Sociedad Química y Minera de Chile S.A. Price & Performance (SQM)

This conference call will be recorded and is being webcast live. Our earnings press release and a presentation with a summary of the results have been uploaded at our website, where you can also find a link to the webcast. Today's speakers include Gerardo Llanes, Chief Financial Officer Carlos Diaz, CEO, Lithium Chile Division Pablo Altimiras, CEO of Iodine and Plant Nutrition division. Mark Fonds, CEO of International Lithium division Also from our commercial team, we are joined by Felipe Smith, Commercial Vice President of Lithium Juan Pablo Eloglio, Commercial Vice President of Ionine and Industrial Chemicals Also additional for lithium market related questions, Pablo Hernandez, VP of Strath. Strategy and Development will be also available. Before we begin, I would like to remind you that statements made in this conference call regarding our business outlook future economic performance, anticipated profitability, revenues, expenses and other financial items along with expected costs synergies and product or service line growth are considered forward looking statements under federal securities loss These statements are not historical facts and may be subject to changes due to new information future developments or other factors. We assume no obligation to update these statements except as required by law.

For a complete forward looking statement, please refer to our earnings press release and presentation. I am now leaving you with our Chief Financial Officer, Mr. Gerardo Iain. [indiscernible] And thank you all for joining today's call. Last night, we published our fourth quarter financial results. We achieved revenues slightly 2024, along with a gross profit of approximately US1.3 billion dollars Our net income for 2024 was impacted by a one time charge of approximately US1.1 billion dollars recorded early in the year. This charge pertains to an ongoing dispute regarding the tax treatment of mining activities at Eskur And Salar. Estimate that the lithium market grew around 25% in 2024 compared to 2023. [indiscernible] driven by the strong growth of electric vehicle in China and other markets as well as the rapid growth in the demand for lithium in energy storage systems. With this surge in demand, combined with our successful capacity expansion efforts in Chile, achieved record sales volumes in 2024, reaching nearly 205,000 metric tons of lithium, which includes almost 4,000 metric tons of lithium carbonate equivalent, coming from Lund Holland, making a milestone in our successful partnership with Wesfarmers. At the same time, in the fourth quarter, we achieved a record high sales volumes with sales surpassing 58,000 metric tons of lithium carbonate equivalent.

Although we observed a decline in prices quarter over quarter in 2024, this downward trend softened During the fourth quarter, and we expect relatively stable prices during 2025. Additionally, we estimate that demand could grow approximately 17% this year and expect our sales volumes to grow at a similar rate. Moving to iodine. We have an exceptional year in 2024. Achieving record volumes and benefiting from strong price growth. Largely driven by the recovery in demand, particularly in the X-ray contrast media application. For 2025, we expect continued demand growth although at a slower pace. We expect our sales volumes of IOAN in 2025 to reach similar or slightly lower levels than the ones reported in 2024. We're working on bringing more capacity to the market. Working on some efficiency initiatives. Along with adding Maria Elena as a production site on top of New York, Victoria and Pampa Blanc. In the Fertilizer segment, we believe the market has fully recovered from the challenges of the past few years with prices stabilizing at levels seen the second half of twenty twenty four. Looking beyond 2025, we remain committed to investing in expansion of our core business. In 2024, we invest over $1,600,000,000 we'll continue to invest in increasing capacity, particularly in lithium, where in 2025, we plan to allocate approximately $750,000,000 for capacity expansion both in Chile and abroad.

Additionally, we intend to invest close to $3.50 US350 million dollars this year in the Kalichi operation, to keep on increasing our production capacity aiming to add approximately 4,000 metric tons of iodine capacity in the coming years. All of these investments are supported by the company's strong financial position, which provide us with the flexibility to seize new opportunities as they arise. Operator, we now Our first question comes from Ben Isaacson with Scotiabank. You may proceed. Good morning and thank you for taking my questions. I have three questions. The first question is on potash. So your guidance is that production will be down 50% this year. Is this a combination of growth in SPN and more efficient production at the Salar? And is there a possibility that you could be a net buyer of potash in the future? Where is the potash going? Thanks.

