Lithium Americas (Argentina) Q1 2024 Earnings Call Transcript

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May 14, 2024

There are 9 speakers on the call.

Operator

Thank you for standing by. My name is Kathleen, and I will be your conference operator today. At this time, I would like to welcome everyone to the First Quarter 2024 Earnings Conference Call. All lines have been placed on mute to prevent any background noise. After the speakers' remarks, there will be a question and answer session.

Operator

Thank you. I would now like to turn the call over to Kelly O'Brien, Vice President of Investor Relations and ESG. Please go ahead.

Speaker 1

Thank you, Kathleen. I want to welcome everyone to our earnings conference call this morning. Joining me on the call today to discuss the Q1 results is Sam Pigott, President and CEO of Lithium Argentina Alex Shoga, Vice President and CFO, will also be joining during the Q and A session. Our earnings are released after the market closed yesterday, and you'll find the press release, the MD and A and the financial statements posted on our website. I remind you that some of the statements made during this call, including any production guidelines, expected company performance, Gumseng's strategic investment in Pastos Grandes, the timing of our projects and market conditions may be considered forward looking statements.

Speaker 1

Please note the cautionary language about forward looking statements in our MD and A and news release that was filed last night. I will now turn the call over to Sam.

Speaker 2

Thank you, Kelly, and a warm welcome to everyone joining us today. It's been 6 weeks since our last earnings conference call, and I'm delighted to have this opportunity to provide you all with an update on our progress. As we move forward into 2024, our focus remains steadfast on several key priorities. Firstly, supporting the successful ramp up of Kichari overalls. Secondly, ensuring the company remains sufficiently capitalized through the ramp up and to support our future growth plans.

Speaker 2

And thirdly, advancing the regional development plan for Patos Grandes Basin with Ganfeng. In the Q1 of 2024, the Kichari project achieved a production milestone of 4,500 tonnes of lithium carbonate, a 20% increase compared to the Q4 of 2023. As production increases and different components of the plant have been pushed to higher levels, the operation has encountered increased variability consistent with a ramp up. I'm very proud of our team at site, including some of Ganfeng's most senior and experienced individuals and their ability to address any challenges that arise. I have confidence in their technical expertise, commitment to the project and focus on the goal of successfully completing this ramp up.

Speaker 2

Looking ahead to the remainder of the year, our primary objective is to continue ramping up production consistently and sustainably towards our 2024 production target of 20,000 to 25,000 tons lithium carbonate. As the project reaches near nameplate capacity and begins to see levelized production and sales volumes, we will work with our joint venture partner to enhance disclosure later this year. We expect the increased disclosure to coincide with more normalized operations that are less impacted by short term variability tied to start up and present a clear picture of the project. In line with our commitment to operational efficiency, we've initiated a corporate cost reduction program. It is important to highlight that although cost reduction efforts are being made, we remain committed to the neighboring communities and provinces in which we have development projects and operations.

Speaker 2

The company is working with Ganpeng to pursue additional long term debt options to leverage improved lending conditions in Argentina and support future growth plans. The Pasos Grandes transaction remains on track to be finalized around the end of Q2, providing a further $70,000,000 to support our operations in Argentina. Additionally, the regional development plan for the Pasos Grandes Basin is progressing as planned. There has been a significant amount of work conducted by both Ganpeng and Lithium Argentina. In recent weeks, this information has been compiled and organized to support completing a comprehensive development plan by the end of the year.

Speaker 2

In summary, despite encountering some challenges with typical Fendi ramp up, our efforts are yielding positive results in terms of both volume and quality, and we remain on track to meet our guidance for 2024. We extend our gratitude to our dedicated teams in Argentina and abroad and our joint venture partner Ganfeng for their continued efforts and expertise. Looking ahead, our focus this year will remain on key priorities of ramping up production, maintaining a strong balance sheet and advancing our regional development plan. With that, I'll open it up to questions.

Operator

Thank you. We will now begin the question and answer session. Your first question comes from the line of Ben Isaacson of Scotiabank. Please go ahead.

Speaker 3

Good morning, everyone. This is Apurva on for Ben. Got a couple of questions. My first is that, obviously, Kichari continues to advance through the ramp up and you noted that you're testing higher production levels. Can you just clarify exactly what this means, please?

Speaker 2

Yes. Thanks for the question. So in just under a year since production began, the project we're very happy with how the project is going. It's moving in the right direction in both in terms of increased production volumes and consistency. As part of the ramp up, it's not a straight line.

