Sociedad Química y Minera de Chile S.A. (SQM) Q4 2025 Earnings Report, Transcript and Summary

Good day, everyone, and welcome to SQM's Earnings Conference Call for the Fourth Quarter and Full Year 2025. [Operator Instructions]. Please note, this conference is being recorded. Now it's my pleasure to turn the call over to Megan Suitor with Investor Relations. Please proceed.

Good day, and thank you for joining SQM's earnings conference Call for the Fourth Quarter and Full Year of 2025. This call is being recorded and webcast live. Our earnings press release and accompanying results presentation are available on our website where you can also find the link to the webcast. Today's participants include Mr. Ricardo Ramos, Chief Executive Officer; Mr. Gerardo Illanes, Chief Financial Officer; Mr. Carlos Diaz, CEO of Nova Andino Litio; Mr. Pablo Altimiras, CEO of the Iodine and Plant Nutrition division; and Mr. Mark Fones, CEO of the International Lithium Division. Also joining us today are members of the Commercial and Business intelligence teams, Mr. Felipe Smith, Commercial Vice President of Nova Andino Litio; Mr. Pablo Hernandez, Vice President of Strategy and Development of Nova Andino Litio; Mr. Juan Pablo Bellolio, Commercial Vice President of Plant Nutrition and Specialty Products; Mr. Alvaro Araya, CFO of the International Lithium Division; Mr. Andres Fontannaz, Commercial Vice President of the International Lithium Division; and Mr. Max Fial, Head of Studies of the International Lithium Division. Before we begin, please note that statements made during this call regarding our business outlook, future economic performance, anticipated profitability, revenues, expenses and other financial items, along with expected cost synergies and product or service line growth are considered forward-looking statements under U.S. federal securities laws. These statements are not historical facts and are subject to risks and uncertainties that could cause actual results to differ materially. We assume no obligation to update these statements, except as required by law. For a full discussion of forward-looking statements, please refer to our earnings press release and presentation. With that, I will now turn the call over to Chief Executive Officer, Mr. Ricardo Ramos.

Good morning, everyone, and thank you for joining us today. 2025 was an important year for SQM. We finished the year by signing our association agreement with Codelco, creating Nova Andino Litio, which enables long-term lithium production from the Salar de Aacama. At the same time, we delivered solid financial results, strengthened our operational performance across our key businesses and continue advancing our long-term growth strategy. For the full year 2025, we reported revenues of $44.6 billion, slightly higher than the previous year, with net income of $588 million. These results reflect improved market conditions, strong operational execution and the resilience of our diversified portfolio. During the fourth quarter, we saw particularly strong performance in lithium and iodine, 2 of our most strategic businesses. In Lithium, we achieved record quarterly sales volumes across both our Chilean and international operations. At Nova Andino Litio, sales volumes exceed 66,000 metric tons in the fourth quarter, more than 50% higher year-over-year, reflecting the expansion efforts we have implemented over the past several years. On the market side, we began to observe an important shift toward the end of the year. As we mentioned in our previous conference call in November, we saw the inflection point in lithium prices, driven by stronger-than-expected demand from energy storage system, together with some supply disruptions. This contributed to a tighter market environment and improving pricing trends. As a result, our average realized lithium price increased nearly 14% quarter-over-quarter, reaching close to $10 per kilogram in the fourth quarter. Given the demand momentum we have seen in recent months and limited new supply entering the market, we expect the pricing environment in the first quarter to be significantly stronger. Looking ahead, we continue to see strong long-term fundamentals for lithium, driven primarily by electric vehicles and energy storage systems. Operationally, we are currently running at full capacity at Nova Andino Litio while continue to advance expansion plans in the Salar de Atacama. In our International Lithium division, the Mount Holland mine and concentrator performed well and the Kwinana refinery continues progressing through the ramp-up phase. Early this year, we also celebrated the first shipment of lithium hydroxide from the Kwinana refinery in Australia, a milestone that highlights the progress of our international lithium strategy. Moving to iodine. The business delivered a strong contribution, representing approximately 42% of SQM's total gross margin during the year. By the end of 2025, we observed record iodine prices, supported by a tight supply conditions and a strong demand, particularly in the x-ray contrast media market. Looking ahead, we estimate the iodine market could grow by around 3% in 2026, and our sales volumes are expected to remain stable or increase slightly depending on market conditions. We expect to be able to finish our seawater pipeline project in the Tarapaca region, which will provide additional operational flexibility and should allow us to unlock incremental production capacity. In Specialty Plant Nutrition, we saw 3% volume growth during the year, driven by specialty blends and value-added products. For 2026, we expect moderate volume growth of between 2% and 4% within a stable pricing environment. Before concluding, I would also like to highlight our continued progress in sustainability. During 2025, SQM strengthened its ESG performance and received important international recognition, including inclusion in the SP Global Sustainability Yearbook 2026 and strong ratings from Dow Jones Sustainability Index, MSCI and EcoVadis. To conclude, we're entering 2026 with a strong operational momentum, improving lithium market conditions and continued strength in Iodine and Specialty Plant Nutrition. Our teams remain focused on delivering reliable supply to our customers, executing our growth projects and creating long-term value for our shareholders. Thank you for joining us today. I will now turn the call over to the operator for the Q&A session.