Hi, Ben.

This is Carlo Diaz.

Yes, you're right, we have been producing less potash in the last year because we have been focusing in the lithium production. We have been extracting less brine and the production potash is 100% correlated with the brine's And what I said before, we have been focused more lithium and productivity on those and so on. And obviously, that affected mainly the sale of Potash because primarily we produce for the conversion to potassium nitrate and later for the sales in the market.

Great. Thank you. Gerardo, a question for you. When you look at your capital requirements over the next two or three years, it's looking like given where lithium prices are right now, funding those capital requirements out of operating cash flow will need to be there's going to be a gap that will need to be filled by raising capital. Can you talk about what those parameters are of raising capital anything that you're comfortable with in terms of type of capital timing, size, what should we be thinking about?

Hi, Ben. Thank you for your question. Over the past few years, we have investing a lot to increase capacity in the different business lines, but with the main focus lithium. But despite that, you can see that we have a strong balance sheet. We have had a strong balance sheet for a long time, and our plan is to keep on having this strong balance sheet that led us react and invest when the opportunities arise. Now we're focusing on keep on investing expanding our capacity lithium in Chile Also investing in the production capacity in Australia along with the Galicia opportunities that we have here mainly related to ILN. As you see, we have a balance sheet that can support our CapEx of of this level. And in the past, when we have seen that We are in a situation where we will need to get more financing to finance these projects. We have taken several measures and one of those is assessing or reviewing the dividend policy And the most relevant one, which was the one that we did in 2021, was to raise capital. We're not planning on doing that at this moment, but we're closely monitoring that to make sure that we keep on having a strong balance sheet, which is quite relevant for us.

Great. Thank you. And then my last question is just on the iodine business. When we look at your share price, it's very clear that the market is focusing on low lithium prices and not really on what I think is a crown jewel, which is the iodine business. Is there a possibility to repackage that and spin that out as a separate company? Or just given the way the Collegiate ore works, and the way your infrastructure works, it's just not possible and it's not something that you're thinking about right now? What are the pros and cons of that? Thank you.

Hi, Ben. You're right. AION is quite a relevant business for us. Not just because of the current market conditions, but also because of our expertise and our capacity to deliver or our ability to deliver on bringing new projects and new capacity. It's a key component of the SQM portfolio. And at this moment, we are not planning on doing anything in the lines of what you're saying. We are allocating resources to [indiscernible] Trying to take advantage of the strong position we're in. In the same way we're doing it in lithium.

Thank you very much. Appreciate it.

Thank you. Our next question comes from Joel Jackson with BMO Capital Markets. You may proceed. Good morning. Thanks for taking my questions. I'll go one by one.

Ricardo, I think in the press release, your quota saying optimistic on lithium, because of demand growth, though you do expect prices to be stable for the year. Can you elaborate on that?

Yes, demand growth is strong, but so has been supply growth. But what makes you optimistic about lithium here What gets the market to improve Hey, Joel, this is Gerardo. Just to to clarify something. Ricardo, unfortunately, he couldn't make it today. But Paolo Hernandez is going to help you with your question.

Thank you. Hey, Joel, this is Pablo. So on the lithium market for 2024, we saw the demand reach over 1,200,000 metric tons. That's around 25% year over year increase from 2023. So that's EV sales accounted for roughly 70% of that total demand, full of the battery energy storage systems with over 15% and globally the sales reached almost 18,000,000 units, marking roughly 26% year over year growth. For 2025, demand is expected to reach more than 1,400,000 metric tons, that's close to a 20% year over year growth with EVs remaining as a primary driver. [indiscernible] while of course The U. S. And European face policy uncertainties that could potentially impact their demand. Also in the market should continue to slightly towards LCE production, SLSP cathode demand continues to gain relevance particularly in China. And in relation to supply, 2024, we reached over 1,300,000 metric tons, representing an increase of more than 35% when compared to '23.