Speaker 2

So as we test different parts of the plant to higher and higher levels, we will identify issues and address them in order for us to be able to sustainably achieve those higher run rates. And so when we talk about testing capacity, that's exactly what we did, for instance, at the end of March prior to the April shutdown. So we test the higher capacity, we identify issues, we affect and implement solutions, and we continue going on. It's just kind of typical ramp up.

Speaker 3

Understood. Thank you. My second question is kind of alluding to that. As you ramp, can you quantify what production looked like in March April and perhaps what it might look like in May, just to help us understand the shape of growth as you ramp?

Speaker 2

Sure. I'd say we're not going to be providing monthly production figures just because we are in a ramp up and there is variability over month to month. And so we don't want to introduce confusion. I'd say just in terms of cadence of production, obviously, the second half is expected to be higher volumes than the first half. And as we progress towards nameplate capacity and achieve these more normalized production levels, we'll work with our partner, Ganfeng, to kind of enhance disclosure and provide more details.

Speaker 3

Great. Thank you. I'll get back in the queue.

Operator

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

Speaker 2

Good morning, guys. Good morning, Ben.

Speaker 4

Thanks for taking my questions today. I just wanted to understand and maybe this is overly logistical in nature, but just what does planned maintenance look like at Kuchari? I know that you all remarked that you took some downtime in April. Can you elaborate a little bit more on those plant improvements and this is something that we should kind of expect every 6 months or so or how we should think about that as you all kind of ramp towards capacity, especially once you achieve that run rate?

Speaker 2

Sure. So through Q1, volumes continue to ramp up. We started testing the plants at higher and higher throughputs. As part of that, we identified issues that needed to be addressed in order to sustain those higher and higher throughputs. And so, the April shutdown was planned to go in and address particularly around reliability issues.

Speaker 2

And so specifics would be we replaced piping in certain areas where we had identified leaks and cracks. We had identified certain motors where seals needed to be replaced. So, typical stuff and this often arises during ramp ups as you push higher and higher throughput capacity towards nameplate design. So it's downtime to enable us to achieve on a sustainable basis these higher production rates. And so when I mentioned in the previous answer to the question that ramp ups aren't a straight line, There are periods of time where there will be downtime to address issues and they unlock our ability to operate at higher sustaining rates.

Speaker 4

Perfect. Thanks. And then I was just curious for Passos Grande, I know it's a bit early and you guys are going to confirm some of those details around development, but there has been mention of the use of DLE. Can you talk about some of the motivations for that? Is it specific to just the geology around Pastas Grande and Solve La Cunha or is this sort of a commercial endeavor that's looking to build out either an internal technology with Gunfeng or relying on a 3rd party?

Speaker 2

I can say, I mean, GenBank spent a lot of time investigating different process technologies. And I think since their involvement in Kichari, there's been a lot of advancement in DLE, just generally in the industry, but also specific to what Ganfeng has been working on. And so I think when they look at past those grandes, there is a slight slightly lower lithium concentration, which doesn't obviously rule out conventional, but does make it appropriate to investigate new technologies. And Genfeng is a world class company in terms of processing technology and they've made great strides in terms of advancing their proprietary DLE technology.

Speaker 4

Thanks, Sam.

Operator

Your next question comes from the line of Joel Jackson of BMO Capital Markets. Please go ahead.

Speaker 5

Hi, good morning Sam and team. Could you give us an update at Castor El Rose what the inventories were like at the end of the quarter or now of carbonate? And then could you tell me what is the kind of price quality relationship? What kind of price discounts is the product getting versus different grades, please? Thanks.

Speaker 5

Sure. So we

Speaker 2

did have some meaningful inventory build, particularly at the end of Q1. I'm not going to disclose exactly what it is, but it's substantial. And that's just a function of improving our regular shipment plans, and it's all kind of part and parcel with the ramp up. In terms of the second question, so in terms of quality and price are obviously very linked. The pricing we receive starts with a reference price of battery quality products for Carbonite and then makes adjustments for quality and processing costs in order to get it to battery quality.

Speaker 2

And I can say there was a meaningful improvement in quality between Q4 of 2023 and Q1 of 2024. Right now, we are meeting most technical and battery specifications. I'd say the outlier in large part is potassium. So this is the function of getting the KCL trains up and running on a consistent and reliable basis. So as product improves, the price that we receive improves and there's been a dramatic change over the last few months in terms of product quality and the reflected pricing.