[Operator Instructions]. One moment for our first question and it comes from the line of Lucas Ferreira with JPMorgan.

I have 2 questions regarding lithium. The first one is your expectation of sales in 2026 of an increase of 10% from the Chile operations. If you can briefly discuss the product mix from the production side, if the company would be willing to put a bit more focus on sulfate in 2026, eventually as a way to quickly expand production. If you're fully utilizing your plant in China, if you have been able to toll more capacity there. So pretty much what's the outlook for production mix. And if you can share some production numbers for the JV? And the second question is regarding the cost of production in the fourth quarter, which was up significantly from the last quarter. I would assume that has to do with the lease payments given the higher average prices. But just wanted to confirm if there's anything else impacting the cost of production eventually these sulfate operations could a bit more expensive. Anyways, any color on the cost of production side would be appreciated.

Lucas, this is Felipe Smith. Regarding the first part of your question, the sales volume 2026. We are targeting a strong sales volume in Q1. We hope to surpass the sales volume of Q1 '25 by more than 15%, which would also be a record for the first calendar quarter. As we have consistently done over the years, our strategy remains unchanged, which is to operate at full capacity and expanded in line with anticipated market growth, ensuring we are always prepared to meet our customers' needs. So aligning with that strategy, we feel confident that we will successfully allocate in the market the additional production that we expect to achieve this year, which is close to 260,000 tons. There is an appetite for lithium units in the market, especially in Asia Pacific. I will give you -- Carlos will comment about the product mix.

Lucas, this is Carlos Diaz, CEO of Nova Andino. With respect to the production, first during the year 2025, our production went according to the schedule, reaching 234,000 LCE. Out of 50 of those were produced in China coming from our lithium sulfate producing in the Salar de Atacama. And for this year, our expectation for production have been increased, and we target to produce close to 260,000 as a lithium carbonate equivalent, increasingly even from both our production in Chile and in China. And it has been the case during the past year in '25, we expect to continue to increase our productivity driven by the efficiency improvement, the use of new technology at the same time, reducing the traction according to our sustainability strategy. And this year, we will continue to have full flexibility in terms of lithium carbonate and lithium hydroxide, both in Chile and China. I understand you're asking for machine. We are now operating at full capacity as well.

Lucas, this is Mark Fones from SQM International Lithium division. In our case, we also expect sales to be increasing in around 10% on an LCE basis. As we have completed the ramp-up of the concentrator, we will continue and expect to be producing at capacity at the concentrator in Mount Holland. So our sales will be heavily directed by our production. And in terms of the mix between spodumene concentrate and lithium hydroxide, they will be heavily leaned and skewed into spodumene concentrate as we continue to ramp up the lithium hydroxide plant in Kwinana.

Lucas, regarding your question about cost, I think there may be a mistake in those numbers because if you look at the total cost per ton of the Lithium and Derivatives division, third quarter versus fourth quarter, it's quite similar. But you would see that the average price of lithium in the fourth quarter was higher. And consequently, within the cost line, we have a higher portion of lease payments to CORFO. Bear in mind that within the cost of goods sold, we have the cost of our Nova Andino Litio division and also the International Lithium division that is becoming more relevant in terms of total volumes within the business line.