But in 2020 and 2025, supply stability continue to grow close to 10%. Of course, subject to supporting price levels reaching to close to 1,500,000 metric tons. New projects in Africa, Argentina, China, expansions in Australia and of course Chile as well from SQM. We start production this year and refining in China remains with some over capacity. And this oversupply in 2025 is expected to be lower than last year, which may have an impact on prices with a potential upside in 2026 as it was mentioned.

Okay. So you're demand growing 15% or seven sorry.

Your demand growing 15% or 70 this year, supply growing 10%, that's the reason for optimistic. [indiscernible] summarize it correct, Yes, correct.

Okay. And then on your own production, It looks like you're maybe underproducing what you could produce. Like you're holding back a little bit. I'm not sure, but maybe I'd like some color some elaboration on that.

If demand was better than thought, Do you have more capability this year that you can push and get more production out than what you're guiding to?

Hi, Yol. This is Carlos Diaz I was probably in the last year to produce as much as we can according to our strategy with a fine time ago. If you see, we have been increasing the production in the last five or six years. Last year, we reached 200,000 metric tonne and this year, we expect to reach 230 That is a combination of what we produce. Everything is coming from the Salada Gama and just coming talking about Chilean production. [indiscernible] we have to differentiate between capacity and natural production. We have been expanding our capacity, and we're still working to reach two forty as a refinery in Chile. At the same time where we have been developing our our capacity in China, in the Xian and doing some refinery with some taller. So we did everything together. The production this year is going to be 2,030. Next year, we expect to grow it again. And what I say, we have been increasing capacity. And this year, it's going to be the ramp up of the new expansion. I don't know if this answer your question.

Yes. My final question is just on the Codelco JV. So of course, we know that it's all retroactive January 1. So for other accounting, you're going to have to do when this finally closes. But more seriously, what is going on behind the scenes here? Like what are the next milestones, catalysts, What do we need to see for all the conditions to be satisfied for this JV to close and for SQM to move on, to the next phase of your history here. For future.

Hey, Jerome. Well, as you know, when we signed association agreement with Coelco, a set of condition presents were established, all of which must be met for the joint venture to commence operations.

Since then, we have been working together with Coelco Corfo and of course us on the necessary task to ensure these conditions are fulfilled.

Today, we have not encountered any significant obstacle in this process. And we're currently expecting that this condition presents will be met in the second half of this year. As you can imagine, there is a lot of things that needs to be done And that's why it's a process that takes a relatively long time. Thank you very much.

Thank you.

Our next question comes from Rafael Barcelos with Bradesco BBI. You may proceed.

Good morning. Thanks for taking my questions. Just one question on your CapEx estimate. So you provided a guidance for the twenty twenty five CapEx for each division, right? So could you please be more specific on each projects you are considering here and how much could be considered as a maintenance CapEx? And other than that, like a second question here on the CapEx. It would be very helpful if you could discuss your CapEx requirements for the coming years. You.

Rafael, this is Gerardo. Yes, for 2025, we announced total CapEx in the neighborhood of $1,100,000,000 which includes approximately $550,000,000 of associated with our lithium operations in Chile. Dollars 200,000,000 associated with lithium operations abroad, and approximately $350,000,000 associated with the Calitrio operations in Chile. For next three years, including 2025, so 2025, 2026 and 2027, We are estimating that the total CapEx will be somewhere in the neighborhood of $3,100,000,000 to $3,800,000,000 mainly or yes, mainly evenly distributed throughout these years.

Where approximately $1,500,000,000 to $1,800,000,000 will be allocated to lithium expansions in Chile.

Approximately $700,000,000 to $1,000,000,000 associated with the international lithium initiatives And from €900,000,000 to €1,000,000,000 associated with Calitration. In order for you to understand a little bit more what's included in each of these projects, We'll go one by one on each of these issues. So if you can start? Yes. For this year, we expect to produce [indiscernible] [indiscernible] for the next year twenty six, twenty twenty seven according to our plan to keep it in expanding the lithium carbonate and lithium at low side capacity in Chile. Example, now we are focusing lithium hydroxide in Chile and with our year to reach 100,000 metric tons of production according to our long term contract. That we're already signed with different customers in order to supply that kind of product in the coming years. And the cell phone lithium carbonate to keep it increasing the capacity you have seen how we have been increasing the capacity in the last year and we want to keep doing that in the following year. So the CapEx according to that, according to, for example, increased quality, productivity and other other issues.