Speaker 2

And given this time and this improved pricing will be reflected in Q2.

Speaker 5

Okay. And then, Sam, what are your kind of updated thoughts? I know early in the year, well, there's some trade offs obviously, right, as you now try to trade off utilization, operating rates, sorry, versus quality and whether you can produce battery grade at site, which of course is the preferred outcome. But as you have are you taking down the plan in April to learn more about it? What are your thoughts on what is a more likely path going forward when you're fully ramped, battery grade, not battery grade, something in the middle, different operating rates?

Speaker 5

What is your updated thought for the last few months now?

Speaker 2

I think it's consistent with what it was 6 weeks ago, which is the priority is getting volumes up. This is a plant that operates best as it moves towards nameplate capacity and is operating sustainably and reliably. As volumes increase, what we've noticed is product quality increases. I guess it's not a big surprise that it was designed to produce at a certain rate. And as we move closer and closer to that rate, the product quality is tracking along with it.

Speaker 5

Okay. And just more on the we took some downtime in April to learn more about the plan and to look the piping and look at different things, look at reliability. What was sort of the biggest surprise that maybe you learned and or something that you're going to work on? Or yes, what was sort of the biggest lesson that you're now trying to figure out?

Speaker 2

I mean, I think that the downtime was to address things that were identified weeks ago. So it was planned downtime. The piping is one area. So they went in and they replaced the majority of piping that was giving them some issues. I think aside from that, it's just ensuring that we are able to identify challenges as they arise, implement changes, limit downtime.

Speaker 2

And I think what surprised us was how effective I think our team has been. I mean, ramp ups are going to counter issues. It doesn't matter the project, lithium projects in particular have a spotty track record. But what gives me great confidence is just seeing how the team went in, managed to obviously identify these issues, affect the changes, limit downtime. And now that the plant is back up and running and we're seeing significant improvements in terms of stability.

Speaker 2

So there wasn't anything that surprised us going into inspect. I think most of the issues were well known in advance and it was really just a very focused a focused process in terms of replacing piping, fixing seals on pumps and those types of things.

Operator

Your next question comes from the line of Katy Lechappel from Canaccord Genuity. Please go ahead.

Speaker 6

Hey guys, thanks for taking my question. I do want to focus more again on the ramp up. Sam, as you mentioned, the potassium chloride circuit that's being integrated right now. Is that, I would say, one of the largest components of what's limiting you in terms of volumes getting up? Or where specifically in the plan are you seeing that issue?

Speaker 2

KCL was the focus and it has been the focus. So we went in during April and we stabilized one of the plants. We replaced a lot of the piping that was creating some leakages. So yes, KCL is definitely the focus of GenBank's team. They're largely responsible for overseeing that operations.

Speaker 2

We're very thankful that we have such an experienced team looking at this. So KCL was the last of the subsystems to commission. It's currently in commissioning. We've ran both trains independently and tested them to pretty high throughputs. So it's progressing very well.

Speaker 2

And yes, there'll be more on the 2nd quarter conference call to describe, but KCL is certainly the focus.

Speaker 6

And maybe just a quick follow-up, are the improvements that you're seeing in the product quality for Q1 relative to Q4 direct impact of some improvements in the KCL plant?

Speaker 2

I think they're kind of spread across, but that would be the most meaningful impact, yes.

Speaker 6

Got it. Thanks.

Operator

Your next question comes from the line of Noel Parks of Tuohy Brothers. Please go ahead.

Speaker 7

Hi, good morning. Just had a couple. I wonder if you could just maybe talk about sort of the remaining stages ahead on the road to completing the comprehensive development plan. Just sort of what's still outstanding needs to be done, needs further analysis, etcetera?

Speaker 2

Sure. I mean, we're starting from a position of having a rich database of information both Pazuelos as well as Pazos Grande. So a lot of work has gone into both of those. So we're obviously we're merging and consolidating these resource bases. We're sharing information on hydro geological models.

Speaker 2

We're conducting kind of infrastructure trade off studies. All of that information is readily available. So it's just about compiling it and getting the teams aligned and focused. So there'll be more obviously, there'll be much bigger update towards the end of the year, but that's kind of gives you a flavor of what we're doing.