That was exactly my question, Gerardo, if there was any effect other than the lease payments in the quarter. It was very clear.

One moment for our next question and it comes from Andres Castanos-Mollor with Berenberg.

Congratulations on the strong results. So your EPS shows an impact from higher minority interest, but we don't see yet a dividend paid to Codelco in the cash flow statement. So 2 questions about this. First, can you provide some guidance on how to calculate the minority interest going forward? And can you please provide also some guidance on when will we start seeing dividend payments to Codelco and how these dividends will relate to the minority interest?

Andres, Ricardo Ramos speaking. The detail of the agreement with Codelco is public and it's a shareholders' agreement, how we calculate the dividend to Codelco every year. But in very simple terms, you have the net income of Nova Andino and from the portion, most of the Nova Andino net income is related to lithium business. And nowadays, [ 33,500 ] metric tons of lithium are allocated to Codelco and the rest allocated to SQM. Using this proportion, we allocate the net income for both companies. That's a simple way to do it. It's just a little bit more complicated, but it's public and you can review in the shareholders' agreement we have both parties. We expect to pay the dividends during April, I think during April, May, but I think April is going to be the month. We are going to release every quarter our best estimates and assumptions of the portion of the dividend to Codelco that is going to be paid at the end of the year.

So a follow-up, if I may. The earnings that we see the minority interest reflects a proportion to the 33.5 kilotons or reflects a proportion of the 50% that Codelco controls?

The minority interest, we put the dividend to Codelco and this dividend is related with the 33,500 metric tons of lithium and the net income allocated to this 33,500 metric tons.

Our next question is from Ben Isaacson with Scotiabank.

I have 3 questions, and I'd like to ask them one by one. The first question is on iodine. You sold much more than I think the Street was expecting in Q4, but you're also looking for stable volume in '26, especially given that you have the seawater pipeline coming on. I'm just curious, why did you sell more than expected in Q4, but you're going to be flat on volume in '26, even though you have the pipeline coming on?

Ben, Pablo Altimiras speaking. I would say that the main reason is what we didn't see some capacity from third parties that was expected to come. So that's the reason why finally, we sell more in Q4. Also, we are seeing good signals in terms of the demand. Actually, demand of last year in iodine growth more than expected. According to our numbers, finally, the demand growth 0.6%, where the expectation was to grow almost 0. So that was a good sign. So we have the product to deliver. In the case of this year, we are expecting some capacity. Actually, we are expecting the new projects in Chile are coming. Our first estimation was the first semester. Right now, maybe it will happen in the second semester. So we -- that's the reason why finally, we pretend to sell much more or less the same amount. Having said that, you know that SQM strategy, you are always putting more capacity and our idea with the new project is to have a capacity to respond to the market needs.

My second question is on Tianqi. They are -- they have filed that they are now an active seller of, I think, maybe 3 million shares or so and potentially that could grow. Given that you see significantly higher lithium prices, iodine is doing well, potash and the SPN business seems fine. Have you been in discussions to potentially buy back some of those shares and keep them out of the market? And if you haven't, is that something that you would be willing to consider?

We are not under any kind of discussion about this point, first. And second, there's no -- from a legal point of view, you cannot buy back shares in Chile.

Okay. That's easy. Let me go to my third question. And we're starting to see sodium-ion batteries really inflect this year and improve on key metrics like energy density, cost, et cetera. I was hoping you could talk about what the risks are to lithium demand growth for both EVs and for energy storage from sodium ion? And how are you managing those risks?

Ben, Pablo Hernandez speaking here. So we have indeed heard a lot of sodium-ion batteries in the market, as you have mentioned. But we still strongly believe that lithium is the best placed item to be used in these batteries in our conversations with the market and understanding of the market. There is -- we see a small potential market space for the sodium-ion batteries, but we feel very strongly that lithium will be a dominant technology for the future.

Our next question comes from Corinne Blanchard with Deutsche Bank.

Could you -- I want to go back on the lithium expectation for the year. So you mentioned a pretty strong 1Q, 15% up year-over-year. Can you talk about the expectation of the cadence 2Q through 4Q? And then maybe if you can share as well what you hear from Chinese customer, like trying to get a sentiment on what people are seeing there on the market.

