The next question comes from Ben Isaacson with Scotiabank.

I guess my first question is on the election that took place over the weekend. Obviously, the stock market didn't like what happened at least as it relates to SQM. So I guess, Ricardo, in your opinion, what are the reasons why the stock market is nervous about SQM? Is it only to do with the potential of increasing royalties? Or could it also have to do with issues related to water or extraction rates or maybe getting more resources to indigenous population? Like is the market wrong to be this nervous right now?

Ben, we -- if you review the price of SQM share in the last four days in Monday, Tuesday, Wednesday and today, we have followed the trend in some way of the Chilean stock market. I mean there's no big difference between where the Chilean stock market is going and where SQM is going in the last few days. You know I am not a market analyst and even less a good political analyst. But the main investment bank in Telia, as you may know, have issued various and very good analysis of the factors that may have affected the China stock market. I think it's interesting to be able to read them. I think there's many different opinions, none all the opinions are the same. That's why it's important to reach different analysis. But of course, there's a lot of volatility today, some uncertainty. I think it's important to wait and see. It's too early to have a clear opinion about where they're moving, where the stock market is moving in site. But of course, when you have these big, big move that we had in the last three or four days, of course, we follow that move. I mean there's no way we are going to be independent of what's going on in the Chilean market. And again, I think the last two days, I had the fortune to do the different reports from investment banks, local Chilean investment banks, and I think are very good in order to have an idea of different factors that may or may not affect the stock market today.

So that's a good segue to my next question, which is, can you just talk a little bit about diversifying outside of Chile. Obviously, the Mt Holland project is front and center. But are there other opportunities that you're looking at? And are those in lithium? What kind of regions are those in? Are they in potash, et cetera?

Yes. We are open for doing business not only because we want to have diversification of Chile. We are very positive about what we're doing in Chile. I think we are doing rate investments in Chile. But anyway, our M&A activity is open for opportunities as always. And as you know, we -- it has been a very important decision for us to go ahead with the project in Australia. It's going to be a big project. I hope it's going to be the first big project in Australia. As you know, we have the opportunity to move forward instead of being a 50,000 metric tons total capacity to close to 100,000 in the future. We will design with Wesfarmers in the couple of years probably, moving forward to maybe 100,000. We'll try to look for opportunities in the lithium business outside Chile, of course, yes. We did it in Australia. If we have a good opportunity, opportunity that can create value, we will do it again. Potash is a very difficult market to be getting in the market nowadays. But of course, we're open to review alternatives. In potassium nitrate, we are also open for opportunities. It seems like it's difficult to find a plan outside Chile but always open for opportunities and adding the same, means that it's not like we want to run out of Chile. We are very happy with what we are doing here, but if we find a good opportunity outside Chile as we did in Australia with this.

Just two more quick ones for me. First is copper prices, I think, are now over 4.50 a pound. I remember in the past, you had interest from outsiders I wanted to come and look at what the potential was on your land. Are you seeing a pickup in that activity? I think you had that as a revenue source several years ago. And I haven't heard much in the past few years. Is that something that's new or coming back at least?

Yes, you're right. There's a lot of interest in copper in the last, I think, few months. It means cover is going in the right direction in terms of prices. It seems like it's going to be a long-term trend, I hope so. And yes, we do some internal activity in order to geological activity to find some potential copper resources in our land. And of course, we have some agreement with third parties that they are looking for copper. I think it will continue. I think it will be more effective in the next six months, considering what's going on with the pricing. You're right. It means it will be something very important in the future we find something. But yes, we are quite active about this idea.

Okay. And very last one for me. You have guidance of greater than 85,000 tons for the year. You just did 24,000. So the math would suggest that's about 20 per quarter going forward. But then you also came out and said your expectation for demand is 30% higher than what you originally expected. So it just seems not to match up with respect to selling less in an environment where demand is better than expected. Can you just kind of triangulate those two comments?

Yes, Ben, Pablo speaking. Thanks for the question. First of all, I think that it's important to remark that during this third quarter, we sold almost three times compared to same quarter of last year. So I think that is important to remark that. The second thing that is important to remind is that this year, we'll grow more than the global demand growth. So that means that we are increasing our market share. Regarding the split among the quarters, it is important to consider that customers have different strategies to buy the products and times they buy more or less and sometimes it is not in our control. So that may sometimes explain difference among quarters. But having said that, it's important again too mad to say that we said and we said at least 85,000 metric tons, but our intention is to sell more if the market is there.

And the last question today will be from Cesar Perez-Novoa with BTG Pactual.

Good morning or good afternoon gentlemen, and congratulations for the results in the first quarter. Regarding the accelerated rollout of your carbonate and hydroxide line in 2022, could you give us some added color on why you're front-loading the investment? And I understand it's clearly demand, but perhaps a little bit more color on specifics. And of course, along these lines, what should we think of the CapEx figure for 2021? Is $500 million still good?

Yes. I think we're not taking a huge difference, anyway, good afternoon. But if you consider, yes, we're doing okay in the projects since moving in the right direction, sometimes projects you have delayed projects. And sometimes you have the good news that pretty starting ahead of the schedule. And this is the case. We're not talking about one year, we're out a month before expected. It will not change our total CapEx for 2021. And 2022, it's going to be the $500 million, as we explained before. And yes, it's a good news. And of course, it's a very good news considering that the market is very good, having more volumes available is always having this flexibility in this market is a very good news for us. That's why we are pushing very hard in order to do it right, not to do it as soon as we can.

Okay. And just a final one on my end. On iodine you call for 1,000 tons in incremental volume for this year. What can you tell us about this market in terms of demand recovery and pricing as well?

Cesar, Pablo speaking. Well, as anticipated, as we anticipated before, we have been seeing a recovery in iodine demand. Our expectation for this year is that iodine will recover by 9%, which is good; however, still will be lower than the demand that we saw in 2019. But for next year, we will see the tight recovery, so the demand will be in the normal growth rates at that at the year. Regarding to prices, we have been seeing -- I mean, we see a stability because the demand growth, as I said before. And also, we are not seeing more supply. So we expect to have steady prices for the rest of the year.

And this concludes our question-and-answer session. I would now like to turn it back to Kelly O'Brien for any closing remarks.

Great, thank you, and thank you for all the questions. We look forward to seeing you next quarter. Have a nice weekend.

The conference has now concluded. Thank you all for attending today's presentation. You may now disconnect your lines. Have a great day.