That is our main goals. Paolo, you will follow. Okay. Thanks, Carlos. Rafael, Paulo Timiras speaking. Yes, in the case of the iodine and nitrate business also we are with an important CapEx program. For this year, we expect to expand $350,000,000 And if you consider the 2025, 2026 and '27, the total amount is close to $900,000,000 The main projects are to continue growing in iodine especially also in nitrate, especially in iodine, where maybe what is important project is all the expansions that we are doing in Nueva Victoria. The project that we call Penteneraleire that includes includes the seawater pipeline, which high capacity of 900 liter per second, which allow us to continue expanding our operations. But together with that, you need to invest in new solar ponds, new Iodine plant capacity, Iodine So all our projects are today we are moving forward. And at the same time, as we commented in the press release, also we expect to open IOLine operation in Maria Elena. That will support what we are doing in Victoria and Pampaolanka So And if everything is going well, we expect to start with this project well, we already started, but we with the mining and leaching activities by the third quarter of this year.

Okay. Thanks. And then in third place, Rafael, this is Mark Fonds speaking on the international lithium side.

As Gerardo commented, we are aiming for almost $200,000,000 investment this year, which is pretty straightforward. Almost half of it it's related to finishing the Mont Holland, Quinana refinery.

Construction.

And then the other half would be split amongst the developing Andover project and our own exploration program we have in Australia and now in Namibia. In the following years, 2026 and 2027, is, of course, a range of uncertainty between €500,000,000 and €800,000,000 that will depend particularly on final investment decisions to be made [indiscernible] within this year for the expansion of von Holland with our partner West Farmers, and then following a feasibility study to be delivered by the end of next year, on the decision of investment in Andover.

Together with Hancock prospecting. Rafael Gerardo, again, regarding your question about maintenance. Our maintenance CapEx across all divisions is somewhere around $250,000,000 to $280,000,000 per year.

Okay, perfect. Thank you.

Thank you. Our next question comes from Corinne Blanchard with Deutsche Bank. You may proceed.

Hey, good morning. Thank you for taking my question. The first question 4Q saw very high lithium volume. I think this is your highest quarter, like a record quarter. Can you comment on why do you think this is happening? I think there has been some talks around in the industry of China maybe stock planning. And trying to buy as much volume at a low price. So I would be curious to hear your opinion on this. Hello, Corinne. This is Felipe Smith.

How are you?

Good to hear. So regarding the volumes, first, I just want to explain that China concentrates Close to 80% of our sales in 2024, in line with the global demand. The Chinese market experienced strong growth in 2024 more than 35% compared to the previous year, gaining share against U. S. And Europe who have been growing lower than our expectations. [indiscernible] We are not building inventories in China. There is actual demand there. And we are working with reasonable inventories. As a matter of fact, anyway, we have warehouses over there We are well prepared to supply the Chinese market.

We have a large commercial office in Shanghai And as you well know, we are also refining carbonate and hydroxide at our plant in the Shein and third parties.

I don't know if this is answering your question.

No, I need more I'm not talking about shoestalk, palletin. I'm talking more about Chinese trying to buy as much volume maybe as they can. I'm just trying to try to understand why you're seeing a 58 kiloton in 4Q, which is normally not what we're seeing. And we have heard as well from other in the industry that customer wants volume as soon as possible. So I was just curious to hear if you have an idea or a theory, but maybe what's going on there? We do not see any price speculation, Corinne, and let's say extraordinary building of inventories in the supply chain. Just the reasonable inventories that you need to sustain this demand growth.