Speaker 7

Great, thanks. And I was just wondering, as you look at future design phases and implementation phases, I'm just wondering is the experience of Country Roads so far going to be like a pretty meaningful template sort of for standardization of process and equipment for subject subsequent projects? Or you mentioned, for example, ganafeng and it's made improvements in its own technology in recent years. Or is it sort of like essentially a fresh look more starting from scratch than sort of following in what the sort of the model that came together 5, 6, 7, 8 years ago for Montreal or else?

Speaker 2

That's a good question. I think we're very pleased with what we're doing at Cacharri Aloroz at the moment. Obviously, for Pazos Grande and Pizuelos, there are other factors, not necessarily mitigating factors that would prevent us from pursuing a similar design, but things like recharge rate has a direct impact on how much you can pump. There are studies around how much pond capacity you could have and where we'd be on the salar, whether it needs to be on the berm and associated additional CapEx with that. So all of those things are kind of being factored into the trade off studies around technology and some of the infrastructure.

Speaker 2

So we're certainly using it as one of the potential development scenarios, but for the reasons I described in the variability of the different, salars, also the grade, the recharge rate, the the plant capacity on Solar, those things are all being taken into account in these trade off studies that will obviously guide the regional development plan.

Speaker 7

Great. Thanks a lot.

Operator

Your next question comes from the line of Mac Whale of Cormark Securities. Please go ahead.

Speaker 8

Hi, good morning. Sam, you noted that as you ramp the volumes, the quality is improving. When it comes to the major operating cost items such as say reagent use intensity like per ton output. Is that also improving as you ramp?

Speaker 2

Yes. I mean, it's yes, as we ramp and get to more normalized, more sustainable higher levels, it allows us to kind of focus in on things like specific consumption. And so, like everything during a ramp, it's testing out and optimizing. And so there certainly will be opportunities to hone in on those things, like soda ash specific consumption, lime specific consumption. These are material cost drivers.

Speaker 2

I'd say costs so far during the ramp are tracking to our plan. Once we get into higher sustained levels, we'll really be able to kind of narrow down our focus on to those specific kind of specific consumption target rates.

Speaker 8

Okay. Okay. So, we talked in the past, there's really 2 elements of bringing costs down. There's one just pure volumes going to cover your overheads better, But these specific usage items as well are almost, I wouldn't call it secondary, but the first thing is get your volumes up. That does a huge amount of work in getting to your feasibility costs.

Speaker 8

But then the second level is really ratcheting down on the reagent specific use. Is that correct?

Speaker 4

That's correct.

Speaker 8

Okay. Any reason yet to expect any meaningful difference in the levels you're aiming for versus the feasibility?

Speaker 2

I mean, in terms of specific consumption, no.

Speaker 8

Okay.

Speaker 2

But I don't know what the reagent price deck was in the feasibility study. There may be some differences there.

Speaker 8

Sure.

Speaker 2

But in terms of specific consumption, no.

Speaker 8

Okay. And then just follow-up on your inventory buildup question, your answer, was that in terms of finished product buildup or is that units of lithium in your pond inventory?

Speaker 2

No, no, finished product.

Speaker 8

Okay. And how is the pond inventory now when we were there, I guess in April, it sounded like everything was well on track into your 3 year 2025 production. Is that correct?

Speaker 2

Yes. Our pond inventory is very healthy. It's certainly at this time not the bottleneck to achieving your nameplate capacity.

Speaker 8

Okay. And then lastly on the power outages, are those problems behind you essentially now? Like has the weather gotten back to where you sort of expect it to be? And then can you speak to perhaps power conditioning or any changes to the power connection that you're contemplating to eliminate that issue?

Speaker 2

Yes. I mean, it's really a seasonal thing. In February, March and the Puna, we saw like an unusual number of electrical storms. I mean, typical season, you're going to see a lot of it. And that led to power disruptions.

Speaker 2

So we're out of that season now and the mitigation plan that's been developed is being implemented. So, we expect to address these issues.

Operator

That concludes our Q and A session. I will now turn the conference back over to Kelly O'Brien for closing remarks.

Speaker 1

Thank you everyone for joining the call today. I welcome you to reach out to me or anyone on the team between now and the next earnings conference call. Thanks and have a great day.

Operator

Ladies and gentlemen, that concludes this call. Thank you all for joining. You may now disconnect.

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Lithium Americas (Argentina) Q1 2024
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