Yes, Corinne, Felipe here. Yes. Well, as I said before, 15% for the first quarter compared to the Q1 '25. And we expect an increasing volume quarter-by-quarter, ending up with, hopefully, the largest volume in Q4, okay? As I said also in the previous question, we are planning to sell more or less in line with the increase in production. But if we have opportunities to sell a bit more, of course, we will try to take them. Just for your information, we have today about more than 80% of our volume is already contracted. So we are leaving some space for spot sales, trying to maximize our opportunities and margins. And your question about the Chinese customers. Well, as I said also, there is a strong appetite for lithium units, especially in Asia Pacific, and China is not an exception. On the contrary, we have been getting a lot of inquiries for trying to increase our volumes, but we want to have a very diversified customer portfolio. So we manage that carefully.

And maybe another question. So can you talk about like the pricing expectation? You mentioned having about 80% under contract. So I'm assuming that's looking at the current pricing or like what we have seen in the last 3 months. Can you just remind us how you look at it for the contract? And then just overall, what's your pricing view for the year for the market?

Yes. This is the best question, of course, which nobody can answer, but I will try. After reaching the lowest point over the last 4 years in the second quarter of 2025, our average sales price reached around $10 in Q4 '25, aligned with market indices, which is good news. Our realized prices remain, as always, mainly linked to those price indices. Consequently, our sales price in Q1, I can say now that will be substantially higher than Q4 2025. That is one very good news. And however, if you ask me to go further beyond that, it's more difficult. I can only say that prices will remain volatile this year. It is very difficult to predict what will happen in the other quarters. But what I can say without my boss being upset with me, is that prices should be closer to current price levels than the levels we saw last year. I hope this is good for you, Corinne.

Our next question comes from the line of Marcio Farid with Goldman Sachs.

Follow-up on my side. Looking at your presentation, you have Chile capacity increasing to 240,000 tons by 2028 and the earlier presentation pointed to 2026. So just trying to understand what led to that change? And it seems like that you guys are privileging China over Chile capacity. I'm not sure it's because of CapEx per ton is more efficient. And just trying to understand how should we think about production growth and the mix between Chile and China in the next couple of years would be great. And secondly, on the iodine side, you just mentioned 3% expectations in terms of demand growth, lot pricing. Obviously, profitability has been quite strong for the last few years. And it's always surprising to see that the supply response has been relatively slow. And you suggested that seems like growth that was expected in the later part of last year has failed to materialize as well. So just trying to understand your level of conviction on the iodine market that we can continue to see this level of profitability and if there is any risk in terms of supply response to the elevated prices.

Marcio, Carlos Diaz speaking. Regarding your question of lithium expansion, the 240,000 expansion of our chemical plant Antofagasta been delayed into 2028 as a consequence of optimization and efficiency project we have been developing in Salar de Atacama, allowing us to increase the lithium sulfate production. But it's important to mention that the total production we have forecast hasn't been affected. And actually, our total production expected for this year is increasing compared to the previous announcement. So finally, it's an optimization of the CapEx and going to produce more every year.

Pablo Atimiras speaking. Regarding to your question about iodine, the perspective that we have for this market is quite positive. As we already said, our expectation for this year is that the demand will grow 3%, which is a big jump compared to the growth that we saw last year. And also in the long term, our view about the demand also is positive. That's the reason why we have been investing material resources in expansion. Remember that some years ago, we opened Pampa Blanca. Right now, we are opening Maria Elena. And also, we are close to finish our project of the seawater pipeline in order to be able to continue to grow and to have more capacity and flexibility. Our strategy is to be there to deliver the iodine that the market needs. And actually, with the new investment, we intend to produce more than 15,000 metric tons this year. And also after the water -- seawater pipeline project, we pretend to reach a capacity that will surpass the 17,000 metric tons of per year.

One moment for our next question. And it comes from the line of Cesar Perez Novoa with BTG Pactual.