Okay. Second question would be on Africa and also Australia. I think we saw some press release last night about you got the latest the last regulation approval for the project in Africa. Can you just try to tell us what could be a potential mine plan or like what's the plan for that asset in Africa? And then if you can give a very quick update on the Montaland in Australia as well? Yes. The project in Africa, which actually it's in Namibia, it's part of our early exploration investment portfolio. So what we have and the value we add is we have an extremely knowledgeable team of geologists and exploration team in And we leverage on that expertise, and we have built a very interesting portfolio of, as I mentioned, early exploration investments. We have 20 different rigs in Australia as well as we now have these new projects in Namibia and we expect to soon have one in Sweden as well subject to conditions present. But these are very early stage exploration projects. We invest in them as portfolio. We advance in exploration. We advance in the ones that actually overcome certain barriers and certain key internal parameters.

And it's still too early to say what is going to be the mining plan on those projects. This is probably three years of exploration projects. In some of them, two years in others. That's how we continue building their portfolio. To your second question regarding Montblanc, well, Montholland had a very good 2024 run During the year, we continued ramping up their production of the concentrator. Between the first quarter of the year and the last quarter of the year. We actually have unitary production costs. And we ended up in the last quarter almost in 80% capacity production. So it was a very good year for Montoholand concentrator. And on the refinery side, we ended up the year above 95% construction above 50% of commissioning, which actually today, currently, commissioning stands at two thirds of the refinery in Quinana.

So we're pretty happy Things continue on schedule and we expect first product for mid this year.

All right. Thank you.

Thank you. Our next question comes from Andres Casano Mallor with Berenberg. You may proceed.

Hello, you for the detail on CapEx. I have a follow-up on the 2024 expenditure of $1,600,000,000 Can you break that for me? I would like to know what is M and A, what was organic and what was maintenance?

Hi, Andres. Approximately $350,000,000 were related to the acquisition of Azure that was announced at the beginning of last year. And the rest was mainly associated with the expansion and more coal in Australia.

Thank you. Can you give some indication about the volume distribution expected for 2025, at least in the first and second quarters versus the second half?

What is the profile of the sales that you expect even through the year or accelerated towards the second higher in the warm summers right now.

Andres, I assume you're asking about the lithium volumes. Yes. Hello. Andres. First of all, regarding Q1 twenty twenty five, We are estimating that our sales volume could reach at least 50,000 ton LCE which is 15% higher Then Q1 twenty twenty four, And to this, you also have to add some sales of lithium from Australia. And we expect that over the coming quarters, let's say Q2 to Q4 of twenty twenty five, those volumes will be increasing reaching the highest number in Q4, but this is our expectation today.

That is great. Thank you very much.

Thank you. Our next question comes from Droraj Dominguez with Laurentian Viole. You may proceed.

Hello, good evening. Thanks for the presentation. I have two questions. And the first one we saw some articles regarding potential impacts on the construction of the Chimazua Yire transmission line.

You comment on any potential impacts on either production or projects or If any, And my second question is regarding iodine costs. Iodine cash costs.

Apparently, we saw some increases in the fourth quarter Any events that could explain this increase and what should be a five?

Thank you.

Hello, you're right. Paolo Timiras speaking.

Okay. Going to the first question.

First of all, to say that because of the Calitrol nature you know that we have a lot of mining properties. So it's normal for us that sometimes you have together mining projects with electrical projects or other things.

So for us, it's normal. So regarding to the specific project, we are reviewing how could potentially affect our mining properties We are under analysis and then we will decide how to proceed. That's the third thing. Regarding to the second question, iron cost Yes. I mean, if you see the average cost of the second semester of last year compared to the first semester, it's true that the cost is higher, especially in Q4 of last year.

However, it's important to say that this cost is not representative at all At all, of our current cost. There are some effect because of onetime expenditures that was allocated in Q4 because of specific projects that we are doing actually to improve our recoveries increase production and different things, but it's not representative. However, having said that, it's important to say that we should expect for this year similar cost to the average cost of the second semester. So that means that the cost is been increased a little bit because we are at maximum production. Today, we are driven to put all the product that we can put on the market because of the market reality. So the marginal cost, it's been higher than before.

Okay, perfect. Thank you.

Thank you. I would now like to turn the call back over to Isabelle Bendek for any closing remarks.

Thank you all for joining and have a nice day.

Thank you. May now disconnect. [indiscernible]