The first one, could you please provide an update on the ramp-up trajectory of the Kwinana refinery? And if you could provide a volume forecast for Mt Holland throughout 2026. Additionally, if you could detail the current status of the engineering studies and regulatory permits for the proposed expansion of the mine and concentrator. If this expansion would be able to proceed, what capital expenditure range would we be looking at? And my second question relates to your exploration activity within Australia and other international jurisdictions. If you could provide an update on that, that would be extremely helpful.

Thank you, Cesar, for your questions. I will try to go one by one over them. This is Mark Fones. So regarding your question on the expansion of the mine and concentrator, remember that the final investment decision that we're supposed to take this year refers only to the mine and concentrator. We expect that to be brought to the Board's respective Boards, so both Wesfarmers and SQM by mid this year. And its output is still subject, of course, as you well mentioned, to the environmental approvals and the engineering studies. Both have progressed well. So we expect ahead of the decision to have a relevant milestone on the approvals, which is progressing well. And the engineering studies has also been progressing well. As you all know and as was usual on our previous investment decision, we take our capital investment decisions with above 30% advance in engineering. We expect to have that advanced by mid this year. And relevantly in the concentrator, we expect to have around 50% engineering progress. So that has been moving well. And regarding your question on CapEx, on the expansion, we haven't yet defined a number on investment CapEx, but I can tell you that we have allocated within our 2025 and 2027 CapEx projection, we have allocated around $200 million for the expansion on the concentrator for Mt. Holland in 2027. Your next question was on Kwinana refinery and having production outputs and projections. I can tell you, first, on the mine and concentrator, as I explained briefly before, we are already producing at capacity. We expect to have such capacity production within 2026. That should be a range for SQMs 50% of between 170,000 and 180,000 tonnes of sodium concentrate, 6%. That's our portion along this year. The more tough and difficult question has to do with the projection and guidance on production on Kwinana. As you well known, we've been under ramp-up lately. It's difficult to come up with precise numbers in such scenario. However, I can tell you that the ramp-up has been affected by intermittent other issues as has been briefed by our partners, Wesfarmers before. But it has already been tackled with the studies and engineering development. So we expect to have that solution by mid this year, completed solution. It's important to note there that our emissions have been within approved limits anyway. So because of this, we are now expecting ramp-up to move into 2027. Therefore, as I mentioned before, that volumes of sales will be heavily leaned into spodumene concentrate also this 2026, which provides us the flexibility of selling profitable spodumene concentrate in the meantime. Regarding your exploration question, we are focused today in 3 main areas. So Australia, Namibia and Canada. So let me go probably a little bit over each one of those briefly. In Australia, we have 4 earning agreements or partners, if you may. Those 4 early exploration agreements are distributed across Western Australia and the Northern Territories. Each one of those are in different early stages, if you may. A couple of them are on the surface exploration and a couple of them are already undergoing drilling programs. And we expect to have progress and developments during this year, 2026. The 2 drilling programs, if you're interested, are planned at Mount Roberts and at the Northern Territories areas where pegmatites are already been identified. Regarding our exploration activities outside Australia, still early days in Namibia. We are conducting our Stage 1 drilling program with our partner, Andrada Mining there. And in addition to have confirmed some very good grades at surface, we have also confirmed several bodies of pegmatite, in this case, spodumene at depth. But it's still to be seen how well spread, how big they are. So it's still early days, and we expect to have a second stage of exploration during this year as well. And finally, regarding Canada, as you well know, we established SQM Canada for exploration purposes last year, and we are currently exploring our own [ land ] in Canada as we speak.

Our last question comes from Juraj Domic with LarrainVial.

So in the press release, you mentioned some certain supply disruptions in the lithium market. And just to confirm if this is related to the news we've been hearing in Zimbabwe or if you have seen disruptions in other countries or areas? And my second question is regarding the permit process for Salar Futuro. If you have any timing or schedule when we can have any news from that?

Juraj, on the disruptions on the lithium market, I believe what you're asking is related to when we talked about the supply, and that was mainly related to some lepidolite producers in the second half of last year who had some government restrictions in China that actually ended up in some of them stopping their production.

Carlos speaking again. With respect to the Salar Futuro project, we continue working on that, and we expect to apply the environmental approval in the middle of this year.

Thank you so much. And this concludes today's conference call and Q&A session. Thank you all for participating. You may now disconnect.